<PAGE>
As filed with the Securities and Exchange Commission on February 18, 2000
Registration No. 333-93315
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
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>
Delaware 7375 13-3919458
<S> <C> <C>
(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>
Alexander D. Lynch, Esq. Robert D. Marafioti, Esq. Marc S. Rosenberg, Esq.
Babak Yaghmaie, Esq. Executive Vice President, Cravath, Swaine & Moore
Brobeck, Phleger & Harrison LLP General Counsel and Secretary Worldwide Plaza
1633 Broadway, 47th Floor Uproar Inc. 825 Eighth Avenue
New York, New York 10019 240 West 35th Street New York, New York 10019-7475
(212) 581-1600 9th Floor (212) 474-1000
New York, New York 10001
(212) 714-9500
</TABLE>
---------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
<PAGE>
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
Proposed
Proposed maximum
maximum aggregate Amount of
Title of each class of Amount to be offering price offering registration
securities to be registered registered(1) per share(2) price(2) fee(3)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, par value $0.01 per share 5,750,000 shares $ 20.51 $117,932,500 $31,134
================================================================================================================
</TABLE>
(1) Includes 750,000 shares which the underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933, as amended. This price is
based on the last reported sale price of the common stock on the European
Association of Securities Dealers' Automated Quotation System, or EASDAQ,
on February 2, 2000.
(3) $31,134 previously paid.
---------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment 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 FEBRUARY 18, 2000
P R O S P E C T U S
[LOGO]
5,000,000 Shares
Uproar Inc.
Common Stock
---------------------
We are selling 5,000,000 shares of our common stock. The underwriters
named in this prospectus may purchase up to 750,000 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 admitted for trading with the European Association
of Securities Dealers' Automated Quotation system, or EASDAQ, under the symbol
"UPRO". On February 2, 2000, the last reported sale price of the common stock
on EASDAQ was
[GRAPHIC OMITTED]
21.00, or $20.51, per share, as adjusted for a 2-for-1 stock split to be
effected February 18, 2000. We have applied to have the common stock included
for quotation on the Nasdaq National Market under the symbol "UPRO".
---------------------
Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------
Per Share Total
Initial public offering price ................. $ $
Underwriting discounts ........................ $ $
Proceeds, before expenses, to Uproar .......... $ $
The underwriters are offering the shares subject to various conditions.
The underwriters expect to deliver the shares to purchasers on or about
, 2000.
---------------------
Salomon Smith Barney
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
Wit 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: "The 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>
You should rely only on the information contained in this prospectus.
Uproar has not authorized anyone to provide you with different information.
Uproar is not making an offer of these securities in any state where the offer
is not permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary ................................................................... 4
Risk Factors ......................................................................... 8
Forward-Looking Statements; Market Data .............................................. 20
Price Range of Common Stock .......................................................... 21
Use of Proceeds ...................................................................... 22
Dividend Policy ...................................................................... 22
Capitalization ....................................................................... 23
Dilution ............................................................................. 24
Selected Consolidated Financial Data ................................................. 25
Management's Discussion and Analysis of Financial Condition and Results of Operations 26
Business ............................................................................. 33
Management ........................................................................... 49
Certain Transactions ................................................................. 56
Principal Stockholders ............................................................... 57
Description of Capital Stock ......................................................... 58
Shares Eligible for Future Sale ...................................................... 62
United States Tax Consequences to Non-United States Holders .......................... 64
Underwriting ......................................................................... 67
Legal Matters ........................................................................ 69
Experts .............................................................................. 69
Change In Independent Accountants .................................................... 69
Where You Can Find Additional Information ............................................ 69
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>
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 1.3 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 page views generated by our
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 ranked as the fifth stickiest network of Web sites on the Internet. In
addition, we were ranked by Media Metrix among the top five stickiest networks
in each month during 1999.
We derive substantially all of our revenues from the sale of
advertisements on our network of Web sites. We believe that our large user base
and the stickiness of our sites provide advertisers with an attractive platform
to reach their target audiences. As a result, the number of advertisers and
sponsors on our network has grown from 99 as of December 1998 to 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.
4
<PAGE>
Despite the opportunity presented by the widespread adoption of the
Internet as a medium for delivering entertainment content to a growing user
base, only a limited number of Web sites are currently dedicated to providing a
broad array of fun and challenging interactive entertainment. We believe that
we can grow our revenues by leveraging our large audience and our engaging
content through targeting our advertising placement to specific demographics
within our audience in order to attract more advertisers to our network.
Our Strategy
Our objective is to be the leading online entertainment destination. We
believe we can achieve this objective through the following strategies:
o enhancing our content;
o aggressively expanding our audience;
o further monetizing our audience and building additional revenue streams;
o capitalizing on the popularity of our PrizePoint rewards program;
o continuing to expand internationally; and
o pursuing strategic acquisitions and alliances.
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 50-50 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.
5
<PAGE>
The Offering
Common stock offered............. 5,000,000 shares
Common stock outstanding after
this offering................... 30,237,320 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"
EASDAQ Symbol.................... "UPRO"
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;
o assumes no exercise of the underwriters' over-allotment option; and
o has been restated to reflect a 2-for-1 split of our common stock, to be
effected February 18, 2000.
-------------
As used in this prospectus, UPROAR and the UPROAR logo are service marks,
the registration of which has been applied for and is pending in the United
States and in other markets in which we register our marks. The UPROAR service
mark is registered in Germany and the United Kingdom. We have also applied for
the registration of numerous other trademarks in the United States and those
applications are pending. Those marks include BINGO BLITZ, BLOWOUT BINGO,
GAMESCENE, LET THERE BE FUN, MENTAL STATE, PRIZEPOINT, PRIZEPOINTS and TRIVIA
BLITZ. All other trademarks and service marks used in this prospectus are the
property of their respective owners.
-------------
Uproar Inc. was incorporated in Delaware on December 16, 1999 and is the
successor to Uproar Ltd., a Bermuda limited liability company that was formed
on July 7, 1997, 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.
6
<PAGE>
Summary Consolidated Financial and Operating Data
The following table sets forth summary consolidated financial and
operating data for our business. You should read this information together with
the consolidated financial statements and the notes to those statements
appearing elsewhere in this prospectus. 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 Year Ended December 31,
December 31, -----------------------------------------------------------------------
1995 1996 1997 1998 1999
-------------- --------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ................................. $ 43,365 $ 59,698 $ 348,709 $ 1,632,969 $ 10,391,527
Cost of revenues ......................... -- (40,781) (216,586) (760,376) (2,533,294)
---------- ----------- ------------- ------------- -------------
Gross profit ............................. 43,365 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 ...... 33,190 389,346 772,744 849,486 3,701,393
General and administrative .............. 70,182 187,362 2,092,394 2,327,720 8,919,011
Amortization of intangible assets ....... -- -- -- 9,303 6,086,198
---------- ----------- ------------- ------------- -------------
Loss from operations ..................... (60,007) (724,597) (3,820,073) (6,084,782) (38,914,325)
Foreign exchange gain (loss) ............. (2,233) 49,946 (85,439) 57,401 (119,996)
Other income (expense), net .............. 4,326 (27,829) 82,349 205,751 337,680
Provision for income taxes ............... -- (4,909) (5,582) (9,020) (28,000)
---------- ----------- ------------- ------------- -------------
Net loss ................................. $ (57,914) $ (707,389) $ (3,828,745) $ (5,830,650) $ (38,724,641)
========== =========== ============= ============= =============
Basic and diluted net loss per share ..... $ (0.05) $ (0.17) $ (0.42) $ (0.40) $ (1.77)
========== =========== ============= ============= =============
Weighted average number of common
shares outstanding ...................... 1,138,356 4,258,084 9,034,928 14,697,112 21,909,456
========== =========== ============= ============= =============
Pro forma basic and diluted net loss per
share ................................... ( .02) ( 0.13) ( 0.37) (0.37) (1.67)
Pro forma weighted average number of
shares outstanding ...................... 2,403,728 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 5,000,000 shares of common stock offered hereby at an assumed initial
public offering price in the United States of $20.51 per share after deducting
the estimated underwriting discount and estimated offering expenses payable by
us.
<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 $134,515
Working capital .......................................... 18,555 43,550 137,934
Total assets ............................................. 42,816 67,811 162,195
Total indebtedness, including current maturities ......... 154 154 154
Total stockholders' equity ............................... 37,204 62,199 156,583
</TABLE>
7
<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;
8
<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.
9
<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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<PAGE>
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 39.6% 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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<PAGE>
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, 12.1% 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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<PAGE>
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:
17
<PAGE>
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, International Data Corporation, or IDC, Nielsen Media
Research, 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 declared on February 4, 2000 and to be 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 (C) 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, 1999) 16.50 16.63 0.992
</TABLE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Lowest Reported Price
---------------------------------------------
As converted Conversion
As reported to U.S. dollars Rate
<S> ------------- ----------------- -----------
1997 <C> <C> <C>
Fourth Quarter (from September 19)
1998 ATS 18.75 $ 1.52 12.3
First Quarter
Second Quarter ATS 19.23 $ 1.50 12.8
Third Quarter 21.75 1.67 13.0
Fourth Quarter 26.25 2.05 12.8
1999 32.13 2.80 11.5
First Quarter
Second Quarter (C) 8.70 $ 10.05 0.866
Third Quarter 13.00 13.58 0.957
Fourth Quarter (until November 30, 1999) 8.60 9.10 0.945
10.00 10.71 0.934
</TABLE>
Our common stock was approved for trading on the European Association of
Securities Dealers' Automated Quotation system, or EASDAQ, on July 8, 1999. The
following price table sets forth, for the periods indicated, the high and low
sale prices, as originally reported by EASDAQ and as converted into United
States dollars, for our common stock. All prices have been adjusted to reflect
a 2-for-1 split of our common stock to be 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 February 2, 2000, the last reported price of our common
stock on EASDAQ was (C) 21.00, or $20.51. The noon buying rate for February 2,
2000 was (C) 1.023 per United States $1.00.
<TABLE>
<CAPTION>
Highest Reported Price Lowest Reported Price
---------------------------------------------- ---------------------------------------------
As converted Conversion As converted Conversion
As reported to U.S. dollars Rate As reported to U.S. dollars Rate
------------- ----------------- ------------ ------------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1999
Third Quarter (from July 8) (C) 13.60 $ 13.88 0.980 (C) 9.25 $ 9.63 0.961
Fourth Quarter 25.78 25.99 0.992 10.00 10.71 0.934
</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.
21
<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of the common shares
offered by us are estimated to be
$94.4 million, assuming an initial public offering price in the United States
of $20.51 per share, the last reported sale price of our common stock on EASDAQ
on February 2, 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 $108.8 million.
We intend to use the proceeds of this offering:
o to fund our marketing activities;
o to expand our advertising sales force;
o to enhance our products and services;
o to expand our business internationally;
o to enter into distribution and affiliate arrangements with other Web
sites; and
o for general corporate purposes.
In addition, as part of our strategy, we seek to enter into alliances or
joint ventures with, and may acquire, complementary businesses, technologies,
services or products, some of which may be significant. We may use some of the
net proceeds for these alliances, joint ventures or acquisitions. We currently
do not have commitments or agreements with respect to any such transactions.
We have not determined the amount of net proceeds to be used for each of
the specific purposes indicated. Accordingly, our management will have
significant flexibility in applying the net proceeds of the offering.
Until this money is used, we intend to invest the net proceeds in
short-term, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
intend to retain any future earnings to finance the operation and expansion of
our business and do not anticipate paying any cash dividends in the foreseeable
future.
22
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of 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 5,000,000 shares
of common stock at an assumed initial public price in the United States
of $ 20.51 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 $ 134,515
========= ========= =========
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); 30,237,320 shares issued and outstand-
ing (pro forma as adjusted) .................. 1,199 1,262 1,512
Additional paid-in capital .................... 85,193 110,125 204,259
Accumulated other comprehensive loss .......... (38) (38) (38)
Accumulated deficit ........................... (49,150) (49,150) (49,150)
--------- --------- ---------
Total stockholders' equity .................... 37,204 62,199 156,583
--------- --------- ---------
Total capitalization .......................... $ 37,358 62,353 $ 156,737
========= ========= =========
</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 750,000 shares subject to the underwriters' over-allotment option.
23
<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 5,000,000 shares offered in this offering at
an assumed initial public offering price in the United States of $20.51 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 $145.9 million, or
$4.83 per share of common stock. This represents an immediate increase in pro
forma net tangible book value of $2.79 per share to existing stockholders and
an immediate dilution of $15.68 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price in the United States per share ....... $ 20.51
Pro Forma net tangible book value per share as of December 31, 1999 ..... $ 2.04
Increase attributable to new investors .................................. 2.79
------
Pro Forma net tangible book value per share after the offering ............. 4.83
--------
Dilution per share to new investors ........................................ $ 15.68
--------
</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 83.5% $ 89,431,638 46.6% $ 3.54
New investors ................. 5,000,000 16.5 102,550,000 53.4 20.51
---------- ----- ------------ ----- ------
Total ...................... 30,237,320 100.0% $191,981,638 100.0% $ 6.35
========== ===== ============ ===== ======
</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 750,000 shares subject to the underwriters' overallotment option.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes to these
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in this prospectus. The selected consolidated
statement of operations data for the years ended December 31, 1997, 1998 and
1999, and the consolidated balance sheet data as of December 31, 1998 and 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 Year Ended December 31,
December 31, ----------------------------------------------------------------------
1995 1996 1997 1998 1999
-------------- --------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ................................ $ 43,365 $ 59,698 $ 348,709 $ 1,632,969 $ 10,391,527
Cost of revenues ........................ -- (40,781) (216,586) (760,376) (2,533,294)
---------- ----------- ------------- ------------- -------------
Gross profit ............................ 43,365 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 ..... 33,190 389,346 772,744 849,486 3,701,393
General and administrative ............. 70,182 187,362 2,092,394 2,327,720 8,919,011
Amortization of intangible assets ...... -- -- -- 9,303 6,086,198
---------- ----------- ------------- ------------- -------------
Loss from operations .................... (60,007) (724,597) (3,820,073) (6,084,782) (38,914,325)
Foreign exchange gain (loss) ............ (2,233) 49,946 (85,439) 57,401 (119,996)
Other income (expense), net ............. 4,326 (27,829) 82,349 205,751 337,680
Provision for income taxes . ............ -- (4,909) (5,582) (9,020) (28,000)
---------- ----------- ------------- ------------- -------------
Net loss ................................ $ (57,914) $ (707,389) $ (3,828,745) $ (5,830,650) $ (38,724,641)
========== =========== ============= ============= =============
Basic and diluted net loss
per share .............................. $ (0.05) $ (0.17) $ (0.42) $ (0.40) $ (1.77)
========== =========== ============= ============= =============
Weighted average number of common
shares outstanding ..................... 1,138,356 4,258,084 9,034,928 14,697,112 21,909,456
========== =========== ============= ============= =============
Pro forma basic and diluted net loss per
share .................................. ( .02) ( 0.13) ( 0.37) ( 0.37) (1.67)
Pro forma weighted average number of
shares outstanding ..................... 2,403,728 5,523,456 10,300,300 15,962,484 23,174,828
</TABLE>
<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) 2,405 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>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and the notes to those statements and other
financial information appearing elsewhere in this prospectus.
Overview
We are a leading online entertainment destination. Through our network of
Web sites, we provide online game shows and interactive single- and
multi-player games that appeal to a broad audience. Our business was originally
formed in February 1995 as E-Pub Services Limited, a corporation organized
under the laws of Ireland. From February 1995 through July 1997, we focused on
developing our technology, raising capital and recruiting personnel and did not
generate significant revenues. In July 1997, we formed Uproar Ltd., a
corporation organized under the laws of Bermuda, which became the parent of
E-Pub Services Limited. In September 1997, we launched our Web sites uproar.com
and uproar.co.uk. 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
presently trade 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 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
26
<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
27
<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% and 14% 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 62,040 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
28
<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 million. We intend
to establish a 50/50 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;
29
<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 14% of revenues, from barter transactions. During
the year ended December 31, 1998, we derived $365,000, or 22% 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 $22.7 million in advertising, public relations and other promotional
expenditures, and $2.7 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.
30
<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 presently trade 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 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. 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 from 96,000 in January 1998 to 5.2 million in December 1999. Our unique
user audience has similarly grown from 1.3 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 page views generated by our
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 ranked as the fifth stickiest network of Web sites on the Internet. In
addition, we were ranked by Media Metrix among the top five stickiest networks
in each month during 1999.
We derive substantially all of our revenues from the sale of
advertisements on our network of Web sites. Online advertisers typically pay on
the basis of the number of advertising impressions shown. The number of
impressions is a function of the number of users on our Web sites, the amount
of time that they stay on our Web sites, the frequency with which we change our
advertising displays and the number of Web sites on our network. We believe
that our large user base and the stickiness of our sites provide advertisers
with a highly attractive platform to reach their target audience. As a result,
the number of advertisers and sponsors on our network has grown from 99 as of
December 1998 to 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.
Industry Background
The Internet
The Internet has emerged as a mass communications and commerce medium that
millions of people worldwide use to share information, communicate and conduct
business electronically. International Data Corporation, or IDC, a market
research firm, estimates that the number of Internet users worldwide will grow
from 142 million in 1998 to 502 million by the end of 2003. The relatively
lower costs of publishing content on the Internet and the availability of
powerful new tools for the development and distribution of content have led to
its rapid growth.
Internet Advertising
The Internet has also become an attractive medium for advertisers.
According to Forrester Research, a market research firm, Internet advertising
spending worldwide will increase from $1.5 billion in 1998 to $15.3 billion by
2003.
The unique interactive nature of the Internet allows advertisers to:
o reach broad global audiences from anywhere in the world;
o gather demographic information and target their messages to specific
groups of consumers;
o change their advertisements frequently in response to market factors,
current events and consumer feedback; and
o more accurately track the effectiveness of their advertising messages.
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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 International Data
Corporation, or 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.
Game shows are among the most popular and long-lived programs on
television in both the United States and worldwide. They were among the first
entertainment formats to be successfully adapted to television from radio.
Moreover, new game shows are frequently developed and introduced in order to
capitalize on the popularity of the format and to draw larger audiences to
television. According to Nielsen Media Research, television game shows
consistently are among the most popular syndicated television programs. Nielsen
estimates that the top five game shows drew an average audience of
approximately 9.1 million people per show in the United States in the fourth
quarter of the 1999 television season.
Games and game shows are particularly well suited for online entertainment
content, especially with the development of higher bandwidth distribution
channels, and can be easily adapted to the Internet. We believe that online
games and game shows are a compelling entertainment medium for a mass user
audience because they:
o provide users with an opportunity to win prizes;
o allow users to access entertaining content according to their own
schedule from any location; and
o enable users to participate interactively in the games and game shows and
to compete against other users.
Despite the opportunity presented by the widespread adoption of the
Internet as a medium for delivering entertainment content to a growing user
base, only a limited number of Web sites are currently dedicated to providing a
broad array of fun and challenging interactive entertainment. We believe that
we can grow our revenues by leveraging our large audience and our engaging
content through targeting our advertising placement to specific demographics
within our audience in order to attract more advertisers to our network and
derive higher 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 page views generated by our 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 we were ranked fifth among networks in stickiness, as
measured by average minutes per user per usage day spent on our network. We
have been ranked among the top five stickiest sites by Media Metrix in each
month in 1999. Our network consists of the following Web sites:
o uproar.com o uproar.co.uk o gamescene.com
o prizepoint.com o uproar.de o amused.com
o shopping.uproar.com o euro.uproar.com o mentalstate.com
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We believe that our success in attracting users and advertisers to date
has been due to a number of factors, including:
Our Engaging Online Game Shows and Interactive Games
We are committed to providing our user audience with a variety of engaging
game shows and interactive games. We are focused on creating formats that we
believe will have lasting appeal to a broad-based audience and on adapting to
the Internet formats which have proven appeal in other media. We currently
provide our audience with eight multi-user games, 36 single-user arcade games
and two daily puzzles. We recently launched our online version of the game
shows Family Feud and 100%. Pursuant to our agreement with Pearson Television,
a leading provider of syndicated television game shows, we have exclusive
rights to create online versions of leading Pearson properties, including
Family Feud, Match Game, Password and 100%. These game shows have proven to be
extremely popular and appeal to a broad audience on television. Our users
frequently spend more time on our sites than on a typical Web site. We believe
the length of time spent by users on our site, or our site's stickiness, is a
validation of the engaging nature of our game and game show formats and is
highly appealing to our advertising customers.
Our Large Audience of Registered Users with Targetable Demographics
As a result of the mass appeal of our games and game shows, our database
of registered users has grown to approximately 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.
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In addition to promotional and affiliate relationships, we use extensive
television, radio, print and outdoor advertising to reach new users. In October
1999, we began a branding campaign which consisted of television advertising.
We incurred significant expenses in connection with our branding campaign and
intend to incur significant costs in the future to maintain and expand our user
base and brand recognition. However, we believe that our affiliate distribution
network will continue to serve as a cost-efficient method of acquiring new
users, contributing to lower overall new user acquisition costs.
Our Technology Platform
We believe that our technology platform is integral in providing our
audience with a rich and engaging entertainment experience. As a result, we
have made and expect to continue to make significant investments in developing
and implementing a technology platform to support our interactive multi-user
game shows and games. We believe that our Web sites are among the few in the
world that enable very large numbers of users to simultaneously play
interactive multi-player games and game shows. We believe that our technology
platform is critical to maintaining the entertaining and engaging nature of our
content. Moreover, we have designed our technology platform to accommodate our
growing base of users and to take advantage of emerging technology trends such
as alternative access devices, interactive television platforms and broadband
distribution services.
Our Strategy
Our objective is to be the leading online entertainment destination. We
believe we can achieve this objective through the following strategies:
Enhancing Our Content
We will seek to enhance our network by adding other entertainment formats
in addition to games and game shows that have proven their appeal to a broad
audience in traditional media. We believe that providing our users with a
richer and more compelling entertainment experience is critical to our future
success as more people turn to the Internet as a medium for entertainment. In
addition, we intend to continue to enhance our content by improving our
existing, and creating new, games and game shows. For example, in 1999 we
introduced online versions of two popular television game shows, Family Feud
and 100%. We intend to launch online versions of two other popular game shows,
Match Game and Password, in 2000. We believe that by enhancing our game and
game show content, we will:
o further differentiate our brand from competing sites;
o provide users with a more comprehensive and satisfying entertainment
experience; and
o attract a broader audience to our Web sites; and
o compel our users to visit our sites more often and remain there longer.
In 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.
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We also intend to continue to pursue additional affiliate opportunities to
further expand our user base more cost-effectively. We have developed a number
of our games for distribution through our affiliate program. We intend to seek
similar opportunities continually in order to enlarge the community of Internet
users that visit our Web site for entertainment and to increase our revenue
opportunities.
Further Monetizing Our Audience and Building Additional Revenue Streams
Our large and growing user base provides us with a platform from which we
can derive additional revenues. We intend to capitalize on our ability to
target our advertising placement to specific demographics within our large
audience of users in order to attract more advertisers to our network and to
derive higher 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 predisposed to
purchase products that complement the entertainment content that we publish.
For example, we sell a hand-held Tiger Electronics version of Family Feud, one
of our online game shows. We believe that differentiated products will tend to
have higher gross profit margins over more readily available products.
Therefore, we attempt to select those products that have the most attractive
combination of appeal to our audience and gross profit margin opportunities.
Capitalizing on the Popularity of Our PrizePoint Rewards Program
Our PrizePoint program rewards our users with points earned by playing
online games. Our users can enter their points into a drawing for prizes. The
more points a player enters into a drawing, the greater his or her chances to
win a prize. We believe that the PrizePoint program significantly enhances the
entertainment value of our games and game shows by enabling our users to
compete to win points. Moreover, in order to be eligible to receive prizes
awarded under the program, our users must complete an online registration form
that allows us to better measure the demographics of our user audience and to
provide our advertisers with targeted advertising opportunities. We intend to
capitalize on the popularity of our PrizePoint reward program by integrating
the products and services of our affiliate merchandising partners into our
PrizePoint reward system.
Continuing to Expand Internationally
We believe that our games and game shows will be popular in international
markets. In December 1998, we launched our local Web site in Germany in
cooperation with Bertelsmann, a leading German media company, which features
game shows and puzzles in German. We also own and operate a Web site designed
for the United Kingdom market. In February 1998, we launched our
euro.uproar.com, which provides game content in 14 languages. Combined, these
sites provide local language content in a number of European countries,
including Austria, Belgium, Denmark, Holland, Finland, France, Germany, Italy,
Luxembourg, Norway, Portugal, Spain, Switzerland and Sweden.
We recently entered into an exclusive distribution and co-branding
agreement with Telefonica Interactiva, a leading provider of Internet access
and local content and services in the Spanish- and Portuguese-speaking world.
Under the agreement, our co-branded site will be the exclusive game content
provider of the Telefonica site, including the Terra Network sites. The
agreement is for a period of three years and provides for the payment of
certain minimum fees to us. We believe that our relationship with Telefonica
provides us with a unique opportunity to expand into the Spanish- and
Portuguese-speaking markets, including Spain, Brazil, Mexico, Chile and Peru.
We believe that introducing localized versions of our games and game shows
will provide us with many of the same opportunities for revenue as those in the
United States. We intend to continue to create localized games and game shows
in international markets.
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Pursuing Strategic Acquisitions and Alliances
We plan to continue to expand our user base, revenues and competitive
position through strategic acquisitions and alliances. In 1999, we acquired
PrizePoint, which offers single-player games of skill and chance in which
players compete to win points that can be entered into drawings for prizes. In
1999, we also entered into a strategic alliance with Pearson Television to
enhance the breadth of our content, and a strategic alliance with Telefonica
Interactiva to expand our reach into the Spanish- and Portuguese-speaking
markets.
We believe that these acquisitions and alliances have significantly
enhanced our presence in our markets and have enabled us to reach a broader
base of users and advertisers. We intend to aggressively seek other
opportunities to acquire or form alliances with other companies that will
complement our network.
Alliances and Strategic Relationships
We have entered into a number of contracts that forge alliances and
strategic relationships designed to enhance and expand our brand name, promote
our Web sites, provide us with high quality, brand-identified new content and
create new revenue opportunities. These agreements are summarized below.
Pearson Television, Inc. We entered an agreement with Pearson Television
in January 1999 that provides us with exclusive rights to create and produce
English language online versions of Pearson's game shows Family Feud, Match
Game, Password and 100%. These rights expire in September 2001, at which time
Pearson has an option to renew the contract for an additional three years. In
addition, Pearson may terminate the agreement if Mr. Simon, our Chief Financial
Officer, is not employed by us in a senior management capacity. For the term of
the agreement, Pearson will provide advertising and promotion for uproar.com on
the United States syndicated versions of these games, consisting of:
o inclusion of a 10-second commercial at the end of each of the television
game shows;
o mention of uproar.com at the close of each television program;
o inclusion of uproar.com in the closing credits of each of the television
programs; and
o inclusion of uproar.com in all written sales materials, press
advertising, press kits and media guides.
In 1999, we introduced online versions of two of Pearson's popular
television game shows, Family Feud and 100%. We intend to launch online
versions of two other popular television game shows, Match Game and Password,
in 2000.
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 November 1999, we entered into an exclusive
distribution and co-branding agreement with Telefonica Interactiva, a leading
provider of Internet access and local-language content and services in the
Spanish- and Portuguese-speaking world. Under the agreement, a co-branded
Spanish and Portuguese site will become the exclusive game content provider on
the Telefonica Web site including the Terra Network sites. In addition,
Telefonica plans to incorporate our PrizePoint rewards program into our
co-branded site, as well as its offline activities. We believe that our
agreement with Telefonica will significantly enhance our international presence
by expanding our reach into the Spanish- and Portuguese-speaking markets served
by Telefonica, including Spain, Brazil, Mexico, Chile and Peru.
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
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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, depending on the amount of
revenue generated.
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.
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 million. We intend to establish a 50/50 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 Uproar was
the fifth stickiest network, reaching over 3.6 million unique visitors in that
month. According to Media Metrix, in December 1999, 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.
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Blow Out Bingo is a variation of bingo in which the prize offered is
progressively increased after each game that does not have a winner. As the
prize grows, it tends to attract additional players. Once we award a winner,
the prize is returned to its starting amount and the process starts again.
Premier Bingo is another variation of bingo in which different prizes are
offered depending on the ball in the sequence in which a winner achieves bingo.
The earlier in the game a player achieves bingo, the more valuable the prize.
There are five variations of Premier Bingo with prizes falling in specific
categories: finance, home and family, computers, travel and consumer
electronics. We believe that each form of Premier Bingo attracts a different
user demographic. We therefore target advertising based on the type of Premier
Bingo a user is playing.
Puzzle A-Go-Go is a version of the popular game, "hangman," which has been
enhanced for multi-player competition. This game show format was launched in
December 1997. Players compete in groups of three in real time to guess letters
in a hidden phrase. The first player to identify the phrase wins the game.
Winners are eligible for prizes that are typically given away each hour.
Picture This is a game combining popular culture trivia and images of
celebrities. Participants compete against one another in groups of five within
a virtual living room. As players answer questions, portions of a celebrity's
image are gradually revealed. The first player to correctly identify the name
of the celebrity wins. Picture This was originally launched in December 1997 as
a co-branded and co-promoted product with People Magazine. Currently, we
exclusively own and operate the game show 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
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that our users will consistently return to our sites to try to accumulate
additional PrizePoints. In addition, we can alter the rate at which PrizePoints
are awarded to encourage behavior on our sites that improves the commercial
performance of the site.
We initially awarded PrizePoints only on our site, prizepoint.com. In
December 1999, we expanded our PrizePoint program to include Uproar 2000. We
intend to further expand this program and award PrizePoints on all of our
properties, including our international Web sites. In addition, we intend to
award PrizePoints in our affiliate network games.
International Programming
Uproar.co.uk is our Web site for the United Kingdom market. Launched in
September 1997, the Web site offers sites that are essentially the same as our
United States site, but the content is selected with consideration for United
Kingdom cultural and language differences. As in the United States, players
compete in a variety of game shows for fun and cash prizes.
Uproar.de, our German language site, was launched in December 1998 in
cooperation with Bertelsmann. This relationship allowed us to expand rapidly
into the German market. Today, we independently own and operate uproar.de.
Uproar.de features the multi-player game shows Mission Brain Attack and Berti's
Buro, plus three versions of the Trivia Blitz application. The games are
designed to match the cultural and language requirements of the German-language
audience.
Euro.uproar.com offers Bingo Blitz in 11 languages and offers our audience
the opportunity to play against a worldwide player base.
Affinity Merchandising and Electronic Commerce
We recently introduced an online store, shopping.uproar.com, that is
linked to our Uproar 2000 site. We strive to sell products that are both
appealing to our existing audience and are differentiated from items 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
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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.
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 33-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.
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Some of our most popular interactive games involve simultaneous,
multi-player activity. In order to create a seamless user experience in this
type of environment, we have developed a highly scalable, distributed server
system capable of delivering real time interactivity between a large number of
simultaneous users in a multi-player environment.
Our business is based on the delivery of banner advertising within pages
viewed by users of our Web sites and our advertising customers require timely
and accurate reporting of actual advertising delivered on our sites. We have
contracted with AdForce, Inc. to serve our advertising and provide the
corresponding reporting.
We distribute our programming from data centers in New York and London. We
are currently expanding our data center operations to include a facility in
California. Our domestic data centers are operated at facilities provided by
Level 3 Communications and Digital Telemedia. Our data center in London is
operated at facilities provided by PSI Net.
Competition
Many companies provide Web sites targeted to audiences seeking various
forms of entertainment content. We compete with all of these companies for
visitor traffic, advertising dollars and electronic commerce. This competition
is intense and is expected to increase significantly in the future as the
number of entertainment-orientated Web sites continues to grow. Our success, to
date, has been largely dependent upon the perceived value of our content
relative to other available entertainment alternatives, both online and
elsewhere. In addition, we are one of the few online entertainment properties
capable of delivering real time interactivity between a large number of
simultaneous users.
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.
Some of our competitors and potential new competitors have:
o longer operating histories;
o greater name recognition in some markets; and
o significantly greater financial and marketing resources.
These competitors may also be able to:
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.
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Our competitors may develop content that is better than ours or that achieves
greater market acceptance. It is also possible that new competitors may emerge
and acquire significant market share. This could also harm our business.
We also compete with traditional forms of media, like newspapers,
magazines, radio and television for advertisers and advertising revenue. If
advertisers perceive the Internet or our Web site to be a limited or an
ineffective advertising medium, they may be reluctant to devote a portion of
their advertising budget to our Web sites.
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.
Any one of these could materially adversely affect our business, results of
operations and financial condition.
Our ability to compete successfully depends on many factors. These factors
include:
o the quality of the content provided by us and our competitors;
o how easy our services are to use compared to those of our competitors;
o the success of our sales and marketing efforts; and
o the performance of our technology.
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
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.
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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, 12.1% 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. 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;
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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 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
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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.
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
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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 21 worked
in sales, 19 in marketing, 89 in production and technology; 9 in merchandising;
and 19 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
Uproar Inc., a New York corporation and one of our wholly-owned
subsidiaries, was named in an action entitled "Burgos v. Ellwell Associates,
LLC and E-Pub Inc." relating to an alleged personal injury. E-Pub Inc. is the
former name of the New York Corporation, Uproar Inc. This case is currently in
the discovery stage and a trial date has not yet been set. There is a motion
pending with respect to our potential liability to our co-defendant, Ellwell
Associates.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth our directors, executive officers and other
key employees, their ages and the positions held by them:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Kenneth D. Cron ................. 43 Chairman of the Board of Directors and Chief Executive Officer
Christopher R. Hassett .......... 37 President, Chief Operating Officer and Director
Michael K. Simon ................ 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
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.
49
<PAGE>
Jeffrey L. Strief joined us as our Executive Vice President of Marketing
and Sales in October 1999. From May 1985 to June 1999, Mr. Strief worked for
CMP Media, where he served as Executive Vice President of the Business
Technology Group with responsibility for InformationWeek and other technology
publications and Internet services. Mr. Strief earned a B.A. in marketing from
California State University Fullerton.
Thompson B. Barnhardt joined our board of directors in February 1995.
Since November 1999, he has been President of BiznesPolska.pl, an Internet
publishing company. From June 1994 to October 1999, Mr. Barnhardt was President
of New World Publishing, Inc., a publisher of several English-language business
journals in Central Europe. Mr. Barnhardt earned an M.B.A. from the University
of Virginia Darden Graduate School of Business Administration and a B.A. in
economics from the University of Virginia.
Esther Dyson joined our board of directors in April 1997. Ms. Dyson has
been the Chairman of EDventure Holdings, publisher of the newsletter Release
1.0, since 1983. She is the author of Release 2.0, an acclaimed book about
cyberspace. Ms. Dyson is a director of four software companies: Graphisoft,
Languageware.net, Scala Business Solutions and Thinking Tools. She is also a
director of Medscape, a healthcare Web site, PRT Group, a systems integrator,
and WPP Group, a multimedia company. Ms. Dyson holds a B.A. from Harvard
College.
Catherine V. Mackay joined our board of directors in September 1999 as the
result of our agreement with Pearson Television. She has worked for Pearson
Television Enterprises since March 1995 in various capacities. Ms. Mackay is
currently President of Pearson Television Enterprises, the division of Pearson
Television that operates all of its Internet, interactive television,
merchandising and music publishing activities. Prior to joining Pearson
Television Enterprises, Ms. Mackay worked for Cie Generale des Eaux, from
January 1994 to August 1995. Ms. Mackay earned an M.B.A. from INSEAD and a B.A.
from Oxford University.
Composition of the Board of Directors
Our board of directors currently consists of six members, three of whom
are independent. 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 two independent directors to each of our audit and compensation
committees within 60 days after the completion of this offering.
Board Committees
The audit committee of the board of directors reviews, acts on and reports
to the board of directors with respect to various auditing and accounting
matters, including the recommendation of our auditors, the scope of the annual
audits, fees to be paid to the auditors, the performance of our independent
auditors and our accounting practices.
The compensation committee of the board of directors recommends, reviews
and oversees the salaries, benefits, and stock option plans for our employees,
consultants, directors and other individuals compensated by us. The
compensation committee will also administer our compensation plans.
Director Compensation
In the past, we have compensated our directors with stock options from
time to time. As of December 31, 1999, our directors held options to purchase
96,000 shares for compensation for services.
Under the automatic option grant program of our Stock Incentive Plan, each
individual who first joins the board of directors after the closing of this
offering as a nonemployee member of the board will also receive an option grant
for 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.
50
<PAGE>
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 183,336 -- -- 686,698
Michael K. Simon(3) ....................... 1998 122,495 -- -- 82,000
Chief Financial Officer 1999 150,000 -- 2,950 182,000
David A. Becker(4) ........................ 1998 114,537 5,250 -- 400,000
1999 150,000 35,820 -- 400,000
</TABLE>
- ------------
(1) Kenneth D. Cron joined us as our Chief Executive Officer in September 1999
and became Chairman of our board of directors in December 1999. Mr. Cron
is not entitled to receive an annual salary or bonus from us.
(2) Christopher R. Hassett joined us as our Chief Operating Officer and as a
director in July 1999. He currently also serves as our President. Mr.
Hassett is not entitled to receive an annual salary or bonus from us.
(3) Mr. Simon served as our Chief Executive Officer until September 1999 and as
our Chairman until December 1999.
(4) Mr. Becker was our President and Chief Operating Officer until August 1999.
Option Grants in Last 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 $100,000 in
1999. The potential realizable value is calculated based on the term of the
option at its time of grant. It is calculated assuming that the fair market
value of common stock on the date of grant appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price. These numbers are calculated based on the requirements of the Securities
and Exchange Commission and do not reflect our estimate of future stock price
growth. The percentage of total options granted to employees in the last fiscal
year is based on options to purchase an aggregate of 5.3 million shares of
common stock granted under our option plans. We have never granted any stock
appreciation rights.
<TABLE>
<CAPTION>
Percent of
Number of Total Potential Realizable Value
Securities Options Exercise at Assumed Annual Rates
Underlying Granted to Price Per of Stock Price Appreciation
Options Employees Share Expiration for Option Term
Name Granted In 1999 ($) 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>
51
<PAGE>
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.
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.
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<PAGE>
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.
To date, 5,400,000 shares of our common stock have been authorized for
issuance under the Stock Incentive Plan. The Stock Incentive Plan share reserve
will be automatically increased on the first trading day of July each calendar
year, beginning in July 2000, by a number of shares equal to 1% of the total
number of shares of common stock outstanding on the last trading day of the
immediately preceding June, but no annual increase will exceed 400,000 shares.
However, in no event may any one participant in the Stock Incentive Plan
receive option grants or direct stock issuances for more than 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 eligible individuals
in Uproar's employ or service (including officers, non-employee board
members and consultants) may be granted options to purchase shares of
Uproar's common stock;
o the stock issuance program under which such individuals may be issued
shares of common stock directly, through the purchase of such shares or
as a bonus tied to the performance of services; and
o the automatic option grant program under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members.
The discretionary option grant and stock issuance programs will be
administered by our compensation committee. This committee will determine:
o which eligible individuals are to receive option grants or stock
issuances,
o the time or times when such option grants or stock issuances are to be
made,
o the number of shares subject to each such grant or issuance,
53
<PAGE>
o the exercise or purchase price for each such grant or issuance,
o the status of any granted option as either an incentive stock option or a
non-statutory stock option under the federal tax laws,
o the vesting schedule to be in effect for the option grant or stock
issuance and
o the maximum term for which any granted option is to remain outstanding.
Neither the compensation committee nor the board will exercise any
administrative discretion with respect to the automatic option grant program
for the nonemployee board members.
The exercise price for the options may be paid in cash or in shares of our
common stock valued at fair market value on the exercise date. Options may also
be exercised through a same-day sale program without any cash outlay by the
optionee.
In the event that we are acquired, whether by merger or asset sale or
board-approved sale by the stockholders of more than 50% of our voting stock,
each outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation or otherwise continued will
automatically accelerate in full, and all unvested options under the
discretionary option grant and all unvested shares under the stock issuance
programs will immediately vest, except to the extent our repurchase rights with
respect to those shares are to be assigned to the successor corporation or
otherwise continued in effect. The compensation committee may grant options and
issue shares under those programs which will accelerate
o in an acquisition even if the options and repurchase rights are assumed,
o in connection with a hostile change in control effected through a
successful tender offer for more than 50% of our outstanding voting stock
or by proxy contest for the election of board members, or
o upon a termination of the individual's service following an acquisition
or hostile change in control.
Stock appreciation rights may be issued under the discretionary option
grant program which will provide the holders with the election to surrender
their outstanding options for an appreciation distribution from Uproar equal to
the fair market value of the vested shares subject to the surrendered option
less the aggregate exercise price payable for such shares. Such appreciation
distribution may be made in cash or in shares of our common stock. Currently no
stock appreciation rights are outstanding under the predecessor plan.
The compensation committee has the authority to cancel outstanding options
under the discretionary option grant program, including options incorporated
from the predecessor plan, in return for the grant of new options for the same
or different number of option shares with an exercise price per share based
upon the fair market value of the common stock on the new grant date.
Under the automatic option grant program of the Stock Incentive Plan, each
individual who first joins the board of directors after the closing of this
offering as a nonemployee member of the board will receive an option grant for
30,000 shares of our common stock at the time of his or her commencement of
service on the board. In addition, as of January 1, 2000, and thereafter, at
each annual meeting of stockholders beginning with the 2001 annual meeting,
each individual who has served as a nonemployee board member for at least 6
months and is to continue to serve as such will be granted an option to
purchase 5,000 shares of our common stock. Each automatic grant will have an
exercise price equal to the fair market value per share of our common stock on
the grant date and will have a maximum term of 10 years, subject to earlier
termination following the optionee's cessation of board service. Each option
will vest in a series of 4 equal quarterly installments upon the optionee's
completion of each quarter of service over the 1-year period measured from the
grant date. However, each outstanding option will immediately vest upon an
acquisition or change in control or the death or disability of the optionee
while serving as a board member.
Limited stock appreciation rights will automatically be included as part
of each grant made under the automatic option grant program and may be granted
to one or more officers as part of their option grants under the discretionary
option grant program. Options with such a limited stock appreciation right may
be surrendered to us upon the successful completion of a hostile tender offer
for more than 50% of our
54
<PAGE>
outstanding voting stock. In return for the surrendered option, the optionee
will be entitled to a cash distribution from us in an amount per surrendered
option share equal to the highest price per share of common stock paid in
connection with the tender offer less the exercise price payable for such
share.
The board may amend or modify the Stock Incentive Plan at any time,
subject to required stockholder approval. The Stock Incentive Plan will
terminate no later than ten years from the effective date of the Plan.
55
<PAGE>
CERTAIN TRANSACTIONS
In January 1999, we entered into a strategic relationship with Pearson
Television that provides us with rights to create and produce English-language
versions of television game show formats owned by Pearson. In connection with
this arrangement, we issued 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 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.
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.
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 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.
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 35,000 options granted to his spouse.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of 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 30,237,840 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. All share numbers have been adjusted to reflect a
2-for-1 stock split of our common stock to be effected February 18, 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 2.7%
Christopher R. Hassett (2) .................... 1,096,547 4.5 1,096,547 3.6
Michael K. Simon (3) .......................... 1,395,101 5.8 1,395,101 4.6
David A. Becker (4) ........................... 400,000 1.6 400,000 1.3
Thompson B. Barnhardt (5) ..................... 32,000 * 32,000 *
Esther Dyson (6) .............................. 158,240 * 158,240 *
Catherine V. Mackay (7) ....................... 2,000,000 8.3 2,000,000 6.6
Pearson Television, Inc. (8) .................. 2,000,000 8.3 2,000,000 6.6
All directors and executive officers as a group
(10 persons) ................................. 8,534,764 32.7 8,534,764 26.4
</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 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 Ms. Mackay are included because of Ms.
Mackay's affiliation with Pearson Television, Inc. Ms. Mackay disclaims
beneficial ownership of all shares owned by Pearson Television, Inc. Ms.
Mackay's address is c/o Pearson Television, Inc., 1330 Avenue of the
Americas, New York, NY 10019.
(8) The address of Pearson Television, Inc. is 1330 Avenue of the Americas, New
York, NY 10019.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our common stock and relevant provisions of
our certificate of incorporation as will be in effect upon the closing of this
offering and the bylaws as will be in effect upon the closing of this offering
are summaries and are qualified by reference to our certificate of
incorporation and the bylaws, copies of which have been filed with the
Securities and Exchange Commission as exhibits to our Registration Statement of
which this prospectus forms a part. The description of the common stock
reflects changes to our capital structure that will occur upon the closing of
the offering in accordance with the terms of our certificate of incorporation.
Our authorized capital stock 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
30,237,840 shares of common stock outstanding upon the closing of this offering
assuming that the underwriters do not exercise their over-allotment option and
including 1,265,372 shares of our common stock sold to Trans Cosmos USA in
February 2000.
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 30,237,320 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
4,427,298 After 180 days from the date of this prospectus subject, in some
cases, to volume limitations
</TABLE>
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned our common
stock for at least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
o 1% of the number of common shares then outstanding, which will equal
approximately shares immediately after this offering; or
o the average weekly trading volume of the common shares on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner other than an affiliate, is entitled to sell such shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory share plan or other written agreement is
eligible to resell such shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with 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;
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o in the case of certain transfers to affiliates;
o as a bona fide gift; or
o to any trust.
In connection with our agreement with Pearson, Pearson has agreed not to
transfer or dispose of, directly or indirectly, more than 1,000,000 of the
shares of our common stock issued to it under the agreement until at least
January 14, 2001. On and after that date, Pearson will be able to sell the
remaining 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 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 shares of our
common stock to be sold, at the initial public offering price, to our
directors, officers and employees, as well as to some of our customers and
suppliers and individuals associated or affiliated with our directors,
customers and suppliers. This directed share program will be administered by
Salomon Smith Barney Inc. The number of shares of common stock available for
sale to the general public will be reduced to the extent these individuals
purchase reserved shares. Any reserved shares which are not so purchased will
be offered by the underwriters to the general public on the same basis as the
other shares offered by this prospectus. We have agreed to indemnify the
underwriters against 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 admitted for trading
on EASDAQ under the symbol "UPRO". The initial price to public of the common
stock in the United States will be determined by negotiation among the
underwriters and Uproar. In addition to prevailing market conditions, among the
factors that may be considered in
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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.
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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 said 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 LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority 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 the 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.
69
<PAGE>
Companies approved for trading on EASDAQ are required to publish relevant
financial and other information regularly and to keep the public informed of
all events likely to affect the market price of their securities.
Price-sensitive information is available to investors in Europe through the
EASDAQ-Reuters Regulatory Company Reporting System and other international
information providers. Investors who do not have direct access to such
information should ask their financial advisors for the terms on which such
information will be provided to them by these financial advisors. We will
ensure that a summary of our quarterly and annual financial statements will be
provided to stockholders in Europe across the EASDAQ Company Reporting System,
or ECR System. A hard copy of the annual report will be provided to
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.
70
<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
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
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>
Additional
Common Stock
------------------------------ 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>
(RESTUBBED TABLE)
<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:
December 31,
----------------------------
1998 1999
----------- --------------
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
======== ============
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
December 31,
-----------------------------
1998 1999
------------ --------------
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
========= ===========
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) 41,454,415
Basic loss per share
As reported ................................ $ (0.42) (0.40) $ (1.77)
Proforma ................................... (0.43) (0.45) (1.89)
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 9.42 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 8.32 695,706 2.21
3,580,458 9.43 9.71 1,273,488 9.43
1,200,000 10.82 9.87 204,164 10.82
33,702 11.15 9.78 -- --
42,882 16.09 9.81 -- --
22,660 17.27 9.96 -- --
--------- ---------
5,904,408 $ .01-17.27 9.51 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:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1997 1998 1999
---------------- ---------------- -----------------
<S> <C> <C> <C>
Current tax expense
United States ................... $ -- $ -- $ --
Foreign ......................... 5,582 9,020 28,000
------ ------ -------
Total income tax expense ......... $5,582 $9,020 $28,000
------ ------ -------
</TABLE>
<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) $ (23,081,307)
Foreign ......................... (2,762,601) (1,366,191) (15,615,334)
------------ ------------ -------------
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 Federal net operating loss carryforwards ......... 2,146,000 9,723,000
Accounts receivable allowances ................................. -- 108,000
Accrued liabilities ............................................ 61,000 313,000
United Kingdom net operating loss carryforwards ................ 137,000 323,000
--------- ---------
2,344,000 10,467,000
Less valuation allowance ....................................... (2,344,000) (10,467,000)
---------- -----------
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 $28,597,000. 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 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 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.
F-18
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(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) Legal claim
In 1997, E-Pub Inc., a wholly-owned subsidiary, was named in an action
entitled "Burgos v. Ellwell Associates, LLC and E-Pub Inc", relating to an
alleged personal injury. The plaintiff seeks damages of $6 million against
Ellwell Associates, the landlord of the building in which E-Pub Inc's office is
located, and E-Pub Inc.
Through December 31, 1999, certain limited written discovery was exchanged
by the parties. Although the plaintiff has not yet specified the precise extent
and severity of his alleged injuries, the Company has recently received
documentary information suggesting that the plaintiff's injuries no longer
prevent him from gainful employment. Uproar Inc. has asserted a cross claim
against the landlord, seeking to hold the landlord responsible for any injuries
sustained by the plaintiff.
Uproar Inc. has denied liability and will vigorously defend the action in
the future. No provision to date has been made in the consolidated financial
statements as Uproar Inc., based on legal advice, is unable to estimate the
extent of any potential liability with reasonable accuracy at this time.
(c) 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:
F-19
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(16) Leases -- (Continued)
<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.
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
========== ===========
F-20
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(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.
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). 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>
[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"; "excite"; "TOWER RECORDS.com"; and "terra"; and
the following text: "Partners in . . . Branding, Content, Syndication and
Distribution appears under the Uproar logo.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 Shares
Uproar Inc.
Common Stock
[LOGO]
--------
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.
5.2* Opinion of M.L.H. Quin & Co., Bermuda counsel to Registrant.
10.1* 1999 Stock Option Plan.
10.2+ Employment agreement, dated September 6, 1999, by and between Kenneth D. Cron and the Registrant.
10.3+ Lease agreement, as amended, dated April 19, 1999, by and between Nassau Bay Associates, L.P., and the
Registrant.
10.4+ Lease agreement, dated November 9, 1999, by and between Golden Van Associates, LLC, and the
Registrant.
10.5+ Lease agreement, dated September 7, 1998, by and between ANU Kft. and the Registrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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 Sgreement, 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.
23.2 Consent of KPMG LLP.
23.3+ Report of Arthur Andersen LLP.
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.
- - Application has been made to the Commission to seek confidential treatment of
certain provisions. Omitted material for which confidential treatment has
been requested 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. 2 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 18th day of
February 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. 2 to the registration statement has been signed by the
following persons in the capacities indicated on February 18, 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
*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.
5.2* Opinion of M.L.H. Quin & Co., Bermuda counsel to Registrant.
10.1* 1999 Stock Option Plan.
10.2+ Employment agreement, dated September 6, 1999, by and between
Kenneth D. Cron and the Registrant.
10.3+ Lease agreement, as amended, dated April 19, 1999, by and between Nassau
Bay Associates, L.P., and the Registrant.
10.4+ Lease agreement, dated November 9, 1999, by and between Golden Van Associates,
LLC, and the Registrant.
10.5+ Lease agreement, dated September 7, 1998, by and between ANU Kft. and the Registrant.
10.6+ Agreement and plan of reorganization, dated April 29, 1999, by and between
PrizePoint Entertainment Corporation and the Registrant.
10.7- Internet Game Development Agreement, dated 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.
23.2 Consent of KPMG LLP.
23.3+ Report of Arthur Andersen LLP.
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.
- - Application has been made to the Commission to seek confidential treatment of
certain provisions. Omitted material for which confidential treatment has
been requested has been filed separately with the Commission.
<PAGE>
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
EXHIBIT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
INTERNET GAME DEVELOPMENT AGREEMENT
This Internet Game Development Agreement (the "Agreement") is
effective as of January 12, 1999 (the "Effective Date"), by and between Pearson
Television, Inc. ("PTV Inc."), a New York corporation with its principal place
of business at 1325 Avenue of the Americas, New York, New York 10019; Pearson
Television Netherlands ("PTV Netherlands") a branch of Pearson Television France
EURL; Pearson Television Holdings, Inc.; Pearson Television North America, Inc.;
Pearson Television Limited, and their respective subsidiaries (collectively,
"Pearson"); and E-Pub (Holdings) Ltd. ("E-Pub"), a Bermuda corporation with its
principal place of business at 44 Church Street, Hamilton HM12 Bermuda.
WHEREAS, E-Pub develops, operates and maintains interactive games on
sites on the world-wide-web portion of the Internet currently located at the URL
(as hereinafter defined) "www.uproar" (with related web pages at other
URLs); and
WHEREAS, Pearson is the owner of certain television game shows and the
rights to develop derivative works based on such game shows and Pearson desires
to license to E-Pub the right to develop, and desires to cooperate with E-Pub
to develop, Internet Versions (as hereinafter defined) of certain specified
television game shows.
NOW, THEREFORE, for good and valuable consideration; the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Definitions. When used in this Agreement each of the following
shall have the following respective meanings:
1.1 "Advertising" shall include but shall not be limited to
sponsorships, promotions, banners (including banners that scroll along with text
and banners appearing between moving streams of headlines, so called "tickers"),
animated type, animated images, interactive trivia, pop-up windows, road blocks,
intermercials (animated commercials), interstitials, logo placements and other
relationships, materials or devices to be developed or agreed upon by the
parties and used on the Site or any Affiliate web sites.
1.2 "Affiliate" shall mean any corporation or other business entity
that directly or indirectly controls, is controlled by, or is under common
control with a party. Control means direct or indirect ownership of or other
beneficial interest in fifty percent (50%) or more of the voting stock, other
vesting interest, or income of a corporation or other business entity.
<PAGE>
1.3 "E-Pub Production and Marketing Information" shall mean
knowledge or information acquired, developed, or possessed by E-Pub (with the
right to disclose the same to others) at any time during the term of this
Agreement, or prior thereto, which relates to (i) the development, production
and marketing of the Licensed Internet Games; (ii) the integration of the
Licensed Internet Games into the Site; (iii) the design, hosting and maintenance
of the Site; (iv) the integration of advertising into the Site; (v) the
rotation of advertising throughout the Site, electronic commerce conducted on or
through the Site; (vi) the hyperlinking of the Site to other web sites; and
(vii) information acquired by Pearson from E-Pub pursuant to the financial and
business relationships established under this Agreement, as well as any
information pertaining to the marketing, advertising or sale of the Licensed
Internet Games as E-Pub may in its sole discretion choose to make available to
Pearson.
1.4 "Games" shall mean the television game shows (including Game
Show Formats) owned or controlled by Pearson, to which certain limited rights
are licensed to E-Pub under this Agreement.
1.5 "Game Show Format" shall mean rules, procedures, "look and
feel" and such other elements of the Games as Pearson shall make available to
E-Pub for development. The Game Show Format shall not include talent, guests, or
television advertisements (except in the event that any rights to such material
are explicitly granted to E-Pub in writing by Pearson) and Pearson shall make
reasonable efforts to include artwork, photographs, question banks from
previously televised shows, scripted celebrity banter and four episodes (not for
transmission via the Internet) of each Game for use in the development process.
1.6 "Local FF" shall mean a first-run English language
television show owned, produced and/or distributed by Pearson in a local
television market of any English speaking country which is based on or
substantially similar to that certain television game show known as Family
Feud.
1.7 "Local FF Internet Version" shall mean an Internet Version of a
Local FF.
1.8 "Local 100%" shall mean a first-run English language
television show owned, produced and/or distributed by Pearson in a local
television market of any English speaking country, which is based on or
substantially similar to that certain television game show known as 100%.
1.9 "Local 100% Internet Version" shall mean an Internet Version
of a Local 100%.
1.10 "Local Match Game" shall mean a first-run English language
television show owned, produced and/or distributed by Pearson in a local
television market of any English speaking country, which is based on or
substantially similar to that certain television game show known as Match Game.
2
<PAGE>
1.11 "Local Match Game Internet Version" shall mean an Internet
Version of a Local Match Game.
1.12 "Licensed Internet Games" shall mean collectively the Internet
Versions of the Games; namely, Family Feud; Match Game; and 100%, or such other
television game shows as may be substituted by Pearson pursuant to Section 3.2
of this Agreement.
1.13 "Internet Version" shall mean the authorized derivative work
based on a Game Show Format that is distributed via Internet Protocols
(including proprietary languages of Internet service providers such as, by way
of example and not by way of limitation, "Rainman") or other computer data
transmission systems for execution primarily on an Internet hosting server,
provided however that Internet Versions shall not include stand-alone hand-held
games, any other game-console platform, CD-Roms, enhanced television (including
without limitation play-along games) or any other broadcast or one-way
transmission system. Pearson reserves all other rights in the formats including
without limitation all television, video, non-theatric, video-on-demand and
near-video-on-demand, and all on-line rights other than those granted above,
including without limitation the right to promote other versions of the format
on-line whether on the Internet or otherwise, and to transmit video and/or audio
versions of the format on line. Pearson reserves the right to feature the
formats on Pearson web sites and on appropriate broadcaster sites.
1.14 "Licensed Marks" shall mean FAMILY FEUD, 100%. MATCH GAME and
BLANKETY BLANK as well as the trademarks, service marks and domain names that
are listed on the attached Exhibit B, as well as such other indicia of origin as
Pearson may from time to time designate by written notice served upon E-Pub.
1.15 "Coverage" shall mean the average quarterly percentage of
United States households (as reported by Nielsen Media Research ("Nielsen"))
that can receive a television show, whether via broadcast or cable transmission.
Pearson shall inform E-Pub from time to time and on no less than a monthly basis
of the coverage levels provided by Nielsen.
1.16 "Gross Revenue" shall mean all revenues received by E-Pub that
are directly related to the exploitation of the Licensed Internet Games
including without limitation (i) revenue from the sale of Advertising on pages
of the Uproar web site (along with all linked and related Uproar web pages, the
"Site") and affiliated web sites on which any of the Licensed Internet Games
appear; (ii) revenue from advertising linked to pages on which Licensed Internet
Games appear (such as jump pages or interstitials); (iii) subscription revenues;
and (iv) any commission or other revenue based on merchandise sales related to
the Licensed Internet Games; but excluding advertising agency commissions. Goods
or services received in barter arrangements shall not be included in Gross
Revenue, provided however that E-Pub shall not accept any Advertising on a
barter basis for the Licensed Internet Games without the prior written approval
of Pearson.
1.17 "Net Revenue" shall mean the Gross Revenue received by E-Pub
less; (i) [****] format royalty (of gross revenue) payable to PTV Netherlands;
(ii) site
- --------------
**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and Exchange
Commission.
3
<PAGE>
maintenance costs of [****] per annum; (iii) prizes (not to exceed the greater
of [****] per month, per game or [****] of gross revenue); (iv) music and talent
(including clearance) cost for rights for use in the Licensed Internet Games
which have been negotiated for E-Pub by Pearson; (v) direct marketing costs;
(vi) question research and development (namely cost of sorting and selecting old
questions and developing new questions); (vii) traffic and usage research and
ratings related to the Licensed Internet Games; (viii) actual registration and
filing fees (if any) related to gaming; and (ix) sales commissions of [****]
payable to E-Pub.
1.18 "Television Broadcast Year" shall mean the period of twelve
(12) consecutive months during the Term (as defined in Section 2, below) of this
Agreement beginning on the launch date of any U.S. Local Television Show (as
hereinafter defined), and each subsequent Television Broadcast Year to begin at
the expiration of the preceding Television Broadcast Year.
1.19 "Pearson Production and Marketing Information" shall mean
knowledge or information acquired, developed, or possessed by Pearson (with the
right to disclose the same to others) at any time during the Term of this
Agreement, or prior thereto, which relates to the development, production and
marketing and distribution of the Licensed Internet Games and such other
information necessary for, or useful in, the production, development of the
Licensed Internet Games, as well as any knowledge or information pertaining to
the marketing, advertising, or sale of the Licensed Internet Games as Pearson,
in it sole discretion, may choose to make available to E-Pub.
1.20 "Territory" shall mean the entire world.
1.21 "UPROAR" shall mean an E-Pub service mark, U.S. service mark
Application Serial No. 75/370,336.
1.22 "URL" shall mean a Universal Resource Locator (which may or
may not include a domain name) used to access objects via the Internet.
1.23 "U.S. Local Television Show" shall mean a syndicated first-run
English language television show created, produced and/or distributed by
Pearson in U.S. television markets, which is based on or substantially similar
to a certain television game show known as Family Feud, 100% or Match Game.
2. Term. This Agreement shall be effective on the date of execution,
and shall continue until September 30, 2001. Pearson shall have the right to
extend such Initial Term one (1) time for three (3) additional Television
Broadcast Years (the "Extension Term") by notifying E-Pub to this effect at
least ninety (90) days prior to the expiration of the Initial Term.
3. Grant.
- --------------
**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and Exchange
Commission.
4
<PAGE>
3.1 License. PTV Netherlands hereby grants to E-Pub and its
Affiliates (the "E-Pub Grantees"), during the Term of this Agreement, and
subject to the provisions hereof, the sole and exclusive worldwide right and
license to create, produce, copy, use, perform, display and transmit (via the
Internet) the English language Internet Versions of the Games (the "Licensed
Internet Games"), and to use the Licensed Marks with respect to the creation,
production, performance and display of the English language version of the
Licensed Internet Games, but only so long as such Licensed Internet Games are
made available on the world wide web portion of the Internet (the "Internet")
and produced in accordance with this Agreement. It is understood and agreed that
E-Pub shall use best efforts to launch the Licensed Internet Games so that they
are available to Users in accordance with the schedule set forth on Exhibit A.
3.2 Replacement Game Show Format. Notwithstanding the provisions of
Section 3.1 above, if either or both of the Games United States Local FF and
United States Local 100% do not have at least [****] Coverage during the
September 1999 to September 2000 and September 2000 to September 2001 television
broadcast seasons then: (i) from and after said television season where the
[****] distribution threshold was not met. PTV Netherlands shall grant to E-Pub
for either one (1) or two (2) Television Broadcast Years (depending on whether
the [****] threshold was missed for one (1) or two (2) seasons) the exclusive,
worldwide right and license to create, produce, copy, use, perform, display and
transmit via the Internet an English language Internet version of the next
television game show that Pearson syndicates in the United States. In this
regard, PTV Netherlands shall also grant to E-Pub the exclusive right and
license to use the marks associated with said syndicated game show, which shall
be added to Exhibit B and shall become Licensed Marks, in accordance with the
terms and conditions for the use of the other Licensed Marks pursuant to this
Agreement, and such other indicia of origin as PTV Netherlands in its sole
discretion may elect to provide; and (ii) the definition of Licensed Internet
Games shall include the said next syndicated televised game show; provided
however, if Pearson has no other television game show in syndication, PTV
Netherlands shall grant E-Pub the worldwide right and license to create, produce
and distribute an English language Internet Version of the television game show
Password. In the event that the foregoing provision 3.2 (ii) becomes effective,
PASSWORD shall be added to Exhibit B and shall become a Licensed Mark. E-Pub's
rights to the Game Show Formats, including the Game Show Format for such next
syndicated television game shall in no event extend beyond the Term of this
Agreement.
4. Communication of Production and Marketing Information. Beginning
upon the Effective Date of this Agreement, each party shall furnish, and from
time to time shall continue to furnish upon request, such Production and
Marketing Information (as defined in Sections 1.3 and 1.19) in its discretion,
may deem reasonably necessary or useful in view of the state of the development
of the business and nature and extent of the markets related to the Licensed
Internet Games. In this regard, Pearson agrees to use reasonable efforts to
obtain and secure for E-Pub the right to use, reuse, perform, display and
transmit over the Internet (with respect to the Licensed Internet Games),
questions previously used in televised episodes of Family Feud, 100% and Match
Game; provided that E-Pub shall pay any costs associated with such use of
previously televised questions (such costs to be deducted from Gross Revenue
pursuant to Section 1.17 of this Agreement). Pearson shall make reasonable
efforts to supply such Production and
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**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and Exchange
Commission.
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Marketing Information in the form reasonably requested by E-Pub to enable E-Pub
to create, produce, host. serve and market the Licensed Internet Games on the
Internet as well as sell Advertising related to said Licensed Internet Games
throughout the Territory during the Term of this Agreement.
5. Licensed Internet Game Development and E-Pub Content.
5.1 Pearson Participation. E-Pub shall make reasonable efforts to
include Pearson in all major aspects (including, without limitation, all
business, design, editorial, and artistic processes) related to the development
of the Internet Versions of the Games. E-Pub shall make reasonable efforts to
notify Pearson in writing or by e-mail of all major meetings, tests, and
decisions related to the development process and to include at least one Pearson
employee (to be designated by Pearson) in all major meetings and discussions of
the business or creative development and maintenance of the Licensed Internet
Games and shall provide Pearson with the option of participating in (and provide
any non-confidential information which Pearson may reasonably request related
to) the process of developing and marketing the Site, provided however that all
written approvals of Preliminary Representations or Descriptions granted
pursuant to Section 5.4 shall be deemed final. Pearson shall, however, retain
the right, upon reasonable advance notice to E-Pub, to require changes or
replacements for any content or editorial elements of the Licensed Internet
Games that Pearson reasonably determines may devalue, degrade or diminish the
value of the Game Show Formats.
5.2 The Web Pages. Each local Licensed Internet Game will include a
multi-player game that is updated weekly, chat, e-mail, banners and click
through advertisements, the number, size, placement and content of which must be
approved in writing in advance by Pearson, and a local television show cross
promotion. In this regard, E-Pub shall use reasonable efforts to develop and
maintain customized web pages for the Licensed Internet Games that reasonably
meet or exceed the performance, technical and design standards of E-Pub's best
Internet games as agreed upon by the parties (the "Best Internet Games"). Said
Web Pages will include the Licensed Marks, and such other content as agreed to
by the parties hereto (the "Web Pages").
5.3 Specifications. E-Pub shall develop and submit to Pearson
specific and detailed preliminary representations of the Web Pages that will
achieve the business requirements described in Paragraph 5.1 above ("Preliminary
Representations") in accordance with the timetable set forth in Exhibit A
hereto. Such Preliminary Representations shall comprise text descriptions of
approximately one paragraph describing the content, questions, tone and
highlights of the Licensed Internet Games. Once Pearson approves the Preliminary
Representations, E-Pub shall prepare detailed descriptions ("Descriptions") for
each of the Licensed Internet Games. The Descriptions shall specify interactive
and multimedia components, graphic elements and content of each Web Page, as
well as, overall structure and hierarchy. Once Pearson or its representative
approves the Descriptions in writing, the Descriptions shall become the approved
specifications for the Licensed Internet Games (the "Specifications").
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5.4 Acceptance. If E-Pub has not been notified by Pearson in
writing of an adverse examination of either the Preliminary Representations or
Descriptions, within thirty (30) days after receipt by Pearson of the same,
such Preliminary Representation and/or Description shall be deemed accepted by
Pearson. In the event that Pearson rejects the Preliminary Representations or
Descriptions, E-Pub shall submit revised Preliminary Representations or
Descriptions for Pearson's review within twenty-one (21) days of receipt of
notice of such rejection. The process of review and revision shall continue
until Pearson has approved the Preliminary Representations or Descriptions in
writing. Once the Preliminary Representations or Descriptions have been approved
by Pearson in writing, they shall be deemed accepted and final.
5.5 Testing.
(a) Technical Testing. E-Pub shall conduct beta testing
for each Web Page to assure that each Web Page reasonably conforms to the
Specifications. E-Pub shall submit to Pearson in accordance with the timetable
set forth in Exhibit A, such digitized version(s) of the Web Pages as described
in the Specifications. E-Pub shall, at its sole cost, correct any Defect in any
Web Page reasonably identified by Pearson in writing within forty-eight (48)
hours after E-Pub's delivery of the same. "Defect(s)," for purposes of this
Agreement, means material non-compliance with the Specifications. Once Pearson
approves the digitized version, or modified digitized version, as the case may
be, E-Pub shall assemble the Web Pages into the Licensed Internet Games in a
manner that conforms in all material respects to the Specifications.
(b) Market Testing. E-Pub shall make reasonable efforts
to conduct such pre-launch market testing as the parties may reasonably deem
appropriate for each of the Licensed Internet Games.
5.6 Support. During the Term, E-Pub will provide technical
support to maintain the Web Pages of the same quality and frequency as provided
by E-Pub to maintain E-Pub's Best Internet Games as defined in Section 5.2 above
distributed by E-Pub on the URL uproar.com. Such support shall include e-mail
support for Users and a designated contact person for Pearson in the event that
Pearson is contacted by Users or in some way becomes aware of any problems with
the Licensed Internet Games.
5.7 Residence. The Licensed Internet Games shall reside on
E-Pub servers that shall be maintained and operated by E-Pub in accordance with
standards to be set forth on Exhibit C.
5.8 Creative Approval. Pearson shall retain the full right
to reasonably approve the creative and design aspects of the Licensed Internet
Games. As used in this Agreement. "Creative Approval" means all rights of final
approval over all aspects of the look, feel, sound and appearance of the
Licensed Internet Games as it relates to the User's experience of the Format.
Pearson shall have the right to veto any changes in design or implementation of
the Licensed Games that Pearson determines, in its sole discretion may devalue
or negatively affect general perceptions of the Game Show Formats or the
Licensed Marks.
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5.9 Material Deemed Objectionable by Pearson.
(a) In the event that Pearson finds offensive or
objectionable any game or other material on the Site or on any web site to which
Uproar links, Pearson shall notify E-Pub senior management. If E-Pub shall
concur, then E-Pub shall use reasonable efforts to modify or remove such
material or links.
(b) In the event that E-Pub does not agree to modify or
remove such material or links from Uproar, Pearson may request that the E-Pub
Board of Directors vote on whether such material or links are objectionable and
should be removed. The parties agree to accept and abide by the decision of the
Board of Directors.
(c) In the event that E-Pub develops or acquires a new
web site or other property that Pearson reasonably believes is likely to damage,
devalue or negatively affect the Pearson name because such property contains,
promotes or is associated with content deemed by Pearson to be objectionable,
Pearson shall notify E-Pub senior management and request that E-Pub change or
divest itself of such property.
(d) In the event that E-Pub does not accept or agree that
the material or property complained of by Pearson is likely to damage, devalue
or negatively affect the Pearson name, the parties shall submit the issue to
arbitration under the auspices and according to the rules of the American
Arbitration Association (AAA), the cost of such arbitration to be borne by
Pearson.
(e) In the event that the arbitrator(s) decide that the
material or property complained of by Pearson is damaging to or is likely to
damage, devalue or negatively affect the Pearson name, Pearson shall be released
from the provisions of Sections 16.3 (c)-(e), and shall have the right to
divest itself immediately of all of the Shares.
6. Marketing and Advertising Material.
6.1 Approval. E-Pub shall submit to Pearson, for approval in
the manner which Pearson shall direct, all advertising, and other material on
which the Licensed Marks appear, or are intended to be used in relation to the
Licensed Internet Games. Pearson agrees to examine such material as promptly
as feasible. If E-Pub has not been notified in writing by Pearson of an
adverse examination within thirty (30) days after dispatch of the material to
Pearson, such material shall be deemed satisfactory (for purposes of this
subparagraph "dispatch" shall mean facsimile delivery, overnight courier
delivery or mailed - air mail, postage prepaid). Should Pearson ever notify
E-Pub that any of the material is unacceptable, E-Pub shall replace or
amend to the satisfaction of Pearson such material not approved by Pearson.
Without detracting from the generality of the foregoing, the marketing
legends for use in association with the Licensed Internet Games which Pearson
considers appropriate in the circumstances would read: "Produced and
Distributed under License from Pearson Television" and on each Web Page:
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"Uproar in association with Pearson TV," along with the U.S. Local Television
Show logos or Pearson television logos.
6.2 Other Marks. Other than E-Pub's service mark UPROAR, and
the Licensed Marks, E-Pub shall not use any other service mark or trademark on
or in association with the Licensed Internet Games, and shall not use the
Licensed Marks in any medium other than the Internet without the prior written
approval of Pearson on or in connection with any other goods or service other
than the Licensed Internet Games. E-Pub specifically agrees not to produce, or
distribute, directly or indirectly, any other game, whose trademark, service
mark, trade name, URL or other designation is confusingly similar to the
Licensed Marks. The use of the Licensed Marks by E-Pub shall be exclusive in
respect to English Language Internet Games in the Territory.
7. Licensed Marks.
7.1 Recognition of Pearson's Rights. E-Pub recognizes
Pearson's ownership of the Licensed Marks and the validity of Pearson's
registrations thereof or applications therefor in the Territory and E-Pub will
not dispute or put at issue such ownership or validity. E-Pub shall not at any
time apply for or obtain the registration of any Licensed Mark in any country or
do or suffer to be done any act or thing which might in any way impair the
rights of Pearson in and to the Licensed Marks, and shall not claim any right or
interest in the Licensed Marks, except as such rights as are expressly granted
herein.
7.2 Impairment of Licensed Marks. E-Pub hereby covenants
that it will not directly or indirectly undertake any action anywhere which in
any manner might infringe, or impair the validity, scope, or title of Pearson in
the Licensed Marks, or any of them, or in any other trademarks, service marks or
URLs which may be owned by Pearson at any time during the Term, and E-Pub agrees
to cease using the Licensed Marks immediately upon expiration or termination of
this Agreement.
7.3 Protection of Licensed Marks. Pearson reserves the
right to prosecute and defend, at its own expense, all suits involving any of
the Licensed Marks and to take any action or proceedings that it deems desirable
for the protection thereof; and at Pearson's discretion may do so in its own
name or in the name of E-Pub, or in the joint names of Pearson and E-Pub, and
E-Pub shall claim no rights against Pearson as the result of any such action.
E-Pub agrees to notify Pearson promptly of any infringement of the Licensed
Marks or of any pending or threatened litigation involving such Licensed Marks.
E-Pub shall fully cooperate in any such litigation if requested by Pearson to do
so, provided however that Pearson shall pay E-Pub's reasonable attorney's fees
and out-of-pocket expenses associated with such litigation. E-Pub further agrees
that this license is personal to E-Pub and shall not be assigned or otherwise
transferred by E-Pub without the prior written consent of Pearson.
8. Covenants of Pearson.
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8.1 Promotion of www.uproar.com on Pearson Games. PTV Inc.
agrees to advertise and promote in the United States the Licensed Internet Games
in accordance with the following provisions and all applicable laws and
regulations. Commencing no later than September 30, 1999 (except as to the
obligations relating to 100% that are set forth in subsection 8.1 (f) below,
which commence no later than April 1, 1999), and provided that E-Pub has
launched the Licensed Internet Games in accordance with the schedule set forth
on Exhibit A, this marketing campaign shall include:
(a) Reasonable efforts to mention the URL
www.uproar.com by a host or in a voice-over at the close of each United States
Local FF, United States Local 100% and United States Local Match Game;
(b) Inclusion of www.uproar.com in the closing
credits of each US Local Television Show;
(c) Inclusion of www.uproar.com in all Major Press
Advertising relating to each US Local Television Show (as used herein, Major
Press Advertising shall mean any print advertising of 1/8 page or larger);
(d) Inclusion of www.uproar.com in all written
sales material, press kits. media guides, and sales and demonstration tapes for
each US Local Television Show;
(e) Reasonable efforts to include in each U.S.
Local Television Show, where possible, Uproar prizes, or sponsorship to include
prizes related to Uproar;
(f) Except as to Local 100% where launch will be no
later than April 1, 1999, Local FF and Local Match Game will, commencing no
later than September 30, 1999, include and contain a ten (10) second commercial
message promoting the URL www.uproar.com and referring to the name of the U.S.
Local Television Show at the end of each U.S. Local Television Show, such
message to be produced by E-Pub at its sole cost, consistent with PTV Inc.'s
technical and production standards, and in consultation with PTV Inc. In the
event that Local FF or Local 100% is not in syndication during a Television
Broadcast Year during the Initial Term, PTV Inc. shall include and contain a ten
(10) second commercial message promoting the URL www.uproar.com and referring to
the name of the U.S. Local Television Show at the end of such broadcast of
Pearson's next syndicated television show within the Term of the Agreement; and
(g) In those certain English language markets
outside the United States wherein a Licensed Internet Game has been launched,
Pearson Television Limited agrees to make reasonable efforts to advertise and
promote the Uproar URL consistent with local advertising standards and with
local law.
9. Selecting Internet Contestants for the Local Television
Shows. Pearson and E-Pub agree to cooperate with one another in good faith to
make reasonable efforts to ensure that at least twenty percent (20%) of the
prospective contestants who are offered an opportunity to
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audition for each U.S. Local Television Show are selected from eligible (as
defined by Pearson in its sole discretion) members of the Internet audience.
Neither party hereto will be obligated to pay or be responsible for any cost
connected with out-of-pocket, travel or living expenses for any contestant or
anyone auditioning to be a contestant on any U.S. Local Television Show.
10. E-Pub's Warranties. E-Pub hereby warrants and covenants
to Pearson as follows:
10.1 Warranty of Performance. The Licensed Internet
Games (and each individual Web Page) will be free from reproducible programming
errors and from defects in workmanship and materials, and will operate in
conformity with the performance capabilities and business requirements described
in the Specifications. If any non-conformities or material programming errors
are discovered, E-Pub shall promptly remedy them at no expense to Pearson. The
Licensed Internet Games shall be designed for use by individuals with limited or
general understanding of the Internet. E-Pub shall use reasonable efforts to
develop and maintain the Internet Games in a high quality so that the
performance of the Internet Games meets or exceeds the performance of the Best
Internet Games developed by E-Pub for the Site. E-Pub shall use reasonable
efforts to ensure that the design and look and feel of the Licensed Internet
Games shall be distinctive and that there are as many versions of the Licensed
Internet Games available (rotated as frequently) as for its Best Internet Games
(as defined in Section 5.2 herein) on Uproar.com. E-Pub shall make reasonable
efforts to make the look and feel of the Licensed Internet Games distinctive and
shall not use any editorial or design elements which are specific to the
Licensed Internet Games on other games it develops or uses on the Site or any
other Internet Site without the prior written approval of Pearson.
10.2 Warranty of Title. Except for the Licensed Marks
and materials provided by Pearson for use in connection with the Licensed
Internet Games (the "Pearson Materials"), E-Pub's trademarks, service marks,
URL's, software and all other materials used by E-Pub in connection with the
Licensed Internet Games (the "E-Pub Materials"), shall not infringe upon the
intellectual property rights of any third party, including without limitation,
claims of copyright infringement, trademark infringement, false designation of
origin, disparagement, violation of patent or shop rights, piracy or plagiarism.
E-Pub warrants that it owns or has the full right and authority to use all
materials used on the Site.
10.3 Warranty Against Disablement. No portion of the
Licensed Internet Games licensed hereunder will contain any protection feature
designed to prevent its use. This includes, without limitation, any computer
virus, worm, software lock, drop dead device, Trojan horse routine, trap door,
E-Pub bomb or any other codes or instructions that may be used to access,
modify, delete, damage or disable same once uploaded to any computer system.
10.4 Warranty of Expertise. E-Pub represents and
warrants that it has the technical and production knowledge necessary to
provide, and will provide, services required for the creation, production, and
distribution in connection with the Licensed Internet Games as contemplated
herein. In connection therewith, all of the services to be performed by E-Pub
hereunder will be rendered using sound, professional practices, and in a
competent and professional manner, by knowledgeable, trained and qualified
personnel. E-Pub acknowledges
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that Pearson is relying upon the skill and expertise of E-Pub for the
development, integration, maintenance and marketing of the Licensed Internet
Games.
10.5 Warranty of Millennium Compliance. E-Pub represents
and warrants that all Software supplied by E-Pub or obtained by E-Pub from a
third-party vendor and used in connection with the Licensed Internet Games on
the Site shall be Millennium Compliant. As used herein, "Millennium Compliant"
means that it can provide all of the following functions:
(a) handle date information before, during, and
after January 1, 2000, including but not limited to accepting date input,
providing date output, and performing calculations on dates or portions of
dates;
(b) function accurately and without interruption
before, during, and after January 1, 2000, without any change in operations
associated with the advent of the new century;
(c) respond to two-digit year-date input in a way
that resolves the ambiguity as to century in a disclosed, defined, and
predetermined manner, and
(d) store and provide output of date information in
ways that are unambiguous as to century.
10.6 Corporate Authority. E-Pub has the full right, power,
legal capacity and authority to enter into this Agreement and to carry out the
terms hereof.
10.7 No Conflicts. There are no undisclosed liens, claims,
encumbrances, legal proceedings, restrictions, agreements or understandings that
might materially conflict or interfere with, limit, or be inconsistent with or
otherwise affect any of the provisions of the Agreement or the enjoyment by
Pearson of any rights in the Licensed Internet Games or any elements thereof.
10.8 Technology Update. During the Term of this Agreement,
E-Pub shall, at no additional cost to Pearson, make reasonable efforts to ensure
that the Server, the Web Site and the Licensed Internet Games are maintained so
as to be compatible with, and accessible to, Users using the then-current
developments, versions and updates of Internet-related technology, within a
reasonable time after such technology becomes commercially available. Without
limitation of the foregoing, E-Pub agrees that at all times during the Term of
this Agreement, and at no extra cost to Pearson, the Licensed Internet Games
will be compliant with the most recent HTML specifications used on its Best
Internet Games.
10.9 New Technology. If during the Term E-Pub plans to
replace, enhance, upgrade or otherwise modify, the software or technology used
to produce, maintain, host or deliver any Internet Version of any game produced
for the Site in conjunction with any third party ("New Technology"), E-Pub
shall make reasonable efforts to make such New Technology available for use in
the Licensed Internet Games at the same time that such New Technology is used in
any other Internet Version of any E-Pub game.
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11. Pearson's Warranties. Pearson hereby warrants and covenants to
E-Pub as follows:
11.1 Licensed Pearson Materials. The use by E-Pub of such PTV
Netherlands Licensed Marks in any English-speaking country in the manner
contemplated by this Agreement shall not infringe upon any copyright, trademark,
patent, trade secret or other proprietary right. Pearson warrants that it owns
or has the full right and authority to use and license the Licensed Marks and
the Game Show Formats.
11.2 License of Pearson Content. The use of the Game Show Format,
the Pearson Materials, and/or use of any question by E-Pub as content provided
by Pearson hereunder used by E-Pub in the manner contemplated by this Agreement,
shall not infringe upon any copyright, patent, trade secret, trademark, right of
publicity, or privacy or other proprietary right.
11.3 Corporate Authority. Pearson has the full right, power, legal
capacity and authority to enter into this Agreement and to carry out the terms
hereof. Pearson Television Holdings, Inc., Pearson Television North America,
Inc., and Pearson Television Limited each agrees that where any obligation to be
undertaken hereunder is to be undertaken by one of its subsidiaries, that it
will ensure that such subsidiary undertakes such obligation.
11.4 No Conflicts. There are no undisclosed liens, claims,
encumbrances, legal proceedings, restrictions, agreements or understandings that
might materially conflict or interfere with, limit, or be inconsistent with or
otherwise affect any of the provisions of this Agreement or the enjoyment by
E-Pub of any of the rights granted to E-Pub by Pearson hereunder.
11.5 Warranted Marks. Pearson is the owner of the marks FAMILY
FEUD, 100%, MATCH GAME and BLANKETY BLANK, as well as the marks set forth on
Exhibit B (the "Warranted Marks"), together with the goodwill of the business
connected with the use of and symbolized by the registrations or applications
therefor. Such Warranted Marks and the registrations or applications therefor
exist and are subsisting and have not been abandoned, and to the best of
Pearson's knowledge no other firm, corporation, association or person has the
right to use such Warranted Marks in any English-speaking country either in
identical form thereof or in such near resemblance thereto as to be likely, when
used on or in association with the licensed Internet Versions of the Games, to
cause confusion or to cause mistake or to deceive.
12. Advertising and Promotion.
12.1 Volume of Sales. E-Pub agrees to expend its best efforts to
achieve a large and increasing volume of sales of Advertising on the Licensed
Internet Games in the Territory.
12.2 Promotion. E-Pub shall promote the Licensed Internet Games on
the Site via buttons and text links at least as often and as prominently as
E-Pub promotes any other game. E-Pub shall make reasonable efforts to place Game
Logos on the home page of the Site. E-Pub
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shall not incur any expenses relating to the marketing, promotion, or
advertising of the Licensed Internet Games for which Pearson shall in any way be
responsible, except where specific prior permission, in writing, shall have been
received from Pearson in each instance.
12.3 Production. E-Pub shall produce and distribute the Licensed
Internet Games in an ethical manner and with good taste. The production and
distribution of the Licensed Internet Games will reasonably comply with local
community standards of good taste and decency in all communities from which the
Licensed Internet Games may be accessed, with all applicable national and local
laws, rules and regulations in the Territory.
13. Advertising. E-Pub shall use its best efforts to sell Advertising
on each and every local Licensed Internet Game.
13.1. Net Revenue Split. The Net Revenue shall be split fifty
percent (50%) for E-Pub and [****] for PTV Netherlands.
13.2 Pearson Advertising. Payment for any advertising purchased by
Pearson on the Site or on any other Web site owned, controlled or operated by
E-Pub shall be offset against the Guaranteed Minimum (as defined below in
Section 14.3).
13.3 Pearson Advertising Purchases. Pearson shall purchase from
E-Pub $100,000 worth of online promotion during December 1998 to promote the
Pearson online and television properties. The cost-per-thousand impressions (the
"CPM") for this advertising will be $20, in keeping with fourth quarter peak
demand online Advertising rates. Pearson shall purchase from E-Pub $100,000
worth of online promotion during the first quarter of 1999 to promote the
Pearson online and television properties. The CPM for advertising purchased
during the first quarter of 1999 will be the discounted rate of [****]. Payment
for both purchases of online promotion will be offset against the Guaranteed
Minimum due to PTV Netherlands on 14 July 1999 (pursuant to Section 14.3 of this
Agreement) such that no cash will be exchanged in conjunction with the Pearson
Advertising Purchases.
14. Payments.
14.1 Format Royalty. No later than thirty (30) days after each
Television Broadcast Year quarter, E-Pub shall pay to PTV Netherlands fifteen
percent (15%) of Gross Revenues (less any taxes that E-Pub may be legally
required to withhold) as a royalty for the rights and license to use the Game
Show Formats.
14.2 Net Revenues. No later than thirty (30) days after each
Television Broadcast Year quarter, E-Pub shall pay PTV Netherlands its share (as
set forth in Section 13) of any Net Revenues received by E-Pub (less any taxes
that E-Pub may be legally required to withhold) during the previous Television
Broadcast Year quarter.
14.3 Guaranteed Minimum. During the Initial Term, E-Pub shall
guarantee payment to PTV Netherlands of $400,000.00 (the "Guaranteed Minimum"),
regardless of the
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**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and Exchange
Commission.
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amount of revenues received by E-Pub during such period. The Guaranteed Minimum
shall be paid in two installments as follows: (i) $200,000.00 on July 15, 1999
and (ii) $200,000.00 on July 15, 2000. Any payment made to PTV Netherlands
pursuant to Section 14.2 with respect to Net Revenues earned in a Television
Broadcast Year Quarter ending on or before September 30, 2001 shall be credited
against the Guaranteed Minimum. If the amount of PTV Netherlands's Net Revenue
earned during the Initial Term is greater than the Guaranteed Minimum, E-Pub
shall pay such amount to PTV Netherlands in accordance with Section 13.
14.4 Extension of Term. If the Initial Term is extended, E-Pub
shall pay PTV Netherlands its share of Net Revenues for the Extension Term in
accordance with Section 13.
14.5 Audit. Pearson shall have the right at its expense to audit
(or designate a third party to audit) E-Pub's books and records for the purpose
of verifying Gross and Net Revenue and operating expenses. Such audits shall be
made not more than once per year, on not less than ten (10) days written notice,
during regular business hours. If the auditor's figures reflect Net Revenue
higher than those reported by E-Pub, E-Pub shall pay the difference. If the
auditor's figures vary more than five percent (5%) or $1,000.00, whichever is
less, from the figures provided by E-Pub. E-Pub shall also pay the reasonable
cost of the audit. E-Pub shall not be obligated to keep said books and records
created hereunder for more than two (2) years after the expiration or expiration
of this Agreement, including any Extension Term.
15. Reporting.
15.1 Delay. In case of delay of seven (7) days or more by E-Pub in
making payments, interest at the rate of one and one-half percent (1.5%) per
month, assessed from the first day of the first month following such Television
Broadcast Year quarterly period, shall be due PTV Netherlands from E-Pub without
special notice.
15.2 Taxes. If required to do so by law, E-Pub may, after
consultation with PTV Netherlands, withhold from payments due PTV Netherlands
any taxes required to be paid in respect thereof, provided that any such
deductions for the payment of such taxes are supported by duly executed
receipts.
15.3 Records. E-Pub shall keep complete and accurate records of its
activities under this Agreement which shall be open to inspection by authorized
representatives of Pearson. In this regard, E-Pub shall render a quarterly
written report to Pearson. In said report E-Pub shall state the revenue and
costs with respect to each Licensed Internet Game.
16. E-Pub Securities.
16.1 Issuance of Shares by E-Pub. PTV Inc. hereby subscribes for
50,000 shares ("Pearson's Securities") of E-Pub Stock (as such term is defined
in Section 16.7 hereof). Pearson's Securities shall be issued in the form of one
or more Global Instrument Certificates (each a "Global Certificate") by the
Austrian Central Bank (the "Central Bank"), and delivered to a banking
institution, brokerage firm or other custodian authorized to hold such
securities
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under Austrian law which shall be appointed by PTV Inc. to hold such shares for
PTV Inc.'s benefit (the "Custodian"). Such delivery shall be made on, or as
close to as reasonably possible, the Effective Date of this Agreement but in no
event later than January 30, 1999, and PTV Inc. agrees to pay against delivery
of the Global Certificates representing the Pearson Securities, as follows:
(a) on the date of delivery of one or more Global Certificates
issued by the Central Bank to the Custodian in the aggregate amount of 500
shares of Pearson's Securities, PTV Inc. shall pay to E-Pub in consideration
therefor the US Dollar equivalent of 1,500,000 Austrian Schillings (the dollar
value of which shall be determined according to the applicable daily foreign
exchange rates set forth in the Wall Street Journal on the Effective Date); and
(b) on or about January 30, 1999, in consideration for the
rights granted under Sections 8.1(a) through 8.1(f) to E-Pub hereunder, E-Pub
shall cause the Central Bank to deliver to the Custodian one or more Global
Certificates in the aggregate amount of 49,500 shares of Pearson's Securities.
16.2 Issuance of Additional Shares by E-Pub.
(a) In the event that the United States Local Match Game
achieves a "household coverage" level of seventy percent (70%) in the U.S.
during the television broadcast season between September 1999 and September 2000
(the "First Objective"), E-Pub shall cause the Central Bank to deliver to the
Custodian, in consideration for Pearson's efforts in assisting E-Pub in
establishing the Licensed Internet Games, one or more Global Certificates in the
aggregate amount of 10,000 shares of E-Pub Stock (the "1999-2000 Shares"). E-Pub
shall cause the delivery of the 1999-2000 Shares to be made on, or as close to
as is reasonably possible, that certain date when Pearson achieves the First
Objective.
(b) In the event that the Local Match Game achieves a
"household coverage" level of 70% in the United States during the television
broadcast season between September 2000 and September 2001 (the "Second
Objective"), E-Pub shall cause the Central Bank to deliver to the Custodian, in
consideration for Pearson's efforts in assisting E-Pub in establishing the
Licensed Internet Games, one or more Global Certificates in the aggregate amount
of 10,000 shares of E-Pub Stock (the "2000-2001 Shares"). E-Pub shall cause the
delivery of the 2000-2001 Shares to be made on, or as close to as is reasonably
possible, that certain date when Pearson achieves the Second Objective.
16.3 Pearson's Warranties and Representations. Pearson hereby
represents and warrants to E-Pub. as follows:
(a) Pearson is acquiring Pearson's Securities, the 1999-2000
Shares and the 2000-2001 Shares (all of which are hereinafter collectively
referred to as the "Shares") solely for Pearson's own account.
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(b) Pearson has no intention of distributing or
reselling the Shares or any part thereof, or interest therein, in any
transaction which would be in violation of the applicable laws of any
governmental authority having jurisdiction over the issuance, transfer or sale
thereof.
(c) During the one year period commencing on the date
of issuance of Pearson's Securities, Pearson shall not publicly sell, transfer,
convey or otherwise dispose of all or any part of the Shares. If, after such one
year period, Pearson desires to publicly sell, transfer, convey or otherwise
dispose of all or any part of the One Year Restricted Securities (as such term
is hereinafter defined), Pearson may do so, provided that it fully complies
with all applicable laws and/or regulations of each governmental authority
having jurisdiction over the issuance, sale or other disposition thereof. If the
1999-2000 Shares shall be issued prior to the first anniversary of the date of
issuance of Pearson's Securities, the term "One Year Restricted Securities"
shall mean 35,000 shares of Pearson's Securities. If the 1999-2000 Shares
shall not be issued prior to the first anniversary of the date of issuance of
Pearson's Securities, the term "One Year Restricted Securities" shall mean
25,000 shares of Pearson's Securities.
(d) During the two year period commencing on the date
of issuance of Pearson's Securities, Pearson shall not publicly sell, transfer,
convey or otherwise dispose of all or any part of the balance of the Shares
remaining after deduction of the One Year Restricted Securities (all of which
are hereinafter collectively referred to as the "Two Year Restricted
Securities"). If, after such two year period, Pearson desires to publicly sell,
transfer, convey or otherwise dispose of all or any part of Two Year Restricted
Securities, Pearson may do so, provided that it fully complies with all
applicable laws and/or regulations of each governmental authority having
jurisdiction over the issuance, sale or other disposition thereof.
(e) During the two year period commencing on January
30, 1999, Pearson shall not purchase, in open market transactions, or otherwise,
an amount of shares of E-Pub Stock which, when added to the Shares and any
shares of E-Pub Stock beneficially held by any person or persons acting in
concert with Pearson, shall be greater than 20% of the total number of shares of
E-Pub Stock then outstanding.
16.4 Pearson's Board Representation. On or about January 30,
1999, E-Pub shall either expand the size of its Board of Directors, or cause a
vacancy to be created on its Board. Pearson shall thereupon have the right to
designate a person to be appointed to serve as a member of E-Pub's Board (the
"Pearson Appointee"), and upon providing E-Pub with the name of the Pearson
Appointee and the particulars about his or her background and experience, E-Pub
shall undertake all actions as shall be necessary to cause the Pearson Appointee
to be appointed to E-Pub's Board of Directors. If, during the Term (to include
at a minimum both the Initial Term and any Extension Term) of this Agreement,
E-Pub shall hold any meetings of its shareholders at which members of its Board
of Directors shall be elected, or shall seek the election of such directors in
some other permissible manner, E-Pub shall undertake all actions as shall be
necessary to cause the Pearson Appointee to be included among management's slate
of proposed directors, and E-Pub shall cause its officers who hold shares of
E-Pub securities to vote
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all of such shares respectively held by them in favor of the election of the
Pearson Appointee in each such instance.
16.5 E-Pub's Warranties and Representations. E-Pub represents
and warrants to Pearson as follows:
(a) Organization and Authority. E-Pub is a company
duly organized, validly existing and in good standing under the laws of Bermuda.
Set forth on Exhibit D is a list of jurisdictions in which E-Pub is qualified or
licensed to do business as a foreign corporation. E-Pub is duly qualified or
licensed and in good standing as a foreign corporation in each jurisdiction in
which (i) the nature of the business conducted by it or the character or
location of the properties owned or leased by it makes such qualification or
licensing necessary and (ii) the failure to so qualify would, if not remedied,
materially impair title to its properties or its rights to enforce contracts
against others or expose it to a material liability in any such jurisdiction.
E-Pub has all necessary corporate power and authority to own, lease and operate
all of its properties and assets and to carry on its businesses as now conducted
and as proposed to be conducted.
(b) E-Pub Capitalization. E-Pub has an authorized
share capital of IR(pound) 1,000,000 divided into 1,000,000 ordinary shares
having a par value of IR(pound) 1.00 each, of which 384,365 shares are issued
and outstanding. Each of the issued and outstanding shares of E-Pub Stock has
been duly authorized and validly issued, is fully paid and non-assessable and
was issued by E-Pub in compliance with all applicable securities laws and all
applicable rules and regulations thereunder. Except as set forth on Exhibit E or
as otherwise contemplated by this Agreement, there are no outstanding options,
warrants, convertible or exchangeable securities, subscription or other rights,
agreements or commitments to subscribe for or purchase or acquire from E-Pub any
securities of E-Pub nor any agreement or understanding to issue any such
instruments. Except as set forth on Exhibit E or as otherwise contemplated by
this Agreement, E-Pub has not reserved any shares of capital stock for issuance
upon the exercise or conversion of any of its securities. There are no
preemptive or other rights to subscribe for or to purchase, nor any restriction
upon the voting or transfer of, any shares of E-Pub Stock pursuant to the
Memorandum of Association or Bye-Laws of E-Pub or otherwise. E-Pub has delivered
to Pearson true, complete and correct copies of its Memorandum of Association
and Bye-Laws which are in full force and effect on the date of this Agreement.
(c) Subsidiaries. Set forth on Exhibit F are the only
corporations (the "Subsidiaries") with respect to which E-Pub beneficially owns,
directly or indirectly, any of the outstanding stock or other equity interests,
the holders of which are entitled to vote for the election of a majority of the
board of directors or other governing body. Each Subsidiary is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, which jurisdictions are set forth on Exhibit F. Each Subsidiary
has the corporate power and authority to own, lease and operate all of its
properties and assets and to carry on its business as now conducted and as
proposed to be conducted. Exhibit F sets forth the jurisdictions in which each
Subsidiary is qualified or licensed to do business as a foreign corporation.
Each Subsidiary is duly qualified or licensed and in good standing as a foreign
corporation in each jurisdiction in which (i) the nature of the business
conducted by it or the
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character or location of the properties owned or leased by it makes such
qualification necessary and (ii) the failure so to qualify would, if not
remedied, materially impair title to its properties or its rights to enforce
contracts against others or expose it to a material liability in any such
jurisdiction. Set forth on Exhibit F is a list of each partnership and joint
venture agreement or arrangement (such arrangements or entities created thereby,
the "'Joint Ventures") to which E-Pub or any Subsidiary is a party. E-Pub and
each Subsidiary has good title to all shares of stock or other equity interest
in the Subsidiaries and Joint Ventures owned by it, free and clear of all liens,
charges, encumbrances, equities and claims whatsoever, and subject to no
restrictions on transferability, except as such transferability may be
restricted by the provisions of applicable securities laws. The capitalization
of each Subsidiary and Joint Venture is set forth on Exhibit F.
(d) Financial Statements. E-Pub has furnished Pearson
with copies of the audited consolidated financial statements of E-Pub and the
Subsidiaries for each of the three fiscal years ended December 31, 1997,
including in each case a consolidated balance sheet, the related consolidated
statements of operations, stockholders' equity and of cash flows for the period
then ended, the accompanying notes, the report thereon of Coopers & Lybrand, and
the unaudited consolidated financial statements of E-Pub and the Subsidiaries
for each of the fiscal quarters of E-Pub ended March 31, 1998, June 30, 1998 and
September 31, 1998, consisting in each case solely of a consolidated statement
of operations. Such audited financial statements, and to the best knowledge of
E-Pub's Board of Directors, all such unaudited financial statements (i) were, as
of the respective dates thereof, correct and complete in all material respects
and were prepared from the books and records of E-Pub and the Subsidiaries, (ii)
were prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods covered ("GAAP"), (iii) as of the
respective dates thereof, reflected, and provided adequate reserves in respect
of, all liabilities of E-Pub and the Subsidiaries in accordance with GAAP,
including all contingent liabilities as of their respective dates, and (iv) as
of the respective dates thereof, presented fairly in all material respects the
consolidated financial condition of E-Pub and the Subsidiaries and the results
of their operations for the periods then ended.
(e) Disclosure Materials. E-Pub has disclosed to
Pearson all material information and provided all appropriate disclosure
materials concerning E-Pub and the E-Pub Stock: (i) which Pearson requested
E-Pub to provide; and (ii) necessary, in E-Pub's judgment, for Pearson to base
its decision to make the subscription in E-Pub Stock provided for herein. Such
material information and disclosure materials (the "Disclosure Materials")
includes those items set forth on Exhibit G. None of the information concerning
E-Pub, the Subsidiaries and the E-Pub Stock set forth in such Disclosure
Materials or incorporated therein by reference contains any untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading.
(f) Offering of the Securities. The offering and sale
of E-Pub Stock to Pearson provided for herein are made in accordance with, and
in full compliance with, all applicable securities laws, including all U.S.
Federal and state securities or blue sky laws. Neither E-Pub nor anyone acting
on its behalf has taken or will take any action which would
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subject the issuance and sale of the E-Pub Stock or any other securities of
E-Pub to the provisions of Section 5 of the U.S. Securities Act of 1933, as
amended (the "Securities Act"), and to the registration or qualification
requirements of any securities or blue sky laws of any applicable jurisdiction.
(g) The Securities. Upon issuance to Pearson of the
E-Pub Stock and payment therefor in accordance with the terms of this Agreement,
the E-Pub Stock will be duly authorized, validly issued, fully-paid and
nonassessable, and will have been issued by E-Pub in compliance with all
applicable laws and all applicable rules and regulations thereunder with no
personal liability attaching to the ownership thereof, and none of the E-Pub
Stock will be subject to any preemptive right or any lien, charge or encumbrance
or any other claim of any third party and Pearson will receive good title
thereto free and clear of all liens, charges, encumbrances, equities and claims
whatsoever.
16.6 Indemnification. E-Pub shall indemnify Pearson and hold
it harmless from and against: (i) any and all loss, liability, damage or
deficiency resulting from any misrepresentation, breach of warranty, negligent
or wrongful act, or nonfulfillment of any covenant or agreement on the part of
itself under the terms of this Agreement, any document or instrument executed by
such party in connection with this Agreement or in the Disclosure Materials;
(ii) any and all actions, suits, proceedings, claims, demands, assessments,
judgments, costs, and expenses including without limitation reasonable
attorney's fees and court costs incident to the foregoing clause (i), to the
extent any of the foregoing is not paid or reimbursed by insurance. Anything
contained in this Agreement to the contrary notwithstanding, E-Pub's obligation
to indemnify Pearson pursuant to the provisions of this Agreement shall not
exceed, in the aggregate, the sum of $5,000,000.
16.7 Definitions Related to Registration Rights. Unless the
context otherwise requires, the terms defined in this Section 16.7 shall have
the meanings herein specified for all purposes of this Agreement, applicable to
both the singular and plural forms of any of the terms herein defined.
(a) "Commission" means the United States Securities
and Exchange Commission.
(b) "E-Pub Stock" means, subject to the provisions of
Section 16.8 hereof, E-Pub's Ordinary Shares, par value IR(pound) 1.00 per
share.
(c) "Exchange Act" means the U.S. Securities Exchange
Act of 1934, as amended.
(d) "Holder" means the record or beneficial owner of
any Registrable Security.
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(e) "Holders of a Majority of the Registrable Securities" means
the Person or Persons who are the Holders of greater than 50% of the shares of
Registrable Securities then outstanding.
(f) "IPO" means E-Pub's initial public offering of securities
pursuant to an effective registration statement under the Securities Act.
(g) "Person" includes any natural person, corporation, trust,
association, company, partnership, joint venture and other entity and any
government, governmental agency, instrumentality or political subdivision.
(h) The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act or the Exchange Act, and the declaration or
ordering of the effectiveness of such registration statement.
(i) "Registrable Securities" means (a) all E-Pub Stock purchased
or otherwise acquired by Pearson, and (b) any securities issued or issuable with
respect to the E-Pub Stock referred to in clause (a) above by way of a stock
dividend or stock split or in connection with a combination of shares,
reclassification, recapitalization, merger or consolidation or reorganization;
provided, however, that such shares of E-Pub Stock shall only be treated as
Registrable Securities if and so long as they (i) have not been sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction; or (ii) have not been sold in a transaction exempt from
the registration and prospectus delivery requirements of the Securities Act
under Section 4(l) thereof so that all transfer restrictions and restrictive
legends with respect to such E-Pub Stock are removed upon the consummation of
such sale and the seller and purchaser of such E-Pub Stock receive an opinion of
counsel for E-Pub which shall be in form and content reasonably satisfactory to
the seller and buyer and their respective counsel, to the effect that such E-Pub
Stock in the hands of the purchaser is freely transferable without restriction
or registration under the Securities Act in any public or private transaction.
(j) "Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act or any similar successor rule.
(k) "Securities Act" means the U.S. Securities Act of 1933, as
amended.
16.8 Pearson's E-Pub Stock Conversion Rights. In the event that (i)
E-Pub initially registers any security other than its Ordinary Shares, par value
IR(pound) 1.00 per share, under the Exchange Act, or (ii) before E-Pub registers
any of its securities, any Affiliate of E-Pub registers any security other than
E-Pub's Ordinary Shares under the Exchange Act, all of the Shares then held by
Pearson and/or any Affiliate of Pearson shall thereupon be deemed to have been
automatically converted into such number of shares of the identical security
then being registered by E-Pub or such E-Pub Affiliate as shall be necessary for
Pearson and such Affiliate or Affiliates of Pearson to hold, in the aggregate,
the precise percentage of the issued and
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outstanding shares of such securities as the percentage of the issued and
outstanding shares of E-Pub's Ordinary Shares that Pearson and such Affiliate
or Affiliates held immediately prior to the declaration of effectiveness of
the registration statement pertaining to such registration. In such event, the
term "E-Pub Stock" shall mean, for all purposes of this Agreement, the
securities into which such Ordinary Shares shall have been automatically
converted.
16.9 Pearson's Demand Reigistration Rights. If any registration
statement filed by E-Pub or any or its Affiliates under the Exchange Act shall
be declared effective by the Commission, then, subject to the provisions of
subsections (b), (c) and (d) of this Section 16.9, on two occasions only during
the period of three years following the expiration of the two year period
described in Section 16.3(d) hereof, the Holder or Holders (the "Requesting
Holder" or "Requesting Holders," as the case may be) of a Majority of the
Registrable Securities shall be entitled to request registration under the
Securities Act of at least such number of the shares of Registrable Securities
then held by them (a "Demand Registration"). Such request for registration must
specify the number of Registrable Securities requested to be registered, the
anticipated price per share for such offering and whether such registration is
to be in the form of an underwritten offering.
(a) Selection of Underwriter(s). If the Requesting Holder or
Requesting Holders, as the case may be, elect to have the offering of
Registrable Securities pursuant to the Demand Registration be in the form of an
underwritten offering, E-Pub shall use its best efforts to select and obtain the
investment banker or investment bankers and manager or managers reasonably
acceptable to Pearson to administer the offering.
(b) Priority on Underwritten Demand Registration. If the Demand
Registration is an underwritten offering and the managing underwriter thereof
advise E-Pub in writing that in its opinion the number of Registrable Securities
requested to be included in such offering exceeds the number of Registrable
Securities that can be sold therein without adversely affecting the
marketability of the offering, E-Pub will include in such registration the
number of Registrable Securities requested to be included that, in the opinion
of such managing underwriter, can be sold without adversely affecting the
marketability of the offering, allocated in proportion, as nearly as
practicable, to the respective number of shares of Registrable Securities held
by such Holders at the time of filing the registration statement. If all of the
Registrable Securities requested to be included in a Demand Registration have
been included, E-Pub shall be entitled to include that number of shares of its
unissued E-Pub Stock or other securities as are consented to by the managing
underwriter.
(c) Limitations on Demand Registration. Notwithstanding any other
provision in this Agreement, E-Pub shall not be required to effect the Demand
Registration (a) during the period of time during which its IPO Registration
Statement shall remain effective; (b) during the 12 consecutive months following
the effective date of a registration statement filed in connection with any
previous registration in which the Holders of Registrable Securities exercised
any piggyback rights pursuant to this Agreement; or (c) at any time when another
registration statement (other than on Form S-4, S-8 or a registration statement
on Form S-1 covering solely an employee benefit plan) of E-Pub (i) is reasonably
foreseen by E-Pub's Board
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of Directors to be filed with the Commission within 30 days after the date of
request for the Demand Registration, (ii) has been filed and not yet become
effective, or (iii) has become effective less than six months prior to the date
of the request for the Demand Registration.
(d) Special Audits. Notwithstanding any other provision of this
Agreement, E-Pub shall not be required to undergo or pay for any special audit
to effect a Demand Registration, and if such a special audit (other than its
normal fiscal year-end audits) would be required in order to file or effect a
registration statement hereunder, E-Pub shall be entitled to delay the filing or
effectiveness of such registration statement until a reasonable period of time
following completion of such audit in the ordinary course of E-Pub's business;
provided, however, that E-Pub shall not be entitled to delay the filing or
effectiveness of such registration statement if the Holders who have requested
registration of Registrable Securities shall agree to pay for the cost of such
audit.
16.10 Pearson's Piggyback Registration Rights. If (i) any registration
statement filed by E-Pub or any or its Affiliates under the Exchange Act shall
be declared effective by the Commission, and (ii) at any time during the period
of five years following the expiration of the two year period described in
Section 16.3(d) hereof, E-Pub shall determine to file a registration statement
under the Securities Act (other than an IPO registration statement or a
registration statement on Form S-4, S-8 or on Form S-1 covering solely an
employee benefit plan), E-Pub agrees promptly to give written notice of its
determination to all Holders. Upon the written request of a Holder given within
30 days after the receipt of such written notice from E-Pub, E-Pub agrees to use
its best efforts to cause all of such Holder's Registrable Securities to be
included in such registration statement and registered under the Securities Act,
all to the extent requisite to permit the sale or other disposition of the
Registrable Securities to be so registered. All registrations of Registrable
Securities referred to in this Section 16.10 may be referred to as "Piggyback
Registrations."
(a) Underwritten Piggyback Registration. If the registration of
which E-Pub gives written notice pursuant to Section 16.10 is for a public
offering involving an underwriting, E-Pub agrees to so advise the Holders as a
part of its written notice.
(b) Priority on Piggyback Registration. Notwithstanding any other
provision of this Section 16.10, if the managing underwriter of a Piggyback
Registration that is an underwritten distribution advises E-Pub and the Holders
participating in such Piggyback Registration in writing that, in its good faith
judgment, the number of shares of Registrable Securities requested to be
registered exceeds the number of shares of Registrable Securities which can be
sold in such offering without adversely affecting the marketability of the
offering, then (a) the number of shares of Registrable Securities so requested
to be included in the offering shall be reduced to that number of shares which
in the good faith judgment of the managing underwriter can be sold in such
offering, and (b) such reduced number of shares shall be allocated among all
participating Holders in proportion, as nearly as practicable, to the respective
number of shares of Registrable Securities held by such Holders at the time of
filing the registration statement; provided, however, that, in all events, the
shares to be issued by E-Pub shall have priority over the shares of Registrable
Securities requested to be registered.
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(c) Registration Procedures. If and as often as E-Pub is required by
the provisions of Sections 16.7(c) and (d) hereof to include shares of
Registrable Securities held by various Holders in a registration statement filed
under the Securities Act, E-Pub, as expeditiously as possible, agrees that it
shall:
(i) Registration Statement: Period of Effectiveness. In accordance
with the Securities Act and all applicable rules and regulations, prepare and
file with the Commission a registration statement with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective for a period of nine months (or, if such
registration statement has been filed on Form S-3, for a period of one year)
and prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus contained therein as may be necessary
to keep such registration statement effective and such registration statement
and prospectus accurate and complete during such period of time;
(ii) Underwriting Agreement. If the offering is to be underwritten
in whole or in part, enter into a written underwriting agreement in form and
substance reasonably satisfactory to the managing underwriter of the public
offering and E-Pub;
(iii) Copies of Registration Statement, Prospectus, Other
Documents. Furnish to the Holders of Registrable Securities participating in
such registration and to the underwriters of the securities being registered
such number of copies of the registration statement and each amendment and
supplement thereto, preliminary prospectus, final prospectus and such other
documents as such underwriters and Holders may reasonably request in order to
facilitate the public offering of such securities;
(iv) Blue Sky Qualification. Use its best efforts to register or
qualify the securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as such participating Holders
and underwriters may reasonably request within twenty (20) days prior to the
original filing of such registration statement, except that E-Pub shall not for
any purpose be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction where it is
not so qualified, or to subject itself to taxation in any such jurisdiction;
(v) Notification of Effectiveness and Filing. Notify the Holders
participating in such registration, promptly after it shall receive notice
thereof, of the date and time when such registration statement and each
post-effective amendment thereto has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
(vi) Preparation of Amendments and Supplements at Holders'
Request. Prepare and file with the Commission, promptly upon the request of any
such Holders, any amendments or supplements to such registration statement or
prospectus which, in the opinion of counsel for such Holders, is required under
the Securities Act or the rules and
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regulations thereunder in connection with the distribution of the Registrable
Securities by such Holders;
(vii) Correction of Statements or Omissions. Prepare and file
promptly with the Commission, and promptly notify such Holders of the filing of,
such amendments or supplements to such registration statement or prospectus as
may be necessary to correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be delivered under the
Securities Act, any event has occurred as the result of which any such
prospectus or any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
(viii) Amendment of or Supplement to Non-Complying Registration
Statement or Prospectus. In case any of such Holders is required to deliver a
prospectus at a time when the prospectus then in circulation is not in
compliance with the Securities Act or the rules and regulations of the
Commission, prepare promptly upon request such amendments or supplements to
such registration statement and such prospectus as may be necessary in order for
such prospectus to comply with the requirements of the Securities Act and such
rules and regulations;
(ix) Stop Orders, Proceedings. Advise such Holders, promptly after
it shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for that purpose
and promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal if such stop order should be issued; and
(x) Inspection. Make available for inspection upon request by any
Holder covered by such registration statement, by any managing underwriter of
any distribution to be effected pursuant to such registration statement and by
any attorney, accountant or other agent retained by any such Holder or any such
underwriter, all financial and other records, pertinent corporate documents and
properties of E-Pub, and cause all of E-Pub's officers, directors and employees
to supply all information reasonably requested by any such Holder, underwriter,
attorney, accountant or agent in connection with such registration statement.
16.11 Expenses. Subject to the provisions of Section 16.9(d), with
respect to the first inclusion of shares of Registrable Securities in a
registration statement pursuant to Section 16.9 hereof and all inclusions of
shares of Registrable Securities in a registration statement pursuant to Section
16.10 hereof, E-Pub agrees to bear all fees, costs and expenses of and
incidental to such registration and the public offering in connection therewith;
provided, however, that the Holders participating in any such registration agree
to bear their pro rata share of any applicable underwriting discount and
commissions. In the event of a second inclusion of shares of Registrable
Securities in a registration statement pursuant to Section 16.9 hereof, Pearson
agrees to bear all fees, costs and expenses of and incidental to such
registration and the public offering in connection therewith; provided, however,
that the Holders participating in any such registration agree to bear their pro
rata share of any applicable underwriting discount and
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commissions. The fees, costs and expenses of registration to be borne as
provided in the preceding two sentences shall include, without limitation, all
registration, filing, listing, and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for E-Pub, fees and disbursement of
counsel for the underwriter or underwriters, if any, of the securities to be
offered (if E-Pub and/or selling Holders who have requested registration of
their Registrable Securities are otherwise required to bear such fees and
disbursements), all legal fees and disbursements and other expenses of complying
with state securities or blue sky laws of any jurisdictions in which such
securities are to be registered or qualified, reasonable fees and disbursements
of one firm of counsel for the Holders who have requested registration of their
Registrable Securities, to be selected by the Holders of a majority of the
shares of Registrable Securities to be included in such registration, and the
premiums and other costs of policies of insurance against liability arising out
of such public offering.
16.12 Underwriting Agreements. In the event any Demand Registration or
Piggyback Registration under this Agreement is an underwritten offering, the
right of any Holder to participate therein, and the inclusion of such Holder's
Registrable Securities therein, shall be subject to such Holder's agreeing to
enter into, together with E-Pub, an underwriting agreement with and reasonably
satisfactory to the underwriter or underwriters selected by E-Pub for such
underwriting.
16.13 Indemnification.
(a) Indemnification by E-Pub. E-Pub hereby agrees to indemnify and
hold harmless each Holder (including Holder's officers, directors, legal
counsel, accountants, and controlling Persons) of Registrable Securities which
are included in a registration statement pursuant to the provisions of these
Sections 16.7 - 16.14 from and against, and agrees to reimburse such Holder with
respect to, any and all claims, actions (actual or threatened), demands, losses,
damages, liabilities, costs or expenses to which such Holder may become subject
under the Securities Act or otherwise, insofar as such claims, actions, demands,
losses, damages, liabilities, costs or expenses arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein, or any
amendment 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, in light of the
circumstances in which they were made, not misleading; provided, however, that
E-Pub will not be liable in any such case to the extent that any such claim,
action, demand, loss, damage, liability, cost or expense is caused by an untrue
statement or alleged untrue statement or omission or alleged omission so made in
strict conformity with written information furnished by such Holder specifically
for use in the preparation thereof.
(b) Indemnification by Holders. Each Holder of shares of
Registrable Securities which are to be included in a registration statement
pursuant to the provisions of these Sections 16.7 - 16.14 shall be required to
agree, severally and not jointly, as a condition of E-Pub's obligation to
prosecute such registration to completion, to indemnify and hold harmless E-Pub,
its officers, directors, legal counsel and accountants and each Person who
controls E-Pub
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within the meaning of the Securities Act, from and against, and agrees to
reimburse E-Pub, its officers, directors, legal counsel, accountants and
controlling Persons with respect to, any and all claims, actions, demands,
losses, damages, liabilities, costs or expenses to which E-Pub, its officers,
directors, legal counsel, accountants or such controlling Persons may become
subject under the Securities Act or otherwise, insofar as such claims, actions,
demands, losses, damages, liabilities, costs or expenses are caused by any
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or are
caused by the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance upon
and in strict conformity with written information furnished by such Holder
specifically for use in the preparation thereof. Notwithstanding the foregoing,
no Holder shall be obligated hereunder to pay more than the net proceeds
realized by it upon its sale of Registrable Securities included in such
registration statement.
(c) Indemnification Procedure. Promptly after receipt by a party
indemnified pursuant to the provisions of Section 16.13(a) or (b) of notice of
the commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim therefor is to be
made against the indemnifying party pursuant to Section 16.13(a) or (b),
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 16.13 and
shall not relieve the indemnifying party from liability under this Section 16.13
unless such indemnifying party is prejudiced by such omission. In case any such
action is brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any other
indemnifying parties similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party; provided, however, that if the
defendants in 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, the indemnified party or parties shall have the right to
select separate counsel (in which case the indemnifying party shall not have
the right to direct the defense of such action on behalf of the indemnified
party or parties). Upon the permitted assumption by the indemnifying party of
the defense of such action, and approval by the indemnified party of counsel,
the indemnifying party shall not be liable to such indemnified party under
Section 16.3(a) or Section 16.3(b) for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
(other than reasonable costs of investigation) unless: (a) the indemnified party
shall have employed separate counsel in connection with the assertion of legal
defenses in accordance with the proviso to the next preceding sentence; (b) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time;
(c) the indemnifying party and its counsel do not actively and vigorously pursue
the defense of such action; or (d) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. No
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indemnifying party shall be liable to an indemnified party for any settlement of
any action or claim without the consent of the indemnifying party, and no
indemnifying party may unreasonably withhold its consent to any such settlement.
No indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability with respect to such claim or litigation.
16.14 Contribution.
(a) If the indemnification provided for in Section 16.13(a) or
(b) is held by a court of competent jurisdiction to be unavailable to a party to
be indemnified with respect to any claims, actions, demands, losses, damages,
liabilities, costs or expenses referred to therein, then each indemnifying party
under any such Section, in lieu of indemnifying such indemnified party
thereunder, hereby agrees to contribute to the amount paid or payable by such
indemnified party as a result of such claims, actions, demands, losses, damages,
liabilities, costs or expenses in such proportion as is appropriate to reflect
the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
which resulted in such claims, actions, demands, losses, damages, liabilities,
costs or expense, as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding the foregoing, the amount any Holder shall be obligated to
contribute pursuant to this Section 16.14 shall be limited to an amount equal to
the per share public offering price (less any underwriting discount and
commissions) multiplied by the number of shares of Registrable Securities sold
by such Holder pursuant to the registration statement which gives rise to such
obligation to contribute (less the aggregate amount of any damages which such
Holder has otherwise been required to pay in respect of such claim, action,
demand, loss, damage, liability, cost or expense or any substantially similar
claim, action, demand, loss, damage, liability, cost or expense arising from the
sale of such Registrable Securities).
(b) No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution pursuant to this Section 16.14 from any person who was not guilty
of such fraudulent misrepresentation.
16.15 Violation of Standstill Provisions - Divestiture. In the event
that Pearson, or any person acting in concert with Pearson, shall violate the
warranty and representation set forth in Section 16.3(e) hereof, it shall
immediately thereafter be required to divest itself of such number of shares of
E-Pub Stock as shall be necessary to reduce its holdings thereof to not more
than 20% of the total number of shares of E-Pub Stock then outstanding. The
shares of E-Pub Stock to be so divested shall not include any portion of the
Shares which, at the time of such divestiture, shall be subject to the
restrictions imposed by Section 16.3(c) or (d) hereof. If Pearson fails or
refuses, for any reason, to undertake such divestiture within five (5)
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business days after its receipt of notice from E-Pub demanding that it do so,
and/or if having timely commenced such divestiture, Pearson fails to complete
same within 30 days thereafter, E-Pub shall, in either of such events, be
entitled to commence judicial proceedings in the appropriate state or federal
courts in the State of New York seeking specific performance of the provisions
of this paragraph, and Pearson shall be obligated to pay all reasonable counsel
fees and disbursements incurred by E-Pub in connection therewith. Furthermore,
Pearson shall not be entitled to vote any of the Shares on any matter that shall
come before the holders of E-Pub Shares for a vote at any time while Pearson's
holdings of E-Pub Stock shall exceed 20% of the total number of shares of E-Pub
Stock then outstanding. Anything contained in this Section 16.15 to the contrary
notwithstanding, in the event that:
(a) any person or entity acting solely or in concert with any
other person or entity (other than Pearson or any affiliate of Pearson) shall
acquire 20% or more of the then issued and outstanding shares of E-Pub Stock
either in open market transactions, or pursuant to any tender offer or similar
transaction which shall not be endorsed or approved by E-Pub's Board of
Directors, the provisions of Sections 16.3(c), (d) and (e) of this Section
shall thereupon be deemed to have been terminated, but this Agreement shall
otherwise continue in full force and effect; and
(b) any person or entity acting solely or in concert with any
other person or entity (other than Pearson or any affiliate of Pearson) shall
acquire 20% or more of the then issued and outstanding shares of E-Pub Stock
from E-Pub and/or any affiliate of E-Pub, or pursuant to any tender offer or
similar transaction which shall be endorsed or approved by E-Pub's Board of
Directors, Pearson shall thereupon have the right, but not the obligation, to
terminate this Agreement. If Pearson elects to exercise such right of
termination, it shall do so by giving not less than 90 days' prior written
notice of termination to E-Pub.
16.16 Stop Transfer Instructions: Restrictive Legend, Upon original
issuance thereof, and until such time as the same is no longer required under
this Agreement, and/or the applicable requirements of the applicable laws and
regulations of each governmental authority having jurisdiction over the
issuance, sale, transfer or other disposition of the Shares:
(a) E-Pub shall issue "stop transfer" instructions to the
transfer agent of the E-Pub Stock, and such other instructions as E-Pub may deem
advisable to prevent the sale, assignment, transfer or other disposition of any
of the Shares;
(b) any certificate or certificates evidencing Pearson's
ownership of the Shares (and all certificates issued in exchange therefor or
substitution thereof) shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR OTHERWISE QUALIFIED FOR SALE BY THE HOLDER HEREOF
UNDER THE APPLICABLE LAWS AND/OR REGULATIONS OF ANY GOVERNMENTAL
AUTHORITY HAVING JURISDICTION
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WITH RESPECT THERETO. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION
OR AN EXEMPTION THEREFROM UNDER SAID LAWS OR REGULATIONS"
and
(c) in the event that the transfer agent of the E-Pub Stock shall
fail or refuse for any reason to implement the "stop transfer" instructions set
forth in sub-section (a) hereof, or to place the legend set forth in sub-section
(b) hereof upon each of the Global Certificates evidencing the Shares, Pearson
shall enter into an escrow agreement with E-Pub and the Custodian which shall
provide that the Custodian shall hold all of the Shares in accordance with, and
subject to, the various restrictions and limitations on transfer of the Shares
imposed by Section 16 of this Agreement.
17. Indemnification.
17.1 Indemnification of E-Pub by Pearson against Certain
Liability. Pearson, at its own expense, shall indemnify, defend and hold
harmless E-Pub and its Affiliates and their officers, directors, employees and
agents (collectively, the "E-Pub Indemnitees"): (a) from and against all
demands, claims, threatened claims, actions or causes of action, assessments,
losses, damages, liabilities, costs and expenses, including without limitation,
interest, penalties and reasonable outside attorneys' fees and expenses which
shall be based upon a claim brought by a third party, that (1) E-Pub's use
pursuant to this Agreement (including any advertising or promotional use of such
materials) of the Licensed Marks in English speaking countries, the Game Show
Formats, or other Pearson Materials in the Territory (without the addition of
any E-Pub Materials) when used by E-Pub as contemplated in this Agreement
infringes any copyright, trademark, trade secret, rights of publicity or
privacy, or other proprietary right of any third party or is libelous or
slanderous; (2) if true, would constitute a breach of any of Pearson's
representations, warranties or agreements hereunder; (3) arises out of the
improper use or transmission by Pearson of the User Information and/or
Summarized User Data; (4) arises out of any Advertisement placed by Pearson on
the Site; or (5) arises out of the negligence or willful misconduct of Pearson.
Pearson shall have the right at all times, in its sole discretion, and at its,
sole cost, to retain or resume control of the conduct of the defense of any
matter to which the foregoing indemnity applies; (b) from and against any tax
liability of Pearson for which E-Pub and/or any Affiliate of E-Pub may have been
determined to have had a withholding obligation as a consequence of the issuance
pursuant hereto of Shares by E-Pub including any interest and/or penalties
relating thereto.
17.2 Repair or Replacement of Licensed Game Show. If a court of
competent jurisdiction imposes an injunction prohibiting E-Pub from continued
use of any Licensed Internet Game and/or Licensed Mark or portion thereof as a
result of material provided by Pearson, Pearson shall at Pearson's expense and
election and as approved by E-Pub:
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(a) Procure for E-Pub the right to continue to use the
material pursuant to this Agreement; or
(b) Replace or modify the infringing material in the
Licensed Internet Game and/or Licensed Mark, as the case may be, to make it
non-infringing, provided that the modifications or substitutions will not
materially and adversely affect the continued use or transmission of such
Licensed Internet Game on the Internet or lessen its utility to E-Pub (as
reasonably determined by E-Pub).
(c) If all Game Show Formats offered under the Agreement in
the United States are enjoined, then Pearson shall return to E-Pub for
cancellation the pro-rata amount of Pearson's Securities equal to the product
derived by multiplying the total number of shares by a fraction, the numerator
of which is the number of days remaining in the Initial Term, and the
denominator of which is the total number of days in the Initial Term.
17.3 Indemnification of Pearson by E-Pub against Certain
Liability. E-Pub, at its own expense, shall indemnify, defend and hold harmless
Pearson, its parent, subsidiaries and Affiliates, and its officers, directors,
employees and agents (collectively, the "Pearson Indemnitees"), from and against
all losses which shall be based upon a claim or threatened claim that (1)
E-Pub's or Pearson's use of any of the materials or services supplied or
obtained by E-Pub including, without limitation, the Site, the Software, and the
technology used to develop and maintain the Site and used by E-Pub as
contemplated in this Agreement infringes any copyright, trademark, trade secret,
rights of publicity or privacy, or other proprietary right of any third party or
is libelous or slanderous, (2) if true, would constitute a breach of any of
E-Pub representations, warranties or agreements hereunder; (3) arises out of the
negligence or willful misconduct of E-Pub; (4) arises out of a sweepstakes
conducted by E-Pub or a prize awarded by E-Pub in connection with any Licensed
Internet Game; (5) arises out of any activity of E-Pub in relation to the
Licensed Internet Games or the Site (including, without limitation, E-Pub's
collection of User Information or improper use or transmission of User
Information and/or Summarized User Data); (6) arises out of any hyperlink,
advertisement, or third-party material placed on the Site by E-Pub; (7) arises
out of the improper use, distribution or transfer of the Game Show Formats or
other Pearson Materials by E-Pub; or (8) any misuse of the Licensed Internet
Games or the Site by any User of which E-Pub had actual knowledge. E-Pub shall
have the right at all times, in its sole discretion and its sole cost, to retain
or resume control of the conduct of the defense of any matter to which the
foregoing indemnity applies.
18. Limitation of Liability.
18.1 Limitation of Liability. EXCEPT IN RELATION TO ANY BREACH OF
THE WARRANTIES SET FORTH IN SECTION 10.2 HEREUNDER, NEITHER PARTY SHALL BE
LIABLE TO THE OTHER FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES
(EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) SUCH
AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, UNDER NO CIRCUMSTANCES SHALL
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EITHER PARTY BE LIABLE TO THE OTHER FOR ANY CLAIM ARISING OUT OF ANY
DOWNLOADING OR OTHER USE OF ANY OF THE LICENSED INTERNET GAMES BY USERS OF THE
LICENSED INTERNET GAMES.
18.2 Disclaimer. EXCEPT AS SET FORTH HEREIN, BOTH PARTIES HEREBY
SPECIFICALLY DISCLAIM ANY REPRESENTATIONS REGARDING THE LICENSED INTERNET GAMES,
INCLUDING ANY IMPLIED REPRESENTATION REGARDING MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE. WITHOUT LIMITING THE FOREGOING, AND EXCEPT AS OTHERWISE
AGREED, NEITHER PARTY MAKES ANY WARRANTY THAT THE MATERIALS IT PROVIDES WILL BE
ERROR-FREE OR THAT USER ACCESS THERETO WILL BE UNINTERRUPTED.
18.3 Insurance. E-Pub shall obtain all necessary and adequate
insurance with respect to production, transmission, and hosting of the Licensed
Internet Games, including without limitation, liability insurance, workers'
compensation and errors and omissions insurance in amounts and with carriers
reasonably approved by Pearson, each with limits of at least one million
($1,000,000.00) dollars on account of any one occurrence and one million
($1.000,000.00) dollar for each occurrence of property damage. Pearson will be
named an additional insured in all such insurance policies and copies of such
policies and certificates of insurance (or Binders), shall be delivered to
Pearson within ten (10) days after issuance. Said certificates will include
provisions whereby fifteen (15) days notice must be received by Pearson prior to
coverage cancellation by either E-Pub or Insurer, or non-payment of premium by
E-Pub.
19. Confidentiality.
19.1 Confidentiality Obligations. Each party acknowledges that it
shall receive Confidential Information (as hereinafter defined) of the other
party relating to its technical, marketing, product and/or business affairs.
During the term of this Agreement and for a period of one (1) year thereafter,
all Confidential Information of the other party shall be held in strict
confidence and shall not be disclosed or used without the express written
consent of the other party, except as may be required by law. Each party shall
use reasonable measures and make reasonable efforts to provide protection for
the other party's Confidential Information including measures at least as strict
as such party uses to protect its own Confidential Information.
19.2 Confidentiality of this Transaction. Except as may be
required by law, regulation or rule, neither Party shall make any announcement
or other disclosure to any third party of the transaction contemplated by the
Agreement or any of the details of any of E-Pub's plans for the Licensed
Internet Games, the Games, or the Local Television Shows or any related products
or services, until such plans have actually been implemented, except with the
prior written consent of the other party. The form, substance and timing of any
announcement referring directly or indirectly to any of the Licensed Internet
Games, the Local Television Shows, or any related products or services, until
such plans have actually been implemented, except with the prior written consent
of the other party. The form, substance and timing of any
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announcement referring directly or indirectly to any of the Licensed Internet
Games, or the Games, by either party shall be subject to the prior written
approval of both parties, such consent not to be unreasonably withheld.
19.3 Confidential Information Defined. Confidential Information
shall mean and include the Production and Marketing Information of either party
and any information relating to or disclosed in the course of the performance of
this Agreement except for any information that (i) is or becomes generally
available to the public without breach of this Agreement; (ii) is in the
possession of a party prior to its disclosure by the other party; (iii) becomes
available from a third party not in breach of any obligation of confidentiality
to which such third party is subject; (iv) was independently developed by a
party; and (v) must be disclosed due to judicial or governmental requirement or
order, provided that, the party in receipt of the requirement or order has given
the other party notice of such requirement or order to permit the other party of
reasonable opportunity to object to the requirement or order or seek a
protective order or other appropriate remedy.
19.4 Public Information. Each party will submit to the other
party, for its prior written approval, which shall not be unreasonably withheld
or delayed, any public documents including without limitation, financial
documents, press releases or marketing, advertising or promotional materials
related to the activities described herein and/or referencing the other party
and/or its trade names, trademarks and service marks. Notwithstanding the
foregoing, either party may issue such documents as required by law or
regulation (and only to the extent that such information is required by law or
regulation) without the consent of the other party.
19.5 User Information.
(a) With respect to each of the Licensed Internet Games,
E-Pub will create a User registration page, which page will include optional
identification and demographic questions for each person who visits the Web page
containing a Licensed Internet Game (a "User"). The registration page will
contain an acknowledgment that information obtained as a result of such
questions will be shared by E-Pub with Pearson only and neither of them will
sell or otherwise disseminate the user's name or address to any unaffiliated
third party. All information collected will be used by E-Pub and Pearson solely
for their own internal use, except that Pearson and its Affiliates and local
television licensees may e-mail Users who do not object to receiving information
about the Games and related products.
(b) It is understood and agreed that E-Pub and Pearson will
not sell or othenwise disseminate any User's name, and that no User's name or
identifying information will be retained by E-Pub or Pearson if the User so
requests. Pearson will adhere and be bound by the obligations, if any, set forth
in the E-Pub privacy statement published on the URL uproar.com. E-Pub shall use
reasonable efforts to post site-specific privacy and data collection policies on
each of the different national versions of the Site (in the United States, the
United Kingdom, Canada and Australia).
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(c) E-Pub's data collection policy for each Site shall
include the creation and provision of notice to Users describing any demographic
and/or tracking information that is being collected (providing Users the option
of withholding or correcting such data). E-Pub shall provide the name and
address of a contact person to whom inquiries or complaints about data
collection may be addressed, and shall store all personally identifiable
information off-line in a secure environment.
(d) Any User registration name, and/or demographic
information collected in connection with the local Licensed Internet Games shall
be the exclusive property of E-Pub.
(e) Summarized User Data from all parts of the Site
(including data that compares traffic on the Licensed Internet Games to traffic
on other games on the Site) will be shared openly and continuously with Pearson
in a form and manner to be designated by Pearson. As used herein "Summarized
User Data" means the User data statistics, chat and e-mail information collected
and maintained from time to time by E-Pub pertaining to all parts of the Site.
Said Summarized User Data shall also contain traffic information pertaining to
how and where visitors enter the Licensed Internet Games.
20. General Provision.
20.1 Ownership of Certain Intellectual Property.
(a) Pearson acknowledges and agrees that E-Pub has and will
retain all rights, title, interest and ownership in and to all software
developed by E-Pub and used in the Licensed Internet Games (the "Software").
Pearson further acknowledges and agrees that the source code for the Software
constitutes Confidential Information (as defined in Section 19.3) of E-Pub
whether or not any portion thereof is or may be the subject of a valid copyright
or patent.
(b) Computer Programming. Subject to Section 20.1 (a) above,
all computer programming files developed or prepared by E-Pub in connection with
the Licensed Internet Games are the exclusive property of E-Pub (the "Code").
The parties specifically acknowledge and agree that E-Pub owns all rights with
respect to the domain name uproar.com.
(c) E-Pub acknowledges and agrees that Pearson owns and will
retain all rights, title, interest and ownership in and to the Game Show
Formats, the Games, the U.S. Local Television Shows and all other Pearson
Materials.
(d) Reversion of Rights. E-Pub acknowledges and agrees that
except for the Software and the Code, all artistic, editorial and design
elements (including without limitation "look and feel") and format-specific
questions created for the Licensed Internet Games which are based on, specific
to, or derivative or transformative works of, the Game Show Formats (the "Game
Content"), are and shall remain the property of Pearson. All rights, title and
interest therein shall revert to Pearson upon termination or expiration of this
license.
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(e) Post Termination License Agreement. Upon expiration or
termination of the Initial Term of this Agreement, Pearson shall have the right
to obtain from E-Pub an exclusive license for a term of no more than eighteen
(18) months to: (i) use the Software in executable form for a license fee of
$300.000, over the 18-month period; payable to E-Pub quarterly. and (ii) have
E-Pub host and serve the Internet Versions of the Games for a fee of $180,000.
payable to E-Pub monthly over the 18-month period, provided that Pearson agrees
to adhere to the E-Pub privacy statement. It is understood that (ii) above, is
contingent upon Pearson's election of (i) above. Upon termination, E-Pub shall
provide Pearson with e-mail addresses and all other User data collected during
the Term (including any Extension or Renewal Term) for Licensed Internet Game
Users and all other Users of the Site. Pearson and its Affiliates and local
television licensees shall retain the right, in perpetuity to e-mail any Users
whose e-mail addresses it obtains (and who "opt-in," or elect to permit their
e-mail addresses to be used) with information about the Games, the U.S. Local
Television Shows, and any other Pearson products or services.
(f) Transition Obligation. In the event that Pearson does not
choose to obtain the post-termination license described above, or upon
expiration or any termination of this Agreement by either party, E-Pub shall
provide all reasonably requested support in the transitioning of the hosting
services to Pearson or a third party vendor selected by Pearson in its sole
discretion, including without limitation, the transfer and any necessary
conversion of all software and Code, and consulting, regarding technology
hosting requirements. Pearson shall pay E-Pub for such services at its
then-current rates and shall pay all expenses incurred by E-Pub in supplying
such services.
20.2 Entire Agreement. This Agreement together with all Exhibits,
Specifications and attachments, if any, which are incorporated herein by
reference, is the sole and entire agreement between the parties relating to the
subject matter hereof. This Agreement supersedes all prior understandings,
agreements and documentation relating to such matter. No supplement,
modification, or amendment of this Agreement shall be binding, unless executed
in writing by both parties. In the event of a conflict between provisions of
this Agreement and any attached Exhibits, Specifications or other material, this
Agreement shall take precedence.
20.3 Assignment. Each party may assign this Agreement or all or
any part of its rights hereunder to an Affiliate or to any entity that succeeds
to all or substantially all of its capital stock, or that is otherwise its
successor in interest generally, and this Agreement shall inure to the benefit
of, and be binding upon such assignee or successor in interest, provided
however that in the event that any such assignee of E-Pub is divested by E-Pub,
this Agreement shall be re-assigned, prior to such divestment, to E-Pub or any
of its other Affiliates. Pearson shall during the Initial Term, have the right
to terminate this Agreement upon thirty (30) days written notice to E-Pub if
both Michael Simon and David Becker cease to be employed by E-Pub, or an
Affiliate of E-Pub which directly oversees Uproar, in full-time senior
management positions. Pearson shall, except as set forth above, have the right
to terminate this Agreement with thirty (330) days notice upon any change in
control of E-Pub (whether by merger, stock transfer or otherwise) provided that
Pearson shall notify E-Pub of its intention to terminate no later than ninety
(90) days after the date on which such change of control takes effect. For
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purposes of the preceding sentence, a "change in control" shall be deemed to
occur if: (i) any "person" (as such term is defined in the Securities Exchange
Act of 1934, as amended) other than E-Pub or any of its subsidiaries or a
trustee or any fiduciary holding securities under an employee benefit plan of
E-Pub or any of its subsidiaries, acting singly or in concert with one or more
other persons, acquires securities representing 50% or more of the combined
voting power of E-Pub's then outstanding securities: (ii) during any one year
period, individuals who at the beginning of such period constitute the Board of
Directors of E-Pub and any new director whose election by the Board of Directors
or nomination for election by E-Pub's shareholders was approved by a vote of at
least a majority of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
(iii) the shareholders of E-Pub approve a merger or consolidation of E-Pub with
any other corporation, other than (a) a merger or consolidation which would
result in the voting securities of E-Pub outstanding immediately prior thereto
continuing to represent, in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of E-Pub or
any of its subsidiaries, at least 50% of the combined voting power of the voting
securities of E-Pub or such surviving entity outstanding immediately after such
merger or consolidation, or (b) a merger or consolidation effected to implement
a recapitalization of E-Pub (or similar transaction) in which no person acquires
more than 50% of the combined voting power of E-Pub's then outstanding
securities; or (iv) the shareholders approve a plan of complete liquidation of
E-Pub or an agreement for the sale or disposition by E-Pub of all or
substantially all of its assets.
20.4 Waiver. No term or provision of this Agreement shall be
deemed waived and no breach excused unless such waiver or consent is in writing
and signed by the party claimed to have waived or consented. A waiver by either
of the parties of any of the covenants, conditions or agreements to be performed
by the other hereunder shall not be construed to be a waiver of any succeeding
breach thereof.
20.5 Survival. The following provisions of this Agreement shall
survive the completion, expiration, termination or cancellation of this
Agreement: Sections 7, 10.1-10.8, 11, 14, 15, 16 (except 16.3(c)-(e)),
19.1-19.4, 19.5(b), 19.5(d), and 20.
20.6 Force Majeure. Neither party shall be liable for delay or
failure in the performance of its obligations hereunder if such delay or failure
arises from the occurrence of events beyond the reasonable control of such
party, which events could not have been prevented by the exercise of due care
and could not have been foreseen at the time of entering into this Agreement,
such as fire, explosion, flood, storm, acts of God, war, embargo, or riot,
provided that the party suffering the delay or failure and acts diligently to
remedy the cause of such delay or failure.
20.7 No Joint Venture. Nothing contained herein will be construed
as creating any partnership, joint venture or other form of joint enterprise
between the parties.
20.8 Independent Contractor. The parties acknowledge that E-Pub
will perform its obligations hereunder as an independent contractor. The manner
and method of performing
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such obligations will be under E-Pub's sole control and discretion. It is also
expressly understood that E-Pub employees and agents, if any, are not Pearson's
employees or agents, and have no authority to bind Pearson by contract or
otherwise.
20.9 Notice. All notices and other communications required or
permitted under this Agreement shall be deemed given when delivered
personally, or one day after being deposited with Federal Express or other
recognized overnight courier service, or five (5) days after being mailed by
registered or certified mail, postage prepaid, addressed as follows, or to such
other address as each party may designate in writing:
If to E-Pub:
E-Pub (Holdings) Ltd.
P.O. Box HM 1737
Hamilton HMGX, Bermuda
Facsimile: 011-441-292-8899
With a copy to:
Mr. David Becker
Uproar
375 West Broadway
New York. New York 10012
and
Hall Dickler Kent Friedman & Wood LLP
909 Third Avenue, 27th Floor
New York. New York 10022-9998
Attention: Gary H. Fechter, Esq.
If to Pearson:
Catherine Mackay
Executive Vice President
Operations
Pearson Television, Inc.
1325 Avenue of the Americas
New York, New York 10019
Facsimile: (212) 541-2950
e-mail: [email protected]
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With a copy to:
Paul Pavlis, Esq.
Executive Vice-President and General Counsel
Pearson Television, Inc.
2700 Colorado Avenue
Santa Monica, California 90404
Facsimile: (310) 255-4830
e-mail: [email protected]
20.10 Recruitment. During the term of this Agreement and for
eighteen (18) months thereafter, each party agrees not to solicit for employment
any employee of the other party who is or was involved in projects pursuant to
this Agreement.
20.11 Most Favored Nation. Should E-Pub negotiate an agreement with
any other entity which, in the reasonable opinion of Pearson, is, when taken as
a whole, more favorable to the third party than the terms of this Agreement,
Pearson shall have the option of adopting any more favorable term or terms of
such Agreement in place of any analogous term or terms of this Agreement. In
order to effectuate the purposes of this Agreement, E-Pub agrees to notify
Pearson immediately of any term of any agreement that E-Pub negotiates during
the term of this Agreement which might reasonably be considered more favorable
than the comparable terms in this Agreement. Pearson shall have the right to
approve any Material Agreement (for purposes of this Agreement, "Material
Agreement" shall mean an Agreement in which E-Pub receives consideration valued
at no less than one hundred thousand ($100,000 dollars) per annum with any
company supplying television game show formats to E-Pub, such approval not to be
unreasonably withheld.
20.12 Additional Rights of Pearson. In the event that E-Pub
develops a game site for any content aggregator. whether such a site is located
on the Internet or on any other computer network (such as AOL and Internet
search engines or portals), E-Pub shall make reasonable efforts to include the
Licensed Internet Games on such site no later than and on terms no less
favorable than those made available for any other computer games.
20.13 Applicable Law: Jurisdiction. This Agreement will be
governed by the laws of the State of New York without regard to its conflict of
laws principles. Both parties consent and agree that all legal proceedings
relating to the subject matter of this Agreement shall be maintained in courts
sitting within the State of York and both parties consent and agree that
jurisdiction and venue for such proceedings shall be exclusively with such
courts.
20.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute a single instrument.
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20.15 Facsimile Execution. This Agreement may be executed by
facsimile signatures by either party hereto and such signature shall be deemed
binding for all purposes hereof, without delivery of an original signature
being thereafter required.
20.16 Severability. If any provision of this Agreement is found
illegal or unenforceable, it will be enforced to the maximum extent permissible,
and the legality and enforceability of the other provisions of this Agreement
will not be affected.
20.17 Headings Not Controlling. The headings in this Agreement
are for reference purposes only and shall not be construed as a part of this
Agreement.
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IN WITNESS WHEREOF the parties have executed this Agreement by their
duly authorized representatives.
Pearson Television Holdings. Inc. E-Pub (Holdings) Ltd.
By: /s/ Greg Dyke By: /s/ Michael Simon
------------------------------- -----------------------------
Name: Greg Dyke Name: Michael Simon
------------------------------ -----------------------------
Title: Chief Executive Title: Chairman
------------------------------- -----------------------------
Date: 13/1/99 Date: January 12, 1999
------------------------------- -----------------------------
Pearson Television Limited
By: /s/ N. Humby
-------------------------------
Name: N. Humby
------------------------------
Title: Finance Director
-------------------------------
Date: 13/1/99
-------------------------------
Pearson Television North America, Inc.
By: /s/ Catherine Mackay
-------------------------------
Name: C. V. Mackay
------------------------------
Title: EVP, Operations
-------------------------------
Date: January 13, 1999
-------------------------------
Pearson Television, Inc.
By: /s/ Catherine Mackay
-------------------------------
Name: C. V. Mackay
------------------------------
Title: EVP, Operations
-------------------------------
Date: January 13, 1999
-------------------------------
Pearson Television Netherlands
By: /s/ Erik W. Wentges
-------------------------------
Name: Erik W. Wentges
------------------------------
Title: Director
-------------------------------
Date: 15-01-1999
-------------------------------
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EXHIBIT A
Game Production Schedule
Deadline Descripition
-------- ------------
Feb 1, 1999 100% Internet Version Preliminary Representation
Feb 15,1999 100% Internet Version Detailed Description
Mar 1, 1999 100% Beta Test
April 1, 1999 100% Launch
May 1, 1999 FF Internet Version Preliminary Representation
Match Game Internet Version Preliminary Representation
Jun 15, 1999 FF Internet Version Detailed Description
Match Game Internet Version Detailed Description
Aug 1, 1999 FF Internet Version Beta Test
Match Game Internet Version Beta Test
Sept 30, 1999 Match Game Launch
Sept 30, 1999 Family Feud Launch
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EXHIBIT B
The Licensed Marks
FAMILY FEUD (U.S. Registration)
FAMILY FORTUNES
MATCH GAME (U.S. Registration)
100% (U.S. Application)
BLANKETY BLANK (U.K. Registration)
familyfeud.com
familyfortunes.com
100percent.com
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EXHIBIT C
UPROAR Server Standards
1. UPROAR games are hosted on Servers capable of running the Internet
Protocol, TCP/IP.
2. Servers are connected to the Internet 24 hours a day, seven days a week.
3. Internet connections will be only made via Internet Service Providers who
can provide a minimum average uptime of 99%.
4. A Cisco Local Director or similar such device that provides multiple
fail-over and load balancing is used to connect Servers to the Internet.
5. All Servers have either remote reboot or auto-reboot capabilities.
6. Player account information is stored on RAID-5 or similar redundant disk
storage devices.
7. Servers are physically located in a facility with air conditioning and at
least temporary back-up power.
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EXHIBIT D
E-Pub (Holdings) Limited is not licensed to operate as a foreign corporation
in any jurisdictions.
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EXHIBIT E
An Employee Stock Ownership Plan (the "Plan") was established by resolutions
adopted by the Board of Directors of E-Pub (Holdings) Limited on July 27, 1997.
Pursuant to the Plan, up to 25,000 ordinary shares, par value (pound)l.00 each,
of E-Pub (Holdings) Limited may be issued. No shares have been issued under the
Plan. At present, one option to purchase 333 shares at an exercise price of
(pound)66.00 is outstanding.
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EXHIBIT F
E-Pub (Holdings) Ltd. has the following subsidiaries:
1. E-Pub Services Limited (Ireland) - capitalization IR(pound)279, 365
2. 2. E-Pub KFT. (Hungary) - capitalization HUF 2,000,000
3. 3. E-Pub, Inc. (United States) - capitalization $100
4. 4. E-Pub Limited (United Kingdom) - capitalization (pound)1000
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EXHIBIT G
Documents Received By Pearson From E-Pub
1. Software License, Services and Cooperation Agreement between E-Pub
(Holdings) Ltd. and Bertelsmann Infoline
2. E-Pub (Holdings) Limited: Organizational Documents
a. Certificate of Incorporation
b. Memorandum of Association of Company Limited by Shares
c. Certificate of Deposit of Memorandum of Association and Consent Granted
by the Minister
d. Notice of Address of Registered Office
e. Tax Assurance
f. Bye-Laws of E-Pub (Holdings) Limited
g. Foreign Exchange Letter
h. Global Instrument Certificate Agreement
3. Agreement between E-Pub (Holdings) Limited; Barclays Private Management
(Bermuda) Limited; Raiffeisen Zentralbank Osterreich AG; and
Oesterreichische Kontrollbank Aktiengesellschaft
4. Annex 1, Part 2: Terms and conditions for the administration of securities
abroad (German translation)
5. Annex 2
6. Conditions of the certificates
7. Share Certificates
8. Three Hungarian documents:
a. Alapito okirat modositasokkal egyseges szerkezetbe foglalva
b. Az eredmenykimutatashoz kapcsolodo adatok a kettos konyvvitelt vezeto
adoalanyok reszere
c. Egyszerusitett eves beszamolo
9. Option Deed
10. Deed of Adherence
11. Deed of Consent
12. Contract between E-Pub Services Limited and Somerset Ventures Central Europe
Limited
13. Charge over Intellectual Property Rights (dated 21 March 1996)
14. Deed of Amendment (dated 6 February 1997)
15. Deed of Release (dated 21 April 1997)
16. Articles of Association of E-Pub Services Limited
17. Supplemental Shareholders' Agreement (dated 21 April 1997)
18. Second Supplemental Subscription Agreement relating to E-Pub Services Ltd.
(dated November 1996)
19. Supplemental Subscription Agreement relating to E-Pub Services Ltd. (dated
10 September 1996)
20. Press Release from E-Pub (Holdings) Limited Announcing First Quarter 1998
Results
21. Press Release from E-Pub (Holdings) Limited Announcing Second Quarter 1998
Results
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22. Press Release from E-Pub (Holdings) Limited Announcing Third Quarter 1998
Results
23 E-Pub (Holdings) Limited and Subsidiaries Consolidated Financial Statements
(dated 31 December 1997)
24. Subscription and Shareholders' Agreement relating to E-Pub Services Limited
(dated 21 March 1996)
25. Resolution of E-Pub Services Limited (passed 21 March 1996)
26. Shareholders Agreement between Chase Systems Limited and New World
Publishing (dated 3 February 1995)
27. Memorandum and Articles of Association for E-Pub Services Limited
28. International Service Contract between E-Pub Services Limited and Michael
Simon (dated 1 January 1996)
29. International Service Contract between E-Pub Services Limited and Michael
Simon (dated January 1, 1996)
30. Software License Agreement between E-Pub (Holdings) Limited and Clevermedia
(dated February 16, 1998)
31. Partnership Agreement between E-Pub (Holdings) Limited and Clevermedia
(dated April 17, 1998)
32. Schedule of Insurance for E-Pub, Inc. (dated September 22,1998)
33. Letter Agreement between E-Pub Inc. and CNN Interactive (dated September 3,
1998)
34. Amendment No. 1 to Promotion and Online Distribution Agreement between
SportsLine USA, Inc. and E-Pub Services, Ltd. (dated July 1, 1998)
35. Promotion and Online Distribution Agreement between SportsLine USA, Inc. and
E-Pub Services, Ltd. (dated June 25, 1997)
36. Uproar Privacy Policy
37. Amended and Supplemental Complaint: Eddie Burgos and Dena Ann Burgos v.
Ellwell Associates LLC and E-Pub Inc.; Amended Answer, Cross-Claims and
Third-Party Complaint
38. Standard Form of Loft Lease between Ellwell Associates LLC and E-Pub Inc.
(dated April 2. 1997)
39. Rider to Lease between Ellwell Associates LLC and E-Pub Inc. (dated March
10, 1997)
40. Trade Marks Journal dated 11 November 1998, advertising the UK Trade Mark
Application No. 2159629 Uproar in Classes 9, 10, 16, 18, 21, 24, 34, 41 & 42
41. Letter of Trademark filing and Official Filing Receipt
42. Letter requesting trademark clarification
43. Power of attorney application for Trademark
44. Trademark applications for UPROAR.com in both England and the United States
45. Netgravity Adserver Network License Agreement between Netgravity Inc. and
E-Pub, Inc. (dated September 30, 1998)
46. Software Support Agreement between Netgravity. Inc. and E-Pub, Inc.
47. Memorandum and Articles of Association of E-Pub Limited
48. E-Pub (Holdings) Limited and Subsidiaries Consolidated Financial Statements
for the period ended 31 December 1997
49. E-Pub Limited Director's Report and Financial Statements for the period
ended 31 December 1997
50. E-Pub Services Limited Financial Statements Year Ended 31 December 1996
48
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51. Reports and Financial Statements - E-Pub Services Limited for the period
from 7 February 1995 to 31 December 1995
49
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EXHIBIT H
Pearson Disclosure
With respect to the Game Show Format of 100%, there is a pending dispute
regarding the similarity of such Format to the format of the newly created game
"Inquisition," broadcast on the Sony Game Show Channel. Pearson and Sony have
agreed to meet to explore an amicable resolution of this dispute.
50
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
EXHIBIT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
LICENCE & SERVICES AGREEMENT
THIS AGREEMENT is made on 29th day of September 1999
BETWEEN:
(1) UPROAR LTD., a Bermuda corporation, with Company Number 3339240, whose
registered office is at 44 Church Street, Hamilton HM12, Bermuda ("Uproar");
and
(2) TELEFONICA INTERACTIVA DE CONTENIDOS, a Spanish corporation, whose office is
registered at Gran Via 28, 28013 Madrid, Spain and with a CIF Number
A82314113("TI").
WHEREAS
(A) Uproar is in the business of providing content for on-line and
multi-media products and the operation of online channels. TI is in the
business of providing content for on-line and multi-media products and the
operation of on-line channels.
(B) Uproar is contracting with TI for the exclusive distribution rights to
Uproar websites in Spanish and Portuguese language markets. In order to
operationally implement this agreement, TI desires that Uproar licence the
distribution rights and provide the services and support therefor, for the
operation of the Uproar websites to TI.
(C) Uproar has agreed to licence the distribution rights to TI, and will provide
services and support to TI for the operation of the Uproar websites in
exchange for which TI has agreed to pay Uproar exclusivity fees; and TI has
agreed to distribute the Uproar websites online for the Spanish and
Portuguese language markets from TI's online properties, in exchange for
which Uproar has agreed to pay TI a portion of the revenue the Uproar
websites generate.
THE PARTIES AGREE as follows:
1 INTERPRETATION
In this Agreement, unless the context dictates otherwise, the following words
shall have the following meanings:
"Anchor Tenancy" means the display of the Uproar Content on the TI Sites
via the minimum of the following: a) links to the Uproar Content in the form
of a preferred partner TI Site channel for Uproar above the scroll fold on
the front page and all other pages upon which the channels are listed; b) a
text link underneath any 'games' links from any page on the TI Sites in
which Uproar has the right to insert varying promotional texts to the Uproar
Content; c) a 120 x 60 pixel graphic linking to the Uproar Content from the
front page of the TI Sites; d) Uproar Content hotlink and promotional area
equivalent to one third of the area, above the scroll fold, upon the front
pages of the TI Sites' games and/or light entertainment channels; and e)
banner ads upon the TI Sites promoting the Uproar Content in amounts equal
to or greater than the average provided to the TI Site's other Channel
partners.
<PAGE>
"Brands" means any trade marks and service marks (whether registered
or not), trade and business names;
"Co-branded" means an item of content where each parties' Brands are
displayed in equal prominence;
"Co-branded Pages" means pages published by the parties on UPROAR SP/PT
Sites and TI Sites where each parties' Brands are displayed in equal
prominence;
"COGS" means purchase costs, direct warehousing costs, and shipping costs
related to products purchased by Uproar for the purpose of resale to third
parties;
"TI Competitor Definition" means companies providing portal services within
the Markets and from whom TI does not accept online advertising, sponsorship
or e-commerce revenue.
"Direct Sales Costs" means direct sales salaries, sales commissions, and
travel and entertainment related to direct sales;
"Gross Revenue" means all revenue derived from the commercialization and
distribution of the UPROAR Content, including but not limited to licence
fees, advertising sponsorship and third party e-commerce revenue that are
annually received by Uproar.
"Intellectual Property" means:
(a) patents, Brands, domain names, copyrights, data base rights, know-how
rights, designs and inventions; and
(b) rights of the same or similar effect or nature as or to those in
paragraph (a), in each case in any jurisdiction;
"Markets" means those Spanish and Portuguese language markets listed in
Schedule 1;
"Net Revenue" means Gross Revenue less actual and reasonable Direct Sales
Costs, COGS of any on-account merchandising, VAT and ordinary and customary
rebates. For the avoidance of doubt, Net Revenue does not include the fees
paid by TI to Uproar under this Agreement;
"Prizepoint Affinity Program" means the computer software that is used to
maintain the Prizepoint point system which manages the process for end users
to accumulate points for which they may exchange or auction for prizes or
the chance to win prizes. The Prizepoint Affinity Program will incorporate
software enhancements and be updated based on the Prizepoint Affinity
Program published on UPROAR.COM from time to time, meaning with no specific
timing nor any requirements to these enhancements, during the term of the
Agreement;
"Roll-Out Schedule" means the schedule for the roll-out of the distribution
of the UPROAR Content upon the TI Sites set out in Schedule 2;
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"TI Group Company" means any company in which TI holds at least 50% of the
shares or acts as managing shareholder;
"TI Sites" means the home, media portal, or master website of TI, a TI Group
Company or an afiliate of TI in each and any of the Markets;
"UPROAR.COM" means Uproar's United States based website;
"UPROAR Content" means the Internet TCP/IP computer based applications of
the Uproar formats, IP, and website services listed in the Roll-Out
Schedule;
"UPROAR SP/PT Site" means any website being launched in the Markets owned by
[illegible] with [illegible] incorporating the word "Uproar".
2 LICENCE
2.1 Subject to the terms of clause 2.2 below, Uproar grants TI an exclusive
non-transferable licence to distribute the UPROAR Content, not
including Uproar Content placed into syndication, upon the TI Sites
within the Markets for the term of this Agreement (the "Licence").
2.2 The Licence may not be assigned to a third party, unless that third
party is a TI Group Company as set forth in clause 18 hereunder.
3 TERM
3.1 The initial term of the Agreement will be thirty-six (36) months from
the date of the Agreement (the "Initial Term") unless terminated
earlier under clause 14 hereunder.
3.2 At the end of the Initial Term, the Agreement will remain in force for
a further term of twelve (12) months unless terminated by either party
giving to the other not less than ninety (90) days notice of
termination prior to the end of the Initial Term and shall thereafter
be renewed for equal terms of twelve (12) months unless notice as
aforesaid is given, unless terminated otherwise under clause 14
hereunder.
4 OBLIGATIONS OF UPROAR
4.1 During the term of the Agreement, Uproar shall:
(a) Design, create and operate Co-branded Spanish and Portuguese
language versions of the UPROAR Content, for distribution upon the
TI Sites according to the Roll-Out Schedule;
(b) Provide for all UPROAR SP/PT sites to display the same Co-branded
Pages as distributed upon the TI Sites;
(c) Provide the working time of one dedicated person to co-ordinate or
perform the obligaitons of Uproar under the Agreement;
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(d) Provide commercially reasonable editorial resources and content
development for the Uproar Content;
(e) Provide commercially reasonable programmer(s) to manage all
customization, development and support of the UPROAR Content;
(f) Provide commercially reasonable database administrator(s) to
manage all database requirements and support of the UPROAR
Content;
(g) Perform all end-customer and technical support for the Uproar
Content and websites to a level equal to the standard support for
the German language Uproar site, found at the url of
www.uproar.de;
(h) Perform all prize fulfillment associated with tile Uproar Content,
except where TI is providing prizes and/or discounts via the
Uproar Content in accordance with this Agreement:
(i) Purchase and configure all hardware and software required for
operating the UPROAR Content;
(j) Create and manage a co-branded Syndication Network based upon
Uproar's management and technology systems;
(k) Create and manage a co-branded online Prizepoint Affinity Program,
of which 5% of the prizes may be from TI or its affiliate.
Cooperate with TI to coordinate the said online program with TI's
online and offline extensions of the Prizepoint Affinity Program.
(l) Prepare and report, on a monthly basis, summary statistics on
player usage of the UPROAR Content, and provide user database
information in a machine readable format to TI in accordance with
the local laws and regulations applicable in each of the Markets;
(m) Provide cross promotion to the UPROAR Content across all Uproar
worldwide websites, in the form of a listing on the bottom of each
front page;
(n) Provide the necessary legal resources to ensure compliance with
local laws and regulations in the Markets;
(o) Independent of this Agreement, upon the request of TI, negotiate
in good faith the terms and conditions for the programming and
delivery of additional content above and beyond the UPROAR Content
in the event TI desires additional content from Uproar.
4.2 Uproar shall fully co-operate with and assist TI in the performance of
its obligations under this Agreement and shall undertake the Uproar
obligations specified herein at its own expense.
4.3 Uproar may retain third parties to work on the UPROAR Content. All such
third parties shall execute, before providing any services, an
agreement that shall include a promise to maintain as confidential
Information (as defined in
4
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clause 12) as required by this Agreement and that also includes an
assignment to Uproar of all rights in such work so. that such rights
may be licenced to TI as required by this Agreement.
4.4 Upon reasonable prior notice by TI, Uproar will provide for use by TI's
on-site coordinator, when visiting, during the term of this Agreement,
such office space, computer equipment and other facilities at Uproar's
site as may reasonably need to perform its obligations hereunder.
4.5 Uproar will install and maintain the UPROAR Content in such a way that:
(a) it is capable of being accessed and used via the Internet; and
(b) the performance of the UPROAR Content is substantially the same,
or exceeds, the average performance of the same or similar UPROAR
Content on UPROAR.COM.
In addition, Uproar will provide all necessary services relating to
running the UPROAR Content as specified above.
4.6 Uproar shall ensure that, during the Term, the Uproar Content does not
contain any defamatory or obscene material, nor material likely to
infringe any law.
5 TI RESPONSIBILITIES
5.1 During the term of this Agreement, TI shall:
(a) Promote and distribute the UPROAR Content as an Anchor Tenancy
within the TI sites according to the Roll-Out Schedule;
(b) Promote the UPROAR Content on TI Sites as a most favoured partner
in relation to other channel and content partners whose content is
displayed on or linked to TI Sites;
(c) Approve the layout and integration of each party's Brands upon the
Co-branded Pages prior to launching;
(d) Perform advertising, sponsorship, e-commerce sales, and technical
serving upon all instances of the Uproar Content, unless Uproar
assumes the right to perform such sales and serving as outlined
under clause 6;
(e) Provide the working time of one dedicated person to co-ordinate or
perform the obligations of TI under the Agreement;
(f) Provide prize fulfillment for any TI prizes within the Uproar
Content or the Prizepoint Affinity Program;
(i) Integrate the Prizepoint Affinity Program within TI's Sites and
offline billing product marketing for each Market in accordance
with the Roll-Out Scehdule.
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(h) Prepare and provide quarterly financial statements to Uproar,
on the revenue related to the Uproar Content, as outlined in
Schedule 3.
5.2 TI shall fully cooperate with and assist Uproar in the performance of
its obligations under this Agreement and shall undertake the TI
obligations specified herein at its own expense.
5.3 Upon reasonable prior notice by, Uproar, TI will provide for use by
Uproar's on-site coordinator, when visiting, during the term of this
Agreement such office space, computer equipment and other facilities at
TI's site as Uproar may reasonably need to perform its obligations
hereunder.
6. SALES PERFORMANCE CONTINGENCY
After ten (10) months of launching Uproar Content in a specific Market, if
TI does not reach a monthly effective yield of advertising and sponsorship
revenue of four (4) USD per one thousand (1000) ad impressions, then Uproar
has the right to assume the obligation outlined in clause 5.1 (d) and
require TI to cease fulfilling this obligation this without any compensation
whatsoever to TI. Uproar will pay TI 50% of Net Revenue as outlined in
clause 13.2.
7. ROLL-OUT SCHEDULE
7.1 Uproar will exercise its best efforts to complete the development and
launch of the UPROAR Content according to the mutually agreed Roll-Out
Schedu1e.
7.2 The parties shall agree in good faith (as may be required) updates to
the Roll-Out Schedule on a quarterly basis from the date of this
Agreement and amend the Roll-Out Schedule.
8. PROPERTY RIGHTS OF THE PARTIES
8.1 It is acknowledged and agreed by the parties that Uproar shall be
deemed the sole and exclusive owner of all rights, title and interest
in the UPROAR Content, including all Intellectual Property thereto.
8.2 Uproar retains ownership to all items created or purchased by Uproar,
which includes but is not limited to product content graphic artwork,
names, and game concepts, the UPROAR Brand, the UPROAR SP/PT Sites, the
UPROAR.COM and related url, including all domain registration rights,
title and interest therein. TI retains ownership of all items created
or purchased by TI, which includes but is not limited to product
content graphic art work, the TELEFONICA Brand, the TI Sites and
related url, including all domain registration rights, title and
interest therein.
8.3 Subject to the above, during the term of the Agreement
(a) Uproar and TI agree to share, in compliance with applicable privacy
laws, any database information compiled from the products using the
Co-branded Pages.
(b) All database information complied shall remain the property of the
compiling party.
6
<PAGE>
8.4 Each party hereby covenants and agrees that:
(a) the Intellectual Property, Brands and other proprietary rights of
the other party are and shall remain the sole and exclusive
property of that party; and
(b) it shall not represent to others that it has any ownership rights
with respect thereto except as specifically granted hereunder.
8.5 During the term of this Agreement, each party grants to the other a
non-exclusive non-transferable license to use the other party's Brands
on the Co-branded Pages. Prior to the use by one party hereunder of any
of the Brands of the other party, such party shall submit to the other
party for its prior approval the screens, marketing materials,
advertising materials and other materials containing such Brands.
9. WARRANTIES
9.1 Each party warrants, covenants and represents to each other that:
(a) it has the full right, power and authority to enter into this
Agreement;
(b) it is not subject to any non-competition obligations or other legal
disabilities or limitations which prevent it from performing its
obligations hereunder; and
(c) the exercise of any right, licence or privilege granted in this
Agreement, shall not invade any right of privacy or publicity, or
infringe the Intellectual Property of any third party.
9.2 Each party warrants to the other that it is the sole and exclusive owner
of its Intellectual Property and/or has the right and power to licence
its Intellectual Property and that such licence does not and will not
infringe any third party Intellectual Property.
9.3 Each party warrants to the other that the T1 Sites and UPROAR- SP/PT
Sites respectively:
(a) do not infringe the Intellectual Property of any third party;
(b) do not contain or display any material or link to material or
sites that are libelous, defamatory, pornographic, threatening,
illegal or otherwise offensive.
(c) do not contain any hyperlink or other links that have not been
approved or licenced; or
(d) do not violate any applicable law, regulation, judgment, order or
directive.
10. INDEMNITY AND OTHER MATTERS
10.1 Each party agrees it will, at its own cost and expense, defend,
indemnify and hold harmless the other against bona fide claims,
demands, damages, actions, causes of action, losses, judgments, costs
and expenses of every nature (including reasonable attorney's fees and
7
<PAGE>
expenses) ("Claims(s)") to the extent such Claims arise out of, result
from, or are attributable to:
(a) an infringement of the warranties given in clause 9; or
(b) the negligence or willful misconduct by either party or its
employees, subcontractors, representatives or agents in the
performance of this Agreement;
provided that party immediately notifies the other party in
writing (providing full details) of the Claims. Each party shall
defend, indemnify and hold the other harmless pursuant to this
Clause, during the entire claim process, regardless of whether
the Claim is settled or goes to trial; and the other party
provides, at the party's expense, all reasonable assistance
relating to such a claim requested by the other party.
10.2 If a judgment or settlement is obtained or reasonably anticipated
against use of any Intellectual Property for which either party has
indemnified the other, the indemnifying party shall, at its own cost
and expense, promptly modify the item or items which were determined to
be infringing, acquire a licence or licences of the Intellectual
Property in order to provide the necessary rights to the other to
eliminate the infringement, or substitute the Intellectual Property
with non-infringing Intellectual Property which provides equivalent
functionality.
10.3 If Uproar notifies that, in its opinion, TI's advertising or promotion
of a third party site is in violation of TI's obligations under clause
5.1 (b), then without prejudice to any other remedy available to
Uproar. TI shall be required within three (3) working days of such
notification by Uproar to demonstrate to Uproar's reasonable
satisfaction that TI has complied with its obligations, failing which
TI shall immediately remove such advertising or promotional material
and links for the third party site in question.
11. LIMITATION OF LIABILITY
Except in the case of a breach of clauses 9.2, 9.3, or 12, a party's
liability for breach of or failure to substantially perform hereunder
shall be limited to the other party's actual damages or the amount
previously paid to the other party under this Agreement, whichever is
less. In no event shall either party become liable hereunder for
indirect or consequential loss or damage, or for any loss of data,
profit, revenue, contracts or business, howsoever caused (whether
arising out of breach of this Agreement negligence or otherwise) even
if the same was foreseeable, or for any special or punitive damages.
12. CONFIDENTIALITY
12.1 In this clause, "Confidential Information" means all confidential
information disclosed (whether in writing, orally or by another means
and whether directly or indirectly) by a party (the "Disclosing Party")
to the other party (the "Receiving Party") whether before or after the
date of this Agreement including, without limitation, information
relating to the UPROAR Content or to the Disclosing Party's products,
operations, processes, plans or intentions, product information,
know-how, design rights, trade secrets, market opportunities and
business affairs.
8
<PAGE>
12.2 The Receiving Party shall:
(a) not use Confidential Information for purpose other than the
performance of its obligations under this Agreement; and
(b) not disclose Confidential Information to a person except with the
prior written consent of the Disclosing Party.
12.3 This clause shall not apply to Confidential Information which:
(a) is at the date of this Agreement, or at any time after that date
becomes, publicly known other than by the Receiving Party's breach
of this Agreement;
(b) can be shown by the Receiving Party to the Disclosing Party's
reasonable satisfaction to have been known by the Receiving Party
before disclosure by the Disclosing Party to the Receiving Party;
(c) is released from confidential treatment by written consent of the
Disclosing Party;
(d) is disclosed to the Receiving Party by a third party having no
obligation of confidentiality with respect thereto; or
(e) is required to be disclosed by law or order of a court or
governmental agency (such disclosure to be made only after
consultation with the Disclosing Party).
13 PAYMENTS
13.1 In consideration of the grant of the Licence by Uproar and the
performance by Uproar of its obligations, TI agrees, to pay the
following fees to Uproar:
Year 1: [****] USD
Year 2: [****] USD
Year 3: [****] USD
These fees will be paid by TI within one hundred and twenty
(120) days of receipt of invoice from Uproar. Uproar will
invoice TI in equal quarterly installments at the beginning of
each calendar quarter beginning from the date of this Agreement.
13.2 In consideration of the performance by Uproar of its obligations, T1
agrees to pay Uproar [****] of the Net Revenue.
TI will pay Net Revenue payments to Uproar within thirty (30) days of
the end of each calendar quarter from the date of this Agreement.
13.3 The licence fees payable by TI to Uproar under this Agreement do not
include any applicable sales taxes or other applicable taxes, any such
taxes shall be paid by T1 in addition to the licence fees.
- --------------
**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and Exchange
Commission.
9
<PAGE>
13.4 Payments made by TI to Uproar under this Agreement do not include any
applicable sales taxes or other applicable taxes. Such applicable
taxes shall be deducted or withheld by TI at the rate and in the
manner prescribed by law from the payments.
14 TERMINATION
14.1 Neither party may terminate this Agreement except pursuant to the
provisions of this clause.
14.2 Either party may terminate this Agreement with immediate effect by
notice to the other party (the "Other Party") on or at any time after
the occurrence of one of the following event in relation to the Other
Party:
(a) the Other Party is in material breach of a material obligation
under this Agreement and, if the breach is capable of remedy, has
failed to remedy the breach within thirty (30) days starting on
the day after receipt of written notice specifying the breach and
stating that a failure to remedy the breach may give rise to
termination under this clause 14. For the purposes of this clause
14.2(a), a breach is capable of remedy if the Other Party
can comply with the obligation within a thirty (30) day period;
or
(b) the Other Party becomes insolvent, or an order is made or a
resolution is passed for the winding up of the Other Party (other
than voluntarily for the purpose of solvent amalgamation or
reconstruction), or an administrator, administrative receiver,
receiver or other insolvency practitioner is appointed in respect
of the whole or any part of the Other Party's assets or business,
or the Other Party makes any composition with its creditors or
takes or suffers any similar or analogous action in consequence
of debt under the laws of Bermuda or Spain as applicable.
14.3 Uproar agrees to give TI thirty (30) days prior written notice of any
change of control of Uproar. For the purposes of this clause 14.3,
"control" means the ability to direct the affairs of another whether
by way of contract, ownership of shares or otherwise howsoever. On
receipt of such notice of change of control from Uproar, TI may
terminate this Agreement by written notice to Uproar, termination to
take effect one hundred and eighty (180) days after receipt of such
notice by Uproar.
15 CONSEQUENCES OF TERMINATION
15.1 Subject to clause 15.2 below, each party's rights and obligations
cease immediately on termination or this Agreement, but termination
will not affect a party's accrued rights and obligations at the date
of termination.
15.2 Notwithstanding the termination of the Agreement each party shall
remain liable to pay to the other party all sums accrued or due on or
prior to the date of termination,
15.3 Each party shall return to the other all materials provided by the
other party under this Agreement.
16 INDEPENDENT CONTRACTOR
10
<PAGE>
16.1 In the performance of their respective obligations hereunder, Uproar
and TI are and at all times will be completely independent from each
other and this Agreement shall not constitute, or be deemed to
constitute, either party as an employee, agent, partner, or joint
venturer of the other.
16.2 Each party shall be responsible for the payment of each employee's and
contractor's compensation and benefits including any applicable taxes,
national insurance contributions, unemployment, compensation and
social security.
17 NON-COMPETITION
Each party agrees not to hire or attempt to hire any employee of the
other party during the term of this Agreement and for a period of
twelve (12) months following termination.
18 ASSIGNMENT
18.1 The rights and obligations resulting from this Agreement may not be
assigned, novated, sub-let or otherwise transferred by either party
without the prior written consent of the other party, except that no
consent is necessary for TI to assign its rights and obligations
resulting from this Agreement to a TI Group Company, subject to TI
giving written notice to Uproar of such assignment at least thirty
(30) days prior to TI effecting any such assignment and the TI Group
Company agreeing to be fully bound with the terms of this Agreement.
18.2 This Agreement shall be binding upon both parties, their successors
and permitted assigns.
19 NOTICES
19.1 Any notice or communication required or permitted to be given under
the provisions of this Agreement shall be in writing in the English
language and shall be sent to the parties at the following addresses
(or at such other address for a party as shall be specified by like
notice:
(i) In the case of Uproar:
44 Church Street
Hamilton
HM12 Bermuda
Contact: Timothy Ewing
Fax No: +36-1-266-3392
(ii) In the case of TI:
Avda. de las Dos Castillas 33
Complejo Atica No 1
28224 Pozuelo de Alarcon
Madrid, Spain
11
<PAGE>
Rafael Bonnelly
Fax No: +34-91-452-3150
and shall be deemed to liave been given or made:
(a) if delivered personally, by overnight courier or mailed by
express mail on the date delivered.
(b) if sent by registered or certified mail (postage prepaid, return
receipt requested) within three(3) business days of posting;
(c) if sent by facsimile transmittal, confirmed by express, certified
or registered mail on the date sent:
save that notices of changes of address shall be effective upon
receipt.
20 GOVERNING LAW; JURISDICTION
20.1 All disputes arising in connection with this Agreement shall be
settled by arbitration under the rules of conciliation and arbitration
of the International Chamber of Commerce ("ICC") by one of more
arbitrators appointed in accordance with the same rules. The parties
shall decide on the number and identity of the arbitrators and, in
case of disagreement, the acting chairman of the ICC shall decide. The
decision of the arbitrator or arbitrators shall be binding upon the
parties and the expenses of the arbitration shall be paid as the
arbitrator or arbitrators determine. The decision of the arbitrator or
arbitrators shall be executory and judgment thereon may be entered by
any court of competent jurisdiction.
20.2 The official language of the Agreement shall be the English language
and in any and all interpretations hereof the English language
understanding shall govern.
20.3 This Agreement shall be governed and construed in accordance with the
laws of England and Wales.
20.4 Each party to this Agreement shall have the right to institute
judicial proceedings against the other party in order to seek specific
performance, injunctive relief or similar equitable relief before any
court of competent jurisdiction.
21 MISCELLANEOUS
21.1 The Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof, and supersedes all prior
negotiations, representations or agreements, both written and oral. No
changes, alterations, or modifications to this Agreement shall be
effective unless reduced to writing and signed by the parties hereto.
21.2 This Agreement may be executed in several counterparts, including via
facsimile, each of which shall be deemed an original; and all such
counterparts together shall constitute one and the same instrument.
12
<PAGE>
21.3 The failure of any party to this Agreement to require performance by
another party of any provision of this Agreement or to pursue any
remedy resulting from a breach of this Agreement by another party
shall not be construed as a waiver of the right to thereafter require
performance of each and every provision of this Agreement nor as a
waiver of that or any subsequent or other breach by that party,
unless, such waiver is in writing and signed by the party in respect
of whom such waiver is claimed.
21.4 Notwithstanding the expiration or termination of the term of this
Agreement for any reason whatsoever, the provisions of the Agreement
will continue to be in force to the degree that the parties originally
intended. Any other provisions of this Agreement necessary to give
efficacy thereto.
21.5 If any provision of this Agreement should be held invalid or
unenforceable for any reason whatsoever or to violate any law of any
applicable jurisdiction, such provision shall be enforced to the
maximum extent legally permissible so as to effect the intent of the
parties unless it is found to be wholly invalid and thus must be
considered severed from such provision, and such provision shall be
deemed deleted from this Agreement in such jurisdiction or, in the
event that it should be held only to violate the laws of any
applicable jurisdiction, such provision shall be inapplicable only
within such jurisdiction, and the remainder of this Agreement shall be
valid and binding upon the parties as if such provision was not
included herein.
21.6 Neither party shall be liable to the other for any delay or failure to
perform their obligations hereunder due to causes beyond its
reasonable control which such party is unable to overcome by the
exercise of reasonable due diligence. Performance times shall be
considered extended for a period of time equivalent to the time lost
because of any such delay. When the force majeure cause has been
eliminated or has been waived by the party claiming the benefit of
such cause, this Agreement shall continue in full force and effect.
13
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement the day and year first above written.
EXECUTED for and on behalf of ) /s/ Timothy Ewing
UPROAR LTD ) --------------------
Name: Timothy Ewing
Title: President
EXECUTED for and on behalf of ) /s/ Juan Perea
TELEFONICA INTERACTIEVA DE CONTENIDOS S.A. ) --------------------
Name: Juan Perea Saenz de Buruaga
Title: President
14
<PAGE>
Schedule 1
Markets
Spain
Portugal
United States & its territories
Mexico
Guatemala
El Salvador
Nicaragua
Costa Rica
Panama
Belize
Honduras
Cuba
Venezuela
Colombia
Ecuador
Peru
Chile
Argentina
Uruguay
Paraguay
Bolivia
Brazil
15
<PAGE>
Schedule 2
Roll-out Schedule
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Format USA - Spanish Mexico Brazil Spain TBD.....
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[****] [****] [****] [****] [****]
- ------------------------------------------------------------------------------------------------------------------------
[****] [****] [****] [****] [****]
- ------------------------------------------------------------------------------------------------------------------------
[****] [****] [****] [****] [****]
- ------------------------------------------------------------------------------------------------------------------------
[****] [****] [****] {****] {****]
[****]
[****]
[****]
[****]
[****]
[****]
[****]
[****]
[****]
[****]
[****]
[****]
[****]
[****]
[****]
[****]
[****]
[****]
[****]
[****]
- ------------------------------------------------------------------------------------------------------------------------
Other formats
TBD.....
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
- - the 1 Oct launch for the USA-Spanish will include a mutually agreed list of
games not outlined here due to the short time frame in respect to the
contract effective signing date
- - the MP game formats listed above may have more than one game launched
based on the same format
- --------------
**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and Exchange
Commission.
16
<PAGE>
Schedule 3
For the period from [__________] to [__________] ("the Quarter")
a) Revenue generated in respect of advertising
carried on the Service (excl. VAT):
-_________
Less direct sales costs payable for such
advertising: -_________
Subtotal: -_________
TI Share: 50% -
---------------------------------------------------------------------------
b) Revenue generated in respect of sponsorship
carried on the Service (excl. VAT):
-_________
Less direct sales costs payable for such sponsorship:
-_________
Subtotal:
-_________
TI Share: 50% -
---------------------------------------------------------------------------
c) Revenue generated in respect of third party
transactions carried on the Service (excl. VAT):
-_________
Less direct sales costs payable for such third
party transactions:
-_________
Subtotal:
-_________
TI Share: 50% -
---------------------------------------------------------------------------
d) Revenue generated in respect of own account
transactions carried on the Service (excl. VAT):
-_________
Less COGS for such own account transactions:
-_________
Subtotal:
-_________
TI Share: 50% -
---------------------------------------------------------------------------
TOTAL UPROAR
SHARE:
Aggregate number of transactions completed via the Service: [ ]
Declaration: The details included in this form are, to the best of my knowledge,
a true and accurate record of the operation of the Service during the Quarter.
Signed: _______________________________________________________________________
Name of signatory: Position:
Date:
17
<PAGE>
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. 2 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
February 17, 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
February 17, 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
February 17, 2000
