<PAGE>
As filed with the Securities and Exchange Commission on March 16, 2000
Registration No. 333-93315
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 5
TO
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)
---------------------
Copies to:
<TABLE>
<CAPTION>
<S> <C> <C>
Babak Yaghmaie, Esq. Robert D. Marafioti, Esq. Marc S. Rosenberg, Esq.
John J. Sivolella, 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. [ ]
---------------------
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 MARCH 16, 2000
P R O S P E C T U S [GRAPHIC OMITTED]
3,500,000 Shares
Uproar Inc.
Common Stock
$ per share
---------------------
We are selling 3,500,000 shares of our common stock. The underwriters
named in this prospectus may purchase up to 525,000 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 currently listed with the European Association of
Securities Dealers' Automated Quotation system, or EASDAQ, under the symbol
"UPROrs". On March 10, 2000, the last reported sale price of the common stock on
EASDAQ was [GRAPHIC OMITTED] 42.50, or $41.05, per share. We have applied to
have the common stock offered by this prospectus included for quotation on the
Nasdaq National Market and on EASDAQ under the symbol "UPRO".
---------------------
Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page 9.
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 discount ......................... $ $
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 SoundView
, 2000.
<PAGE>
[A fold-out; the front inside cover shows colored circles of varying sizes; the
uproar.com logo in the largest circle with the following text: "The
entertainment capital of the Web!"; the following language running across the
top of the page: "A World of Games, Game Shows, and Entertainment!"; and the
following language flowing across the bottom of the page: "LET THERE BE FUN!".
The fold-out inside cover contains page shots from the uproar.com Web site
across the page, with the following accompanying text from left to right:
"GAMES"; "PRIZEPOINT INCENTIVE CURRENCY"; "A GLOBAL NETWORK"; "UPROAR STORE";
and "ONLINE GAME SHOWS"; Across the bottom of the page, the following text
appears in block print, below the respective shots: "Whether it's multi-player
games like the well-known, branded Family Feud, Bingo Blitz or Puzzle-A-Go-Go,
or single-player crossword puzzles and arcade games, Uproar's entertainment
engages users."; "PrizePoints are an incentive currency used to enter drawings,
win prizes and cash"; "Play in 14 languages. More than 36,000 affiliate Web
sites."; and "Play, win or . . . Buy at the Uproar Store. Differentiated
products that complement our entertainment content and appeal to our
audience."; Within colored circles of varying sizes on the fold-out are the
following logos: "Uproar.com"; "BINGO Blitz"; "mental state"; "GAMESCENE";
"PICTURE THIS"; "amused.com"; "PRIZEPOINT ENTERTAINMENT"; "PUZZLE-A-GO-GO";
"100%"; and "TRIVIA free for all"; The following text runs across the top of
the page: "Games and Game Shows at Uproar.com Provide a Daily Dose of Fun!"; On
the right side of the page, a large and a small screen shot of "Family Feud"
and one of "Sports Trivia Blitz."]
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary ................................................................... 5
Risk Factors ......................................................................... 9
Forward-Looking Statements; Market Data .............................................. 21
Price Range of Common Stock .......................................................... 22
Use of Proceeds ...................................................................... 23
Dividend Policy ...................................................................... 23
Capitalization ....................................................................... 24
Dilution ............................................................................. 25
Selected Consolidated Financial Data ................................................. 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................................... 27
Business ............................................................................. 34
Management ........................................................................... 49
Related Party Transactions ........................................................... 56
Principal Stockholders ............................................................... 58
Description of Capital Stock ......................................................... 60
Shares Eligible for Future Sale ...................................................... 64
United States Tax Consequences to Non-United States Holders .......................... 66
Underwriting ......................................................................... 69
Legal Matters ........................................................................ 71
Experts .............................................................................. 71
Change In Independent Accountants .................................................... 71
Where You Can Find Additional Information ............................................ 71
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.
-------------------------
3
<PAGE>
(This page intentionally left blank)
4
<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 5.2 million in December 1999. Our unique user audience
has similarly grown from 1.2 million in October 1998 to 3.6 million in December
1999. Moreover, Media Metrix, a leading Internet audience measurement service,
estimates that the number of unique pages viewed on our consolidated network of
Web sites grew from 43.6 million in December 1998 to 106.1 million in December
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, in December 1999, our users in the United States
spent an average of 17.1 minutes per usage day on our sites and we were the
fifth stickiest consolidated network of Web sites on the Internet, as defined by
average minutes spent per usage day. In addition, according to Media Metrix, we
were among the top five stickiest consolidated networks of Web sites 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 256 as of
December 31, 1999. Similarly, the number of advertising impressions served over
our Web sites increased from 70.7 million in December 1998 to 327 million in
December 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.
5
<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.
Recent Developments
On February 2, 2000, we sold 1,265,372 shares of our common stock to a
strategic investor, Trans Cosmos USA, Inc., for approximately $25.0 million. We
intend to establish a joint venture with Trans Cosmos USA to produce a local
language version of our flagship entertainment site, uproar.com, in Japan.
Trans Cosmos USA is a subsidiary of Trans Cosmos, Inc., which is headquartered
in Tokyo, Japan.
-------------
As used in this prospectus, UPROAR and the UPROAR logo are service marks.
The registration of the Uproar service mark 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.
6
<PAGE>
The Offering
Common stock offered..... 3,500,000 shares
Common stock outstanding
after this offering..... 28,737,320 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"
Current EASDAQ Symbol.... "UPROrs"
We have applied to list the shares of common stock offered by this
prospectus with the European Association of Securities Dealers' Automated
Quotation System, or EASDAQ, under the symbol "UPRO". The shares of our common
stock that are already listed on EASDAQ will trade under the symbol "UPROrs",
the "rs" indicating that these shares are restricted securities in the United
States.
This information is based on our shares of common stock outstanding as of
December 31, 1999 and gives effect to 1,265,372 additional shares of common
stock issued to a strategic investor at approximately $19.76 per share on
February 2, 2000. This information:
o excludes 5,904,408 shares subject to options outstanding as of December
31, 1999 with a weighted average exercise price of $8.52; and
o assumes no exercise of the underwriters' over-allotment option.
-------------
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, and redomesticated into Delaware on January 26, 2000. 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.
-------------
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.
7
<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. The pro forma data give effect to the
sale of 1,265,372 shares of common stock at approximately $19.76 per share on
February 2, 2000 and the application of the net proceeds from that sale.
<TABLE>
<CAPTION>
Period ended
December 31,
1995
--------------
<S> <C>
Statement of Operations Data:
Revenues ................................... $ 43,365
Cost of revenues ........................... --
----------
Gross profit ............................... 43,365
Operating expenses:
Sales and marketing ....................... --
Product and technology development ........ 33,190
General and administrative ................ 70,182
Amortization of intangible assets ......... --
----------
Loss from operations ....................... (60,007)
Foreign exchange gain (loss) ............... (2,233)
Other income (expense), net ................ 4,326
Provision for income taxes ................. --
----------
Net loss ................................... $ (57,914)
==========
Basic and diluted net loss per share ....... $ (0.05)
==========
Weighted average number of common
shares outstanding ........................ 1,138,356
==========
Pro forma basic and diluted net loss per
share ..................................... $ (.02)
Pro forma weighted average number of
shares outstanding ........................ 2,403,728
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1996 1997 1998 1999
--------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ................................... $ 59,698 $ 348,709 $ 1,632,969 $ 10,391,527
Cost of revenues ........................... (40,781) (216,586) (760,376) (2,533,294)
----------- ------------- ------------- -------------
Gross profit ............................... 18,917 132,123 872,593 7,858,233
Operating expenses:
Sales and marketing ....................... 166,806 1,087,058 3,770,866 28,065,956
Product and technology development ........ 389,346 772,744 849,486 3,701,393
General and administrative ................ 187,362 2,092,394 2,327,720 8,919,011
Amortization of intangible assets ......... -- -- 9,303 6,086,198
----------- ------------- ------------- -------------
Loss from operations ....................... (724,597) (3,820,073) (6,084,782) (38,914,325)
Foreign exchange gain (loss) ............... 49,946 (85,439) 57,401 (119,996)
Other income (expense), net ................ (27,829) 82,349 205,751 337,680
Provision for income taxes ................. (4,909) (5,582) (9,020) (28,000)
----------- ------------- ------------- -------------
Net loss ................................... $ (707,389) $ (3,828,745) $ (5,830,650) $ (38,724,641)
=========== ============= ============= =============
Basic and diluted net loss per share ....... $ (0.17) $ (0.42) $ (0.40) $ (1.77)
=========== ============= ============= =============
Weighted average number of common
shares outstanding ........................ 4,258,084 9,034,928 14,697,112 21,909,456
=========== ============= ============= =============
Pro forma basic and diluted net loss per
share ..................................... $ (0.13) $ (0.37) $ (0.37) $ (1.67)
Pro forma weighted average number of
shares outstanding ........................ 5,523,456 10,300,300 15,962,484 23,174,828
</TABLE>
The following table is a summary of our balance sheet at December 31,
1999. The pro forma data give effect to the sale of 1,265,372 shares of common
stock at approximately $19.76 per share on February 2, 2000 and the application
of the net proceeds from that sale. The pro forma as adjusted data reflect the
sale of 3,500,000 shares of common stock offered hereby at an assumed initial
public offering price in the United States of $41.05 per share after deducting
the estimated underwriting discount and estimated offering expenses payable by
us.
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------- ----------- ------------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ................................ $15,136 $40,131 $172,967
Working capital .......................................... 18,555 43,550 176,386
Total assets ............................................. 42,816 67,811 200,647
Total indebtedness, including current maturities ......... 154 154 154
Total stockholders' equity ............................... 37,204 62,199 195,035
</TABLE>
8
<PAGE>
RISK FACTORS
You should consider carefully the risks described below before making an
investment decision.
Financial Risks
We have a history of losses since our inception, we expect future losses and
may not be profitable in the future.
Since our inception in February 1995, we have not been profitable. 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, to promote awareness of our Web
sites and to develop our business generally. At December 31, 1999, our
accumulated deficit was approximately $49.1 million. Even if we do achieve
profitability, we may not sustain profitability on a quarterly or annual basis
in the future.
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 these investments, 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. Moreover, the rate at which we
incur these losses may increase from current levels.
Because we have only recently introduced many of our products and services, you
have limited information upon which you can evaluate our business.
Uproar was founded in February 1995 and we launched our flagship
entertainment site, uproar.com, in September 1997. We launched the other sites
that comprise our network throughout 1998 and 1999. Accordingly, you can only
evaluate our business based on our limited operating history. Our operating
results for any particular quarter may not be indicative of future operating
results. You should not rely on quarter-to-quarter comparisons of our results
of operations as an indication of our future performance. As a young company in
the new and rapidly evolving online entertainment market, we face risks and
uncertainties relating to our ability to successfully implement our business
plan. These risks include our ability to:
o expand our content and services;
o attract a larger audience to our Web sites;
o maintain our current, and develop new, strategic relationships; and
o continue to develop and upgrade our technology.
If we are unsuccessful in addressing these risks and uncertainties, we
will not be able to successfully implement our business plan and our stock
price will decline.
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. 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;
o our ability to attract and retain advertisers;
9
<PAGE>
o the expiration or termination of our strategic relationships, including
our relationships with Pearson Television and Cable & Wireless;
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 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 changes in our advertising rates or advertising rates in general, both on
and off the Internet; and
o changes in general economic and market conditions, including seasonal
trends, that have an impact on the demand for Internet advertising.
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.
If we do not continue to develop and enhance our brand, we will not be able to
maintain or increase our customer base or our revenues.
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 use a combination of television,
print and Web-based advertising to promote our brand. If we fail to advertise
and market our brand effectively, we will lose users and our revenues will
decline.
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 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, we
will lose users and our revenues will decline.
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 year ended December 31, 1999, we derived approximately
$1,418,000, or 14% of our revenues, from these arrangements. In the year ended
December 31, 1998, we derived approximately $365,000, or 22%, 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 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
financial results may suffer.
10
<PAGE>
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. The
models we adopt may prove to not be the most profitable. Currently, advertising
based on impressions, or the number of times an advertisement is displayed on
our Web sites, 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 subsequent
periods.
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. If we are
unable to adapt to new forms of Internet advertising or we do not adopt the
most profitable form, our advertising revenues could be adversely affected.
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.
Presently, no measurement standards have been widely accepted to measure the
effectiveness of Internet-based advertising. 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 significant 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 our
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, the demand for advertising on our Web sites may
decrease and our revenues may decline.
We must increase our advertising sales department to support our growth.
We need to increase substantially our advertising sales department in the
near future to support our planned growth. On December 31, 1999, our
advertising sales department had 23 members. In October 1999, we hired an
executive vice president to manage our enhanced sales and marketing efforts and
it can take a relatively long time for a sales and marketing manager to begin
to achieve desired results. Our ability to increase our sales department and
improve its results involves a number of risks and uncertainties, including:
o strong competition in hiring and retaining advertising sales personnel;
o our ability to efficiently integrate, train and motivate additional
advertising sales and support personnel;
o our ability to manage an advertising sales organization with offices
throughout the United States and in Europe; and
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o the length of time it takes new advertising sales personnel to become
productive.
If we do not successfully increase our advertising sales department, our
ability to support our planned growth could be impeded.
We face risks associated with international operations.
We currently operate in the United States, Hungary, Germany and the United
Kingdom. We intend to establish a joint venture to expand into Japan, and plan
to continue to expand into additional international markets. We anticipate
spending significant financial and managerial resources to support these
expansions.
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 differing technology standards that would affect the quality of the
presentation of our games to our users;
o potentially adverse tax consequences;
o wage and price controls;
o political instability and social unrest;
o uncertain demand for electronic commerce;
o uncertain protection of our 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 ability to conduct our business internationally.
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 effectively. In addition, any
currency exchange losses that we suffer 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 we may not be able to successfully compete or effectively manage the
growth of our electronic commerce business.
We have limited experience in providing electronic commerce services to
our users. We only recently introduced our online store, shopping.uproar.com,
and hired our electronic commerce manager. Some of our competitors may already
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 that those electronic commerce market participants would provide to us
in the future.
We carry inventory on the majority of products that we sell 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
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more of the products falls short of our expectations, excess inventory and
outdated merchandise could accumulate, potentially resulting in reduced
merchandise capacity and inventory write-downs due to damage, theft, reduced
selling prices and obsolescense. As a consequence, we may be required to take
inventory markdowns, which could reduce our gross margins.
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 advertising customers.
In the year ended December 31, 1999, MyPoints accounted for 14.2% of our
revenues. No other customer accounted for more than 10.0% of our revenues. Our
top five customers, in the aggregate, accounted for approximately 40.0% 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, we
may not generate sufficient revenues to offset this loss of revenues and our
net income will decrease.
Our relationship with Pearson Television may not be successful.
In January 1999, we entered into an agreement with Pearson Television
under 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 2001
unless Pearson elects to extend them. In addition, Pearson may terminate this
agreement if Mr. Simon, our Chief Financial Officer, ceases to be employed by
us in a senior management capacity. If Pearson terminates or does not renew the
agreement, it 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 significant investment of resources and our management's time we made in
developing these Internet games.
As part of our agreement with Pearson, we have guaranteed minimum royalty
payments of $200,000 per broadcast year, for two broadcast years, to Pearson
pertaining to these Internet games. In the event that one or more of these
games is not financially successful for us, we are still obligated to make
minimum royalty payments to Pearson.
Risks of Our Business Model
Competition in the online entertainment industry is intense and a failure to
adequately respond to competitive pressure could result in lower revenues.
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.
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Increased competition could result in:
o price reductions and lower profit margins;
o lower advertising rates;
o loss of visitors or visitors spending less time on our sites;
o reduced page views or advertising impressions; and
o loss of market share.
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:
o undertake more extensive marketing campaigns for their brands and
services;
o adopt more aggressive advertising pricing policies;
o use superior technology platforms to deliver their products and services;
and
o 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 financial results will suffer and our stock price will decline.
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.
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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.
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 growth will slow or stop and our business and financial
results will 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. 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
expect that revenues from Internet advertising will make up a significant
amount of our revenues for the foreseeable future. If the Internet advertising
market develops more slowly than we expect, or if we are unsuccessful in
increasing our advertising revenues, our revenues will not grow as we expect
and our business will suffer.
If we are not able to adapt as Internet technologies and customer demands
continue to evolve, we may become less competitive and our business will
suffer.
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. If we cannot hire the necessary personnel or adapt to these
changes in a timely manner or at all, we will not be able to meet our users'
demands for increasingly sophisticated entertainment and we will become less
competitive. As a result, our revenues would decline and our business will
suffer.
Changes in government regulation could adversely affect our business.
Changes in the legal and regulatory environment that pertains to the
Internet could result in a decrease in our revenues and an increase in our
costs. 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 pricing controls;
o characteristics and quality of products and services;
o consumer protection;
o cross-border commerce;
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o libel and defamation; and
o copyright, trademark and patent infringement.
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 that are subject to
differing interpretations and legislative and regulatory changes that could
adversely affect our ability to grow our business.
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 components of our products
that could result in additional development costs and the possible loss of
revenue.
User concerns and government regulations regarding privacy may result in a
reduction in our user traffic.
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.
If Congress adopts legislation that bans online offshore casino gambling, we
will lose revenues derived from some of our advertisers and, if we do not take
appropriate measures to comply with the law, may be subject to legal penalties.
In the year ended December 31, 1999, approximately 14.5% of our revenue
was from advertising that promoted offshore casino sites. The Congress of the
United States is 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 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 those sites by United States residents.
Accordingly, it is possible that we could be liable for criminal or civil
penalties if we did 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
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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. We expect that the number of our employees, including
management-level employees, will continue to increase for the foreseeable
future. Also, 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 anticipate expanding our team of financial
management personnel and are currently attempting to recruit a Chief Financial
Officer. We must also maintain close coordination among our technical,
accounting, finance, marketing, sales and editorial organizations. If we do not
effectively manage this growth, we will not be successful in executing our
business plan.
The loss of our key personnel would impede our future success, and we may have
difficulty attracting and retaining highly-skilled employees.
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. 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 employment agreements that we
have with our key management personnel provide for at-will employment and any
of our management personnel can terminate their employment with us at any time.
The loss of the services of these individuals or other key employees, and the
failure to attract and retain other highly qualified employees, would have a
material adverse effect on our ability to continue to develop and effectively
manage our business. We do not maintain key person life insurance policies on
any of our key management personnel.
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 largely designed and
maintained by us at significant expense. We may not be able to successfully
design and maintain our systems in the future. We also license communications
infrastructure software that we utilize in Uproar 2000 from Tibco Software,
Inc. The license agreement with Tibco does not contain a defined termination
date. If the Tibco license is terminated, we would likely suffer a disruption
in our business and a replacement system could be difficult to identify and
obtain. 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.
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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 ability to deliver high-quality content to, and produce
fast response times for, our users.
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. Any future interruptions would be
beyond our control to prevent and 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 license agreements with our employees,
customers, partners and others to protect 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. 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. Disputes concerning the ownership of rights to use intellectual
property could be costly and time consuming to litigate, may distract
management from other tasks of operating our business, and may result in our
loss of significant rights and the loss of our ability to effectively operate
our business.
Any joint ventures, acquisitions and alliances we make could be disruptive to
our business and be dilutive to our investors.
As part of our business strategy, we pursue alliances or joint ventures
with, and may attempt to acquire, complementary businesses, technologies,
services or products, some of which may be significant. We recently agreed to
establish a joint venture to produce a local language version of our flagship
entertainment site, uproar.com, in Japan. These relationships may require
significant management attention and, in some cases, additional working
capital. If we form a joint venture with or acquire a company, we could have
difficulty in assimilating its operations and assimilating and retaining its
key personnel. These difficulties could disrupt our business and disrupt our
management and employees.
It may also be necessary for us to raise additional funds to finance
future transactions. 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.
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:
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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 stock price has experienced, and is likely to continue to experience,
extreme price and volume fluctuations.
Following this offering, the price at which our common stock will trade is
likely to be highly volatile. 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. We cannot predict the extent to which investor interest will lead to
the development of an active trading market in the United States or how liquid
that market might become. As a result, investors in our common stock may
experience a significant decrease in the value of their common stock regardless
of our operating performance or prospects.
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
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.
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 as well as over the timing of our expenditures. You
may disagree with the way our management decides to spend these proceeds. 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
decline.
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You will suffer immediate and substantial dilution.
The initial public offering price per share in the United States will
significantly exceed our pro forma net tangible book value per share as of
December 31, 1999 of $2.04. 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.
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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, 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 these 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,
or ATS, and from January 1, 1999 until November 30, 1999, the date on which we
withdrew from the trading facility for the GICs provided by the Vienna Stock
Exchange, 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. All prices have been adjusted to reflect a 2-for-1 split of our common
stock effected February 18, 2000. 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 21.50 $ 1.72 12.5
1998
First Quarter ATS 19.75 $ 1.54 12.8
Second Quarter 27.50 2.22 12.4
Third Quarter 35.75 2.86 12.5
Fourth Quarter 110.00 9.32 11.8
1999
First Quarter [GRAPHIC OMITTED] 12.94 $ 14.60 0.886
Second Quarter 15.50 16.51 0.939
Third Quarter 13.30 13.57 0.980
Fourth Quarter (until November 30) 16.50 16.63 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 18.75 $ 1.52 12.3
1998
First Quarter ATS 19.23 $ 1.50 12.8
Second Quarter 21.75 1.67 13.0
Third Quarter 26.25 2.05 12.8
Fourth Quarter 32.13 2.80 11.5
1999
First Quarter [GRAPHIC OMITTED] 8.70 $ 10.05 0.866
Second Quarter 13.00 13.58 0.957
Third Quarter 8.60 9.10 0.945
Fourth Quarter (until November 30) 10.00 10.71 0.934
</TABLE>
Our common stock was listed 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. All prices have been adjusted to reflect a 2-for-1 split
of our common stock effected February 18, 2000. 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 March 10, 2000, the
last reported price of our common stock on EASDAQ was [GRAPHIC OMITTED] 42.50,
or $41.05. The noon buying rate for March 10, 2000 was [GRAPHIC OMITTED] 1.035
per United States $1.00.
<PAGE>
<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
[GRAPHIC OMITTED]
Third Quarter (from July 8) 13.60 $ 13.88 0.980 9.25 $ 9.63 0.961
Fourth Quarter 25.78 25.99 0.992 10.00 10.71 0.934
2000
First Quarter (until March 10) 50.50 48.51 1.041 19.90 19.38 1.027
</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.
22
<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of the common shares
offered by us are estimated to be
$132.8 million, assuming an initial public offering price in the United States
of $41.05 per share, the last reported sale price of our common stock on EASDAQ
on March 10, 2000, 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 $153.0 million.
We intend to use the proceeds of this offering in the following ways:
o approximately $70.4 million to fund our marketing activities;
o approximately $12.0 million to expand our advertising sales force;
o approximately $15.9 million to enhance our products and services;
o approximately $14.6 million to expand our business internationally;
o approximately $10.6 million to enter into distribution and affiliate
arrangements with other Web sites; and
o approximately $9.3 million 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.
Actual expenditures may vary substantially from these estimates. The
amounts and timing of our actual expenditures will depend on numerous factors,
including the status of our product development efforts, marketing and sales
activities and the growth of our distribution and affiliate arrangements. We
may find it necessary to use portions of the proceeds for other purposes.
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.
23
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
o on an actual basis;
o on a pro forma basis after giving effect to the sale of 1,265,372
additional shares of our common stock at $19.76 per share on February 2,
2000 and the application of the net proceeds of that sale; and
o on a pro forma as adjusted basis to reflect our sale of 3,500,000 shares
of common stock at an assumed initial public price in the United States
of $41.05 per share, after deducting underwriting discounts and the
estimated offering expenses payable by us, and the application of the net
proceeds of that sale.
You should read this information together with our consolidated financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ----------- ------------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents ....................... $ 15,136 $ 40,131 $ 172,967
========= ========= =========
Capital lease obligations ....................... $ 154 $ 154 $ 154
Stockholders' equity:
Shares of preferred stock, $.01 par value;
48,000,000 shares authorized, none issued and
outstanding, actual and as adjusted .......... -- -- --
Shares of common stock, $.05 par value;
112,000,000 shares authorized; 23,971,948
shares issued and outstanding (actual);
25,237,320 shares issued and outstanding (pro
forma); 28,737,320 shares issued and outstand-
ing (pro forma as adjusted) .................. 1,199 1,262 1,437
Additional paid-in capital .................... 85,193 110,125 242,786
Accumulated other comprehensive loss .......... (38) (38) (38)
Accumulated deficit ........................... (49,150) (49,150) (49,150)
--------- --------- ---------
Total stockholders' equity .................... 37,204 62,199 195,035
--------- --------- ---------
Total capitalization .......................... $ 37,358 $ 62,353 $ 195,189
========= ========= =========
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999. It does
not include:
o 5,904,408 shares subject to options outstanding as of December 31, 1999
at a weighted average exercise price of $8.52 per share; and
o 525,000 shares subject to the underwriters' over-allotment option.
24
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $51.5
million, or $2.04 per share of our common stock. Pro forma net tangible book
value per share is determined by dividing the amount of our total tangible
assets less total liabilities by the pro forma number of shares of common stock
outstanding at that date assuming the sale of 1,265,372 additional shares of
our common stock at approximately $19.76 per share after deducting related
expenses. Assuming our sale of the 3,500,000 shares offered in this offering at
an assumed initial public offering price in the United States of $41.05 per
share and after deducting underwriting discounts and estimated offering
expenses, and the application of the estimated net proceeds, our pro forma net
tangible book value as of December 31, 1999 would have been $184.4 million, or
$6.42 per share of common stock. This represents an immediate increase in pro
forma net tangible book value of $4.38 per share to existing stockholders and
an immediate dilution of $34.63 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price in the United States per share ....... $ 41.05
Pro Forma net tangible book value per share as of December 31, 1999 ..... $ 2.04
Increase attributable to new investors .................................. 4.38
------
Pro Forma net tangible book value per share after the offering ............. 6.42
--------
Dilution per share to new investors ........................................ $ 34.63
--------
</TABLE>
These tables summarize on a pro forma basis, as of December 31, 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 ......... 25,237,320 87.8% $114,431,638 44.3% $ 4.53
New investors ................. 3,500,000 12.2 143,675,000 55.7 41.05
---------- ----- ------------ ----- ------
Total ...................... 28,737,320 100.0% $258,106,638 100.0% $ 8.98
========== ===== ============ ===== ======
</TABLE>
Total consideration includes non-cash proceeds of $24.7 million.
These tables and calculations do not include:
o the exercise of 5,904,408 stock options outstanding as of December 31,
1999 at a weighted average exercise price of $8.52; and
o 525,000 shares subject to the underwriters' over-allotment option.
25
<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 years ended December 31, 1997 and 1998 and
the consolidated balance sheet data as of December 31, 1998 are derived from
our consolidated financial statements, which have been audited by KPMG Hungaria
Kft., independent accountants, and the selected consolidated statement of
operations for the year ended December 31, 1999 and the consolidated balance
sheet as of December 31, 1999 are derived from our consolidated financial
statements, which have been audited by KPMG LLP, independent accountants, and
are included in this prospectus. The selected consolidated statement of
operations data for the period ended December 31, 1995 and for the year ended
December 31, 1996 and the consolidated balance sheet data as of December 31,
1995, 1996 and 1997 are derived from our consolidated audited financial
statements not included in this prospectus.
<TABLE>
<CAPTION>
Period ended
December 31,
1995
--------------
<S> <C>
Statement of Operations Data:
Revenues ................................ $ 43,365
Cost of revenues ........................ --
----------
Gross profit ............................ 43,365
Operating expenses:
Sales and marketing .................... --
Product and technology development ..... 33,190
General and administrative ............. 70,182
Amortization of intangible assets ...... --
----------
Loss from operations .................... (60,007)
Foreign exchange gain (loss) ............ (2,233)
Other income (expense), net ............. 4,326
Provision for income taxes . ............ --
----------
Net loss ................................ $ (57,914)
==========
Basic and diluted net loss
per share .............................. $ (0.05)
==========
Weighted average number of common
shares outstanding ..................... 1,138,356
==========
Pro forma basic and diluted net loss per
share .................................. $ (.02)
Pro forma weighted average number of
shares outstanding ..................... 2,403,728
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1996 1997 1998 1999
--------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ................................ $ 59,698 $ 348,709 $ 1,632,969 $ 10,391,527
Cost of revenues ........................ (40,781) (216,586) (760,376) (2,533,294)
----------- ------------- ------------- -------------
Gross profit ............................ 18,917 132,123 872,593 7,858,233
Operating expenses:
Sales and marketing .................... 166,806 1,087,058 3,770,866 28,065,956
Product and technology development ..... 389,346 772,744 849,486 3,701,393
General and administrative ............. 187,362 2,092,394 2,327,720 8,919,011
Amortization of intangible assets ...... -- -- 9,303 6,086,198
----------- ------------- ------------- -------------
Loss from operations .................... (724,597) (3,820,073) (6,084,782) (38,914,325)
Foreign exchange gain (loss) ............ 49,946 (85,439) 57,401 (119,996)
Other income (expense), net ............. (27,829) 82,349 205,751 337,680
Provision for income taxes . ............ (4,909) (5,582) (9,020) (28,000)
----------- ------------- ------------- -------------
Net loss ................................ $ (707,389) $ (3,828,745) $ (5,830,650) $ (38,724,641)
=========== ============= ============= =============
Basic and diluted net loss
per share .............................. $ (0.17) $ (0.42) $ (0.40) $ (1.77)
=========== ============= ============= =============
Weighted average number of common
shares outstanding ..................... 4,258,084 9,034,928 14,697,112 21,909,456
=========== ============= ============= =============
Pro forma basic and diluted net loss per
share .................................. $ (0.13) $ (0.37) $ (0.37) $ (1.67)
Pro forma weighted average number of
shares outstanding ..................... 5,523,456 10,300,300 15,962,484 23,174,828
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
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 $15,136
Working capital .......................................... 82 (261) 2,465 6,444 18,555
Total assets ............................................. 122 422 3,071 9,111 42,816
Total indebtedness, including current maturities ......... -- 512 -- 41 154
Total stockholders' equity ............................... 95 (163) 2,782 7,727 37,204
</TABLE>
26
<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. Uproar Inc. was incorporated in Delaware on December 16,
1999. On January 26, 2000, Uproar Ltd. redomesticated from Bermuda to Delaware
and was merged with Uproar Inc. on January 27, 2000.
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 December 31, 1999, we had an accumulated deficit of 49.1
million. These losses have been funded primarily through the issuance of shares
of our equity securities. On July 8, 1999, we raised approximately $30.3
million through the issuance of 2,832,000 shares of our common stock which are
presently listed on EASDAQ. In January 1999, we raised an aggregate of
approximately $9.6 million through two private issuances of 1,043,360 shares of
our common stock. On February 2, 2000, we raised approximately $25.0 million
through the sale of 1,265,372 shares of our common stock to a strategic
investor.
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 strategic partner arrangements under which our strategic partners offer
co-branded versions of our games on their Web sites and display
advertising in connection with the use of the games, in return for which
we receive revenues from the related advertising; and
27
<PAGE>
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.
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;
o our ability to target user audiences for our advertisers; and
o the success of our strategic partnerships.
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 advertising revenues which are priced on a cost per thousand
impression, or CPM, basis as 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 advertising revenues derived on a cost per click, or
CPC, basis 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 and costs associated with
customizing the advertisements received from sponsors are expensed as incurred.
We recognize revenues from our strategic partner arrangements ratably in the
period in which our games are displayed on a third party's Web site. In those
situations where we are responsible for selling the advertising, billing and
collections, we record the advertising revenues, and payments to our strategic
partners are recorded as cost of revenues. We are obligated to pay our
strategic partners their fee regardless of whether we ultimately collect the
advertising revenue. In those situations where our strategic partners are
responsible for selling the advertising, billing and collections, we recognize
revenue only to the extent of our share of net revenues.
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
28
<PAGE>
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. We recognize barter costs when our advertisements are
displayed by the third-party to its users. Barter costs are recorded either as
sales and 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% and 13.6% of revenues for the years
ended December 31, 1998 and 1999, respectively. We anticipate that barter
revenues will account for a decreasing percentage of our revenues in the
future.
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 2,444,320 shares of common stock and the assumption of 124,080 options
exercisable into an additional 124,080 shares of 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 2,000,000 shares of our common stock in exchange
for intangible assets, advertising services to be provided over a thirty-month
period commencing April 1, 1999, and cash of $124,599. We recorded the $16.7
million difference between the value of the shares issued and the fair value of
the advertising services and cash received as an intangible asset on our
balance sheet to be amortized over the 33-month life of the agreement. The $8.0
million advertising contribution was recorded as a pre-paid advertising asset
that is being amortized over the period the ads are being shown, from April
1999 through September 2001.
Under our agreement with Pearson, we have the obligation to pay Pearson a
royalty for the rights and license to use the licensed game show formats, equal
to a percentage of gross advertising and other revenue generated from the use
of the licensed games. Additional royalties are due to Pearson for a percentage
of net revenues generated by the licensed game shows, subject to a mimimum of
$200,000 per broadcast year. The initial payment made in July 1999, which
relates to the broadcast year from September 1999 to September 2000, was
recorded as a prepayment and $50,000 was expensed in cost of revenues in the
fourth quarter of 1999.
The intangible assets recorded as a result of the transaction with Pearson
represent the benefits of the association with Pearson during the length of the
agreement, or thirty-three months, resulting from the use of Pearson's
intellectual property and our association with them. The market value of the
common stock issuable to Pearson was determined based upon the share price
quoted on the Vienna Stock Exchange at the date the agreement was signed. The
intangible assets were valued as the difference between the value of the shares
issued and the fair value of the advertising services received. The fair value
of the advertising services received was based on rate card information
provided by Pearson and our estimate of the value of the advertising and
promotional services. During the year ended December 31, 1999, amortization of
intangible assets totaled $6.1 million and amortization of prepaid advertising
services amounting to $1.3 million 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 400,000 additional shares of our common stock and, if Pearson meets
further targets between September 2000 and August 2001, we will issue an
additional 400,000
29
<PAGE>
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
year ended December 31, 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.
Cable & Wireless Agreement
In December 1999, we entered into an agreement with Cable & Wireless, the
largest cable television franchise owner in the United Kingdom. The agreement
provides for Cable & Wireless to display up to 14 Uproar game shows on an
Interactive service offered via its digital cable television, which Cable &
Wireless launched in October 1999.
We pay Cable & Wireless a fee, for which Cable & Wireless guarantees
placement within the service, which is accounted for in cost of revenues. The
agreement provides that Cable and Wireless is entitled to additional fees equal
to a percentage of net advertising and sponsorship revenue generated through
the sale of advertising associated with our games placed in Cable & Wireless's
digital interactive service. Such amounts are accounted for in cost of
revenues. Sales, marketing and product and technology development costs are
borne by us and recognized in the period incurred. To the extent that this
arrangement generates revenues, our net revenue would increase accordingly. As
of January 31, 2000, we have not recorded any revenue from this agreement.
Telefonica Agreement
In September 1999, we entered into an agreement with Telefonica
Interactiva de Contenidos, a Spanish corporation, to establish and develop our
products and the Uproar media property in the Spanish and Portuguese languages.
Revenues generated in connection with the Telefonica deal consist of fees
for exclusivity of distribution and for development and support obligations we
have assumed. We performed our obligations under the contract for the fourth
quarter of 1999 and, accordingly, recognized $125,000 of revenue in the fourth
quarter of 1999. Telefonica is also required to pay a royalty based on net
advertising and sponsorship revenue it generates through the sale of
advertising on Web sites, including our games, during the term of the
agreement. Advertising revenue will be recognized for this advertising and
sponsorship revenue during the period in which the advertising is delivered. No
such revenue has been recorded through December 31, 1999. Sales and marketing
costs are borne by Telefonica. Product and technology development costs
associated with the agreement are our responsibility and are recorded in the
period the costs are incurred.
Recent Strategic Investor
On February 2, 2000, we completed the sale of 1,265,372 shares of our
common stock to Trans Cosmos USA, Inc. for approximately $25.0 million. We
intend to establish a joint venture with Trans Cosmos to produce a local
language version of our flagship site, uproar.com, in Japan. Under the proposed
terms of the agreement, we would contribute our intellectual property to the
joint venture along with $500,000 in cash, and Trans Cosmos would contribute
$4.5 million in cash. In addition, we would receive an annual license fee from
the joint venture.
Results of Operations
Year Ended December 31, 1999 and 1998
Revenues
Revenues for the year ended December 31, 1999 increased to $10.4 million
from $1.6 million for the year ended December 31, 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;
30
<PAGE>
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 year ended December 31, 1999, we derived revenues of
approximately $1.4 million or 13.6% of revenues, from barter transactions.
During the year ended December 31, 1998, we derived $365,000, or 22.4% of
revenues, from barter transactions.
In the year ended December 31, 1999, only one advertiser, MyPoints, which
accounted for 14.2% of our revenues, accounted for more than 10.0% of our
revenues.
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 royalties relating to our co-branded properties with our strategic
partners; and
o costs of goods sold in our affinity merchandising program.
Cost of revenues relating to our strategic partner arrangements are
recorded as an expense in the period in which the related revenues are
recorded. Minimum distribution payments, where applicable, are recorded ratably
over the period of the relevant agreement.
Cost of revenues for the year ended December 31, 1999 increased to $2.5
million from $760,000 for the year ended December 31, 1998. The increase in
cost of revenues was primarily attributable to $846,000 related to expenses
associated with prizes, $824,000 related to Internet connection costs,
depreciation costs of equipment and software of $600,000 and $250,000 of
royalties. Our gross profit increased to $7.9 million for the year ended
December 31, 1999 from $873,000 for the year ended December 31, 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 year ended December 31, 1999
increased to $28.1 million from $3.8 million for the year ended December 31,
1998. The increases in sales and marketing expenses were primarily attributable
to $23.4 million in advertising, public relations and other promotional
expenditures, and $3.5 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.
31
<PAGE>
Product and Technology Development. Product and technology 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 year ended December 31, 1999
increased to $3.7 million from $850,000 for the year ended December 31, 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.
General and Administrative. General and administrative expenses consist
primarily of:
o salaries and benefits;
o fees for professional services;
o insurance and recruiting fees; and
o costs for general corporate functions, including finance, accounting and
facilities.
General and administration expenses for the year ended December 31, 1999
increased to $8.9 million from $2.3 million for the year ended December 31,
1998. The increase was primarily attributable to $2.1 million in professional
fees, $2.6 million in salaries and benefits associated with hiring of
additional personnel and $812,000 in travel-related costs.
Year Ended December 31, 1998 and 1997
Revenues
Revenues increased to $1.6 million for the year ended December 31, 1998
from $349,000 for the year ended December 31, 1997. The increase in revenues
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. The increase in cost
of revenues was primarily attributable to $243,000 related to Internet
connection costs, and $225,000 associated with prizes and depreciation costs of
equipment and software of $127,000.
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. The increase in sales and marketing expenses were
primarily attributable to $1.6 million in advertising, public relations and
other promotional expenditures, $1.5 million in salaries for sales and
marketing personnel, and $365,000 in barter expenses.
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. The increase in product development expenses was primarily
attributable to increased staffing levels.
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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. The increase in general and administrative
expenses was attributable to $710,000 in salaries and benefits associated with
hiring additional personnel, $560,000 in professional fees and $260,000 for
operating lease rental costs.
Liquidity and Capital Resources
To date, we have primarily financed our operations through the sale of our
equity securities. As of December 31, 1999, we had approximately $15.1 million
in cash and cash equivalents, an increase from $7.0 as of December 31, 1998.
Net cash used in operating activities was $2.7 million, $5.1 million and $29.1
million for the years ended December 31, 1997, 1998 and 1999, respectively. Net
cash used in operating activities resulted primarily from our net operating
losses, offset by:
o depreciation and amortization; and
o increases in accounts payable and accrued expenses.
Net cash used in investing activities was $274,000, $973,000 and $5.5
million for the years ended December 31, 1997, 1998 and 1999, respectively, as
we purchased equipment to enhance and develop our technical infrastructure.
Net cash provided by financing activities was $5.1 million, $10.8 million
and $42.8 million for the years ended December 31, 1997, 1998 and 1999,
respectively. Net cash provided by financing activities consisted primarily of
proceeds from the sale of shares of our common stock. On July 8, 1999, we
raised approximately $30.3 million through the issuance of 2,832,000 shares or
our common stock which are presently listed on EASDAQ. In January 1999, we
raised an aggregate of approximately $9.6 million through two private issuances
of 1,043,360 shares of our common stock. On February 2, 2000, we raised
approximately $25.0 million through the sale of 1,265,372 shares of our common
stock to a strategic investor.
Our principal commitments consist of obligations under capital and
operating leases. In addition, we have committed to invest approximately
$500,000 in cash in our Japanese joint venture with Trans Cosmos. 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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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 to 5.2 million in December 1999. Our unique user audience has similarly
grown to 3.6 million in December 1999. Moreover, Media Metrix, a leading
Internet audience measurement service, estimates that the number of unique
pages viewed on our consolidated network of Web sites grew to 106.1 million in
December 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, we were among the top five
stickiest consolidated networks of Web sites in each month during 1999, as
defined by average minutes spent per usage day.
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 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 256 as of
December 31, 1999. Similarly, the number of advertising impressions served over
our Web sites increased from 70.7 million in December 1998 to 327 million in
December 1999.
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. IDC, a market research firm, estimates that the number
of Internet users worldwide will grow from 159 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, Internet advertising spending worldwide will
increase from $3.3 billion in 1999 to $33.0 billion by 2004.
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
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, spending on the Internet
is expected to increase from $50.4 billion in 1998 to approximately $1.3
trillion 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.
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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. We believe that television game shows consistently are among the
most popular syndicated television programs.
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 costs per thousand impressions, or 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 5.2 million in December 1999. Our unique user audience has
similarly grown to 3.6 million in December 1999. Moreover, Media Metrix
estimates that the number of unique pages viewed on our consolidated network of
Web sites grew from 43.6 million in December 1998 to 106.1 million in December
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 December 1999 our consolidated network of Web
sites was the fifth stickiest on the Internet, as measured by average minutes
spent per usage day. We were among the top five stickiest consolidated network
of Web sites 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
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.
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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 5.2 million people as of
December 31, 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
cost per thousand impressions, or 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 and Internet Movie Database. These parties promote our games
and game shows on their respective Web sites for fees as prescribed in the
agreements. 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 approximately 15,200 members as
of December 31, 1998 to approximately 36,100 members as of December 31, 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.
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
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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 January 2000, we launched 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.
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 costs per thousand impressions, or 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 460 products. We believe our audience will be
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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.
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.
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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.
We issued Pearson 2,000,000 shares in January 1999 in exchange for the
rights to its online games, $8.0 million in advertising services and $124,599
in cash. The value of the shares we issued to Pearson was $24.8 million. We
recorded the $16.7 million difference between the market value of the shares
issued and the fair value of the advertising services and cash received as an
intangible asset on our balance sheet which will be amortized over the 33-month
life of the agreement. As part of our agreement with Pearson, we have
guaranteed minimum royalty payments of $200,000 per broadcast year for two
broadcast years to Pearson. In the event that one or more of these games is not
financially successful for us, we still are obligated to make these minimum
royalty payments to Pearson.
Telefonica Interactiva. In September 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.
To date, revenues generated in connection with the Telefonica deal consist
of fees paid to us by Telefonica for our obligation to work exclusively with
Telefonica in the Spanish- and Portuguese- language markets, and for
Telefonica's right to use our name in connection with the launch of its portal
services. These fees will total $2.9 million over 3 years to be paid quarterly,
including an aggregate of $500,000 in the first year, $800,000 in the second
year and $1,600,000 in the final year. Telefonica is also required to pay a
portion of the net advertising and sponsorship revenue generated by our
products distributed within their service during the term of the agreement.
Advertising revenue will be recognized for Uproar's share of advertising and
sponsorship revenue during the period in which the advertising is delivered.
Cable & Wireless Communications. Pursuant to our agreement with Cable &
Wireless Communications, we developed custom multi-player games for the Cable &
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 & Wireless.
We pay an annual subscription fee to Cable & Wireless for this service. In
addition, we will pay Cable & Wireless a percentage of the net advertising
revenue our products generate on its service.
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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Recent Strategic Investor. In February 2000, we completed the sale of
1,265,372 shares of our common stock to Trans Cosmos USA, Inc. for
approximately $25.0 million. Approximately $63,000 of the net proceeds will be
allocated to common stock and the remainder, or approximately $24,937,000, will
be added to additional paid-in capital. We intend to establish a joint venture
with Trans Cosmos to produce a local language version of our flagship site,
uproar.com, in Japan. Under the proposed terms of the agreement, we would
contribute our intellectual property to the joint venture along with $500,000
in cash, and Trans Cosmos would contribute $4.5 million in cash. In addition,
we would receive an annual license fee from the joint venture.
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 December 1999, Media Metrix reported that over 3.6
million unique users visited our consolidated network of Web sites in that
month. The median age of these visitors was 33, of whom 45.2% were male and
54.8% 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. 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
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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 for an unlimited
duration.
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 December 31, 1999, there were 36 different
single-user and 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 36,100 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.
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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 commonly
found on other online stores. We currently sell approximately 460 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 December 31, 1999, we had a sales organization of 21 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 cost per thousand impressions, or 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.
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Advertisers
We had 256 advertisers and sponsors on our Web sites during the year ended
December 31, 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
These advertisers, in the aggregate, accounted for approximately 40.5% of
total revenues in the year ended December 31, 1999.
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 23-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.
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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. We believe that
our competitive advantage to date has been largely dependent upon:
o the perceived value of our content relative to other available
entertainment alternatives, both online and elsewhere; and
o the fact that we are one of the few online entertainment properties
capable of delivering real time interactivity between a large number of
simultaneous users.
We continue to pursue developing advantages over our competition based on
the quality of our products, the effectiveness of our marketing programs and
the continuous development of the Uproar brand.
Our primary direct competitors for online game shows and similar
entertainment include:
o Gamesville/Lycos;
o Mplayer.com;
o Sony Station;
o Pogo; and
o 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. In
addition, we 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.
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;
o loss of visitors;
o reduced ad impressions; and
o loss of market share.
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, or 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 year ended December 31, 1999, approximately 14.5% 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. If Congress ultimately passes
this legislation in a form that prohibits us from accepting advertising from
gambling sites, we would take all reasonable measures to comply with the
legislation and our advertising revenues would decline.
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 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, or 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, or EU, 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.
We also license communications infrastructure software that we utilize in
Uproar 2000 from Tibco Software, Inc. Tibco granted this license to us without
charge until February 2000, at which time we will begin to pay Tibco a
licensing fee. The license agreement with Tibco does not contain a defined
termination date. If the Tibco license is terminated, we would likely suffer a
disruption in our business, which could materially adversely affect our results
of operations. In addition, a replacement system could be difficult to identify
and obtain.
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 December 31, 1999, we had 157 full-time employees, of whom 23 worked
in sales, 19 in marketing, 82 in production and technology; 9 in merchandising;
and 17 in finance and administration. Of these employees, 107 are primarily
resident in the United States and 50 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
There are no material legal proceedings pending or, to our knowledge,
threatened against us.
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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 ................ 35 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 ........... 36 Director
Esther Dyson .................... 48 Director
James J. Geddes, Jr. ............ 49 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.
James J. Geddes, Jr. joined our board of directors in February 2000 as a
result of our agreement with Trans Cosmos USA, Inc. He has worked for Trans
Cosmos since August 1994 in various capacities. Mr. Geddes is currently Senior
Managing Director of Trans Cosmos and a member of its board. Mr. Geddes earned
a B.S.E.E. from the University of Maryland.
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 seven members, four of whom
are outside directors. The directors are elected by our stockholders at the
annual meeting of our stockholders. Each of our directors holds office until
the next annual meeting of stockholders and until the director's successor is
elected and qualified, or until the director's earlier death, resignation or
removal. We will appoint independent directors to each of our audit and
compensation committees after the completion of this offering in compliance
with the rules promulgated by the Securities and Exchange Commission and The
Nasdaq Stock Market, Inc.
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 December 31, 1999, our directors held options to purchase
96,000 shares for compensation for services.
50
<PAGE>
Under the automatic option grant program of our Stock Incentive Plan, each
individual who first joins the board of directors as a nonemployee member of
the board will also receive an option grant for 30,000 shares of our common
stock at the time of his or her commencement of service on the board. In
addition, as of February 4, 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 5,000 shares of our common stock.
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 1999 for services
rendered in all capacities during 1999.
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> <C>
Kenneth D. Cron(1) ........................ 1998 $ -- $ -- $ -- --
Chairman and Chief Executive Officer 1999 -- -- -- 1,600,000
Christopher R. Hassett(2) ................. 1998 -- -- -- --
President and Chief Operating Officer 1999 162,950 -- -- 686,978
Michael K. Simon(3) ....................... 1998 122,495 -- -- 82,000
Chief Financial Officer 1999 150,000 -- 2,950 100,000
David A. Becker(4) ........................ 1998 108,717 32,800 -- --
1999 150,000 35,820 -- --
</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 Fiscal Year
The following table sets forth grants of stock options for the year ended
December 31, 1999 to our Chief Executive Officer and to each of our most highly
compensated executive officers, whose salary and bonus exceeded $100,000 in
1999. The potential realizable value is calculated based on the term of the
option at its time of grant. It is calculated assuming that the fair market
value of common stock on the date of grant appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price. These numbers are calculated based on the requirements of the Securities
and Exchange Commission and do not reflect our estimate of future stock price
growth. The percentage of total options granted to employees in the last fiscal
year is based on options to purchase an aggregate of 5.3 million shares of
common stock granted under our option plans. We have never granted any stock
appreciation rights.
51
<PAGE>
<TABLE>
<CAPTION>
Percent of
Number of Total Potential Realizable Value
Securities Options Exercise at Assumed Annual Rates
Underlying Granted to Price Per of Stock Price Appreciation
Options Employees Share Expiration for Option Term
Name Granted In 1999 ($) Date 5% 10%
- ---- ------------ ------------ ----------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. Cron ................ 1,600,000 30.0% $ 9.43 9/9/09 $9,483,731 $24,033,636
Christopher R. Hassett ......... 686,978 12.9 9.43 9/9/09 4,071,947 10,319,112
Michael K. Simon ............... 100,000 1.9 9.43 9/9/09 592,733 1,502,102
David A. Becker ................ -- -- -- -- -- --
</TABLE>
Aggregated Option Exercises in the Year Ended December 31, 1999 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, 1999 by our Chief Executive Officer and our most highly
compensated executive officers whose salary and bonus exceeded $100,000 in
1999. 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, 1999 at December 31, 1999
Shares Acquired Value ------------------------------ -----------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------------- ---------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. Cron ................ -- $-- 800,000 800,000 $10,439,106 $10,439,100
Christopher R. Hassett ......... -- -- 343,489 343,489 4,482,743 4,482,148
Michael K. Simon ............... -- -- 109,759 72,241 1,863,392 1,403,135
David A. Becker ................ -- -- 400,000 -- 8,105,553 --
</TABLE>
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 Chairman of the Board and Chief Executive Officer; Mr. Hassett,
our President and Chief Operating Officer; Mr. Simon, our Chief Financial
Officer; Mr. Marafioti, our Executive Vice President and General Counsel; and
Mr. Strief, our Executive Vice President of Marketing and Sales.
We entered into employment agreements with each of Messrs. Cron and
Hassett in September 1999 and with each of Messrs. Marafioti and Strief in
October 1999. Each employment agreement provides for compensation solely in the
form of options to acquire our common stock.
Pursuant to the agreement with Mr. Cron, we have granted him options to
acquire 1,600,000 shares of our common stock, of which options to acquire
800,000 shares have vested and are currently exercisable, and options to
acquire the remaining 800,000 shares will have vested and become exercisable by
September 6, 2001. Pursuant to the agreement with Mr. Hassett, we have granted
him options to acquire 686,978 shares of our common stock, of which options to
acquire 343,489 shares have vested and are currently exercisable, and options
to acquire the remaining 343,489 shares will have vested and become exercisable
by September 6, 2001. In the event of the termination of employment of Mr. Cron
or Mr. Hassett for any reason other than termination by us for cause, or in the
event of a change of control of Uproar, all stock options that have not been
exercised will immediately vest.
Pursuant to the agreement with Mr. Marafioti, we have granted him options
to acquire 500,000 shares of our common stock, of which options to acquire
62,498 shares have vested and are currently exercisable, and options to acquire
the remaining 437,502 shares will have vested and become exercisable by
September 25, 2001. Pursuant to the agreement with Mr. Strief, we have granted
him options to acquire 700,000 shares of our common stock, of which options to
acquire 87,498 shares have vested and are currently exercisable, and options to
acquire the remaining 612,502 shares will have vested and become exercisable by
September 25, 2001. In the event of the termination of employment of Mr.
Marafioti or Mr. Strief by reason of his resignation for good reason or his
termination by us without cause, or in the event of a change of control of
Uproar, all stock options that have not been exercised by them will immediately
vest.
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<PAGE>
Messrs. Cron, Hassett, Marafioti and Strief are also entitled to
participate in all health and other benefit plans provided by us to our
executive employees. The employment of each continues on an at-will basis. The
employment agreement of each of the executives prohibits him from competing
with us for a period of one year from the date of termination if we terminate
his employment for cause or if he resigns without good reason. We have agreed
to indemnify each of the four executives for all liabilities relating to their
status as officers or directors 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 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's employment 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.
As of February 22, 2000, 5,400,000 shares of our common stock were
authorized for issuance under the Stock Incentive Plan. The Stock Incentive
Plan share reserve will be automatically increased on the first trading day of
each calendar year, beginning with the year 2001, 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 calendar year, but no annual increase
will exceed 400,000 shares. In no event may any one participant in the Stock
Incentive Plan receive option grants or direct stock issuances for more than
2,000,000 shares in the aggregate per calendar year.
Outstanding options under the predecessor plan have been 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 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:
o the discretionary option grant program under which employees,
non-employee directors and consultants may be granted options to purchase
shares of Uproar's common stock;
o the stock issuance program under which employees, non-employee directors
and consultants may be issued shares of common stock directly, either for
immediate purchase of such shares or as a bonus tied to the performance
of services; and
o the automatic option grant program under which non-employee directors
will receive periodic option grants.
53
<PAGE>
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 of directors will exercise any
administrative discretion with respect to the automatic option grant program
for the non-employee directors.
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 in a stockholder-approved merger or
asset sale, each outstanding option under the discretionary option grant
program will automatically vest in full, except to the extent the option is
assumed by the acquiring company or replaced with a cash incentive program, and
each unvested share issued under the stock issuance program will automatically
vest in full except to the extent our repurchase rights with respect to the
issued shares are assumed by the acquiring company. The compensation committee
may grant options and issue shares under those programs which will vest:
o in the event of an acquisition even if the options and repurchase rights
are assumed,
o in the event of a change in control effected through a 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 whether following an
acquisition or change in control or in the absence thereof.
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 as a nonemployee director
will receive an option grant for 30,000 shares of our common stock at the time
of his or her commencement of service on the board. Each such option will vest
in a series of 3 annual installments upon the optionee's completion of each
year of service over the 3-year period measured from the grant date. In
addition, as of February 4, 2000, and thereafter at each annual meeting of
stockholders beginning with the 2001 annual meeting, each individual who has
served as a nonemployee director for at least 6 months and is to continue to
serve as such will be granted an option to purchase 5,000 shares of our common
stock. Each such 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. Each option under the automatic option
grant program 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.
54
<PAGE>
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 granted 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, which
will give option holders the right, in the event of a hostile tender offer for
more than 50% of our outstanding voting stock, to surrender their vested
options for a cash distribution from us in an amount equal to the excess of the
tender-offer price of the shares subject to the surrendered options over the
aggregate 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.
55
<PAGE>
RELATED PARTY TRANSACTIONS
Sale of Common Stock
On February 2, 2000, we sold 1,265,372 shares of common stock for
approximately $25.0 million to Trans Cosmos USA, Inc. As a result of this
transaction, Trans Cosmos now owns more than 5% of our stock. In addition, we
agreed to appoint a Trans Cosmos representative, Mr. Geddes, to our board of
directors.
Strategic Relationships and Acquisitions
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 2,000,000 shares to Pearson. We also agreed to
issue to Pearson an additional 400,000 shares between September 1999 and August
2000 and 400,000 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 Pearson agreement, we pay Pearson a 50.0% royalty on all net
revenues we receive that are directly related to our online development and
implementation of the Pearson game shows. These net revenues exclude:
o a royalty of 15.0% of gross revenues, payable annually to Pearson;
o Web site maintenance costs of $120,000 a year;
o prize costs up to the greater of $10,000 per month for each game or 5% of
gross revenues;
o music and talent costs, including copyright, clearance and related
expenses for rights for use in the online game shows;
o direct marketing costs;
o costs of game show question research and development;
o costs of measuring online traffic and usage;
o registration and filing fees related to gaming; and
o sales commissions of 15.0%.
We agreed to pay Pearson a guaranteed minimum amount under the agreement
of $400,000, of which $200,000 was already paid and $200,000 is payable in July
2000.
The Pearson agreement also provides that, if the English language
television versions of Family Feud and/or 100% do not reach 70.0% of United
States households during the September 1999 to September 2000 and September
2000 to September 2001 television seasons, as measured by Nielsen Media
Research, then Pearson will grant us exclusive worldwide Internet rights for
the next television game show that Pearson syndicates in the United States for
either one or two television broadcast years, depending on how many years the
70.0% threshold was not reached. The television show would be added to the list
of shows covered by our agreement. If Pearson had no new syndicated game show,
we would gain worldwide Internet rights to Pearson's game show, Password, and
Password would be added to the list of shows covered by our agreement.
In December 1998, pursuant to the agreement, Pearson purchased $100,000
worth of online promotion from us at a cost per thousand impressions of $20.00;
Pearson purchased an additional $100,000 worth of online promotion from us
during the first quarter of 1999, but at a discounted cost per thousand
impressions of $6.67.
The initial term of the agreement expires on September 30, 2001, after
which Pearson may renew the agreement for an additional three years. In
addition, following the expiration or termination of the initial term,
56
<PAGE>
Pearson has the right to obtain from us an exclusive license for up to 18
months to use the software we develop in connection with the Pearson game shows
for a fee of $300,000 and to have us host Internet versions of the Pearson game
shows for a fee of $180,000 during this period.
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>
Christopher R. Hassett 716,667 753,058 $ 0.84
Francis G. Blot 218,500 229,560 $ 0.01
</TABLE>
The Uproar shares listed for Mr. Hassett include 184,400 shares owned by his
spouse; the Uproar shares listed for Mr. Blot include 69,000 shares owned by
his spouse.
Under the merger agreement with PrizePoint, we issued approximately
2,440,000 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.
Option Grants
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 1,600,000 $9.43 per share
Christopher R. Hassett 686,978 $9.43 per share
Michael K. Simon 100,000 $9.43 per share
Francis G. Blot 223,360 $9.43 per share
Shannon King 200,000 $9.43 per share
Robert D. Marafioti 500,000 $10.82 per share
Jeffrey L. Strief 700,000 $10.82 per share
The options listed for Mr. Blot include 93,760 options granted to his spouse.
In 1997, we created an option program under which employees and directors
were granted options to purchase in the aggregate up to 100,000 shares at an
exercise price of $2.21 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 82,000 $2.21 per share
Thompson B. Barnhardt 32,000 $2.21 per share
Esther Dyson 32,000 $2.21 per share
In 1996, Michael Simon was granted an option to purchase 484,000 shares at
a price of $0.46 per share and an option to purchase 200,000 shares of our
common stock at $0.77 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 $0.53 per share and $0.88 per share,
respectively. In 1998, Mr. Simon exercised these options.
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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 January 31, 2000 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 January 31, 2000, but excludes shares of common stock
underlying options held by any other person. Percentage of beneficial ownership
is based on 23,972,468 shares of common stock outstanding as of January 31,
2000, and 28,737,320 shares of common stock to be outstanding after the
completion of this offering, including 1,265,372 shares sold to a strategic
investor on February 2, 2000.
<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) ........................... 843,320 3.4% 843,320 2.9%
Christopher R. Hassett (2) .................... 1,096,547 4.5 1,096,547 3.8
Michael K. Simon (3) .......................... 1,395,101 5.8 1,395,101 4.9
David A. Becker (4) ........................... 400,000 1.6 400,000 1.4
Thompson B. Barnhardt (5) ..................... 32,000 * 32,000 *
Esther Dyson (6) .............................. 158,240 * 158,240 *
James J. Geddes, Jr. (7) ...................... 1,265,372 5.0 1,265,372 4.4
Catherine V. Mackay (8) ....................... 2,000,000 8.3 2,000,000 7.0
Pearson Television, Inc. (9) .................. 2,000,000 8.3 2,000,000 7.0
Trans Cosmos USA, Inc. (10) ................... 1,265,372 5.0 1,265,372 4.4
All directors and executive officers as a group
(10 persons) ................................. 9,800,136 37.6 9,800,136 31.8
</TABLE>
- ------------
* Indicates less than one percent of the common stock.
(1) Includes 800,000 shares issuable upon the exercise of currently
exercisable stock options.
(2) Includes (a) 343,489 shares issuable upon the exercise of currently
exercisable stock options and
(b) 184,000 shares owned by Mr. Hassett's spouse.
(3) Includes 49,981 shares issuable upon the exercise of currently exercisable
stock options.
(4) Includes 400,000 shares issuable upon the exercise of currently
exercisable options. Mr. Becker's address is 87 Remsen Street, #3,
Brooklyn, NY 11201.
(5) Includes 32,000 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 32,000 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 Mr. Geddes are included because of Mr.
Geddes' affiliation with Trans Cosmos USA, Inc. Mr. Geddes disclaims
beneficial ownership of all shares owned by Trans Cosmos
58
<PAGE>
USA, Inc. Mr. Geddes' address is c/o Trans Cosmos USA, Inc., 777 108th
Avenue NE, Suite 2300, Bellevue, Washington 98004-5149. Percentage
ownership is based on 25,237,840 shares of common stock outstanding as of
February 2, 2000.
(8) 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.
(9) The address of Pearson Television, Inc. is 1330 Avenue of the Americas,
New York, NY 10019.
(10) The address of Trans Cosmos USA, Inc. is 777 108th Avenue NE, Suite 2300,
Bellevue, Washington 98004-5149. Percentage ownership is based on
25,237,840 shares of common stock outstanding as of February 2, 2000.
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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 currently consists of 112,000,000 shares of
common stock, par value $.01 per share, and 48,000,000 shares of preferred
stock, par value $.01 per share.
Common Stock
As of January 31, 2000, there were 23,972,468 shares of common stock
outstanding and held of record by stockholders. After giving effect to the
issuance of the shares of common stock in this offering, there will be
28,737,320 shares of common stock outstanding upon the closing of this offering
assuming that the underwriters do not exercise their over-allotment option.
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 48,000,000 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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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.
In connection with our sale of 1,265,372 shares of our common stock to a
strategic investor, Trans Cosmos USA, Inc., in February 2000, we granted that
strategic investor piggyback registration rights, subject to conditions and
limitations including the right of the underwriters in any written offering to
limit the number of shares of common stock held by Trans Cosmos to be included
in such piggyback registration. We also granted Trans Cosmos the right to
require us to file a registration statement on Form S-3 under the Securities
Act with respect to the shares of common stock it acquired from us. However, we
are not obligated to file this registration statement if:
o Form S-3 is not available;
o Trans Cosmos proposes to sell its common stock for an aggregate price of
less than $2.0 million;
o our Chief Executive Officer provides Trans Cosmos with a certificate
stating that, in the judgment of the Board of Directors, the registration
would be seriously detrimental to us and our stockholders, which would
allow us, once in any 12 month period, to defer the registration for up
to 90 days;
o the registration would require us to qualify to do business in any
particular jurisdiction or to provide a second consent of service of
process; or
o we have filed two effective Form S-3 registrations for the strategic
investor.
We are generally required to bear all of the expenses of registering Trans
Cosmos common stock, other than underwriting discounts and commissions and
legal fees of the strategic investor. Registration of any of the shares of
common stock held by Trans Cosmos would result in those shares becoming freely
tradable without restriction under the Securities Act immediately after
effectiveness of the registration. We have agreed to indemnify Trans Cosmos in
connection with the registration of its shares of common stock under the terms
of the registration rights agreement.
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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 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, 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 the Delaware General Corporation Law, or DGCL, our directors
shall not be personally liable to Uproar or our stockholders for monetary
damages for any breach of fiduciary 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.
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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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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market, or
the perception that such sales could occur, could adversely affect prevailing
market prices of our common stock. Upon completion of this offering, we will
have outstanding an aggregate of 28,737,320 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. The remaining 25,237,320 of
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. Subject to lock-up agreements
described below and the provisions of Rules 144 and 701, these 25,237,320
shares will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
Number of Shares Date
- ------------------ ----
<S> <C>
15,126,607 After the date of this prospectus
7,733,760 After 90 days from the date of this prospectus subject, in some
cases, to volume limitations
2,763,320 As of July 8, 2000 subject, in some cases, to volume limitations
4,427,298 After 180 days from the date of this prospectus subject, in some
cases, to volume limitations
</TABLE>
EASDAQ Shares
We have applied to list the shares of common stock offered by this
prospectus with the European Association of Securities Dealers' Automated
Quotation System, or EASDAQ, under the symbol "UPRO", so that these shares will
be tradable on EASDAQ on the date of this prospectus or as soon thereafter as
practicable pending regulatory approval by EASDAQ and the Belgian Banking and
Finance Commission. The shares of our common stock that are already listed on
EASDAQ will trade under the symbol "UPRO RS", the "RS" indicating that these
shares are restricted securities in the United States. To be sold in the United
States, these shares must either be registered with the Securities and Exchange
Commission or must be qualified for sale under an exemption from registration
under United States securities laws. Our shares of common stock already listed
on EASDAQ will not be registered in the United States and, therefore, will have
to qualify for listing on the Nasdaq National Market under an exemption to
registration under Rule 144. Once these shares or any other shares of our
common stock become qualified for trading on the Nasdaq National Market, they
will be eligible to trade on EASDAQ under the symbol "UPRO", indicating that
the shares are not restricted securities in the United States.
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.
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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 restrictions,
including the holding period, contained in Rule 144.
Lock-Up Agreements
All of our officers, directors and some 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.
Pearson has agreed not to transfer or dispose of, directly or indirectly,
any of the shares of our common stock issued to it under our agreement with
Pearson until at least 180 days after the date of this prospectus. On and after
that date, Pearson will be able to sell the entire number of shares that were
issued to it under the agreement.
Registration Rights
Beginning in January 2001, Pearson, or its transferees, will be entitled
to request that we register up to 2,000,000 shares of our common stock. After
this offering, Trans Cosmos, or its transferees, will be entitled to request
that we register up to 1,265,372 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 December 31, 1999, options to purchase 5,904,408 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.
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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
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 or, if an 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 deductions and credits, is 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
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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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
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
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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 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 a particular 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.
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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 ...........
SoundView Technology Group, Inc. .........
----------
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 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 SoundView Technology Group, Inc. 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 525,000 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
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 210,000 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, officers
and employees, 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 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 some of our 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 listed on EASDAQ
under the symbol "UPROrs". 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
69
<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 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 a Web site
maintained by Wit SoundView's affiliate, Wit Capital Corporation. In addition,
all dealers purchasing shares from Wit SoundView in this offering have agreed
to make a prospectus in electronic format available on Web sites maintained by
each of these dealers. Other information contained on any of these Web sites
and any information contained on any other Web site maintained by Wit Capital
is not part of the prospectus or the registration statement, has not been
approved or endorsed by Uproar or any underwriter and should not be relied upon
by investors.
We estimate that our total expenses for this offering will be $1.5
million.
We have agreed to indemnify the underwriters against 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.
70
<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
The consolidated financial statements of Uproar Inc. and subsidiaries as
of December 31, 1999 and the year then ended have been included herein and in
the registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Uproar Inc. and subsidiaries as
of December 31, 1998 and each of the years in the two-year period ended
December 31, 1998, have been included herein and in the registration statement
in reliance upon the report of KPMG Hungaria Kft., independent certified public
accountants, appearing elsewhere herein, and upon the authority of that firm as
experts in accounting and auditing.
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 that firm as experts in
giving the reports.
CHANGE IN INDEPENDENT ACCOUNTANTS
On August 28, 1998, we changed our auditors to KPMG Hungaria Kft. from
Coopers & Lybrand in Dublin, Ireland. The decision to change independent
accountants from Coopers & Lybrand, Dublin, to KPMG Hungaria Kft., was
recommended by our audit committee and approved by our board of directors.
We believe, and have been advised by the successor to Coopers & Lybrand,
Dublin, PricewaterhouseCoopers LLP, Dublin, that it concurs in such belief
that, for the period from February 1995 (inception) through the date of the
change in accountants, Coopers & Lybrand, Dublin, did not have any disagreement
with us on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Coopers & Lybrand, Dublin, would have caused it
to make reference to the subject matter of the disagreement in connection with
its report on our financial statements.
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 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.
71
<PAGE>
Companies listed 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 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.
72
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
December 31, 1997, 1998 and 1999
Table of Contents
Independent Auditors' Reports ......................................... F-2
Consolidated Balance Sheets ........................................... F-4
Consolidated Statements of Operations ................................. F-5
Consolidated Statements of Stockholders' Equity and Comprehensive Loss F-6
Consolidated Statements of Cash Flows ................................. F-7
Notes to Consolidated Financial Statements ............................ F-8
Report of Independent Public Accountants .............................. F-22
F-1
<PAGE>
[Firm Letterhead]
Independent Auditors' Report
The Board of Directors and Stockholders
Uproar Inc.:
We have audited the accompanying consolidated balance sheet of Uproar Inc.
and subsidiaries (formerly Uproar Ltd.) as of December 31, 1999, and the
related consolidated statements of operations, stockholders' equity and
comprehensive loss, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Uproar Inc.
and subsidiaries, (formerly Uproar Ltd.) as of December 31, 1999, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
(Signed) KPMG LLP
New York, New York
February 4, 2000
F-2
<PAGE>
[Firm Letterhead]
Independent Auditors' Report
The Board of Directors and Stockholders
Uproar Inc.:
We have audited the accompanying consolidated balance sheet of Uproar Inc.
and subsidiaries (formerly Uproar Ltd.) as of December 31, 1998, and the
consolidated statements of operations, stockholders' equity and comprehensive
loss, and cash flows for the years ended December 31, 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 Ltd.) and subsidiaries
as of and for the year ended December 31, 1998 and 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 Ltd.) as of December 31, 1998, and the results of their
operations and their cash flows for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
(Signed) KPMG Hungaria Kft.
August 4, 1999, except for paragraph 1 of note 19
which is as of December 16, 1999
F-3
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Consolidated Balance Sheets
As of December 31, 1998 and 1999
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1999
---------------- ----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................. $ 7,035,645 $ 15,135,742
Restricted cash ....................................... -- 604,275
Accounts receivable -- net of allowance for doubtful
accounts of $0 and $271,000, respectively ........... 551,036 3,767,769
Prepaid advertising ................................... 201,327 3,861,996
Other current assets .................................. 24,689 744,612
------------- -------------
Total current assets ............................... 7,812,697 24,114,394
------------- -------------
Property and equipment, net ............................ 1,111,966 5,031,429
Intangible assets, net ................................. 47,357 10,649,387
Other long term assets ................................. 138,685 173,426
Prepaid advertising, long term portion ................. -- 2,847,005
------------- -------------
Total assets ....................................... $ 9,110,705 $ 42,815,641
============= =============
Liabilities and stockholders' equity
Current liabilities:
Current portion of capital lease obligation ........... $ 25,949 $ 102,777
Trade accounts payable ................................ 855,866 1,390,908
Accrued expenses ...................................... 471,906 3,921,570
Other current liabilities ............................. 15,188 144,399
------------- -------------
Total current liabilities .......................... 1,368,909 5,559,654
------------- -------------
Long term portion of capital lease obligation .......... 15,134 51,681
Stockholders' equity:
Preferred stock, $.01 par value, 48,000,000 shares
authorized, none issued ............................. -- --
Common stock, $.05 par value, 112,000,000 shares
authorized; 17,746,280 and 23,971,948 shares issued
and outstanding at December 31, 1998 and 1999
respectively ........................................ 643,860 1,198,597
Additional paid-in capital ............................ 17,470,939 85,193,156
Accumulated deficit ................................... (10,424,698) (49,149,339)
Accumulated other comprehensive income (loss) ......... 36,561 (38,108)
------------- -------------
Total stockholders' equity ......................... 7,726,662 37,204,306
------------- -------------
Total liabilities and stockholders' equity ......... $ 9,110,705 $ 42,815,641
============= =============
</TABLE>
The balance sheet at December 31, 1998 has 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 Operations
Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------------- --------------- ----------------
<S> <C> <C> <C>
Revenues ................................... $ 348,709 $ 1,632,969 $ 10,391,527
Cost of revenues ........................... (216,586) (760,376) (2,533,294)
------------ ------------ -------------
Gross profit ............................... 132,123 872,593 7,858,233
------------ ------------ -------------
Sales and marketing ........................ 1,087,058 3,770,866 28,065,956
Product and technology
development ............................... 772,744 849,486 3,701,393
General and administrative ................. 2,092,394 2,327,720 8,919,011
Amortization of intangible assets .......... -- 9,303 6,086,198
------------ ------------ -------------
Total operating expenses ................... 3,952,196 6,957,375 46,772,558
------------ ------------ -------------
Loss from operations ....................... (3,820,073) (6,084,782) (38,914,325)
Other income (expenses):
Foreign exchange gain (loss) .............. (85,439) 57,401 (119,996)
Interest income ........................... 97,717 205,751 535,166
Interest expense .......................... (15,368) -- (7,050)
Other income (expense) .................... -- -- (190,436)
------------ ------------ -------------
Loss before income taxes .................. (3,823,163) (5,821,630) (38,696,641)
Provision for income taxes ................ 5,582 9,020 28,000
------------ ------------ -------------
Net loss .................................. $ (3,828,745) $ (5,830,650) $ (38,724,641)
============ ============ =============
Basic and diluted loss per share ......... $ (0.42) $ (0.40) $ (1.77)
Weighted average number of
common shares outstanding ............... 9,034,928 14,697,112 21,909,456
============ ============ =============
</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 Stockholders' Equity and Comprehensive Loss
Years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------ Paid-in
Shares Amount Capital
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1996 ........... 5,400,000 210,162 394,549
Comprehensive loss: ....................
Net loss ..............................
Foreign currency translation ..........
Total comprehensive loss ...............
Sale of common stock ................... 4,000,000 157,526 4,558,161
Stockholder receivable ................. 195,318
Conversion of loan notes ............... 1,774,600 69,138 366,420
Exercise of stock options .............. 289,080 10,206 139,042
Stock compensation expense ............. 1,244,888
---------
Balance at December 31, 1997 ........... 11,463,680 447,032 6,898,378
Comprehensive loss:
Net loss ..............................
Foreign currency translation ..........
Total comprehensive loss ...............
Sale of common stock ................... 4,758,360 144,253 9,522,211
Exercise of stock options .............. 1,524,240 52,575 1,047,246
Stock compensation expense ............. 3,104
---------
Balance at December 31, 1998 ........... 17,746,280 643,860 17,470,939
Comprehensive loss:
Net loss ..............................
Foreign currency translation ..........
Total comprehensive loss ...............
Re-denomination of currency of
common stock .......................... 288,858 (288,858)
Acquisition and retirement of shares (760) (38) (19,342)
Sale of common stock ................... 3,875,360 179,064 39,887,305
Issuance of common stock for
intangible assets and advertising
services from Pearson Television
Limited ............................... 2,000,000 69,300 24,586,575
Exercise of warrants ................... 43,360 2,168 247,832
Stock compensation expense ............. 735,489
Exercise of stock options .............. 307,708 15,385 2,573,216
---------- ------- ----------
Balance at December 31, 1999 ........... 23,971,948 $1,198,597 85,193,156
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other
Accumulated Comprehensive
Deficit Income (Loss) Total
----------------- --------------- ----------------
<S> <C> <C> <C>
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 .............................. (38,724,641) (38,724,641)
Foreign currency translation .......... (74,669) (74,669)
-----------
Total comprehensive loss ............... (38,799,310)
-----------
Re-denomination of currency of
common stock .......................... --
Acquisition and retirement of shares (19,380)
Sale of common stock ................... 40,066,369
Issuance of common stock for
intangible assets and advertising
services from Pearson Television
Limited ............................... 24,655,875
Exercise of warrants ................... 250,000
Stock compensation expense ............. 735,489
Exercise of stock options .............. 2,588,601
-----------
Balance at December 31, 1999 ........... $ (49,149,339) $ (38,108) $ 37,204,306
============= ========== ==============
</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)
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Year ended
December 31,
--------------------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Cash flows from operating activities
Net loss ............................................. $ (3,828,745) $ (5,830,650) $ (38,724,641)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ........................ 56,556 183,181 6,954,230
Provision for doubtful accounts ...................... -- -- 270,913
Amortization of prepaid advertising services ......... -- -- 1,338,999
Stock compensation expense ........................... 1,244,888 3,104 735,489
Loss on sale of property and equipment ............... -- -- 189,683
Changes in operating assets and liabilities
Accounts receivable ................................ (229,821) (302,366) (3,487,646)
Prepaid advertising and other current assets ....... (66,909) (121,858) (584,596)
Trade accounts payable ............................. 115,204 711,060 667,411
Income tax payable ................................. (2,936) -- --
Accrued expenses and other current liabilities ..... 104,521 342,267 3,578,875
Other long term assets ............................. (59,210) (79,475) (34,741)
------------ ------------- -------------
Net cash used in operating activities ................ (2,666,452) (5,094,737) (29,096,024)
------------ ------------- -------------
Cash flows from investing activities
Purchase of intangibles .............................. (13,955) (42,706) --
Purchase of property and equipment ................... (260,220) (930,470) (4,965,269)
Increase in restricted cash .......................... -- -- (604,275)
Proceeds from sale of equipment ...................... -- -- 27,154
------------ ------------- -------------
Net cash used in investing activities ................ (274,175) (973,176) (5,542,390)
------------ ------------- -------------
Cash flows from financing activities
Proceeds from issuance of common stock ............... 4,911,005 9,666,464 40,046,989
Proceeds from exercise of stock options and
warrants ........................................... 149,248 1,099,821 2,838,601
Principal payments on capital leases ................. -- (10,812) (72,410)
------------ ------------- -------------
Net cash provided by financing activities ............ 5,060,253 10,755,473 42,813,180
------------ ------------- -------------
Effect of exchange rate on cash ...................... (45,307) 5,858 (74,669)
------------ ------------- -------------
Net increase in cash and cash equivalents ............ 2,074,319 4,693,418 8,100,097
Cash and cash equivalents, beginning of year ......... 267,908 2,342,227 7,035,645
------------ ------------- -------------
Cash and cash equivalents, end of year ............... $ 2,342,227 $ 7,035,645 $ 15,135,742
============ ============= =============
Supplemental disclosure of cash flow information
Interest paid ........................................ $ 41,441 $ -- $ 7,050
Income taxes paid .................................... 8,518 10,625 15,842
Issuance of common stock for advertising
services and intangibles ........................... -- -- 24,655,875
Purchase of equipment under capital lease
obligations ........................................ -- 41,083 185,785
Conversion of debt to common stock ................... 435,558 -- --
</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-7
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements
(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 common 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.
Uproar Inc. was incorporated in Delaware on December 16, 1999. Uproar Ltd.
subsequently domesticated from Bermuda to Delaware and, on January 27, 2000
merged with Uproar Inc. See note 19. Between the date of incorporation and
January 27, 2000, Uproar Inc. had no substantial operations.
The Company provides 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) 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, 1998 and December 31, 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.
Restricted cash consists of cash on deposit supporting letters of credit
in favor of lessors for two office leases.
(c) Fair value of financial instruments
The Company's financial instruments, including cash and cash equivalents,
restricted cash, 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.
(d) 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 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-8
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(2) Significant accounting policies and procedures -- (Continued)
(e) 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
(f) Intangible assets
Intangible assets consist principally of intangible assets arising from
the agreement with Pearson Television (note 14(b)) which are being amortized on
a straight-line basis over the period of benefit, the thirty-three month life
of the agreement. Other intangible assets consist of costs incurred for
trademarks and license fees. These assets are amortized over five years, which
is the estimated period of benefit, on a straight-line basis.
(g) 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.
(h) 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."
(i) 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 or
clicks, over a specified period of time for a fixed fee. Customers are invoiced
monthly in accordance with delivery of advertising services during the month.
Advertising revenues are recognized as the advertisement is displayed or as
users click or otherwise respond to advertisements, provided that no
significant Company obligations remain. To the extent that minimum guaranteed
impressions are not met or clicks, the Company defers recognition of the
corresponding revenues until the guaranteed impressions or clicks are achieved.
Advertising revenues were approximately 79%, 95% and 98% of total revenues for
the years ended December 31, 1997, 1998, and 1999, respectively.
The Company commenced selling merchandise through its Web site in December
1999 and has recognized related revenues of approximately $15,000 for the year
ended December 31, 1999. Such revenues include shipping and handling fees.
Revenue is recognized at the time of shipment from the warehouse or directly
from the supplier. Customers have a right to return product within 21 days
after shipment. The Company provides an allowance for actual sales returns in
the 21 days subsequent to a period end. Through January 28, 2000, the Company
has not experienced any returns.
The Company provides sponsorship advertising on game shows or on a portion
of its Web sites in consideration for a fixed fee. The Company incurs
insignificant costs to customize the advertisements received
F-9
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(2) Significant accounting policies and procedures -- (Continued)
from the sponsors which are expensed as incurred. Sponsorship agreements do not
segregate the fees for development of customized features and displaying the
sponsors advertisments on the Web sites, therefore, the entire fee is deferred
and recognized ratably in the period in which the sponsor's advertising is
displayed.
The Company enters into arrangements with third parties whereby the
Company's games are displayed on the third parties' Web sites. The revenues
generated from advertising in connection with the use of the Company's games
are recognized ratably in the period in which the advertising is displayed on
the third party Web site. Generally, the Company is responsible for selling the
advertising, billing and collections and is obligated to pay the third parties
their fees for displaying the games on their Web sites regardless of whether
the Company collects the advertising revenue. In these situations the Company
records the advertising revenues and the payments to the third parties are
recorded as cost of revenues. When the third party sells the advertising and
pays the Company a portion of the advertising revenues, the Company only
recognizes revenue for its portion of gross revenues.
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, 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%, 22% and 14% of total revenues for the
years ended December 31, 1997, 1998, and 1999, respectively.
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%. In 1999, one
advertising customer accounted for 14% of total revenues.
(j) Cost of revenues
Cost of revenues is primarily comprised of prize expenses, Internet
connection charges, royalties, merchandise costs and a portion of computer
equipment and software depreciation.
(k) 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 $188,000, $1,847,000 and $22,739,000 in 1997, 1998, and 1999 respectively.
Prepaid Pearson advertising costs (notes 7 and 14(b)) are being amortized
commencing April 1, 1999 over the thirty-month contractual period the
advertising services are provided to the Company.
(l) Merchandise Inventory
Inventories which are stated at the lower of cost or market, are comprised
of goods available for the online sale of merchandise through the Company's Web
site and are included in other current assets. See
note 6.
(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.
F-10
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(2) Significant accounting policies and procedures -- (Continued)
(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 income available to common stockholders for the period by the weighted
average number of common shares outstanding during the period. Diluted net
income per share is computed by dividing the net income 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 income 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,
consisting of stock options, as of December 31, 1997, 1998 and 1999 amounted to
2,110,920, 897,200, and 5,904,408 respectively.
(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 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.
F-11
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(2) Significant accounting policies and procedures -- (Continued)
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 2.44 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 retired. All outstanding PrizePoint preferred
shares were converted in accordance with their original terms 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 ..................... (4,602,025) (4,399,357)
PrizePoint ................. (1,228,625) (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
December 31,
-------------------------------
1998 1999
------------- ---------------
Computer equipment .................... $ 963,053 $ 4,680,785
Purchased software .................... 162,768 667,335
Furniture and fixtures ................ 247,184 568,493
Construction in progress .............. -- 162,461
---------- ------------
1,373,005 6,079,074
Less accumulated depreciation ......... (261,039) (1,047,645)
---------- ------------
$1,111,966 $ 5,031,429
========== ============
Depreciation expense for 1997, 1998, and 1999 was $56,556, $173,878 and
$882,385 respectively.
F-12
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(5) Intangible assets, net
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1999
----------- --------------
<S> <C> <C>
Intangible benefits of Pearson Agreement ......... $ -- $ 16,673,875
Patents .......................................... 3,510 3,510
Trademarks ....................................... 6,345 6,283
Licenses ......................................... 45,622 44,823
Other ............................................ 1,183 1,344
-------- ------------
56,660 16,729,835
Less accumulated amortization .................... (9,303) (6,080,448)
-------- ------------
$ 47,357 $ 10,649,387
======== ============
</TABLE>
The intangible benefits of the Pearson agreement include a license to
create and use the English language Internet versions of certain Pearson game
shows and benefits from association with Pearson and their brands during the
thirty-three month term of the agreement.
(6) Other current assets
Other current assets consist of the following:
December 31,
--------------------------
1998 1999
----------- ------------
Prepaid insurance ....................... $ 19,864 $ 178,446
Prepaid license fees .................... -- 150,000
Prepaid data warehouse services ......... -- 22,032
Prepaid rent ............................ -- 85,281
Merchandise inventory ................... -- 172,508
Other ................................... 4,825 136,345
-------- ---------
$ 24,689 $ 744,612
======== =========
(7) Prepaid advertising
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1999
------------ --------------
<S> <C> <C>
Prepaid advertising ............................... $ 201,327 $ 66,000
Prepaid Pearson advertising -- note 14(b) ......... -- 3,795,996
--------- -----------
$ 201,327 $ 3,861,996
========= ===========
Long term portion of prepaid Pearson
advertising -- note 14(b) ........................ $ -- $ 2,847,005
========= ===========
</TABLE>
F-13
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(8) Other long term assets
Other long term assets consist of the following:
December 31,
---------------------------
1998 1999
------------ ------------
Security deposits ............... $ 125,035 $ 168,657
Other ........................... 13,650 4,769
--------- ---------
$ 138,685 $ 173,426
========= =========
(9) Accrued expenses
Accrued expenses consist of the following:
December 31,
----------------------------
1998 1999
----------- --------------
Advertising ..................... $ 33,825 $ 2,786,020
Severance ....................... -- 94,225
Prizes and awards ............... 59,638 174,008
Commission and salaries ......... 95,675 78,943
Deferred revenue ................ 30,000 154,906
Bonus ........................... 91,757 16,500
Legal and other fees ............ 123,102 256,141
Other accruals .................. 37,909 360,828
--------- -----------
$ 471,906 $ 3,921,570
========= ===========
Accrued advertising consists of uninvoiced online banner advertising
purchased by and delivered to the Company.
(10) Valuation and qualifying accounts
<TABLE>
<CAPTION>
Balance at Provisions Balance
Beginning for Returns End of
of Period and Doubtful Accounts Write-offs Period
------------ ----------------------- ------------ ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997 ......... -- -- -- --
Year ended December 31, 1998 ......... -- -- -- --
Year ended December 31, 1999 ......... -- 270,913 -- 270,913
</TABLE>
(11) Stockholders' equity
During 1997, 4,000,000 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 forty shares, which resulted in the issuance of 1,774,600 shares.
E-Pub Services Limited was the predecessor company to Uproar Limited.
During 1997, 11,174,600 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.
F-14
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(11) Stockholders' equity -- (Continued)
During 1998, 4,758,360 shares of common stock were sold in a private
placement. Net proceeds to the Company were $9,666,464.
In January 1999, 1,000,000 shares of common stock were sold in a private
placement. Net proceeds to the Company totaled $9,344,654.
In January 1999, 2,000,000 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 issued was
$24,780,474. See Note 14(b).
In January 1999, 43,360 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 $288,858 transfer from
additional paid-in capital to common stock. All prior period stock transactions
have been restated to reflect the impact of the stock split.
In June 1999, 43,360 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 2,832,000 shares on the
EASDAQ stock exchange. Net proceeds to the Company totaled $30,347,116.
(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 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
$1,406,623. This amount is recorded as compensation expense over the vesting
periods, and amounted to $3,104 and $735,489 for the years ended December 31,
1998 and 1999, respectively.
During 1999, the Company established the Uproar Ltd. 1999 Share
Option/Share Issuance Plan (the "1999 Plan"). The 1999 Plan authorizes the
Company to grant options to its employees, non-employee directors and
consultants to purchase up to 5,400,000 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 Company commenced granting
options under the 1999 Plan in September, 1999 and 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 $1,244,888, $3,104, and $735,489 for the years ended
December 31, 1997, 1998 and 1999 respectively. Had compensation cost been
determined in accordance with the provisions of 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-15
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(12) Stock compensation plan -- (Continued)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------
1997 1998 1999
---------------- ---------------- -----------------
<S> <C> <C> <C>
Net Loss
As reported ................................ $(3,828,745) $(5,830,650) $(38,724,641)
Proforma ................................... (3,890,803) (6,678,354) 41,520,547
Basic loss per share
As reported ................................ $ (0.42) (0.40) $ (1.77)
Proforma ................................... (0.43) (0.45) (1.90)
Weighted average shares outstanding ......... 9,034,928 14,697,112 21,909,456
Option pricing model assumptions:
Expected dividend yield .................... 0% 0% 0%
Average option life ........................ 2.5 years 2 years 2.5 years
Volatility ................................. 70% 70% 60%
Risk free interest rate .................... 3% 3% 5%
</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 .................... 1,800,000 $ .74
Granted ........................................... 600,000 2.43
Exercised ......................................... (289,080) .64
---------
Outstanding, December 31, 1997 .................... 2,110,920 1.23
Granted ........................................... 329,200 2.32
Exercised ......................................... (1,524,240) .77
Cancelled ......................................... (18,680) 2.44
----------
Outstanding, December 31, 1998 .................... 897,200 2.39
Granted ........................................... 5,337,716 9.64
Options assumed in PrizePoint acquisition ......... 124,080 .07
Exercised ......................................... (307,708) 8.41
Cancelled ......................................... (146,880) 4.76
----------
Outstanding, December 31, 1999 .................... 5,904,408 $ 8.52
==========
</TABLE>
At December 31, 1999, the weighted-average exercise price and average remaining
contractual life of outstanding options was $8.52 and 9.55 years remaining,
respectively. 614,690 shares are available for grants under the 1999 Plan and
2,222,912 shares are exercisable at December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------ -------------------------------
Weighted-
Average Weighted-
Number Exercise Remaining Number Average
Outstanding Prices Life in Years Exercisable Exercise Price
- ------------- -------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
34,000 $ .01 7.52 14,228 $ .01
78,986 .10 9.27 35,326 .10
911,720 2.21 8.62 695,706 2.21
3,580,458 9.43 9.71 1,273,488 9.43
1,200,000 10.82 9.81 204,164 10.82
33,702 11.15 9.78 -- --
42,882 16.09 9.87 -- --
22,660 17.27 9.96 -- --
--------- ---------
5,904,408 $.01-17.27 9.55 2,222,912 $ 7.09
========= =========
</TABLE>
F-16
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(13) Income taxes
The Company's income tax expense is comprised of the following:
Year Ended December 31,
-------------------------------
1997 1998 1999
-------- -------- ---------
Current tax expense
United States ................... $ -- $ -- $ --
Foreign ......................... 5,582 9,020 28,000
------ ------ -------
Total income tax expense ......... $5,582 $9,020 $28,000
------ ------ -------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1997 1998 1999
---------------- ---------------- -----------------
<S> <C> <C> <C>
Sources of loss before income tax
United States ................... $ (1,060,562) $ (4,455,439) $ (22,848,393)
Foreign ......................... (2,762,601) (1,366,191) (15,848,248)
------------ ------------ -------------
Loss before income taxes ......... $ (3,823,163) $ (5,821,630) $ (38,696,641)
============ ============ =============
</TABLE>
The components of the net deferred tax asset as of December 31, 1998 and
1999 consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1999
--------------- ----------------
<S> <C> <C>
Deferred tax assets:
United States net operating loss carryforwards .......... 2,146,000 10,864,000
Accounts receivable allowances .......................... -- 108,000
Accrued liabilities ..................................... 61,000 374,000
United Kingdom net operating loss carryforwards ......... 137,000 323,000
--------- ----------
2,344,000 11,669,000
Less valuation allowance ................................ (2,344,000) (11,669,000)
---------- -----------
Deferred tax assets, net ................................... $ -- $ --
============ =============
</TABLE>
The net operating loss carryforwards are comprised of the losses incurred
in the UK and US subsidiaries. The Bermudan company enjoys tax-free status and
the only other subsidiary which is in Hungary, has been profitable.
Realization of deferred tax assets is dependent upon future earnings, if
any. The Company has recorded a full valuation allowance against its deferred
tax assets since management believes that it is not more likely than not that
these assets will be realized. No income tax benefit has been recorded for all
periods presented because of the valuation allowance.
At December 31, 1999, the US subsidiary has a federal net operating loss
carryforward for income tax purposes of approximately $27,160,000. There can be
no assurance that the Company will realize the benefit of the net operating
loss carryforwards. The federal net operating loss carryforwards are available
to offset future taxable income and expire in various amounts through 2019.
Due to the "change in ownership" provisions in Section 382 of the Internal
Revenue Code, the availability of the Company's US net operating loss
carryforwards will be subject to an annual limitation against taxable income in
future periods, which could substantially limit the eventual utilization of
these carryforwards.
(14) Significant agreements
(a) Cable and Wireless
On December 23, 1998, the Company entered into an agreement with Cable &
Wireless Communications ("CWC"), the largest cable television franchise owner
in the UK. The agreement provides for CWC to display
F-17
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(14) Significant agreements -- (Continued)
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. The agreement
provides for the Company to have an anchor position within the games and
entertainment channel on the CWC service and to participate in promotional
opportunities on the service. The Company pays CWC an annual maintenance fee
which is included in cost of revenues for which CWC guarantees placement within
the service. The amount paid through December 31, 1999 was approximately
$11,000. The agreement provides that CWC is entitled to additional fees equal
to a percentage of net advertising and sponsorship revenue generated by the
Company and arising directly from games displayed 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. Two months of the annual fee
has been paid and recognized as an expense as of December 31, 1999.
(b) Pearson Television
On January 13, 1999, the Company entered into an agreement with Pearson
Television Limited ("Pearson"), whereby Pearson acquired 2,000,000 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. For the
year ended December 31, 1999, amortization of intangible assets was $6,063,227
and amortization of prepaid advertising services amounting to $1,338,999 was
recorded as advertising expense.
Should Pearson meet certain television distribution targets for its game
shows in the United States, they will be granted 400,000 additional common
shares between September 1999 and August 2000 and a further 400,000 shares
between September 2000 and August 2001. See note 15.
Included in the intangible assets, Uproar acquired a license to create and
use the English language Internet versions of certain Pearson game shows during
the thirty-three month term of the agreement. The Company pays Pearson a
royalty for the rights and license to use the game show formats on its Web
sites, equal to a percentage of gross advertising and other revenue generated
from the use of the licensed Internet games. Additional royalties are due to
Pearson for a percentage of net advertising and other revenues generated by the
licensed game shows, as defined in the agreement, subject to a minimum
guaranteed amount of $400,000 for the term of the agreement. The minimum
guaranteed amount of $400,000 is due in two equal installments on July 15, 1999
and July 15, 2000 and represents the minimum due for each of the two television
broadcast years measured from September 1999 to September 2001. The initial
payment was recorded as a prepayment with $50,000 expensed in the year ended
December 31, 1999.
(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. Such fees are recognized as revenue ratably over the
related contractual period. Telefonica will display the Uproar Web sites online
for the Spanish and Portuguese language markets from Telefonica's Terra.com Web
sites. Telefonica sells advertising displayed
F-18
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(14) Significant agreements -- (Continued)
with Uproar games on their Web sites and remits a percentage of the revenues to
the Company, which is recognized as revenue by the Company when the
advertisements are displayed. The agreement term is for an initial three-year
period from the date of the agreement, after which it 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(b), should Pearson
meet certain television distribution targets for its game shows in the United
States, they will be granted 400,000 additional common shares between September
31, 1999 and August 2000 and a further 400,000 shares between September 2000
and August 2001. Since, as of December 31, 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 consolidated
financial statements.
(b) Other commitment
In connection with two office leases the Company has letters of credit
outstanding for approximately $604,275. The cash balances supporting the
letters of credit are reported as restricted cash.
(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 $105,645, $159,121, and $652,642 for the years ended December 31, 1997,
1998, and 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, 1999 are:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
----------- -------------
<S> <C> <C>
Year ended December 31,
2000 ....................................... 107,989 822,222
2001 ....................................... 54,228 800,439
2002 ....................................... -- 618,021
2003 ....................................... -- 612,301
2004 ....................................... -- 548,541
Thereafter ................................. -- 90,289
------- -------
Total minimum lease payments ................ $162,212 $3,491,813
==========
Less amounts representing interest ......... (7,754)
--------
Current portion of capital leases ........... 102,777
--------
Long term capital lease obligation .......... $ 51,681
========
</TABLE>
(17) Segment reporting
In presenting segment information the Company has applied the provisions
of SFAS No. 131. The Company has determined that it does not have any
separately reportable business segments.
F-19
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(17) Segment reporting -- (Continued)
The Company attributes revenues to different geographic areas on the basis
of the location of the customer. Revenues by geographic area are as follows:
Revenues
-------------------------------------------
Year ended December 31,
-------------------------------------------
1997 1998 1999
----------- ------------- -------------
United States ......... $332,555 $1,545,663 $ 9,966,057
England ............... 8,727 83,120 246,336
Hungary ............... 6,612 -- --
Germany ............... -- -- 54,134
Other ................. 815 4,186 125,000
-------- ---------- -----------
Total ................. $348,709 $1,632,969 $10,391,527
======== ========== ===========
Included in revenues in the United States for the year ended December 31,
1999 is $15,145 relating to the sale of merchandise through the Company Web
site. There were no such revenues in prior periods.
Investment in long-lived assets by geographic area are as follows:
Property and Equipment and
Intangible Assets
-----------------------------
December 31,
-----------------------------
1998 1999
------------- --------------
United States ......... $ 962,880 $15,394,683
England ............... 35,399 89,496
Ireland ............... 20,532 --
Hungary ............... 108,040 184,618
Germany ............... -- 12,019
Bermuda ............... 32,472 --
---------- -----------
Total ................. $1,159,323 $15,680,816
========== ===========
(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 1999.
(19) Subsequent events
On December 16, 1999, Uproar Inc., was incorporated in the state of
Delaware. On January 26, 2000 Uproar Ltd. was redomesticated from Bermuda to
the state of Delaware and became a Delaware corporation. On January 27, 2000,
Uproar Inc. was merged into Uproar Ltd. whereby each ordinary share of the
Bermuda Company became one share of common stock of the Delaware corporation,
which was accounted for as a transaction between companies under common
control. Simultaneous with the merger, Uproar Inc. increased its number of
authorized common stock to 112,000,000, with par value $.01 per share.
F-20
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(17) Segment reporting -- (Continued)
On February 2, 2000, the Company sold 1,265,372 shares of common stock for
net proceeds of approximately $25 million to Trans Cosmos USA, Inc. (TCUI).
Approximately $63,000 of the net proceeds will be allocated to common stock and
the remainder, or approximately $24,937,000, will be added to additional
paid-in capital. The Common Stock Purchase agreement provides that the Company
and TCUI intend to form a Japanese joint venture to produce a
Japanese-localized version of Uproar's Web site, uproar.com. The joint venture
would be owned equally and Uproar and TCUI will contribute to the joint venture
$500,000 and $4,500,000, repectively. Uproar would receive an annual royalty
fee from the joint venture for licensing its intellectual property.
On February 4, 2000 the Company declared a 2-for-1 common stock split for
shareholders of record on February 18, 2000, effected in the form of a stock
dividend. All prior period stock transactions and amounts have been restated to
reflect the impact of the stock split.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PrizePoint Entertainment Corporation:
We have audited the accompanying balance sheet of PrizePoint Entertainment
Corporation (a Delaware corporation) as of December 31, 1998, and the related
statements of operations, stockholders' equity and cash flows for the period
from inception (March 4, 1998) to December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PrizePoint Entertainment
Corporation as of December 31, 1998, and the results of its operations and its
cash flows for the period from inception (March 4, 1998) to December 31, 1998,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York
April 29, 1999
F-22
<PAGE>
PRIZEPOINT ENTERTAINMENT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 1,870,075 $ 1,244,072
Accounts receivable ................................................ -- 21,250
Prepaid expenses and other current assets .......................... -- 40,054
------------ ------------
Total current assets ............................................. 1,870,075 1,305,376
PROPERTY AND EQUIPMENT, net ......................................... 127,337 366,219
DEPOSITS AND OTHER ASSETS ........................................... 61,239 78,495
------------ ------------
Total assets ...................................................... $ 2,058,651 $ 1,750,090
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................... $ 63,457 $ 146,634
Accrued expenses ................................................... 25,867 33,497
Current portion of capital lease obligations ....................... 25,949 102,777
------------ ------------
Total current liabilities ........................................ 115,273 282,908
CAPITAL LEASE OBLIGATIONS ........................................... 15,134 107,513
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 5,000,000 shares authorized:
Series A Preferred Stock, 645,000 shares designated, issued and
outstanding as of December 31, 1998 and March 31, 1999
(unaudited), respectively; liquidation value of $645,000 ......... 6,450 6,450
Series B Preferred Stock, 495,049 shares designated; 412,541 and
453,795 shares issued and outstanding as of December 31, 1998
and March 31, 1999 (unaudited), respectively; liquidation value of
$2,500,000 and $2,750,000 (unaudited), respectively .............. 4,125 4,538
Common stock, $.01 par value; 10,000,000 shares authorized
1,186,667 shares issued and outstanding as of December 31, 1998
and March 31, 1999 (unaudited), respectively ..................... 11,867 11,867
Additional paid-in capital ......................................... 3,134,425 3,384,012
Accumulated deficit ................................................ (1,228,623) (2,047,198)
------------ ------------
Total stockholders' equity ....................................... 1,928,244 1,359,669
------------ ------------
Total liabilities and stockholders' equity ....................... $ 2,058,651 $ 1,750,090
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-23
<PAGE>
PRIZEPOINT ENTERTAINMENT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
From Inception For the Three
(March 4, Months
1998) to Ended
December 31, March 31,
1998 1999
---------------- --------------
(Unaudited)
<S> <C> <C>
REVENUES ..................................... $ -- $ 47,750
------------ ----------
COSTS AND EXPENSES:
Direct costs ................................ 353,279 305,385
Selling and marketing expenses .............. 214,290 209,299
General and administrative expenses ......... 675,514 321,535
------------ ----------
Operating loss ............................. (1,243,083) (836,219)
OTHER INCOME (EXPENSE):
Interest income, net ........................ 14,460 17,644
------------ ----------
Loss before income taxes ................... (1,228,623) (818,575)
BENEFIT FOR INCOME TAXES .................... -- --
------------ ----------
Net loss ................................... $ (1,228,623) $ (818,575)
============ ==========
PER SHARE INFORMATION:
Net loss per share--
Basic and Diluted .......................... $ (1.04) $ (.68)
------------ ----------
Weighted average common shares outstanding--
Basic and Diluted .......................... 1,186,667 1,186,667
============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
PRIZEPOINT ENTERTAINMENT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock
----------------------- -----------------------
Shares Par Value Shares Par Value
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCE, March 4, 1998 ............ -- $ -- -- $ --
Issuance of common stock ......... -- -- -- --
Issuance of Series A Preferred
Stock ........................... 645,000 6,450 -- --
Issuance of Series B Preferred
Stock ........................... -- -- 412,541 4,125
Net loss ......................... -- -- -- --
------- ------ ------- ------
BALANCE, December 31, 1998 ........ 645,000 6,450 412,541 4,125
Issuance of Series B Preferred
Stock ........................... -- -- 41,254 413
Net loss ......................... -- -- -- --
------- ------ ------- ------
BALANCE, March 31, 1999
(unaudited) ...................... 645,000 $6,450 453,795 $4,538
======= ====== ======= ======
<CAPTION>
Common Stock
-------------------------- Additional Accumulated
Shares Par Value Paid-in Capital Deficit Total
------------- ----------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, March 4, 1998 ............ $ -- $ -- $ -- $ --
Issuance of common stock ......... 1,186,667 11,867 -- -- 11,867
Issuance of Series A Preferred
Stock ........................... -- -- 638,550 -- 645,000
Issuance of Series B Preferred
Stock ........................... -- -- 2,495,875 -- 2,500,000
Net loss ......................... -- -- -- (1,228,623) (1,228,623)
----------- ------- ---------- ------------ ----------
BALANCE, December 31, 1998 ........ 1,186,667 11,867 3,134,425 (1,228,623) 1,928,244
Issuance of Series B Preferred
Stock ........................... -- -- 249,587 -- 250,000
Net loss ......................... -- -- -- (818,575) (818,575)
----------- ------- ---------- ------------ ----------
BALANCE, March 31, 1999
(unaudited) ...................... 1,186,667 $11,867 $3,384,012 $ (2,047,198) $ 1,359,669
=========== ======= ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
PRIZEPOINT ENTERTAINMENT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period For the Three
From Inception Months
(March 4, 1998) to Ended
December 31, March 31,
1998 1999
-------------------- --------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................. $ (1,228,623) $ (818,575)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization ............................................ 23,156 19,875
Changes in assets and liabilities-
Increase in accounts receivable ........................................ -- (21,250)
Increase in prepaid expenses and other current assets .................. -- (40,054)
Increase in deposits and other assets .................................. (61,239) (17,256)
Increase in accounts payable ........................................... 63,457 83,177
Increase in accrued expenses ........................................... 25,867 7,630
------------ -----------
Net cash used in operating activities ................................ (1,177,382) (786,453)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ....................................... (98,598) (72,747)
------------ -----------
Net cash used in investing activities .................................. (98,598) (72,747)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations ................................... (10,812) (16,803)
Issuance of Series A Preferred Stock ..................................... 645,000 --
Issuance of Series B Preferred Stock ..................................... 2,500,000 250,000
Issuance of common stock ................................................. 11,867 --
------------ -----------
Net cash provided by financing activities .............................. 3,146,055 233,197
------------ -----------
Net increase (decrease) in cash and cash equivalents ................... 1,870,075 (626,003)
CASH AND CASH EQUIVALENTS, beginning of period ........................... -- 1,870,075
------------ -----------
CASH AND CASH EQUIVALENTS, end of period ................................. $ 1,870,075 $ 1,244,072
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest ................................. $ -- $ --
Cash paid for income taxes ............................................... -- --
Capital lease obligations ................................................ 56,608 186,010
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
PRIZEPOINT ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
PrizePoint Entertainment Corporation ("PrizePoint" or the "Company") was
formed as a Delaware corporation on March 4, 1998. The Company is engaged in
the marketing and promotion forum of games of chance and advertising via its
Internet web site. Individuals or "players" can log on to the Company's site
and earn points for participating in the various product and trivia promotions
offered in the Company's site. Individuals can redeem these points for various
awards. Sponsors provide some of the awards and gifts for the winning
participants in exchange for advertising services.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues are derived from the sale of advertising on the Company's web
site. Advertising revenues are recognized in the period the advertisement is
displayed provided that no significant Company obligations remain and
collection of the resulting receivable is probable. Company obligations
typically include guarantees of a minimum number of "impressions", or number of
times that any advertisement is viewed by users on the Company's web sites. To
the extent minimum guaranteed impressions are not met, the Company defers
recognition of the corresponding revenues until guaranteed impression levels
are achieved.
Direct Costs
Direct costs consist primarily of cash prizes paid to participants,
payroll and related expenses for personnel, systems consultants and systems and
telecommunications infrastructures for web site development. To date, all
direct costs have been expensed as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Property and Equipment, net
Property and equipment are recorded at cost and depreciated on the
straight-line method over their estimated useful lives, ranging from three to
five years.
Costs of maintenance and repairs are charged to expense as incurred.
Accounting for Long-Lived Assets
The Company accounts for long-lived assets under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement establishes financial accounting and reporting standards
for the impairment of long-lived assets and for long-lived assets to be
disposed of. Management has performed a review of all long-lived assets and has
determined that no impairment of the respective carrying value has occurred as
of December 31, 1998.
F-27
<PAGE>
Income Taxes
The Company accounts for its income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires recognition of deferred tax
liabilities and assets for the estimated future tax effects of events that have
been recognized in the financial statements or income tax returns. Under this
method, deferred tax liabilities and assets are determined based on differences
between the financial accounting and income tax bases of assets and
liabilities, and the use of carryforwards, if any, using enacted tax rates in
effect for the years in which the differences and carryforwards are expected to
reverse and be utilized. Any deferred assets have been reserved for their full
value until the future realizability can be determined.
Stock-Based Compensation
The Company accounts for its employee stock option plans in accordance
with the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Compensation expense related to employee stock options is recorded only if, on
the date of grant, the fair value of the underlying stock exceeds the exercise
price. The Company adopted the disclosure-only requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation," which allows entities to continue to
apply the provisions of APB Opinion No. 25 for transactions with employees and
to provide pro forma net income (loss) and pro forma earnings per share
disclosures (Note 8) for employee stock options as if the fair value based
method of accounting in SFAS No. 123 had been applied to these transactions.
The Company accounts for nonemployee stock-based awards in which goods or
services are the consideration received for the equity instruments issued based
on the fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more readily determinable.
Basic and Diluted Net Loss Per Common Share
The Company accounts for net loss per common share in accordance with the
provisions of SFAS No. 128, "Earnings Per Share." In accordance with SFAS No.
128, basic earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding and diluted earnings per
share is computed by dividing net income (loss) by the weighted average number
of common shares and dilutive common equivalent shares outstanding during the
period. Common equivalent shares have been excluded from the calculation of
diluted earnings per share, as their effect is anti-dilutive.
Business and Credit Concentrations
Financial instruments, which subject the Company to concentrations of
credit risk, consist primarily of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses. The carrying amounts of
these instruments approximate fair value. The carrying amount of the Company's
capital leases approximate the fair value of these instruments based upon
management's best estimate of interest rates.
The Company maintains cash with a domestic financial institution. The
Company performs periodic evaluations of the relative credit standing of this
institution. From time to time, the Company's cash balances with this financial
institution may exceed Federal Deposit Insurance Corporation insurance limits.
Unaudited Interim Financial Statements
The unaudited consolidated financial information included herein for the
three months ended March 31, 1999, has been prepared in accordance with
generally accepted accounting principles for interim financial statements. In
the opinion of the Company, these unaudited financial statements, reflect all
adjustments necessary, consisting of normal recurring adjustments, for a fair
presentation of such data on a basis consistent with that of the audited data
presented herein. The results of operations for interim periods are not
necessarily indicative of the results expected for a full year.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." This statement establishes
standards for reporting and display of comprehensive
F-28
<PAGE>
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. The Company adopted this statement in
1998. The adoption of this statement did not have an impact on the Company's
financial condition or results of operations. Accordingly, the Company's
comprehensive net loss is equal to its net loss for the period from inception
(March 4, 1998) to December 31, 1998.
Additionally, in June 1997, the FASB issued SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information." This statement
establishes standards for the way the public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. The Company
adopted this statement in 1998. In the initial year of application, comparative
information for earlier years must be restated. Management has determined that
it does not have any separately reportable business segments.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), which provides
guidance for determining whether computer software is internal-use software and
on accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. SOP 98-1 is effective for fiscal years
beginning after December 31, 1998. The Company has expensed all software
development costs and does not expect the adoption of SOP 98-1 to have a
material effect on its financial statements.
2. Property and Equipment, Net
Property and equipment consist of the following at December 31, 1998:
Computer equipment and software ......................... $121,601
Furniture and fixtures .................................. 28,892
--------
150,493
Less- Accumulated depreciation and amortization ......... 23,156
--------
$127,337
========
3. Accrued Expenses
Accrued expenses consist of the following at December 31, 1998:
Accrued Vacation ........................................ $ 15,835
Accrued Rent ............................................ 10,032
--------
Total ................................................. $ 25,867
========
4. Income Taxes
No provision for U.S. federal or state income taxes has been recorded for
the period from inception (March 4, 1998) to December 31, 1998 as the Company
has incurred an operating loss.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets for federal and state income taxes at
December 31, 1998 are as follows:
F-29
<PAGE>
Deferred tax assets, net:
Net operating loss carryforwards ......... $ 493,334
Other .................................... 5,000
----------
498,334
Less- Valuation allowance ................ (498,334)
----------
Deferred tax assets, net ................ $ --
==========
Realization of deferred tax assets is dependent upon future earnings, if
any. The Company has recorded a full valuation allowance against its deferred
tax assets since management believes that it is not more likely than not that
these assets will be realized. No income tax benefit has been recorded for the
period from inception (March 4, 1998) to December 31, 1998 as a result of the
valuation allowance.
As of December 31, 1998, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $1,229,000. There can be no
assurance that the Company will realize the benefit of the net operating loss
carryforwards. The federal net operating loss carryforwards are available to
offset future taxable income and expire in 2019 if not utilized.
5. Capital Lease Obligations
At December 31, 1998 the Company was committed under a capital lease
agreement for office equipment. The asset and liability under the capital lease
is recorded at the lower of the present value of minimum lease payments or the
fair market value of the asset. The interest rate on the capital lease was
approximately 1% at December 31, 1998.
Future minimum payments under the capital lease agreements are as follows:
Year ending December 31:
1999 ................................... $28,308
2000 ................................... 16,513
-------
Total minimum lease payments .......... 44,821
Less--
Amounts representing interest ......... 3,738
-------
41,083
Current portion ........................ 25,949
-------
Long-term portion ..................... $15,134
=======
6. Stockholders' Equity
Preferred Stock
The Company's stockholders authorized 5,000,000 shares of preferred stock.
The Company has designated 645,000 shares as Series A Preferred Stock and
495,049 shares as Series B Preferred Stock.
Series A Preferred
On April 1, 1998, the Company sold 645,000 shares of Series A Preferred
Stock for net proceeds of $645,000. The Series A Preferred Stock is convertible
into an equal number of common shares at the holder's option, subject to
adjustment for antidilution, and is automatically converted to common stock in
the event of a public offering of securities of the Company. The holders of
Series A Preferred Stock are entitled to receive dividends as and if declared
by the Board of Directors. In the event of liquidation or dissolution of the
Company, the holders of Series A Preferred Stock are entitled to receive all
accrued dividends, if applicable, plus a liquidation price per share of $1.00.
F-30
<PAGE>
Subject to certain provision, registration rights, as defined in the
Certificate of Designation of Series A Convertible Preferred Stock agreement,
may be exercised after the earlier of (a) the date specified by a vote or
written consent or agreement of holders of at least two-thirds of the shares of
Series A Preferred Stock then outstanding, approving such conversion, or (b)
the effective date of the first registration statement for a public offering of
securities of the Company.
Series B Preferred Stock
On December 8, 1998, the Company sold 412,541 shares of Series B Preferred
Stock for net proceeds of $2,500,000. The Series B Preferred Stock is
convertible into an equal number of common shares at the holder's option,
subject to adjustment for antidilution, and is automatically converted to
common stock in the event of a public offering of securities of the Company.
The holders of Series B Preferred Stock are entitled to receive dividends as
and if declared by the Board of Directors. In the event of liquidation or
dissolution of the Company, the holders of Series B Preferred Stock are
entitled to receive all accrued dividends, if applicable, plus a liquidation
price per share of $6.06. Certain of the Series B Preferred Stock holders also
received warrants to receive 41,254 common shares into Series B Convertible
Preferred Stock of the Company at a purchase price equal to $6.06 per share.
The warrants expire at the earlier of (a) 18 months after the effective date of
the registration statement for an initial public offering by the Company and
with a price per share of not less than $6.06 and (b) 60 months after the first
date set forth above.
Subject to certain provisions, registration rights, as defined in the
Certificate of Designation of Series B Convertible Preferred Stock agreement,
may be exercised after the earlier of (a) the date specified by vote or written
consent or agreement of holders of at least two-thirds of the shares of Series
B Preferred Stock then outstanding, approving such conversion, or (b) the
effective date of the first registration statement for a public offering of
securities of the Company.
Common Stock
The Company issued 1,186,667 common shares to its founders in April 1998
for total proceeds of $11,867.
7. Commitments
Operating Leases
The Company leases office space, equipment security and trash removal
services under operating leases expiring through February 29, 2004. At December
31, 1998, minimum lease commitments under noncancelable leases are as follows:
Equipment/
Year Office Services
- ---- ------------ -----------
1999 ............... $ 245,040 $2,225
2000 ............... 293,005 1,781
2001 ............... 299,480 1,194
2002 ............... 305,469 684
2003 ............... 320,818 342
Thereafter ......... 54,190 --
---------- ------
$1,518,002 $6,226
========== ======
Rent expense for the year ended December 31, 1998 was $97,545 for office
space.
Advertising and Sponsorship Contracts
The Company entered into several advertising and sponsorship agreements
with third parties, with terms ranging from one to six months whereby the
Company provides advertising in exchange for cash payments or goods. The goods
are used as awards for winning participants in the Company's online games and
sweepstakes. No revenue was earned on such contracts for the year ended
December 31, 1998.
F-31
<PAGE>
8. Stock Options
On April 1, 1998, in order to promote the interests of the Company and
retain persons necessary for the success of the Company, the Company adopted
its 1998 Stock Option Plan ("Option Plan") covering up to 150,000 shares,
pursuant to which employees (including officers), directors and independent
contractors of the Company and its present or future subsidiaries and
affiliates are eligible to receive incentive and/or nonstatutory stock options.
The Option Plan, which expires within ten years, will be administered by the
Plan Administrator. The selection of participants, allotment of units,
determination of price and other conditions relating to the purchase of options
will be determined by the Plan Administrator. Options granted under the Option
Plan are exercisable for a period of up to 10 years from the date of grant at
an exercise price, which may be less than, equal to or greater than the fair
market value per unit on the date of the grant. Incentive Options, however, may
only be granted to employees, the exercise price per share may not be less than
100% of the fair market value per share of common stock on the option grant
date, and for a stockholder owning more than 10% of the outstanding common
stock, its exercise price may not be less than 110% of the fair market value of
the common stock on the date of the grant.
Pursuant to SFAS No. 123, the Company has elected to account for its
Option Plan under APB Opinion No. 25, under which no compensation expense is
recognized for unit option awards granted at or above fair market value. In
1998, the Company granted 95,000 incentive stock options to various employees.
The option exercise price equals the stock's fair market value at the grant
date, and the options are exercisable over a four-year period, with 25% of
options granted becoming exercisable on the one-year anniversary of the grant
date and the remaining options becoming exercisable at the rate of 1/48 at the
end of each month thereafter. All options will terminate no later than 10 years
from the date of grant. Under SFAS No. 123, compensation cost is measured at
the grant date based on the fair value of the award and is recognized over the
service (or vesting) period. For the year ended December 31, 1998, the
compensation cost for this plan determined in accordance with SFAS No. 123, net
of compensation expense recognized under APB No. 25, is an immaterial amount.
As such the Company's pro-forma net loss has not been presented.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Number Weighted Average Weighted
Outstanding Remaining Average
Exercise Prices at December 31, 1998 Contractual Life Exercise Price
- ----------------- ---------------------- ------------------ ---------------
<S> <C> <C> <C>
$.01 ............ 40,000 9.56 $ .01
$.10............. 55,000 9.95 $ .10
------
95,000
======
</TABLE>
As of December 31, 1998, none of the outstanding options were exercisable.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 4.87 percent; expected dividend yield
of 0 percent; expected life of 5 years; expected volatility of 100 percent.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------
Weighted Average
Shares Exercise Price
----------- -----------------
<S> <C> <C>
Outstanding at beginning of period ..................... -- $ --
Granted ............................................... 95,000 .06
Cancelled ............................................. --
Terminated ............................................ --
Exercised ............................................. --
------
Outstanding at end of period ........................... 95,000 $ .06
====== =====
Options exercisable at end of period ................... --
======
Weighted average fair value of options granted ......... $ .05
========
</TABLE>
F-32
<PAGE>
9. Subsequent Events
On January 7, 1999, the Company issued additional 41,254 shares of Series
B Preferred stock for $250,000 in proceeds.
On April 29, 1999 the Company entered into a merger agreement with Uproar
Ltd., a Bermuda corporation, which is a provider of online entertainment and
game shows. Under the provisions of the merger agreement, each share of common
and preferred stock of the Company will be converted into and exchanged for
common stock of Uproar Ltd. based upon a stated conversion rate.
F-33
<PAGE>
[The Uproar.com logo running across the top of the page; colored circles of
varying sizes: within the circles are the following logos: "CABLE & WIRELESS";
"PEARSON TELEVISION"; "sky"; "TOWER RECORDS.com"; "Trans Cosmos USA";
"NetCreations"; "ADFORCE"; "avenue a"; and "free serve"; and the following
text: "Partners in . . . Branding, Content, Syndication, Distribution" appears
under the Uproar logo.]
<PAGE>
================================================================================
3,500,000 Shares
Uproar Inc.
Common Stock
[GRAPHIC OMITTED]
--------
P R O S P E C T U S
, 2000
--------
Salomon Smith Barney
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
Wit SoundView
================================================================================
<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.
Amount to
be Paid
-------------
SEC registration fee ................................... $ 31,134
NASD filing fee ........................................ 10,500
Nasdaq National Market listing fee ..................... 63,725
Legal fees and expenses ................................ 500,000
Accounting fees and expenses ........................... 300,000
Printing and related expenses .......................... 170,000
Blue sky fees and expenses ............................. 5,000
Transfer agent and registrar fees and expenses ......... 15,000
Miscellaneous .......................................... 404,641
----------
Total ............................................. $1,500,000
==========
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, or 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:
o for any breach of the director's duty of loyalty to the corporation or
its stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o arising under Section 174 of the DGCL; or
o 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
II-1
<PAGE>
registrant as a director or officer of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding.
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 December 31, 1999, the Registrant issued and
sold 20,384,028 shares of common stock at prices ranging from $0.04 to
$11.72 per share.
2. In 1997, the Registrant issued 1,774,600 shares of common stock upon the
conversion of convertible notes.
3. In 1997, the Registrant issued 289,080 shares of common stock upon the
exercise of options at a weighted average exercise price of $0.64.
4. In 1998, the Registrant issued 1,524,240 shares of common stock upon the
exercise of options at a weighted average exercise price of $0.77.
5. Since December 31, 1998, the Registrant issued 307,708 shares of common
stock upon the exercise of options at a weighted average exercise price of
$8.41 per share.
6. In February 2000, the Registrant completed the sale of 1,265,372 shares
of its common stock at approximately $19.76 per share to an accredited
investor for the aggregate purchase price of approximately $25,000,000.
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.
3.6+ Certificate of Domestication of Uproar Ltd.
3.7+ Certificate of Ownership and Merger of Uproar Inc. with and into Uproar (DE), Inc.
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.
10.1 1999 Share Option/Share Issuance 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.7+ Internet Game Development Agreement, dated as of 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 as of September 6, 1999, by and between Christopher R. Hassett and the
Registrant.
10.10 Stock Incentive Plan.
10.11+ Employment agreement, dated December 20, 1999, by and between Michael K. Simon and the Registrant.
10.12+ Employment agreement, dated as of October 25, 1999, by and between Robert D. Marafioti and the
Registrant.
10.13+ Employment agreement, dated as of October 25, 1999, by and between Jeffrey L. Strief and the
Registrant.
10.14+ Common Stock Purchase Agreement dated February 2, 2000, by and between the Registrant and Trans
Cosmos USA, Inc.
10.15+ Registration Rights Agreement dated February 2, 2000, by and between the Registrant and Trans Cosmos
USA, Inc.
16.1+ Letter from PricewaterhouseCoopers LLP:
21.1+ List of Subsidiaries.
23.1 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
23.2 Consent of KPMG LLP.
23.3 [Reserved]
23.4 Consent of Arthur Andersen LLP.
23.5 Consent of KPMG Hungaria Kft.
24.1+ Powers of attorney (see Signature Page).
27.1+ Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
+ Previously filed.
^ Confidential treatment for certain provisions has been granted by the
Commission. Omitted material for which confidential treatment has been
granted has been filed separately with the 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 Amendment No. 5 to the 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 16th day of
March 2000.
UPROAR INC.
By: /s/ Kenneth D. Cron
------------------------------------
Kenneth D. Cron
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 5 to the registration statement has been signed by the
following persons in the capacities indicated on March 16, 2000:
<TABLE>
<CAPTION>
Signature Title(s)
--------- --------
<S> <C>
/s/ Kenneth D. Cron Chairman of the Board of Directors and Chief
- ------------------------------------- Executive Officer (principal executive officer)
Kenneth D. Cron
* President, Chief Operating Officer and Director
- -------------------------------------
Christopher R. Hassett
* Chief Financial Officer and Director (principal
- ------------------------------------- accounting and financial officer)
Michael K. Simon
* Director
- -------------------------------------
Thompson B. Barnhardt
* Director
- -------------------------------------
Catherine V. Mackay
* Director
- -------------------------------------
Esther Dyson
* Director
- -------------------------------------
James J. Geddes, Jr.
*By: /s/ Kenneth D. Cron
- -------------------------------------
Kenneth D. Cron
Attorney-in-fact
</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.
3.6+ Certificate of Domestication of Uproar Ltd.
3.7+ Certificate of Ownership and Merger of Upoar Inc. with and into Uproar (DE) Inc.
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.
10.1 1999 Share Option/Share Issuance 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 as of 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 as of September 6, 1999, by and between Christopher R. Hassett and
the Registrant.
10.10 Stock Incentive Plan.
10.11+ Employment agreement, dated December 20, 1999, by and between Michael K. Simon and the
Registrant.
10.12+ Employment agreement, dated as of October 25, 1999, by and between Robert D. Marafioti and the
Registrant.
10.13+ Employment agreement, dated as of October 25, 1999, by and between Jeffrey L. Strief and the
Registrant.
10.14+ Common Stock Purchase Agreement dated February 2, 2000, by and between the Registrant and
Trans Cosmos USA, Inc.
10.15+ Registration Rights Agreement dated February 2, 2000, by and between the Registrant and Trans
Cosmos USA, Inc.
16.1+ Letter from PricewaterhouseCoopers LLP.
21.1+ List of Subsidiaries.
23.1 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
23.2 Consent of KPMG LLP.
23.3 [Reserved]
23.4 Consent of Arthur Andersen LLP.
23.5 Consent of KPMG Hungaria Kft.
24.1+ Powers of attorney (see Signature Page).
27.1+ Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
+ Previously filed.
^ Confidential treatment for certain provisions has been granted by the
Commission. Omitted material for which confidential treatment has been
granted has been filed separately with the Commission.
<PAGE>
Uproar Inc.
shares(1)
Common Stock
($.01 par value)
Underwriting Agreement
New York, New York
March [ ], 2000
Salomon Smith Barney Inc.
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
SoundView Technology Group, Inc.
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Uproar Inc., a corporation organized under the laws of
Delaware (the "Company"), proposes to sell to the several underwriters named in
Schedule I hereto (the "Underwriters"), for whom you (the "Representatives") are
acting as representatives, [3,500,000] shares of Common Stock, $.01 par value
(the "Common Stock") of the Company (said shares to be issued and sold by the
Company being hereinafter called the "Underwritten Securities"). The Company
also proposes to grant to the Underwriters an option to purchase up to [525,000]
additional shares of Common Stock to cover over- allotments (the "Option
Securities"; the Option Securities, together with the Underwritten Securities,
being hereinafter called the "Securities"). To the extent there are no
additional Underwriters listed on Schedule I other than you, the term
Representatives as used herein shall mean you, as Underwriters, and the terms
Representatives and Underwriters shall mean either the singular or plural as the
context requires. Certain terms used herein are defined in Section 17 hereof.
As part of the offering contemplated by this Agreement,
Salomon Smith Barney Inc. has agreed to reserve out of the Securities set forth
opposite its name on the Schedule I to this Agreement, up to [210,000] shares
for sale to the Company's employees, officers and directors and customers and
suppliers of the Company as well as individuals associated or affiliated with
the Company's directors, customers and suppliers (collectively,
- --------
(1) Plus an option to purchase from the Company up to additional
shares to cover over-allotments.
<PAGE>
2
"Participants"), as set forth in the Prospectus under the heading "Underwriting"
(the "Directed Share Program"). The Securities to be sold by Salomon Smith
Barney Inc. pursuant to the Directed Share Program (the "Directed Shares") will
be sold by Salomon Smith Barney Inc. pursuant to this Agreement at the public
offering price. Any Directed Shares not orally confirmed for purchase by any
Participants by the end of the business day on which this Agreement is executed
will be offered to the public by Salomon Smith Barney Inc. as set forth in the
Prospectus.
1. Representations and Warranties. The Company represents
and warrants to, and agrees with, each Underwriter as set forth below in this
Section 1.
(a) The Company has prepared and filed with the Commission a
registration statement (file number 333-93315) on Form S-1, including a
related preliminary prospectus, for registration under the Act of the
offering and sale of the Securities. The Company may have filed one or
more amendments thereto, including a related preliminary prospectus,
each of which has previously been furnished to you. The Company will
next file with the Commission either (1) prior to the Effective Date of
such registration statement, a further amendment to such registration
statement (including the form of final prospectus) or (2) after the
Effective Date of such registration statement, a final prospectus in
accordance with Rules 430A and 424(b). In the case of clause (2), the
Company has included in such registration statement, as amended at the
Effective Date, all information (other than Rule 430A Information)
required by the Act and the rules thereunder to be included in such
registration statement and the Prospectus. As filed, such amendment and
form of final prospectus, or such final prospectus, shall contain all
Rule 430A Information, together with all other such required
information and, except to the extent the Representatives shall agree
in writing to a modification, shall be in all substantive respects in
the form furnished to you prior to the Execution Time or, to the extent
not completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you, prior to
the Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did or
will, and when the Prospectus is first filed (if required) in
accordance with Rule 424(b) and on the Closing Date (as defined herein)
and on any date on which Option Securities are purchased, if such date
is not the Closing Date (a "settlement date"), the Prospectus (and any
supplements thereto) will, comply in all material respects with the
applicable requirements of the Act and the rules thereunder; on the
Effective Date and at the Execution Time, the Registration Statement
did not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and,
on the Effective Date, the Prospectus, if not filed pursuant to Rule
424(b), will not, and on the date of any filing pursuant to Rule 424(b)
and on the Closing Date and any settlement date , the Prospectus
(together with any supplement thereto) will not, include any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to
the information contained in or omitted from the Registration
Statement, or the Prospectus (or any supplement thereto) in
<PAGE>
3
reliance upon and in conformity with information furnished in writing
to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion in the Registration
Statement or the Prospectus (or any supplement thereto).
(c) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or
organized with full corporate power and authority to own or lease, as
the case may be, and to operate its properties and conduct its business
as described in the Prospectus, and is duly qualified to do business as
a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification.
[(d) All the outstanding shares of capital stock of each
subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of the subsidiaries
are owned by the Company either directly or through wholly owned
subsidiaries free and clear of any perfected security interest or any
other security interests, claims, liens or encumbrances.]
(e) The Company's authorized equity capitalization is as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and nonassessable; the
Securities have been duly and validly authorized, and, when issued and
delivered to and paid for by the Underwriters pursuant to this
Agreement, will be fully paid and nonassessable; the Securities are
duly listed, and admitted and authorized for trading, subject to
official notice of issuance and evidence of satisfactory distribution,
on the Nasdaq National Market [and on the European Association of
Securities Dealers' Automated Quotation system]; the certificates for
the Securities are in valid and sufficient form; the holders of
outstanding shares of capital stock of the Company are not entitled to
preemptive or other rights to subscribe for the Securities; and,
except as set forth in the Prospectus, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or rights
to convert any obligations into or exchange any securities for, shares
of capital stock of or ownership interests in the Company are
outstanding.
(f) There is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit thereto, which is not
described or filed as required.
(g) The statements in the Prospectus under the following
headings fairly summarize the matters therein described:
(i) "Risk Factors--Changes in government regulation
could adversely affect our business";
(ii) "Risk Factors--Our games and game shows are
subject to gaming regulations that are subject to
differing interpretation and legislative and
regulatory changes that could adversely affect our
ability to grow our business";
<PAGE>
4
(iii) "Risk Factors--User concerns and government
regulations regarding privacy may result in a
reduction in our user traffic";
(iv) "Risk Factors--If Congress adopts legislation
that bans online offshore casino gambling, we will
lose revenues derived from some of our advertisers
and, if we do not take appropriate measures to comply
with the law, may be subject to legal penalties";
(v) "Business--Government Regulation and Legal
Environment";
(vi) "Business--Intellectual Property and
Proprietary Rights";
(vii) "Business--Legal Proceedings";
(viii) "Description of Capital Stock--Antitakeover
Effects of Provisions of Delaware Law and Uproar's
Certificate Of Incorporation and Bylaws";
(ix) "Shares Eligible for Future Sale"; and
(x) "United States Tax Consequences to Non-U.S.
Holders".
(h) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation
of the Company enforceable in accordance with its terms.
(i) The Company is not and, after giving effect to the
offering and sale of the Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940, as amended.
(j) No consent, approval, authorization, filing with or order
of any court or governmental agency or body is required in connection
with the transactions contemplated herein , except such as have been
obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters in the manner
contemplated herein and in the Prospectus.
(k) Neither the issue and sale of the Securities nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries
pursuant to, (i) the charter or by-laws of the Company or any of its
subsidiaries, (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the
Company or any of its subsidiaries is a party or bound or to which its
or their property is subject, or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or any
of its subsidiaries of any court, regulatory body, administrative
agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its subsidiaries or any of its
or their properties.
(l) Other than Pearson Television, Inc. and Trans Cosmos USA,
Inc., as described in the Prospectus under the heading "Description of
Capital Stock--Registration Rights", no holders of securities of the
Company have rights to the registration of such securities, under the
Registration Statement or otherwise.
<PAGE>
5
(m) The consolidated historical financial statements and
schedules of the Company and its consolidated subsidiaries included in
the Prospectus and the Registration Statement present fairly in all
material respects the financial condition, results of operations and
cash flows of the Company as of the dates and for the periods
indicated, comply as to form with the applicable accounting
requirements of the Act and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as otherwise noted therein).
The selected financial data set forth under the caption "Selected
Consolidated Financial Information" in the Prospectus and Registration
Statement fairly present, on the basis stated in the Prospectus and the
Registration Statement, the information included therein.
(n) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property is pending
or, to the best knowledge of the Company, threatened that (i) could
reasonably be expected to have a material adverse effect on the
performance of this Agreement or the consummation of any of the
transactions contemplated hereby or (ii) could reasonably be expected
to have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto).
(o) Each of the Company and each of its subsidiaries owns or
leases all such properties as are necessary to the conduct of its
operations as presently conducted.
(p) Neither the Company nor any subsidiary is in violation or
default of (i) any provision of its charter or bylaws, (ii) the terms
of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which it is a party or bound or to which its
property is subject, or (iii) any statute, law, rule, regulation,
judgment, order or decree of any court, regulatory body, administrative
agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or such subsidiary or any of its
properties, as applicable.
(q) Each of KPMG Hungaria Kft., KPMG LLP and Arthur Andersen
LLP, who has certified certain financial statements of the Company and
its consolidated subsidiaries and delivered their report with respect
to the audited consolidated financial statements and schedules included
in the Prospectus, are independent public accountants with respect to
the Company within the meaning of the Act and the applicable published
rules and regulations thereunder.
(r) There are no transfer taxes or other similar fees or
charges under Federal law or the laws of any state, or any political
subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance by the Company
or sale by the Company of the Securities.
(s) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested
extensions thereof (except in any case in which the failure so to file
would not have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
<PAGE>
6
and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto)) and has paid all taxes required to be paid by it and any
other assessment, fine or penalty levied against it, to the extent that
any of the foregoing is due and payable, except for any such
assessment, fine or penalty that is currently being contested in good
faith or as would not have a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or properties
of the Company and its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(t) No labor problem or dispute with the employees of the
Company or any of its subsidiaries exists or is threatened or imminent,
and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or its subsidiaries'
principal suppliers, contractors or customers, that could have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto).
(u) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; all policies of insurance and
fidelity or surety bonds insuring the Company or any of its
subsidiaries or their respective businesses, assets, employees,
officers and directors are in full force and effect; the Company and
its subsidiaries are in compliance with the terms of such policies and
instruments in all material respects; and there are no claims by the
Company or any of its subsidiaries under any such policy or instrument
as to which any insurance company is denying liability or defending
under a reservation of rights clause; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(v) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary from
the Company or from transferring any of such subsidiary's property or
assets to the Company or any other subsidiary of the Company, except as
described in or contemplated by the Prospectus.
(w) The Company and its subsidiaries possess all licenses,
certificates, permits and other authorizations issued by the
appropriate federal, state or foreign regulatory authorities necessary
to conduct their respective businesses, and neither the Company nor any
such subsidiary has received any notice of proceedings relating
<PAGE>
7
to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto).
(x) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(y) The Company has not taken, directly or indirectly, any
action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(z) The Company and its subsidiaries are (i) in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received and are in
compliance with all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective
businesses and (iii) have not received notice of any actual or
potential liability for the investigation or remediation of any
disposal or release of hazardous or toxic substances or wastes,
pollutants or contaminants, except where such non-compliance with
Environmental Laws, failure to receive required permits, licenses or
other approvals, or liability would not, individually or in the
aggregate, have a material adverse change in the condition (financial
or otherwise), prospects, earnings, business or properties of the
Company and its subsidiaries, taken as a whole, whether or not arising
from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any supplement
thereto). Except as set forth in the Prospectus, neither the Company
nor any of the subsidiaries has been named as a "potentially
responsible party" under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
(aa) The Company has reasonably concluded that the associated
costs and liabilities of compliance with, or the effect of,
Environmental Laws on the business, operations and properties of the
Company [and its subsidiaries] would not, singly or in the aggregate,
have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto).
<PAGE>
8
[(bb) The Company has no plans (as defined in Section 3(3) of
the United States Employee Retirement Income Security Act of 1974
("ERISA")) subject to the minimum funding standards of ERISA and the
regulations and published interpretations thereunder.]
(cc) The subsidiaries listed on Annex A attached hereto are
the only significant subsidiaries of the Company as defined by Rule
1-02 of Regulation S-X (the "Subsidiaries").
(dd) The Company and its subsidiaries own, possess, license or
have other rights to use, on reasonable terms, all patents, patent
applications, trade and service marks, trade and service mark
registrations, trade names, copyrights, licenses, inventions, trade
secrets, technology, know-how and other intellectual property
(collectively, the "Intellectual Property") necessary for the conduct
of the Company's business as now conducted or as proposed in the
Prospectus to be conducted. Except as set forth in the Prospectus under
the captions "Risk Factors--We may be unable to protect our
intellectual property rights and we may be liable for infringing the
intellectual property rights of others" and "Business--Intellectual
Property and Proprietary Rights," (a) to the Company's best knowledge,
there are no rights of third parties to any such Intellectual Property;
(b) to the Company's best knowledge, there is no material infringement
by third parties of any such Intellectual Property; (c) there is no
pending or, to the Company's best knowledge, threatened action, suit,
proceeding or claim by others challenging the Company's rights in or to
any such Intellectual Property, and the Company is unaware of any facts
which would form a reasonable basis for any such claim; (d) there is no
pending or, to the Company's best knowledge, threatened action, suit,
proceeding or claim by others challenging the validity or scope of any
such Intellectual Property, and the Company is unaware of any facts
which would form a reasonable basis for any such claim; (e) there is no
pending or, to the Company's best knowledge, threatened action, suit,
proceeding or claim by others that the Company infringes or otherwise
violates any patent, trademark, copyright, trade secret or other
proprietary rights of others, and the Company is unaware of any other
fact which would form a reasonable basis for any such claim; (f) to the
Company's best knowledge, there is no U.S. patent or published U.S.
patent application which contains claims that dominate or may dominate
any Intellectual Property described in the Prospectus as being owned by
or licensed to the Company or that interferes with the issued or
pending claims of any such Intellectual Property; and (g) there is no
prior art of which the Company is aware that may render any U.S. patent
held by the Company invalid or any U.S. patent application held by the
Company unpatentable which has not been disclosed to the U.S. Patent
and Trademark Office.
(ee) Except as disclosed in the Registration Statement and the
Prospectus, the Company (i) does not have any material lending or other
relationship with any bank or lending affiliate of Salomon Smith Barney
Holdings Inc. and (ii) does not intend to use any of the proceeds from
the sale of the Securities hereunder to repay any outstanding debt owed
to any affiliate of Salomon Smith Barney Holding Inc.
(ff) Neither the Company nor any of its subsidiaries nor any
of its or their properties or assets has any immunity from the
jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment,
<PAGE>
9
attachment in aid of execution or otherwise) under the laws of the
States of New York or Delaware.
Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters in connection
with the offering of the Securities shall be deemed a representation and
warranty by the Company, as to matters covered thereby, to each Underwriter.
Furthermore, the Company represents and warrants to Salomon
Smith Barney Inc. that (i) the Registration Statement, the Prospectus and any
Preliminary Prospectus comply, and any further amendments or supplements thereto
will comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any Preliminary Prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share Program,
and that (ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the securities
laws and regulations of foreign jurisdictions in which the Directed Shares are
offered outside the United States.
2. Purchase and Sale. (a) Subject to the terms and conditions
and in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to each Underwriter, and each Underwriter agrees,
severally and not jointly, to purchase from the Company, at a purchase price of
$[ ] per share, the amount of the Underwritten Securities set forth opposite
such Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not jointly, up
to [525,000] Option Securities at the same purchase price per share as the
Underwriters shall pay for the Underwritten Securities. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in part
at any time (but not more than once) on or before the 30th day after the date of
the Prospectus upon written or telegraphic notice by the Representatives to the
Company setting forth the number of shares of the Option Securities as to which
the several Underwriters are exercising the option and the settlement date. The
number of Option Securities to be purchased by each Underwriter shall be the
same percentage of the total number of shares of the Option Securities to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Securities, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the
Underwritten Securities and the Option Securities (if the option provided for in
Section 2(b) hereof shall have been exercised on or before the third Business
Day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
[ ], 2000, or at such time on such later date not more than three Business Days
after the foregoing date as the Representatives shall designate, which date and
time may be postponed by agreement between the Representatives and the Company
or as provided in Section 9 hereof (such date and time of delivery and payment
for the Securities being herein called the "Closing Date"). Delivery of the
Securities shall be made to the Representatives for the respective accounts of
the several Underwriters against payment by the several Underwriters through the
Representatives of the purchase price thereof to or upon the order of the
Company by wire
<PAGE>
10
transfer payable in same-day funds to an account specified by the Company.
Delivery of the Underwritten Securities and the Option Securities shall be made
through the facilities of The Depository Trust Company unless the
Representatives shall otherwise instruct.
If the option provided for in Section 2(b) hereof is exercised
after the third Business Day prior to the Closing Date, the Company will deliver
the Option Securities (at the expense of the Company) to the Representatives, at
388 Greenwich Street, New York, New York, on the date specified by the
Representatives (which shall be within three Business Days after exercise of
said option) for the respective accounts of the several Underwriters, against
payment by the several Underwriters through the Representatives of the purchase
price thereof to or upon the order of the Company by wire transfer payable in
same-day funds to an account specified by the Company. If settlement for the
Option Securities occurs after the Closing Date, the Company will deliver to the
Representatives on the settlement date for the Option Securities, and the
obligation of the Underwriters to purchase the Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the
several Underwriters propose to offer the Securities for sale to the public as
set forth in the Prospectus.
5. Agreements. The Company agrees with the several
Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of
the Registration Statement or supplement to the Prospectus or any Rule
462(b) Registration Statement unless the Company has furnished you a
copy for your review prior to filing and will not file any such
proposed amendment or supplement to which you reasonably object.
Subject to the foregoing sentence, if the Registration Statement has
become or becomes effective pursuant to Rule 430A, or filing of the
Prospectus is otherwise required under Rule 424(b), the Company will
cause the Prospectus, properly completed, and any supplement thereto to
be filed with the Commission pursuant to the applicable paragraph of
Rule 424(b) within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. The Company
will promptly advise the Representatives (1) when the Registration
Statement, if not effective at the Execution Time, shall have become
effective, (2) when the Prospectus, and any supplement thereto, shall
have been filed (if required) with the Commission pursuant to Rule
424(b) or when any Rule 462(b) Registration Statement shall have been
filed with the Commission, (3) when, prior to termination of the
offering of the Securities, any amendment to the Registration Statement
shall have been filed or become effective, (4) of any request by the
Commission or its staff for any amendment of the Registration
Statement, or any Rule 462(b) Registration Statement, or for any
supplement to the Prospectus or for any additional information, (5) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (6) of the receipt
by the Company of any notifica tion with respect to the suspension of
the qualification of the Securities for sale in any jurisdiction or the
institution or threatening of any proceeding for such purpose. The
Company will use its best efforts to prevent the issuance of any such
stop order
<PAGE>
11
or the suspension of any such qualification and, if issued, to obtain
as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which the Prospectus as then supplemented would include
any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall
be necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act or the rules thereunder, the Company
promptly will (1) notify the Representatives of any such event, (2)
prepare and file with the Commission, subject to the second sentence of
paragraph (a) of this Section 5, an amendment or supplement which will
correct such statement or omission or effect such compliance and (3)
supply any supplemented Prospectus to you in such quantities as you may
reasonably request.
(c) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an
earnings statement or statements of the Company and its subsidiaries
which will satisfy the provisions of Section 11(a) of the Act and Rule
158 under the Act.
(d) The Company will furnish to the Representatives and
counsel for the Underwriters signed copies of the Registration
Statement (including exhibits thereto) and to each other Underwriter a
copy of the Registration Statement (without exhibits thereto) and, so
long as delivery of a prospectus by an Underwriter or dealer may be
required by the Act, as many copies of each Preliminary Prospectus and
the Prospectus and any supplement thereto as the Representatives may
reasonably request.
(e) The Company will arrange, if necessary, for the
qualification of the Securities for sale under the laws of such
jurisdictions as the Representatives may designate and will maintain
such qualifications in effect so long as required for the distribution
of the Securities; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not
now so qualified or to take any action that would subject it to service
of process in suits, other than those arising out of the offering or
sale of the Securities, in any jurisdiction where it is not now so
subject.
(f) The Company will not, without the prior written consent of
Salomon Smith Barney Inc., offer, sell, contract to sell, pledge, or
otherwise dispose of, (or enter into any transaction which is designed
to, or might reasonably be expected to, result in the disposition
(whether by actual disposition or effective economic disposition due to
cash settlement or otherwise) by the Company or any affiliate of the
Company or any person in privity with the Company or any affiliate of
the Company) directly or indirectly, including the filing (or
participation in the filing) of a registration statement with the
Commission in respect of, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the
meaning of Section 16 of the Exchange Act, any other shares of Common
Stock or any securities convertible into, or exercisable, or
exchangeable for, shares of Common Stock; or publicly announce an
intention to effect any such transaction, for a period of 180 days
after the date of this Underwriting Agreement, provided, however, that
the Company may issue and sell Common Stock pursuant to any
<PAGE>
12
employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the Execution Time and
the Company may issue Common Stock issuable upon the conversion of
securities or the exercise of warrants outstanding at the Execution
Time.
(g) The Company will not take, directly or indirectly, any
action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(h) The Company agrees to pay the costs and expenses relating
to the following matters: (i) the preparation, printing or reproduction
and filing with the Commission of the Registration Statement (including
financial statements and exhibits thereto), each Preliminary
Prospectus, the Prospectus, and each amendment or supplement to any of
them; (ii) the printing (or reproduction) and delivery (including
postage, air freight charges and charges for counting and packaging) of
such copies of the Registration Statement, each Preliminary Prospectus,
the Prospectus, and all amendments or supplements to any of them, as
may, in each case, be reasonably requested for use in connection with
the offering and sale of the Securities; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the
Securities, including any stamp or transfer taxes in connection with
the original issuance and sale of the Securities; (iv) the printing (or
reproduction) and delivery of this Agreement, any blue sky memorandum
and all other agreements or documents printed (or reproduced) and
delivered in connection with the offering of the Securities; (v) the
registration of the Securities under the Exchange Act and the listing
of the Securities on the Nasdaq National Market [and the European
Association of Securities Dealers' Automated Quotation System]; (vi)
any registration or qualification of the Securities for offer and sale
under the securities or blue sky laws of the several states (including
filing fees and the reasonable fees and expenses of counsel for the
Underwriters relating to such registration and qualification); (vii)
any filings required to be made with the National Association of
Securities Dealers, Inc. (including filing fees and the reasonable fees
and expenses of counsel for the Underwriters relating to such filings);
(viii) the transportation and other expenses incurred by or on behalf
of Company representatives in connection with presentations to
prospective purchasers of the Securities; (ix) the fees and expenses of
the Company's accountants and the fees and expenses of counsel
(including local and special counsel) for the Company; and (x) all
other costs and expenses incident to the performance by the Company of
its obligations hereunder.
(i) In connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent
required by the National Association of Securities Dealers, Inc. (the
"NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. Salomon Smith Barney Inc.
will notify the Company as to which Participants will need to be so
restricted. The Company will direct the removal of such transfer
restrictions upon the expiration of such period of time.
(j) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share
Program and stamp duties,
<PAGE>
13
similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program.
(k) The Company will not, without the prior written consent of
Salomon Smith Barney Inc., modify the terms of, or waive any of its
rights under, the lock-up letter agreement between the Company and
Pearson Television, Inc., dated February 16, 2000.
Furthermore, the Company covenants with Salomon Smith Barney
Inc. that the Company will comply with all applicable securities and other
applicable laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program.
6. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters to purchase the Underwritten Securities and the
Option Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the Execution Time, the Closing Date and any settlement date pursuant to Section
3 hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective
prior to the Execution Time, unless the Representatives agree in
writing to a later time, the Registration Statement will become
effective not later than (i) 6:00 PM New York City time on the date of
determination of the public offering price, if such determination
occurred at or prior to 3:00 PM New York City time on such date or (ii)
9:30 AM on the Business Day following the day on which the public
offering price was determined, if such determination occurred after
3:00 PM New York City time on such date; if filing of the Prospectus,
or any supplement thereto, is required pursuant to Rule 424(b), the
Prospectus, and any such supplement, will be filed in the manner and
within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or threatened.
(b) The Company shall have requested and caused Brobeck,
Phleger & Harrison LLP, counsel for the Company, to have furnished to
the Representatives their opinion, dated the Closing Date and addressed
to the Representatives, to the effect that:
(i) each of the Company and [MATERIAL SUBSIDIARIES]
(individually a "Subsidiary" and collectively the
"Subsidiaries") has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the jurisdiction in which it is chartered or organized, with
full corporate power and authority to own or lease, as the
case may be, and to operate its properties and conduct its
business as described in the Prospectus, and is duly qualified
to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires
such qualification;
(ii) all the outstanding shares of capital stock of
each Subsidiary have been duly and validly authorized and
issued and are fully paid and
<PAGE>
14
nonassessable, and, except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of the
Subsidiaries are owned by the Company either directly or
through wholly owned subsidiaries free and clear of any
perfected security interest and, to the knowledge of such
counsel, after due inquiry, any other security interest,
claim, lien or encumbrance;
(iii) the Company's authorized equity capitalization is
as set forth in the Prospectus; the capital stock of the
Company conforms in all material respects to the description
thereof contained in the Prospectus; the outstanding shares of
Common Stock have been duly and validly authorized and issued
and are fully paid and nonassessable; the Securities have been
duly and validly authorized, and, when issued and delivered to
and paid for by the Underwriters pursuant to this Agreement,
will be fully paid and nonassessable; the Securities are duly
listed, and admitted and authorized for trading, subject to
official notice of issuance and evidence of satisfactory
distribution, on the Nasdaq National Market [and on the
European Association of Securities Dealers' Automated
Quotation system]; the certificates for the Securities are in
valid and sufficient form; the holders of outstanding shares
of capital stock of the Company are not entitled to preemptive
or other rights to subscribe for the Securities and, except as
set forth in the Prospectus, no options, warrants or other
rights to purchase, agreements or other obligations to issue,
or rights to convert any obligations into or exchange any
securities for, shares of capital stock of or ownership
interests in the Company are outstanding;
(iv) to the knowledge of such counsel, there is no
pending or threatened action, suit or proceeding by or before
any court or governmental agency, authority or body or any
arbitrator involving the Company or any of its subsidiaries or
its or their property of a character required to be disclosed
in the Registration Statement which is not adequately
disclosed in the Prospectus, and there is no franchise,
contract or other document of a character required to be
described in the Registration Statement or Prospectus, or to
be filed as an exhibit thereto, which is not described or
filed as required.
(v) the statements included in the Prospectus under the
following headings fairly summarize the matters therein
described:
(1) "Risk Factors--If Congress adopts legislation that
bans online offshore casino gambling, we will lose
revenues derived from some of our advertisers and, if
we do not take appropriate measures to comply with the
law, may be subject to legal penalties";
(2) "Business--Government Regulation and Legal
Environment";
(3) "Business--Legal Proceedings";
(4) "Description of Capital Stock--Antitakeover Effects
of Provisions of Delaware Law and Uproar's Certificate
Of Incorporation and Bylaws";
(5) "Shares Eligible for Future Sale"; and
(6) "United States Tax Consequences to Non-U.S.
Holders".
(vi) the Registration Statement has become effective
under the Act; any required filing of the Prospectus, and any
supplements thereto, pursuant
<PAGE>
15
to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); to the knowledge of such
counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for
that purpose have been instituted or threatened and the
Registration Statement and the Prospectus (other than the
financial state ments and other financial information
contained therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
applicable requirements of the Act and the rules thereunder;
and such counsel has no reason to believe that, on the
Effective Date or on the date the Registration Statement was
last deemed amended, the Registration Statement contained any
untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading or that the
Prospectus as of its date and on the Closing Date included or
includes any untrue statement of a material fact or omitted or
omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading (in each case, other than
the financial statements and other financial information
contained therein, as to which such counsel need express no
opinion);
(vii) this Agreement has been duly authorized,
executed and delivered by the Company;
(viii) the Company is not and, after giving effect to
the offering and sale of the Securities and the application of
the proceeds thereof as described in the Prospectus, will not
be, an "investment company" as defined in the Investment
Company Act of 1940, as amended;
(ix) no consent, approval, authorization, filing with
or order of any court or governmental agency or body is
required in connection with the transactions contemplated
herein, except such as have been obtained under the Act and
such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution
of the Securities by the Underwriters in the manner
contemplated in this Agreement and in the Prospectus and such
other approvals (specified in such opinion) as have been
obtained;
(x) neither the issue and sale of the Securities, nor
the consummation of any other of the transactions herein
contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation of or
imposition of any lien, charge or encumbrance upon any
property or assets of the Company or its subsidiaries pursuant
to, (i) the charter or by-laws of the Company or its
subsidiaries, (ii) the terms of any indenture, contract,
lease, mortgage, deed of trust, note agreement, loan agreement
or other agreement, obligation, condition, covenant or
instrument to which the Company or its subsidiaries is a party
or bound or to which its or their property is subject, or
(iii) any statute, law, rule, regulation, judgment, order or
decree applicable to the Company or its subsidiaries of any
court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over
the Company or its subsidiaries or any of its or their
properties; and
<PAGE>
16
(xi) no holders of securities of the Company have
rights to the registration of such securities under the
Registration Statement.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the
States of Delaware and New York or the Federal laws of the United
States, to the extent they deem proper and specified in such opinion,
upon the opinion of other counsel of good standing whom they believe to
be reliable and who are satisfactory to counsel for the Underwriters
and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public
officials. References to the Prospectus in this paragraph (b) include
any supplements thereto at the Closing Date.
(c) The Company shall have requested and caused Hall, Dickler,
Kent, Friedman & Wood LLP, special regulatory counsel to the Company,
to furnish to the Representatives their opinion, dated the Closing Date
and addressed to the Representatives, substantially in the form of
Exhibit B hereto.
(d) The Representatives shall have received from Cravath,
Swaine & Moore, counsel for the Underwriters, such opinion or opinions,
dated the Closing Date and addressed to the Representatives, with
respect to the issuance and sale of the Securities, the Registration
Statement, the Prospectus (together with any supplement thereto) and
other related matters as the Representatives may reasonably require,
and the Company shall have furnished to such counsel such documents as
they request for the purpose of enabling them to pass upon such
matters.
(e) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the
Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectus, any supplements to the Prospectus and this Agreement and
that:
(i) the representations and warranties of the Company
in this Agreement are true and correct on and as of the
Closing Date with the same effect as if made on the Closing
Date and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or, to the Company's best
knowledge, threatened; and
(iii) since the date of the most recent financial
statements included in the Prospectus (exclusive of any
supplement thereto), there has been no material adverse effect
on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
<PAGE>
17
(f) The Company shall have requested and caused KPMG LLP to
have furnished to the Representatives, at the Execution Time and at the
Closing Date, letters, dated respectively as of the Execution Time and
as of the Closing Date, in form and substance satisfactory to the
Representatives, confirming that they are independent accountants
within the meaning of the Act and the applicable rules and regulations
adopted by the Commission thereunder and stating in effect that:
(i) in their opinion the audited financial statements
and financial statement schedules included in the Registration
Statement and the Prospectus and reported on by them comply as
to form in all material respects with the applicable
accounting requirements of the Act and the related rules and
regulations adopted by the Commission;
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company and its
subsidiaries; carrying out certain specified procedures (but
not an examination in accordance with generally accepted
auditing standards) which would not necessarily reveal matters
of significance with respect to the comments set forth in such
letter; a reading of the minutes of the meetings of the
directors, [stockholders and audit] committees of the Company
and the Subsidiaries; and inquiries of certain officials of
the Company who have responsibility for financial and
accounting matters of the Company and its subsidiaries as to
transactions and events subsequent to December 31, 1999,
nothing came to their attention which caused them to believe
that:
(1) with respect to the period subsequent to December
31, 1999, there were any changes, at a specified date
not more than five days prior to the date of the
letter, in the working capital of the Company and its
subsidiaries or total assets of the Company or
decreases in the stockholders' equity of the Company as
compared with the amounts shown on the December 31,
1999, consolidated balance sheet included in the
Registration Statement and the Prospectus, or for the
period from January 1, 2000, to such specified date
there were any decreases, as compared with the
corresponding period in the preceding quarter, in
revenues, or increases, as compared with the
corresponding period in the preceding quarter, in loss
from operations, net loss or basic and diluted loss per
share for the Company and its subsidiaries, except in
all instances for changes, decreases or increases set
forth in such letter, in which case the letter shall be
accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not
deemed necessary by the Representatives;
(2) the information included in the Registration
Statement and Prospectus in response to Regulation S-K,
Item 301 (Selected Financial Data), Item 302
(Supplementary Financial Information) and Item 402
(Executive Compensation) is not in conformity with the
applicable disclosure requirements of Regulation S-K;
and
(iii) they have performed certain other specified
procedures as a result of which they determined that certain
information of an accounting, financial or statistical nature
(which is limited to accounting, financial or statistical
<PAGE>
18
information derived from the general accounting records of the
Company and its subsidiaries) set forth in the Registration
Statement and the Prospectus , including the information set
forth under the captions "Prospectus Summary--Summary
Consolidated Financial and Operating Data", "Risk Factors",
"Dilution", "Selected Consolidated Financial Data",
"Capitalization", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Business" and
"Management" in the Prospectus, agrees with the accounting
records of the Company and its subsidiaries, excluding any
questions of legal interpretation.
References to the Prospectus in this paragraph (f) include any
supplement thereto at the date of the letter.
(g) The Company shall have requested and caused Arthur
Andersen LLP to have furnished to the Representatives, at the Execution
Time, a letter in form and substance satisfactory to the
Representatives, confirming that they are independent accountants
within the meaning of the Act and the applicable rules and regulations
adopted by the Commission thereunder and stating in effect that:
(i) in their opinion the audited financial statements
and financial statement schedules included in the Registration
Statement and the Prospectus and reported on by them comply as
to form in all material respects with the applicable
accounting requirements of the Act and the related rules and
regulations adopted by the Commission;
(h) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto), there shall not have been (i) any change or
decrease specified in the letter or letters referred to in paragraph
(f) of this Section 6 or (ii) any change, or any development involving
a prospective change, in or affecting the condition (financial or
otherwise), earnings, business or properties of the Company and its
subsidiaries taken as a whole, whether or not arising from transactions
in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto)
the effect of which, in any case referred to in clause (i) or (ii)
above, is, in the sole judgment of the Representatives, so material and
adverse as to make it impractical or inadvisable to proceed with the
offering or delivery of the Securities as contemplated by the
Registration Statement (exclusive of any amendment thereof) and the
Prospectus (exclusive of any supplement thereto).
(i) The Securities shall have been listed and admitted and
authorized for trading on the Nasdaq National Market [and the European
Association of Securities Dealers' Automated Quotation system], and
satisfactory evidence of such actions shall have been provided to the
Representatives.
(j) At the Execution Time, the Company shall have furnished to
the Representatives a letter substantially in the form of Exhibit A
hereto, from each officer and director of the Company, Pearson
Television, Inc. and [certain other stockholders listed on Schedule I
hereto], addressed to the Representatives.
<PAGE>
19
[(k) At the Execution Time, the Company shall have caused the
trading symbol for its common stock then trading on the European
Association of Securities Dealers' Automated Quotation system to be
modified to reflect such common stock's restricted nature under the
Securities Act of 1933.]
(l) Prior to the Closing Date, the Company shall have
furnished to the Representatives such further information, certificates
and documents as the Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancelation shall be given to the Company in
writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall
be delivered at the offices of [Cravath, Swaine & Moore, counsel for the
Underwriters, at Worldwide Plaza, 825 Eighth Avenue, New York, NY 10019], on the
Closing Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally through Salomon Smith Barney Inc. on demand for all out-of-pocket
expenses (including reasonable fees and disbursements of counsel) that shall
have been incurred by them in connection with the proposed purchase and sale of
the Securities.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter, the directors, officers, employees
and agents of each Underwriter and each person who controls any Underwriter
within the meaning of either the Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement for the registration of
the Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectus, or in any amend ment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any
<PAGE>
20
Underwriter through the Representatives specifically for inclusion therein. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) The Company agrees to indemnify and hold harmless Salomon
Smith Barney Inc., the directors, officers, employees and agents of Salomon
Smith Barney Inc. and each person, who controls Salomon Smith Barney Inc. within
the meaning of either the Act or the Exchange Act, against any and all losses,
claims, damages and liabilities to which they may become subject under the Act,
the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims damages or liabilities
(or actions in respect thereof) (i) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
prospectus wrapper material prepared by or with the consent of the Company for
distribution in foreign jurisdictions in connection with the Directed Share
Program attached to the Prospectus or any Preliminary Prospectus, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
therein, when considered in conjunction with the Prospectus or any applicable
Preliminary Prospectus, not misleading; (ii) caused by the failure of any
Participant to pay for and accept delivery of the securities which immediately
following the Effective Date of the Registration Statement, were subject to a
properly confirmed agreement to purchase; or (iii) related to, arising out of,
or in connection with the Directed Share Program, provided that, the Company
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of Salomon Smith Barney Inc. specifically for inclusion
therein.
(c) Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signs the Registration Statement, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter, but only
with reference to written information relating to such Underwriter furnished to
the Company by or on behalf of such Underwriter through the Representatives
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any Underwriter may otherwise have. The Company acknowledges that the statements
set forth in the last paragraph of the cover page regarding delivery of the
Securities, and, under the heading "Underwriting", (i) the list of Underwriters
and their respective participation in the sale of the Securities, (ii) the
sentences related to concessions and reallowances and (iii) the paragraphs
related to stabilization, syndicate covering transactions and penalty bids in
any Preliminary Prospectus and the Prospectus constitute the only information
furnished in writing by or on behalf of the several Underwriters for inclusion
in any Preliminary Prospectus or the Prospectus.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a), (b) or (c) above unless
and to the extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party
<PAGE>
21
other than the indemnification obligation provided in paragraph (a), (b) or (c)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
satisfactory to the indemnified party. Notwithstanding the indemnifying party's
election to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees, costs
and expenses of such separate counsel if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding. Notwithstanding anything contained herein to the contrary,
if indemnity may be sought pursuant to Section 8(b) hereof in respect of such
action or proceeding, then in addition to such separate firm for the indemnified
parties, the indemnifying party shall be liable for the reasonable fees and
expenses of not more than one separate firm (in addition to any local counsel)
for Salomon Smith Barney Inc., the directors, officers, employees and agents of
Salomon Smith Barney Inc., and all persons, if any, who control Salomon Smith
Barney Inc. within the meaning of either the Act or the Exchange Act for the
defense of any losses, claims, damages and liabilities arising out of the
Directed Share Program.
(e) In the event that the indemnity provided in paragraph (a),
(b) or (c) of this Section 8 is unavailable to or insufficient to hold harmless
an indemnified party for any reason, the Company and the Underwriters severally
agree to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which the Company
and one or more of the Underwriters may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and by the Underwriters on the other from the offering of the Securities;
provided, however, that in no case shall any Underwriter (except as may be
provided in any agreement among underwriters relating to the offering of the
Securities) be responsible for any amount in excess of the underwriting discount
or commission applicable to the Securities purchased by such Underwriter
hereunder. If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the Company and the Underwriters severally shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
of the Underwriters on the other in connection with the statements or omissions
which resulted in such Losses as well as any
<PAGE>
22
other relevant equitable considerations. Benefits received by the Company shall
be deemed to be equal to the total net proceeds from the offering (before
deducting expenses) received by it, and benefits received by the Underwriters
shall be deemed to be equal to the total underwriting discounts and commissions,
in each case as set forth on the cover page of the Prospectus. Relative fault
shall be determined by reference to, among other things, whether any untrue or
any alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information provided by the Company
on the one hand or the Underwriters on the other, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contribution were determined by
pro rata allocation or any other method of allocation which does not take
account of the equitable considerations referred to above. Notwith standing the
provisions of this paragraph (e), no person guilty of fraudulent misrepre
sentation (within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person who controls an
Underwriter within the meaning of either the Act or the Exchange Act and each
director, officer, employee and agent of an Underwriter shall have the same
rights to contribution as such Underwriter, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, each officer
of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (e).
9. Default by an Underwriter. If any one or more Underwriters
shall fail to purchase and pay for any of the Securities agreed to be purchased
by such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
five Business Days, as the Representatives shall determine in order that the
required changes in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any, to
the Company and any nondefaulting Underwriter for damages occasioned by its
default hereunder.
10. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Representatives, by notice given
to the Company prior to delivery of and payment for the Securities, if at any
time prior to such time (i) trading in the Company's Common Stock shall have
been suspended by the Commission, the Nasdaq National Market [or the European
Association of Securities Dealers' Automated Quotation system ("EASDAQ")], or
trading in securities generally on the New York Stock Exchange,
<PAGE>
23
the Nasdaq National Market [or EASDAQ] shall have been suspended or limited or
minimum prices shall have been established on [any] such Exchange or National
Market, (ii) a banking moratorium shall have been declared either by Federal or
New York State authorities or (iii) there shall have occurred any outbreak or
escalation of hostilities, declaration by the United States of a national
emergency or war or other calamity or crisis the effect of which on financial
markets is such as to make it, in the sole judgment of the Representatives,
impractical or inadvisable to proceed with the offering or delivery of the
Securities as contemplated by the Prospectus (exclusive of any supplement
thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors, employees, agents or controlling persons referred to in
Section 8 hereof, and will survive delivery of and payment for the Securities.
The provisions of Sections 7 and 8 hereof shall survive the termination or
cancelation of this Agreement.
12. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the Representatives, will be
mailed, delivered or telefaxed to the Salomon Smith Barney Inc. General Counsel
(fax no.:(212) 816-7912) and confirmed to the General Counsel, Salomon Smith
Barney Inc., at 388 Greenwich Street, New York, New York 10013, Attention:
General Counsel; or, if sent to the Company, will be mailed, delivered or
telefaxed to the Uproar Inc. General Counsel (fax no.: (212) 279-8892 and
confirmed to the General Counsel, Uproar Inc., at 240 West 35th Street, 9th
Floor, New York, NY 10001, Attention: Legal Department.
13. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers, directors, employees, agents and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation
hereunder.
14. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for
convenience only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this
Agreement, shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
<PAGE>
24
"Business Day" shall mean any day other than a Saturday, a
Sunday or a legal holiday or a day on which banking institutions or
trust companies are authorized or obligated by law to close in New York
City.
"Commission" shall mean the Securities and Exchange
Commission.
"Effective Date" shall mean each date and time that the
Registration Statement, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become
effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph 1(a) above and any preliminary prospectus
included in the Registration Statement at the Effective Date that omits
Rule 430A Information.
"Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the
Execution Time or, if no filing pursuant to Rule 424(b) is required,
shall mean the form of final prospectus relating to the Securities
included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at
the Execution Time, in the form in which it shall become effective)
and, in the event any post-effective amendment thereto or any Rule
462(b) Registration Statement becomes effective prior to the Closing
Date, shall also mean such registration statement as so amended or such
Rule 462(b) Registration Statement, as the case may be. Such term shall
include any Rule 430A Information deemed to be included therein at the
Effective Date as provided by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules
under the Act.
"Rule 430A Information" shall mean information with respect to
the Securities and the offering thereof permitted to be omitted from
the Registration Statement when it becomes effective pursuant to Rule
430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b)
relating to the offering covered by the registration statement referred
to in Section 1(a) hereof.
<PAGE>
25
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company and the several Underwriters.
Very truly yours,
Uproar Inc.
By:__________________________
Name:
Title:
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
Salomon Smith Barney Inc.
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
SoundView Technology Group, Inc.
By: Salomon Smith Barney Inc.
By:________________________
Name:
Title:
For themselves and the other
several Underwriters
named in Schedule I to the
foregoing Agreement.
<PAGE>
26
SCHEDULE I
Number of Underwritten
Underwriters Securities to be Purchased
- ------------ --------------------------
Salomon Smith Barney Inc................................
Bear, Stearns & Co. Inc.................................
Banc of America Securities LLC..........................
SoundView Technology Group, Inc.........................
-------------------------
Total . . . . . . . . .
<PAGE>
[Form of Lock-Up Agreement] EXHIBIT A
[Letterhead of officer, director or
[shareholder] of Uproar Inc.]
Uproar Inc.
Public Offering of Common Stock
[ ], 2000
Salomon Smith Barney Inc.
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
SoundView Technology Group, Inc.
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the
proposed Underwriting Agreement (the "Underwriting Agreement"), between Uproar
Inc., a Delaware corporation (the "Company"), and each of you as representatives
of a group of Underwriters named therein, relating to an underwritten public
offering of Common Stock, $.01 par value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter
into the Underwriting Agreement, the undersigned will not, without the prior
written consent of Salomon Smith Barney Inc., offer, sell, contract to sell,
pledge or otherwise dispose of, (or enter into any transaction which is designed
to, or might reasonably be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise)) directly or indirectly, including the filing (or participation in
the filing of) a registration statement with the Securities and Exchange
Commission in respect of, or establish or increase a put equivalent position or
liquidate or decrease a call equivalent position within the meaning of Section
16 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder
with respect to, any shares of capital stock of the Company or any securities
convertible into or exercisable or exchangeable for such capital stock, or
publicly announce an intention to effect any such transaction, for a period of
[180] days after the date of the Underwriting Agreement, other than shares of
Common Stock disposed of as bona fide gifts approved by Salomon Smith Barney
Inc.
<PAGE>
2
If for any reason the Underwriting Agreement shall be
terminated prior to the Closing Date (as defined in the Underwriting Agreement),
the agreement set forth above shall likewise be terminated.
Yours very truly,
[Signature of officer, director [or stockholder]]
[Name and address of officer, director or major
stockholder]
<PAGE>
[Form of Regulatory Counsel Opinion] EXHIBIT B
The Company shall have requested and caused Hall, Dickler, Kent,
Friedman & Wood, special regulatory counsel to the Company, to furnish to the
Representatives their opinion, dated the Closing Date and addressed to the
Representatives, to the effect that:
(a) Such counsel has reviewed the statements in the Prospectus under
the headings:
(i) "Risk Factors--Changes in government regulation
could adversely affect our business";
(ii) "Risk Factors--Our games and game shows are
subject to gaming regulations that are subject to
differing interpretation and legislative and regulatory
changes that could adversely affect our ability to
grgrowur business";
(iii) "Risk Factors--User concerns and government
regulations regarding privacy may result in a reduction
in our user traffic";
(iv) "Risk Factors--If Congress adopts legislation that
bans online offshore casino gambling, we will lose
revenues derived from some of our advertisers and, if
we do not take appropriate measures to comply with the
law, may be subject to legal penalties";
(v) "Business--Government Regulation and Legal
Environment"
(collectively, the "Statements") and the Statements fairly and accurately
summarize the Internet, Internet gaming and electronic commerce regulatory
matters therein described.
(b) The Company possesses all licenses, certificates, permits and other
authorizations from the appropriate federal and state regulatory authorities
necessary to conduct its full line of Internet offerings, including its games,
game shows and electronic commerce offerings. The Company has not received any
notice of proceedings relating to the revocation or modification of any such
license, certificate, permit or authorization which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company, whether or not
arising from transactions in the ordinary course of business.
(c) To the knowledge of such counsel, there is no pending or threatened
action, suit or proceeding by or before or any federal or state regulatory
agency involving the Company or its property of a character required to be
disclosed in the Registration Statement that is not adequately disclosed in the
Prospectus.
(d) Neither the execution and delivery of the Underwriting Agreement or
the filing of the Registration Statement, nor the issue and sale of the
Securities contemplated thereby nor the consummation of any of the other
transactions contemplated thereby will conflict with or result in a violation of
any order, license, certificate, permit, rule, decision or regulation of any
government agency in the states of New York and Delaware or, to such Counsel's
knowledge, any other state regulatory agency applicable to the Company.
<PAGE>
UPROAR.COM
NUMBER SHARES
UP
SEE REVERSE FOR CUSIP 916706 10 4
CERTAIN DEFINITIONS Uproar Inc. ISIN US9167061046
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.01
PER SHARE, OF
================================= Uproar Inc. ==================================
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney, upon surrender of this Certificate, properly
endorsed.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Robert D. Marafioti /s/ Kenneth D. Cron
---------------------- ---------------------
EXECUTIVE VICE PRESIDENT, CHAIRMAN OF THE BOARD
GENERAL COUNSEL AND SECRETARY AND CHIEF EXECUTIVE OFFICER
Uproar Inc.
CORPORATE
SEAL
1997
DELAWARE
X
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-__________Custodian_____________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act_____________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,______________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated____________________
________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THIS
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATSOEVER, AND MUST BE GUARANTEED BY AN
ELIGIBLE INSTITUTION (AS DEFINED IN RULE
17Ad-15 UNDER THE SECURITIES EXCHANGE ACT OF
1934) WHICH MAY INCLUDE A COMMERCIAL BANK,
TRUST COMPANY OR SAVINGS ASSOCIATION, CREDIT
UNION OR MEMBER OF THE AMERICAN STOCK EXCHANGE,
NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE
OR MIDWEST STOCK EXCHANGE.
<PAGE>
[LOGO]
1633 BROADWAY, 47TH FLOOR
NEW YORK
TELEPHONE: (212) 581-1600 NEW YORK 10019
FACSIMILE: (212) 586-7878 www.brobeck.com
March 16, 2000
Uproar Inc.
240 West 35th Street
9th Floor
New York, NY 10001
Re: Uproar Inc. - Registration Statement on Form S-1
(No. 333-93315)
Dear Ladies and Gentlemen:
We have acted as counsel to Uproar Inc., a Delaware
corporation (the "Company"), in connection with the proposed issuance and sale
by the Company of up to an aggregate of 4,025,000 shares of the Company's Common
Stock, par value $0.01 per share (the "Shares"), pursuant to the Company's
Registration Statement on Form S-1 (No. 333-93315) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the
requirements of Item 16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the
corporate proceedings taken by the Company in connection with the issuance and
sale of the Shares. Based on such review, we are of the opinion that the Shares
have been duly authorized, and if, as and when issued in accordance with the
Registration Statement and the related prospectus (as amended and supplemented
through the date of issuance) will be legally issued, fully paid and
nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus which is part of the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the Act,
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder, or Item 509 of Regulation S-K.
This opinion letter is rendered as of the date first written
above and we disclaim any obligation to advise you of facts, circumstances,
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company or the Shares.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
------------------------------------
BROBECK, PHLEGER & HARRISON LLP
SAN FRANCISCO PALO ALTO LOS ANGELES ORANGE COUNTY
SAN DIEGO NEW YORK AUSTIN DENVER LONDON*
*BROBECK HALE AND DORR INTERNATIONAL OFFICE
<PAGE>
EXHIBIT 10.1
UPROAR LTD.
1999 SHARE OPTION/SHARE ISSUANCE PLAN
(As Amended and Restated as of September 2, 1999)
Article One
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1999 Share Option/Share Issuance Plan is intended to
promote the interests of Uproar Ltd., a Bermuda corporation, by providing
eligible persons in the Corporation's employ or service with the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to continue in such employ
or service.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate equity programs:
(i) the Option Grant Program under which eligible persons may,
at the discretion of the Plan Administrator, be granted options to
purchase Shares, and
(ii) the Share Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued Shares
directly, either through the immediate purchase of such shares or as a
bonus for services rendered the Corporation (or any Parent or
Subsidiary).
B. The provisions of Articles One and Four shall apply to both equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Plan and to make such
determinations under, and issue such interpretations of, the Plan and any
outstanding options or Share issuances thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator shall be final and binding on all
parties who have an interest in the Plan or any option or Share issuance
thereunder.
<PAGE>
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board and the non-employee
members of the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine, (i)
with respect to the grants made under the Option Grant Program, which eligible
persons are to receive the option grants, the time or times when those grants
are to be made, the number of shares to be covered by each such grant, the
status of the granted option as either an Incentive Option or a Non-Statutory
Option, the time or times when each option is to become exercisable, the vesting
schedule (if any) applicable to the option shares and the maximum term for which
the option is to remain outstanding and (ii) with respect to Share issuances
made under the Share Issuance Program, which eligible persons are to receive
Share issuances, the time or times when those issuances are to be made, the
number of shares to be issued to each Participant, the vesting schedule (if any)
applicable to the issued shares and the consideration to be paid by the
Participant for such shares.
C. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Option Grant Program or to effect Share
issuances in accordance with the Share Issuance Program.
V. SHARES SUBJECT TO THE PLAN
A. The Share issuable under the Plan shall be shares of authorized but
unissued or reacquired Shares. The maximum number of Shares which may be issued
over the term of the Plan shall not exceed 2,200,000 shares.
B. Shares subject to outstanding options shall be available for
subsequent issuance under the Plan to the extent (i) the options expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the option exercise or direct issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of Shares reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct Share issuances under the Plan.
2
<PAGE>
C. Should any change be made to the Shares by reason of any share
split, share dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Shares as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made to
(i) the maximum number and/or class of securities issuable under the Plan and
(ii) the number and/or class of securities and the exercise price per share in
effect under each outstanding option in order to prevent the dilution or
enlargement of benefits thereunder. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive. In no event shall any such
adjustments be made in connection with the conversion of one or more outstanding
shares of the Corporation's preferred shares into Shares.
3
<PAGE>
ARTICLE TWO
OPTION GRANT PROGRAM
--------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator and may be less than, equal to or greater than the Fair Market
Value per Share on the option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Four and the
documents evidencing the option, be payable in cash or check made payable to the
Corporation. Should the Shares be registered under Section 12 of the 1934 Act at
the time the option is exercised, then the exercise price may also be paid as
follows:
(i) in Shares held for the requisite period necessary to avoid
a charge to the Corporation's earnings for financial reporting purposes
and valued at Fair Market Value on the Exercise Date, or
(ii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable instructions (a) to a
Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover
the aggregate exercise price payable for the purchased shares plus all
applicable income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option grant. However, no option shall have a term in excess of ten (10)
years measured from the option grant date.
4
<PAGE>
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Should the Optionee cease to remain in Service for any
reason other than death, Permanent Disability or Misconduct, then the
Optionee shall have a period of three (3) months following the date of
such cessation of Service during which to exercise each outstanding
option held by such Optionee.
(ii) Should Optionee's Service terminate by reason of
Permanent Disability, then the Optionee shall have a period of twelve
(12) months following the date of such cessation of Service during
which to exercise each outstanding option held by such Optionee.
(iii) If the Optionee dies while holding an outstanding
option, then the personal representative of his or her estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance shall have a twelve
(12)-month period following the date of the Optionee's death to
exercise such option.
(iv) Under no circumstances, however, shall any such option be
exercisable after the specified expiration of the option term.
(v) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding with respect to any and all option shares
for which the option is not otherwise at the time exercisable or in
which the Optionee is not otherwise at that time vested.
(vi) Should Optionee's Service be terminated for Misconduct,
then all outstanding options held by the Optionee shall terminate
immediately and cease to remain outstanding.
2. The Plan Administrator shall have the discretion, exercisable either
at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service or
death from the limited period otherwise in effect for that option to
such greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
5
<PAGE>
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of
vested Shares for which such option is exercisable at the time of the
Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested under
the option had the Optionee continued in Service.
D. Shareholder Rights. The holder of an option shall have no
Shareholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become the
recordholder of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested Shares. Should the Optionee
cease Service while holding such unvested shares, the Corporation shall have the
right to repurchase, at the exercise price paid per Share, any or all of those
unvested shares. The terms upon which such repurchase right shall be exercisable
(including the period and procedure for exercise and the appropriate vesting
schedule for the purchased shares) shall be established by the Plan
Administrator and set forth in the document evidencing such repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, to the
extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime (i) as a gift to one or more members of the
Optionee's immediate family, to a trust in which Optionee and/or one or more
such family members hold more than fifty percent (50%) of the beneficial
interest or to an entity in which more than fifty percent (50%) of the voting
interests are owned by one or more such family members or (ii) pursuant to a
domestic relations order. The terms applicable to the assigned portion shall be
the same as those in effect for the option immediately prior to such assignment
and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
G. Withholding. The Corporation's obligation to deliver Shares upon the
exercise of any options granted under the Plan shall be subject to the
satisfaction of all applicable income and employment tax withholding
requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Four shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options shall not be subject
to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Exercise Price. The exercise price per Share shall not be less than
one hundred percent (100%) of the Fair Market Value per Share on the option
grant date.
6
<PAGE>
C. Dollar Limitation. The aggregate Fair Market Value of the Shares
(determined as of the respective date or dates of grant) for which one or more
options granted to any Employee under the Plan (or any other option plan of the
Corporation or any Parent or Subsidiary) may for the first time become
exercisable as Incentive Options during any one (1) calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Shareholder. If any Employee to whom an Incentive Option is
granted is a 10% Shareholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per Share on
the option grant date and the option term shall not exceed five (5) years
measured from the option grant date.
III. CORPORATE TRANSACTION
A. The Shares subject to each option outstanding under the Plan at the
time of a Corporate Transaction shall automatically vest in full so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the Shares at the time subject
to that option and may be exercised for any or all of those shares as
fully-vested Shares. However, the shares subject to an outstanding option shall
not vest on such an accelerated basis if and to the extent: (i) such option is
assumed by the successor corporation (or parent thereof) in the Corporate
Transaction and the Corporation's repurchase rights with respect to the unvested
option shares are concurrently assigned to such successor corporation (or parent
thereof) or (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the unvested
option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
those unvested option shares or (iii) the acceleration of such option is subject
to other limitations imposed by the Plan Administrator at the time of the option
grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the Shares subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
7
<PAGE>
E. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration (in whole or in part) of
one or more outstanding options (and the immediate termination of the
Corporation's repurchase rights with respect to the shares subject to those
options) upon the occurrence of a Corporate Transaction, whether or not those
options are to be assumed in the Corporate Transaction.
F. The Plan Administrator shall also have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure such option so that the shares subject
to that option will automatically vest on an accelerated basis should the
Optionee's Service terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which the option is assumed and the
repurchase rights applicable to those shares do not otherwise terminate. Any
option so accelerated shall remain exercisable for the fully-vested option
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination. In addition, the Plan Administrator may provide that
one or more of the Corporation's outstanding repurchase rights with respect to
shares held by the Optionee at the time of such Involuntary Termination shall
immediately terminate on an accelerated basis, and the shares subject to those
terminated rights shall accordingly vest at that time.
G. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction shall remain exercisable as an Incentive Option only to
the extent the applicable One Hundred Thousand Dollar limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.
H. The grant of options under the Plan shall in no way affect the right
of the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Option Grant Program
and to grant in substitution new options covering the same or different number
of Shares but with an exercise price per share based on the Fair Market Value
per Share on the new grant date.
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ARTICLE THREE
SHARE ISSUANCE PROGRAM
I. SHARE ISSUANCE TERMS
Shares may be issued under the Share Issuance Program through direct
and immediate issuances without any intervening option grants. Each such share
issuance shall be evidenced by a Share Issuance Agreement which complies with
the terms specified below.
A. Purchase Price.
1. The purchase price per Share shall be fixed by the Plan
Administrator and may be less than, equal to or greater than the Fair Market
Value Share on the issue date.
2. Subject to the provisions of Section I of Article Four, Shares may
be issued under the Share Issuance Program for any of the following items of
consideration which the Plan Administrator may deem appropriate in each
individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
B. Vesting Provisions.
1. Shares issued under the Share Issuance Program may, in the
discretion of the Plan Administrator, be fully and immediately vested upon
issuance or may vest in one or more installments over the Participant's period
of Service or upon attainment of specified performance objectives.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested Shares by reason of any Share dividend, Share split, recapitalization,
combination of shares, exchange of shares or other change affecting the issued
Shares as a class without the Corporation's receipt of consideration shall be
issued subject to (i) the same vesting requirements applicable to the
Participant's unvested Shares and (ii) such escrow arrangements as the Plan
Administrator shall deem appropriate.
3. The Participant shall have full shareholder rights with respect to
any Shares issued to the Participant under the Share Issuance Program, whether
or not the Participant's interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any regular
cash dividends paid on such shares.
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4. Should the Participant cease to remain in Service while holding one
or more unvested Shares issued under the Share Issuance Program or should the
performance objectives not be attained with respect to one or more such unvested
Shares, then those shares shall be immediately surrendered to the Corporation
for cancellation, and the Participant shall have no further shareholder rights
with respect to those shares. To the extent the surrendered shares were
previously issued to the Participant for consideration paid in cash or cash
equivalent (including the Participant's purchase-money indebtedness), the
Corporation shall repay to the Participant the cash consideration paid for the
surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to the
surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested Shares (or other assets attributable
thereto) which would otherwise occur upon the non-completion of the vesting
schedule applicable to such shares. Such waiver shall result in the immediate
vesting of the Participant's interest in the Shares as to which the waiver
applies. Such waiver may be effected at any time, whether before or after the
Participant's cessation of Service or the attainment or non-attainment of the
applicable performance objectives.
II. CORPORATE TRANSACTION
A. All of the outstanding repurchase rights under the Share Issuance
Program shall terminate automatically, and all the Shares subject to those
terminated rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are assigned to
the successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested Shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to provide that those rights shall automatically terminate on an
accelerated basis, and the Shares subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
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ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Option Grant Program or the purchase price
for shares issued under the Share Issuance program by delivering a full
recourse, interest bearing promissory note payable in one or more installments
and secured by the purchased shares. The terms of any such promissory note
(including the interest rate and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion. In no event shall the maximum
credit available to the Optionee or Participant exceed the sum of (i) the
aggregate option exercise price or purchase price payable for the purchased
shares plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
II. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective when adopted by the Board, but no
option granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's Shareholders. If
such Shareholder approval is not obtained within twelve (12) months after the
date of the Board's adoption of the Plan, then all options previously granted
under the Plan shall terminate and cease to be outstanding, and no further
options shall be granted and no shares shall be issued under the Plan. Subject
to such limitation, the Plan Administrator may grant options and issue shares
under the Plan at any time after the effective date of the Plan and before the
date fixed herein for termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the expiration of
the ten (10)-year period measured from the date the Plan is adopted by the
Board, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with an Corporate Transaction. All options and
unvested Share issuances outstanding at the time of a clause (i) termination
event shall continue to have full force and effect in accordance with the
provisions of the documents evidencing such options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect any rights and obligations with respect to
options or unvested Share issuances at the time outstanding under the Plan,
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require Shareholder approval
pursuant to applicable laws or regulations.
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B. Options to purchase Shares may be granted under the Option Grant
Program and Shares may be issued under the Share Issuance Program which are in
each instance in excess of the number of Shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained Shareholder approval of an
amendment sufficiently increasing the number of Shares available for issuance
under the Plan. If such Shareholder approval is not obtained within twelve (12)
months after the date the first such excess grants or issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short-Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of Shares
under the Plan shall be used for general corporate purposes.
V. WITHHOLDING
The Corporation's obligation to deliver Shares upon the exercise of any
options or upon the issuance or vesting of any shares issued under the Plan
shall be subject to the satisfaction of all applicable income and employment tax
withholding requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option under the
Plan and the issuance of any Shares (i) upon the exercise of any option or (ii)
under the Share Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options granted under it and the Shares
issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
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 such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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APPENDIX
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The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Code shall mean the Internal Revenue Code of 1986, as amended.
C. Committee shall mean a committee of one (1) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. Corporate Transaction shall mean either of the following
Shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
E. Corporation shall mean Uproar Ltd., a company incorporated in
Bermuda, and any successor corporation to all or substantially all of the assets
or voting shares of Uproar Ltd. which shall by appropriate action adopt the
Plan.
F. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
G. Exercise Date shall mean the date on which the Corporation shall
have received written notice of the option exercise.
H. Fair Market Value per Share on any relevant date shall be determined
in accordance with the following provisions:
(i) If the Shares are at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per Share on the date in question, as such price is
reported by the National Association of Securities Dealers on the
Nasdaq National Market. If there is no closing selling price for the
Shares on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Shares are at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per Share on the date in question on the Stock Exchange determined by
the Plan Administrator to be the primary market for the Shares, as such
price is officially quoted in the composite tape of transactions on
such exchange. If there is no closing selling price for the Shares on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
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(iii) If the Shares are at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
I. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.
J. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
target bonuses under any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
without the individual's consent.
K. Misconduct shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
L. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
M. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
N. Option Grant Program shall mean the option grant program in effect
under the Plan.
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O. Optionee shall mean any person to whom an option is granted under
the Option Grant Program.
P. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, Shares possessing fifty percent (50%) or more of the total
combined voting power of all classes of Shares in one of the other corporations
in such chain.
Q. Participant shall mean any person who is issued Shares under the
Share Issuance Program.
R. Permanent Disability shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which is expected to result
in such person's death or to continue for a period of twelve (12) consecutive
months or more.
S. Plan shall mean the Corporation's 1999 Share Option/Share Issuance
Plan, as set forth in this document.
T. Plan Administrator shall mean either the Board or the Committee
acting in its capacity as administrator of the Plan.
U. Service shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or Share issuance.
V. Shares shall mean the ordinary shares in the capital of the
Corporation and "Share" and "Shareholder" shall be construed accordingly.
W. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
X. Share Issuance Agreement shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of Shares under the
Share Issuance Program.
Y. Share Issuance Program shall mean the Share issuance program in
effect under the Plan.
Z. Subsidiary shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, Share possessing fifty percent (50%) or more
of the total combined voting power of all classes of Share in one of the other
corporations in such chain.
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AA. 10% Shareholder shall mean the owner of Share (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of Share of the Corporation (or any Parent
or Subsidiary).
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UPROAR INC.
2000 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 2000 Stock Incentive Plan is intended to promote the
interests of Uproar, Inc., a Delaware corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation, as a reward for excellent performance
in the service of the Corporation and as a means of aligning their personal
interests more closely with the interest of the stockholders.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity incentive
programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such
shares or as a bonus for services rendered the Corporation (or any
Parent or Subsidiary), and
(iii) the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive options at
periodic intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12 Registration Date, the Discretionary Option
Grant and Stock Issuance Programs shall be administered by the Board unless
otherwise determined by the Board. Beginning with the Section 12 Registration
Date, the following provisions shall govern the administration of the Plan:
(i) The Board shall have the authority to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to
Section 16 Insiders but may delegate such authority in whole or in part
to the Primary Committee.
(ii) Administration of the Discretionary Option Grant and
Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested
in the Primary Committee or a Secondary Committee, or the Board may
retain the power to administer those programs with respect to all such
persons.
(iii) Administration of the Automatic Option Grant Program
shall be self-executing in accordance with the terms of that program.
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full power and authority
subject to the provisions of the Plan:
(i) to establish such rules as it may deem appropriate for
proper administration of the Plan, to make all factual determinations,
<PAGE>
to construe and interpret the provisions of the Plan and the awards
thereunder and to resolve any and all ambiguities thereunder;
(ii) to determine, with respect to awards made under the
Discretionary Option Grant and Stock Issuance Programs, which eligible
persons are to receive such awards, the time or times when such awards
are to be made, the number of shares to be covered by each such award,
the vesting schedule (if any) applicable to the award, the status of a
granted option as either an Incentive Option or a Non-Statutory Option
and the maximum term for which the option is to remain outstanding;
(iii) to amend, modify or cancel any outstanding award with
the consent of the holder or accelerate the vesting of such award; and
(iv) to take such other discretionary actions as permitted
pursuant to the terms of the applicable program.
Decisions of each Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties.
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such Committee.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such Committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such Committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any options or stock issuances under the Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Only non-employee Board members shall be eligible to participate in
the Automatic Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed Six
Million Seven Hundred Fifty Thousand (6,750,000) shares. Such reserve shall
consist of (i) the number of shares estimated to remain available for issuance,
as of the Section 12 Registration Date, under the Predecessor Plan, including
the shares subject to the outstanding options to be incorporated into the Plan
and the additional shares which would otherwise be available for future grant,
plus (ii) an increase of One Million Three Hundred Fifty Thousand (1,350,000)
shares authorized by the Board subject to stockholder approval prior to the
Section 12 Registration Date.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with the calendar year
2001, by an amount equal to one percent (1%) of the total number of shares of
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<PAGE>
Common Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall such annual increase exceed Four
Hundred Thousand (400,000) shares.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than Two Million (2,000,000) shares of Common Stock in the aggregate per
calendar year.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent those options
expire, terminate or are cancelled for any reason prior to exercise in full.
Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the original exercise or issue price paid per share, pursuant to
the Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent options
or direct stock issuances under the Plan. However, should the exercise price of
an option under the Plan be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
by the gross number of shares for which the option is exercised or which vest
under the stock issuance, and not by the net number of shares of Common Stock
issued to the holder of such option or stock issuance. Shares of Common Stock
underlying one or more stock appreciation rights exercised under the Plan shall
not be available for subsequent issuance.
E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities by which the share reserve is
to increase each calendar year pursuant to the automatic share increase
provisions of the Plan, (iii) the number and/or class of securities for which
any one person may be granted options, separately exercisable stock appreciation
rights and direct stock issuances under the Plan per calendar year, (iv) the
number and/or class of securities for which grants are subsequently to be made
under the Automatic Option Grant Program to new and continuing non-employee
Board members, (v) the number and/or class of securities and the exercise price
per share in effect under each outstanding option under the Plan and (vi) the
number and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plan. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator at the time of the option grant and may be less than, equal to or
greater than the Fair Market Value per share of Common Stock on the option grant
date.
2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section II of Article Five and
the documents evidencing the option, be payable in one or more of the following
forms:
(i) cash or check made payable to the Corporation;
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise
Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover
the aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise
and (b) the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Cessation of Service.
1. The following provisions shall govern the exercise of any options
outstanding at the time of an Optionee's cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by his or
her Beneficiary.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number
of vested shares for which the option was exercisable on the date of
the Optionee's cessation of Service. Upon the expiration of the
applicable post-Service
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<PAGE>
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent the option is not otherwise
at that time exercisable for vested shares.
(iv) Should the Optionee's Service be terminated for
Misconduct or should the Optionee engage in Misconduct while his or her
options are outstanding, then all such options shall terminate
immediately and cease to be outstanding.
2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding:
(i) to extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service to
such period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term, and/or
(ii) to permit the option to be exercised, during the
applicable post-Service exercise period, for one or more additional
installments in which the Optionee would have vested had the Optionee
continued in Service.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of
inheritance following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, to the
extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime (i) as a gift to one or more members of the
Optionee's immediate family, to a trust in which Optionee and/or one or more
such family members hold more than fifty percent (50%) of the beneficial
interest or to an entity in which more than fifty percent (50%) of the voting
interests are owned by one or more such family members or (ii) pursuant to a
domestic relations order. The terms applicable to the assigned portion shall be
the same as those in effect for the option immediately prior to such assignment
and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
Notwithstanding the foregoing, the Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
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B. Exercise Price. The exercise price per share shall not be less than
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Each option outstanding at the time of a Change in Control but not
otherwise fully-vested shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all of the shares of Common Stock at the time subject to that
option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Change in
Control, assumed or otherwise continued in full force and effect by the
successor corporation (or parent thereof) pursuant to the terms of the Change in
Control, (ii) such option is replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Change in Control on the shares of Common Stock for which the option is not
otherwise at that time exercisable and provides for subsequent payout in
accordance with the same vesting schedule applicable to those option shares or
(iii) the acceleration of such option is subject to other limitations imposed by
the Plan Administrator at the time of the option grant. Each option outstanding
at the time of the Change in Control shall terminate as provided in Section
III.C. of this Article Two.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control, except to
the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect
pursuant to the terms of the Change in Control or (ii) such accelerated vesting
is precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.
C. Immediately following the consummation of the Change in Control, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof) or otherwise
expressly continued in full force and effect pursuant to the terms of the Change
in Control.
D. Each option which is assumed in connection with a Change in Control
shall be appropriately adjusted, immediately after such Change in Control, to
apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Change in Control had the option been
exercised immediately prior to such Change in Control. Appropriate adjustments
to reflect such Change in Control shall also be made to (i) the exercise price
payable per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same, (ii) the maximum number
and/or class of securities available for issuance over the remaining term of the
Plan and (iii) the maximum number and/or class of securities for which any one
person may be granted options, separately exercisable stock appreciation rights
and direct stock issuances under the Plan per calendar year. To the extent the
actual holders of the Corporation's outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Change in Control,
the successor corporation may, in connection with the assumption of the
outstanding options, substitute one or more shares of its own common stock with
a fair market value equivalent to the cash consideration paid per share of
Common Stock in such Change in Control.
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E. The Plan Administrator may at any time provide that one or more
options will automatically accelerate in connection with a Change in Control,
whether or not those options are assumed or otherwise continued in full force
and effect pursuant to the terms of the Change in Control. Any such option shall
accordingly become exercisable, immediately prior to the effective date of such
Change in Control, for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. In addition, the Plan Administrator may at any time
provide that one or more of the Corporation's repurchase rights shall not be
assignable in connection with such Change in Control and shall terminate upon
the consummation of such Change in Control.
F. The Plan Administrator may at any time provide that one or more
options will automatically accelerate upon an Involuntary Termination of the
Optionee's Service within a designated period (not to exceed eighteen (18)
months) following the effective date of any Change in Control in which those
options do not otherwise accelerate. Any options so accelerated shall remain
exercisable for fully-vested shares until the earlier of (i) the expiration of
the option term or (ii) the expiration of the one (1) year period measured from
the effective date of the Involuntary Termination. In addition, the Plan
Administrator may at any time provide that one or more of the Corporation's
repurchase rights shall immediately terminate upon such Involuntary Termination.
G. The Plan Administrator may at any time provide that one or more
options will automatically accelerate in connection with a Hostile Take-Over.
Any such option shall become exercisable, immediately prior to the effective
date of such Hostile Take-Over, for all of the shares of Common Stock at the
time subject to that option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. In addition, the Plan Administrator may
at any time provide that one or more of the Corporation's repurchase rights
shall terminate automatically upon the consummation of such Hostile Take-Over.
Alternatively, the Plan Administrator may condition such automatic acceleration
and termination upon an Involuntary Termination of the Optionee's Service within
a designated period (not to exceed eighteen (18) months) following the effective
date of such Hostile Take-Over. Each option so accelerated shall remain
exercisable for fully-vested shares until the expiration or sooner termination
of the option term.
H. The portion of any Incentive Option accelerated in connection with a
Change in Control or Hostile Take Over shall remain exercisable as an Incentive
Option only to the extent the applicable One Hundred Thousand Dollar ($100,000)
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
IV. STOCK APPRECIATION RIGHTS
The Plan Administrator may, subject to such conditions as it may
determine, grant to selected Optionees stock appreciation rights which will
allow the holders of those rights to elect between the exercise of the
underlying option for shares of Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in an amount equal to the
excess of (a) the Option Surrender Value of the number of shares for which the
option is surrendered over (b) the aggregate exercise price payable for such
shares. The distribution may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
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ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening options.
Shares of Common Stock may also be issued under the Stock Issuance Program
pursuant to share right awards which entitle the recipients to receive those
shares upon the attainment of designated performance goals or Service
requirements. Each such award shall be evidenced by one or more documents which
comply with the terms specified below.
A. Purchase Price.
1. The purchase price per share of Common Stock subject to direct
issuance shall be fixed by the Plan Administrator and may be less than, equal to
or greater than the Fair Market Value per share of Common Stock on the issue
date.
2. Subject to the provisions of Section II of Article Five, shares of
Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
B. Vesting/Issuance Provisions.
1. The Plan Administrator may issue shares of Common Stock which are
fully and immediately vested upon issuance or which are to vest in one or more
installments over the Participant's period of Service or upon attainment of
specified performance objectives. Alternatively, the Plan Administrator may
issue share right awards which shall entitle the recipient to receive a
specified number of vested shares of Common Stock upon the attainment of one or
more performance goals or Service requirements established by the Plan
Administrator.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to his or her unvested
shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with respect to
the issued shares of Common Stock, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding one
or more unvested shares of Common Stock, or should the performance objectives
established with respect to one or more such unvested shares of Common Stock not
to be attained, then those shares shall be immediately surrendered to the
Corporation for cancellation, and the Participant shall have no further
stockholder rights with respect to those shares. To the extent the surrendered
shares were previously issued to the Participant for consideration paid in cash
or cash equivalent (including the Participant's purchase-money indebtedness),
the Corporation shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to the
surrendered shares.
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5. The Plan Administrator may waive the surrender and cancellation of
one or more unvested shares of Common Stock (or other assets attributable
thereto) which would otherwise occur upon the cessation of the Participant's
Service or the non-attainment of the performance objectives applicable to those
shares. Such waiver shall result in the immediate vesting of the Participant's
interest in the shares of Common Stock as to which the waiver applies. Such
waiver may be effected at any time, whether before or after the Participant's
cessation of Service or the attainment or non-attainment of the applicable
performance objectives.
6. Outstanding share right awards shall automatically terminate, and no
shares of Common Stock shall actually be issued in satisfaction of those awards,
if the performance goals or Service requirements established for such awards are
not attained. The Plan Administrator, however, shall have the authority to issue
shares of Common Stock in satisfaction of one or more outstanding share right
awards as to which the designated performance goals or Service requirements are
not attained.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. All of the Corporation's outstanding repurchase rights shall terminate
automatically, and all the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Change in Control,
except to the extent (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect
pursuant to the terms of the Change in Control or (ii) such accelerated vesting
is precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.
B. The Plan Administrator may at any time provide for the automatic
termination of one or more of those outstanding repurchase rights and the
immediate vesting of the shares of Common Stock subject to those terminated
rights upon (i) a Change in Control or Hostile Take-Over or (ii) an Involuntary
Termination of the Participant's Service within a designated period (not to
exceed eighteen (18) months) following the effective date of any Change in
Control or Hostile Take-Over in which those repurchase rights are assigned to
the successor corporation (or parent thereof) or otherwise continue in full
force and effect.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
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ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. Grant Dates. Options shall be made on the dates specified below:
1. Each individual who is first elected or appointed as a non-employee
Board member at any time after the Underwriting Date shall automatically be
granted, on the date of such initial election or appointment, a Non-Statutory
Option to purchase Thirty Thousand (30,000) shares of Common Stock, provided
that individual has not been in the employ of the Corporation (or any Parent or
Subsidiary) at any time during the two (2) years immediately preceding such
election or appointment.
2. On the date of each Annual Stockholders Meeting beginning with the
2001 Annual Stockholders Meeting, each individual who is to continue to serve as
a non-employee Board member shall automatically be granted a Non-Statutory
Option to purchase Five Thousand (5,000) shares of Common Stock, provided that
the individual has served as a non-employee Board member for at least six (6)
months.
B. Exercise Price.
1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option grant
date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years measured
from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any unvested shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each initial 30,000-share option shall
vest, and the Corporation's repurchase right shall lapse, in a series of three
(3) successive equal annual installments over the Optionee's period of continued
service as a Board member, with the first such installment to vest upon the
Optionee's completion of one (1) year of Board service measured from the option
grant date. Each annual 5,000-share option shall vest, and the Corporation's
repurchase right shall lapse, in a series of four (4) successive equal quarterly
installments over the Optionee's period of continued service as a Board member,
with the first such installment to vest upon the Optionee's completion of three
(3) months of Board service measured from the option grant date.
E. Cessation of Board Service. The following provisions shall govern the
exercise of any options outstanding at the time of an Optionee's cessation of
Board service:
(i) Any option outstanding at the time of the Optionee's
cessation of Board service for any reason shall remain exercisable for
a twelve (12)-month period following the date of such cessation of
Board service, but in no event shall such option be exercisable after
the expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by his or
her Beneficiary.
(iii) Following the Optionee's cessation of Board service, the
option may not be exercised in the aggregate for more than the number
of shares for which the option was exercisable on the date of such
cessation of Board service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
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shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Board service,
terminate and cease to be outstanding for any and all shares for which
the option is not otherwise at that time exercisable.
(iv) However, should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at
the time subject to the option shall immediately vest so that such
option may, during the twelve (12)-month exercise period following such
cessation of Board service, be exercised for all or any portion of
those shares as fully-vested shares of Common Stock.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile Take-Over, the
shares of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option may,
immediately prior to the effective date of such Change in Control or Hostile
Take-Over, became fully exercisable for all of the shares of Common Stock at the
time subject to such option and maybe exercised for all or any of those shares
as fully-vested shares of Common Stock. Each such option accelerated in
connection with a Change in Control shall terminate upon the Change in Control,
except to the extent assumed by the successor corporation (or parent thereof) or
otherwise continued in full force and effect pursuant to the terms of the Change
in Control. Each such option accelerated in connection with a Hostile Take-Over
shall remain exercisable until the expiration or sooner termination of the
option term.
B. All outstanding repurchase rights shall automatically terminate, and
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Change in Control or Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have
a thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding options. The Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Option Surrender Value of the shares of Common Stock at the time subject to each
surrendered option (whether or not the option is otherwise at the time
exercisable for those shares) over (ii) the aggregate exercise price payable for
such shares. Such cash distribution shall be paid within five (5) days following
the surrender of the option to the Corporation.
D. Each option which is assumed in connection with a Change in Control
shall be appropriately adjusted to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such Change in
Control had the option been exercised immediately prior to such Change in
Control. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same. To the extent the
actual holders of the Corporation's outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Change in Control,
the successor corporation may, in connection with the assumption of the
outstanding options, substitute one or more shares of its own common stock with
a fair market value equivalent to the cash consideration paid per share of
Common Stock in such Change in Control.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for options made
under the Discretionary Option Grant Program.
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ARTICLE FIVE
MISCELLANEOUS
I. NO IMPAIRMENT OF AUTHORITY
Outstanding awards shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
II. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
such shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan with the right to use shares of Common Stock in satisfaction of all or part
of the Withholding Taxes incurred by such holders in connection with the
exercise of their options or the vesting of their shares. Such right may be
provided to any such holder in either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at the
time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
IV. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the Plan Effective
Date. Options may be granted under the Discretionary Option Grant Program at any
time on or after the Plan Effective Date. However, no options granted under the
Plan may be exercised, and no shares shall be issued under the Plan, until the
Plan is approved by the Corporation's stockholders. If such stockholder approval
is not obtained within twelve (12) months after the Plan Effective Date, then
all options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and
no further options or direct stock issuances shall be made under the Predecessor
Plan after the Section 12 Registration Date. All options outstanding under the
Predecessor Plan on the Section 12 Registration Date shall be incorporated into
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the Plan at that time and shall be treated as outstanding options under the
Plan. However, each outstanding option so incorporated shall continue to be
governed solely by the terms of the documents evidencing such option, and no
provision of the Plan shall be deemed to affect or otherwise modify the rights
or obligations of the holders of such incorporated options with respect to their
acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without limitation)
the option/vesting acceleration provisions of Article Two relating to Changes in
Control, may, in the Plan Administrator's discretion, be extended to one or more
options incorporated from the Predecessor Plan which do not otherwise contain
such provisions.
D. The Plan shall terminate upon the earliest of (i) February 23, 2010,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Change in Control. Upon such plan
termination, all outstanding options and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
V. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan may be used for general corporate purposes.
VII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
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VIII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon any Optionee or Participant
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 such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option grant
program in effect under the Plan.
B. Beneficiary shall mean, in the event the Plan Administrator
implements a beneficiary designation procedure, the person designated by an
Optionee or Participant, pursuant to such procedure, to succeed to such person's
rights under any outstanding awards held by him or her at the time of death. In
the absence of such designation or procedure, the Beneficiary shall be the
personal representative of the estate of the Optionee or Participant or the
person or persons to whom the award is transferred by will or the laws of
inheritance.
C. Board shall mean the Corporation's Board of Directors.
D. Change in Control shall mean a change in ownership or control of the
Corporation effected through any of the following transactions:
(i) a merger, consolidation or reorganization approved by the
Corporation's stockholders, unless securities representing more than
fifty percent (50%) of the total combined voting power of the voting
securities of the successor corporation are immediately thereafter
beneficially owned, directly or indirectly and in substantially the
same proportion, by the persons who beneficially owned the
Corporation's outstanding voting securities immediately prior to such
transaction,
(ii) any stockholder-approved transfer or other disposition of
all or substantially all of the Corporation's assets, or
(iii) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board
recommends such stockholders accept.
E. Code shall mean the Internal Revenue Code of 1986, as amended.
F. Common Stock shall mean the Corporation's common stock.
G. Corporation shall mean Uproar Inc., a Delaware corporation, and any
corporate successor to all or substantially all of the assets or voting stock of
Uproar Inc. which shall by appropriate action adopt the Plan.
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H. Discretionary Option Grant Program shall mean the discretionary
option grant program in effect under the Plan.
I. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. Exercise Date shall mean the date on which the Corporation shall
have received written notice of the option exercise.
K. Fair Market Value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported on the Nasdaq National Market or any successor
system and in The Wall Street Journal. If there is no closing selling
price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding
date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such Exchange and reported in The Wall Street
Journal. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
(iv) For purposes of any option grants made prior to the
Underwriting Date, the Fair Market Value shall be determined by the
Plan Administrator, after taking into account such factors as it deems
appropriate.
L. Hostile Take-Over shall mean:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
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than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board
does not recommend such stockholders accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.
M. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.
N. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation or Parent or
Subsidiary employing the individual which materially reduces his or her
duties and responsibilities or the level of management to which he or
she reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonus under any
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without
the individual's consent.
O. Misconduct shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any intentional wrongdoing by such
person, whether by omission or commission, which adversely affects the business
or affairs of the Corporation (or any Parent or Subsidiary) in a material
manner. This shall not limit the grounds for the dismissal or discharge of any
person in the Service of the Corporation (or any Parent or Subsidiary).
P. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
Q. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
R. Option Surrender Value shall mean the Fair Market Value per share of
Common Stock on the date the option is surrendered to the Corporation or, in the
event of a Hostile Take-Over effected through a tender offer, the highest
reported price per share of Common Stock paid by the tender offeror in effecting
such Hostile Take-Over, if greater. However, if the surrendered option is an
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Incentive Option, the Option Surrender Value shall not exceed the Fair Market
Value per share.
S. Optionee shall mean any person to whom an option is granted under
the Discretionary Option Grant or Automatic Option Grant Program.
T. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. Participant shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
V. Permanent Disability or Permanently Disabled shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
Program, Permanent Disability or Permanently Disabled shall mean the inability
of the non-employee Board member to perform his or her usual duties as a Board
member by reason of any medically determinable physical or mental impairment
expected to result in death or to be of continuous duration of twelve (12)
months or more.
W. Plan shall mean the Corporation's 2000 Stock Incentive Plan, as set
forth in this document.
X. Plan Administrator shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction. However, the Primary Committee shall have
the plenary authority to make all factual determinations and to construe and
interpret any and all ambiguities under the Plan to the extent such authority is
not otherwise expressly delegated to any other Plan Administrator.
Y. Plan Effective Date shall mean February 23, 2000, the date on which
the Plan was adopted by the Board.
Z. Predecessor Plan shall mean the Corporation's pre-existing 1999
Share Option/Share Issuance Plan in effect immediately prior to the Plan
Effective Date hereunder.
AA. Primary Committee shall mean a committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders or with respect to all eligible persons.
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BB. Secondary Committee shall mean a committee of one (1) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
CC. Section 12 Registration Date shall mean the date on which the
Common Stock is first registered under Section 12(g) of the 1934 Act.
DD. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
EE. Service shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the Board or the board of directors of any Parent or
Subsidiary or a consultant or independent advisor, except to the extent
otherwise specifically provided in the documents evidencing the option grant or
stock issuance.
FF. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
GG. Stock Issuance Program shall mean the stock issuance program in
effect under the Plan.
HH. Subsidiary shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
II. 10% Stockholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
JJ. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock in the United States.
KK. Underwriting Date shall mean the date on which the Underwriting
Agreement is executed and the Common Stock is priced in connection with an
initial public offering of the Common Stock in the United States.
LL. Withholding Taxes shall mean the Federal, state and local income
and employment withholding tax liabilities to which the holder of Non-Statutory
Options or unvested shares of Common Stock may become subject in connection with
the exercise of those options or the vesting of those shares.
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EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Uproar Inc.:
We consent to the use of our report included herein (Amendment No. 5 to
Form S-1) and to the references to our firm under the headings "Selected
Consolidated Financial Data" and "Experts" in the prospectus.
(signed) KPMG LLP
New York, New York
March 16, 2000
<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
March 16, 2000
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1A 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
March 16, 2000
