<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RIVALS.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------
<TABLE>
<S> <C> <C>
WASHINGTON 7375 91-1894545
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
71 COLUMBIA STREET, SUITE 550
SEATTLE, WASHINGTON 98104
(206) 381-6900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------
JAMES C. HECKMAN, JR.
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
71 COLUMBIA STREET, SUITE 550
SEATTLE, WASHINGTON 98104
(206) 381-6900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
DAVID C. WILSON, ESQ. JORGE DEL CALVO, ESQ.
BRIAN D. MCALLISTER, ESQ. JASON D. FINKLE, ESQ.
GARY A. TRUJILLO, ESQ. PILLSBURY MADISON & SUTRO LLP
MORRISON & FOERSTER LLP 2550 HANOVER STREET
755 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304
PALO ALTO, CALIFORNIA 94304 (650) 233-4500
(650) 813-5600
</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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
Common Stock (no par value).......... $100,000,000 $26,400
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(o) under the Securities Act.
-------------------------
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 HEREAFTER 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 SUCH SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
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 NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED MARCH 13, 2000.
Shares
[RIVALNET LOGO]
Common Stock
-------------------------
This is an initial public offering of shares of common stock of
RivalNetworks, Inc. All of the shares of common stock are being sold
by the Company.
At the request of RivalNetworks, the underwriters have reserved up to
shares of common stock for sale at the initial offering price to
friends of RivalNetworks through a directed share program.
Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $ and $ . RivalNetworks has applied for
quotation of the common stock on the Nasdaq National Market under the symbol
"RIVL".
See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying shares of the common stock.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------
<TABLE>
<CAPTION>
Per Share Total
---------- ----------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to RivalNetworks................. $ $
</TABLE>
To the extent that the underwriters sell more than shares of
common stock, the underwriters have the option to purchase up to an additional
shares from RivalNetworks at the initial public offering price less
the underwriting discount.
-------------------------
The underwriters expect to deliver the shares against payment in New York,
New York on .
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
CHASE H&Q
-------------------------
Prospectus dated , 2000.
RIVALNETWORKS, INC.
<PAGE> 3
Inside Front Cover
The inside front cover illustrates the RivalNetworks Business Model. A
graphic shows the existing rivals.com network as well as future networks;
indicates how all the networks will be supported by a common set of
Infrastructure Services; and contains text specifying the components of the
networks and the Infrastructure Services.
The open-end of a cylindrical cable, containing five separate smaller and
internal cables is in the lower left hand corner of the page. The outer cable
sheath curves towards the center of the page and rises directly to the top of
the page and along its base labeled "Infrastructure Services." Beginning with
the internal cable that is farthest right and moving in a clock-wise direction,
the five individual cables are labeled as follows: "network development
services," "e-commerce services," "content services," "advertising/sponsorship
services" and "technology services."
As the outer cable sheath rises straight up in the center of the page and
passes the horizontal midpoint of the page, it gradually decreases in
circumference as it passes through the center of three cylindrical discs. The
discs are evenly spaced and also decrease in circumference with the largest
disc, labeled "rivals.com" at the bottom and the smallest, labeled "NEWnetwork"
at the top. The middle disc is also labeled "NEWnetwork." Each disc is divided
in half along its horizontal axis with the top half labeled "e-commerce" and the
bottom half labeled "content." All three discs are divided into seven segments.
These segments on the rivals.com disc are labeled as follows: "NFL," "NBA,"
"NHL," "Major League Baseball," "College Sports," "High School Sports," "College
Recruiting" and "Motor Sports, Fishing, Tennis, others. . . ." In addition, the
bottom of the rivals.com disc is split into two concentric circles. The outer
circle is labeled "affinity channels," the inner circle is labeled "experts."
The page is entitled "Business Model," at the top left-hand corner of the
page and the RivalNetworks logo is located in the lower right-hand corner of
the page.
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information described more fully elsewhere in this
prospectus. This summary is not complete and does not contain all the
information you should consider before investing in our common stock. You should
read the entire prospectus, including the Financial Statements and related
Notes, before making an investment decision.
RIVALNETWORKS, INC.
We are a leading developer and operator of affinity-channel networks.
Affinity-channels are content or e-commerce websites owned by individuals or
organizations that provide in-depth, original content or specialized merchandise
relevant to highly specific topics, or affinities. We aggregate and organize
selected affinity-channels by general subject matter, or vertical categories,
onto networks that share common infrastructure services. Our infrastructure
services are designed to enable entrepreneurs to develop and deliver, as part of
our integrated network, their proprietary content or e-commerce offerings
efficiently and profitably. Our first network, Rivals.com, is focused on sports
and as of February 15, 2000, included more than 500 affinity-channels.
By participating in our networks our affinity-channels, or affiliates, can
benefit from increased traffic, enhanced performance and features, greater
revenues and reduced operating and technology costs. In addition, our
affinity-channel networks enable advertisers to more effectively and efficiently
target specific demographic groups. We help our content and e-commerce
affiliates and our advertisers realize these benefits by providing
infrastructure services that include:
TECHNOLOGY SERVICES. Our goal is to remove all the technical challenges
and costs that our affiliates encounter in operating an affinity-channel to
allow them to focus on producing in-depth, quality content and selling
specialized merchandise. We have built a scalable and reliable technology
platform that includes proprietary, easy to use tools that enable our affiliates
to efficiently create and maintain their affinity-channels.
ADVERTISING AND SPONSORSHIP SERVICES. We have an advertising sales force
that sells advertising on behalf of our affiliates. This provides economies of
scale allowing our sales force to offer advertisers a single efficient channel
to reach large numbers of targeted consumers. By enabling the buyers and sellers
of advertising to transact in this mutually beneficial way, we help our
affiliates receive more advertising revenues, and give advertisers a more
effective forum for advertising.
CONTENT SERVICES. We provide knowledgeable and experienced channel
producers to assist, train and maintain regular contact with our affiliates. We
also provide experts within specific categories who deliver commentary and
breaking news to relevant affinity-channels within the network. In addition, we
provide our affiliates with access to multi-media content and databases of
general content, such as photos and statistics.
E-COMMERCE SERVICES. We match e-commerce affiliates with their related
content affiliates which enables our affinity-channels to deliver integrated
content and e-commerce offerings. We offer our e-commerce affiliates a
comprehensive package of services, including managerial support, marketing
services, customer service, digital photography and transaction processing.
NETWORK DEVELOPMENT SERVICES. Our network development services include
recruiting new content and e-commerce affiliates to further develop our existing
network and assist in launching new networks. We invite affiliates to join our
networks after completing an
3
<PAGE> 5
extensive process to identify the leading content creators and premier retailers
focused on our targeted affinities.
We generate revenues from advertising and e-commerce. We collect all online
advertising and e-commerce revenues generated by our networks and distribute to
each affiliate a share of the revenues related to its affinity-channel. Our
solution provides us with significant leverage and economies of scale. Each new
affiliate brings additional revenue opportunities without significant
incremental cost to us. In addition, our revenue sharing model enables us to
share in the growth and success of our affinity-channels.
All affinity-channels are hosted on our proprietary, content-neutral
technology platform, which currently supports our sports network and is designed
to be replicated to support additional affinity-channel networks. Our
application tier consists of software that manages the website user interface,
runs applications like data feeds, message boards, chat and e-commerce, and
retrieves content from the database tier. Our database tier consists of a main
content database, as well as member registration, message board, player profile/
recruiting and sports statistics databases.
During January 2000, Rivals.com was the fourth stickiest web property on
the Internet with an average of approximately 67 minutes spent on our network
per user per month, and was first in stickiness among websites focused on sports
content, according to data by Nielsen//Net Ratings. In addition, during January
2000, Rivals.com had more than 5.4 million unique users, according to AdForce.
The Rivals.com network includes affinity-channels for fans and athletes that
focus on college, high school and professional sports, a wide range of
participatory and leisure sports and other sports-related topics, such as
recruiting.
Our objective is to be the leading developer and operator of
affinity-channel networks that enable our entrepreneurial affiliates to deliver
the highest level of in-depth content and relevant e-commerce offerings
efficiently and profitably. To achieve this objective, we intend to rapidly
create new networks of affinity-channels and enhance our existing networks and
infrastructure services.
OTHER INFORMATION
We were incorporated in Washington on March 11, 1998 as Rival Media, Inc.
Our principal executive offices are located at 71 Columbia Street, Suite 550,
Seattle, Washington 98104 and our telephone number is (206) 381-6900. Our
website is located at "www.rivals.com." Information contained on our web site
does not constitute a part of this prospectus.
"RivalNetworks.com" and "Rivals.com" are our principal unregistered
trademarks, trade names or service marks. This prospectus contains other names,
trademarks, trade names and service marks which are the properties of their
respective owners.
4
<PAGE> 6
THE OFFERING
Common stock offered by RivalNetworks....... shares
Common stock to be outstanding after the
offering.................................... shares
Use of proceeds............................. For general corporate purposes,
including working capital.
Proposed Nasdaq National Market symbol...... RIVL
Unless otherwise noted, the total number of outstanding shares of our
common stock and the pro forma data in this prospectus assume:
- 1,901,349 shares of our common stock outstanding as of February 15, 2000;
- the automatic conversion of all shares of preferred stock outstanding as
of February 15, 2000 into 21,344,125 shares of common stock upon
completion of the offering; and
- no exercise of the underwriters' over-allotment option.
The above information excludes:
- 7,179,980 shares of common stock issuable upon exercise of options
outstanding as of February 15, 2000, at a weighted average exercise price
of $1.0483 per share;
- 5,847,831 shares of common stock available for issuance under our 1998
Stock Option Plan, as amended and 1999 Network Affiliate Stock Option
Plan;
- 400,000 shares of common stock available for issuance under our 2000
Employee Stock Purchase Plan;
- 516,881 shares of common stock issuable upon exercise of warrants
outstanding as of February 15, 2000 at a weighted average exercise price
of $3.11 per share; and
- 9,128,784 shares of common stock issuable upon exercise of warrants
outstanding as of February 15, 2000 at a weighted average exercise price
of $13.72 per share and which may only be exercised within 180 days of
the date of this offering and after which they expire.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 11, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- ------------
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $ 368 $ 1,168
Cost of revenues.......................................... 396 827
Gross margin.............................................. (28) 341
Loss from operations...................................... (1,264) (21,594)
Net loss.................................................. (1,271) (21,416)
Basic and diluted net loss per share...................... $ (118.13) $ (31.93)
========= ===========
Weighted-average common shares -- basic and diluted....... 10,759 670,653
Unaudited pro forma basic and diluted net loss per
share.................................................. $ (1.69)
===========
Unaudited weighted-average common shares used in computing
pro forma basic and diluted net loss per share......... 12,688,382
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 9,661 $ 9,661 $
Working capital....................................... 11,154 11,154
Total assets.......................................... 26,505 26,505
Convertible preferred stock........................... 33,279 --
Total shareholders' equity............................ 20,574 20,574
</TABLE>
See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
The pro forma amounts above give effect to the automatic conversion of all
shares of preferred stock outstanding as of February 15, 2000 into 21,344,125
shares of common stock upon completion of the offering.
The pro forma as adjusted amounts above give effect to the sale of the
shares of common stock offered hereby at an assumed public offering price
of $ per share (less estimated underwriting discounts and commissions and
estimated offering expenses). See "Use of Proceeds" and "Capitalization."
6
<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below, together with all
of the other information included in this prospectus, before making an
investment decision. If any of the following risks actually occurs, our
business, financial condition or operating results could be seriously affected,
the trading price of our common stock could decline, and you could lose all or
part of your investment.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS AND FUTURE
PROSPECTS DIFFICULT
We were incorporated in March 1998 for the purpose of developing and
operating affinity-channel networks. Because we have a limited operating
history, you should consider and evaluate our business and future prospects in
light of the risks and difficulties frequently encountered by relatively new
companies, particularly companies in the rapidly evolving Internet
infrastructure services industry.
These risks include our ability to do the following:
- maintain existing relationships and develop new relationships with
affinity publishers, e-commerce merchants, third-party media partners and
advertisers;
- ensure that our networks provide compelling in-depth, original content
and e-commerce offerings;
- generate significant revenues from advertising, e-commerce and other
sources;
- maintain and increase the "stickiness" of our networks and achieve
increased levels of online traffic;
- upgrade our infrastructure services on a timely basis;
- successfully operate and manage our networks;
- develop, implement, scale and maintain our e-commerce infrastructure
services; and
- further develop our existing network and launch new networks.
Our future growth will depend substantially on our ability to address these
risks and the other risks described below. We cannot assure you that we will
succeed in addressing any of these risks, and if we fail to address these risks
our business would be adversely affected.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE LOSSES FOR THE FORESEEABLE FUTURE
We have incurred net losses in each quarterly and annual period since we
began operations. We incurred a net loss of approximately $21.4 million for the
fiscal year ended December 31, 1999. As of December 31, 1999, we had an
accumulated deficit of approximately $22.7 million. We expect to incur
increasing net losses and negative cash flows on a quarterly and annual basis
for the foreseeable future. We need to generate significant revenues to achieve
profitability, and we cannot assure you that our revenues will be sufficient to
achieve this goal. Although we have experienced growth in our revenues in recent
periods, we expect these growth rates to decrease in the future, and our revenue
7
<PAGE> 9
growth may not be sustainable at all. We have incurred substantial costs due to
the following:
- acquiring, developing, introducing and enhancing content and e-commerce
offerings on our affinity-channels and through our media partnerships;
- launching and promoting our sports network, vertical categories and
affinity-channels;
- acquiring, developing, implementing and upgrading our infrastructure
services; and
- attracting and retaining qualified personnel.
We intend to continue these efforts and, in addition, to increase spending in
order to:
- promote and drive traffic to our current and future affinity-channels;
- recruit and develop new content and e-commerce affinity-channels in
existing and new vertical categories;
- acquire, develop and launch other networks and vertical categories;
- increase advertising and e-commerce revenues; and
- expand internationally.
If our revenues grow more slowly than we anticipate, or if our operating
expenses exceed our expectations, our business would be adversely affected.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY ADVERSELY AFFECT OUR STOCK PRICE
Some of the factors that could cause our revenues and operating results to
fluctuate include the following:
- the addition or loss of significant content or e-commerce
affinity-channels or advertisers;
- seasonal trends in sports and other affinity-related events;
- the introduction by us or by our competitors of new networks, vertical
categories, affinity-channels, technology, infrastructure services,
content or e-commerce offerings;
- problems with access to our networks or affinity-channels on our networks
or the performance of our technology platform, third-party service
providers or affiliates;
- the amount and timing of our capital expenditures and other costs related
to the expansion of our operations;
- the inability to successfully develop and launch new networks and
vertical categories or derive significant revenues from their operation;
- the portion of our revenue mix derived from advertising, e-commerce and
other sources;
- the inability to acquire sufficient advertising for our networks of
affinity-channels;
- technical difficulties or system downtime affecting the Internet
generally or our networks and affinity-channels in particular; and
- general economic conditions, as well as economic conditions specific to
the Internet, e-commerce or online advertising.
8
<PAGE> 10
In addition, we have granted stock options that vest over time to
affiliates. As these options vest, we will incur non-cash charges for
amortization expense under variable plan accounting. These charges could be
substantial and could cause our results of operations to fluctuate from period
to period.
Many of our operating expenses are planned or committed in advance in
anticipation of future revenues, which are difficult to predict. If our revenues
in a particular quarter are lower than we anticipate, we may not be able to
reduce spending in that quarter. As a result, any shortfall in revenues could
adversely affect our operating results.
Because of these factors, we believe that historical and period-to-period
comparisons of our operating results are not necessarily meaningful and you
should not view them as indicators of our future performance. If our operating
results in any period fall below the expectations of securities and industry
analysts and investors, the market price of our shares would likely decline.
OUR BUSINESS IS SUBJECT TO SEASONAL FLUCTUATIONS
Our current network is focused on sports. Levels of consumer interest in
sporting events are subject to significant fluctuations related to major sports
seasons and events. To date, we have experienced the highest levels of network
traffic in February as a result of U.S. college recruiting activity during that
period. Following that period, we expect to experience significant reductions in
network traffic until the commencement in the fall of the U.S. college and
professional football seasons. We expect that these seasonal changes will
continue for the foreseeable future. Our ability to generate advertising
revenues is dependent upon the level of traffic on our network, among other
things, so we expect this seasonality to cause our revenues and operating
results to fluctuate.
In addition, we intend to expand our business beyond sports by developing
additional networks and new vertical categories within our existing network. The
seasonality of consumer interest in these new content areas may not offset the
fluctuations experienced in our sports network. The addition of networks with
similar seasonal trends could actually exacerbate fluctuations in our revenues
and operating results.
OUR FUTURE SUCCESS DEPENDS ON OUR RELATIONSHIPS WITH OUR AFFINITY-CHANNELS
We depend on our affinity-channels to provide our networks with content and
e-commerce offerings to attract users and advertisers. Accordingly, our future
success depends on our ability to maintain these relationships and to attract
new affinity-channels on a timely basis and on terms favorable to us. Failure to
do so could adversely affect our business.
Our relationships with our existing affinity-channels and our ability to
enter into relationships with new affinity-channels are critical to our ability
to continue to provide original content and e-commerce offerings that are
interesting and engaging to our target audiences. If our content and e-commerce
offerings do not reflect the preferences of our target audiences, our network
traffic could decrease or the demographic characteristics of our audiences could
change. Either of these results could adversely affect our ability to drive
traffic throughout our networks, conduct e-commerce and attract advertisers. Our
ability to
9
<PAGE> 11
maintain our relationships with our existing affinity-channels and enter into
relationships with new affinity-channels depends on a number of factors,
including the following:
- continuing to provide, maintain, develop and upgrade infrastructure
services including our technology, advertising and sponsorship, content,
e-commerce and network development services;
- being responsive to the needs of our affinity-channels, such as by
providing timely and effective support through our channel producers and
support services;
- maintaining the "stickiness" of our networks and the levels of online
traffic;
- generating revenues from advertising, e-commerce and other sources;
- maintaining and upgrading our infrastructure services on a timely basis;
- providing a high level of technical expertise and creativity through our
production and content support staff; and
- acquiring and retaining online rights relating to our affiliates, media
companies and publishers.
Our ability to generate significant revenues from advertising, e-commerce
and other sources depends to a large extent on the depth and quality of the
content and e-commerce offerings of our affinity-channels. Consequently, our
business would be adversely affected by any of the following:
- cancellation or non-renewal of our agreements with our affinity-channels
and media partners or the renewal of these agreements on terms less
favorable to us;
- decreased levels of participation or reduced quality of content or
e-commerce offerings by our affinity-channels and media partners on our
networks, or failure of any of them to perform under their agreements
with us;
- increased costs of acquiring or retaining affinity-channels; and
- increased competition to obtain agreements with affinity-channels.
Competition for the online rights related to affinity-channels is intense.
Competitors may be able to offer our affinity-channels a better online
opportunity. If we lose the services of, or the online rights related to, any
high-profile affinity-channel, publisher or media partner or a significant
number of affinity-channels or publishers, or if we are unable to continue to
attract affinity-channels and publishers, our business would be adversely
affected. We cannot assure you that any affinity-channel will continue its
relationship with us, or that our affinity-channels, publishers and media
partners will not decide to affiliate with a competitor.
WE RELY ON THIRD-PARTIES FOR CONTENT AND TECHNOLOGY SERVICES
We rely on third-parties to provide our affiliates with access to databases
of general content, such as photographs and statistics, which our affiliates use
to supplement their original content. Through strategic relationships with
multi-media companies such as News Corp's News Digital Media, commonly known as
Fox, we provide our affiliates with access to streaming video content. We also
rely on third-parties for the delivery of certain of our services, such as chat,
and for the provision of certain of our e-commerce offerings. If we were to
experience problems with any of our third-party technology, our users'
experience and satisfaction could be reduced and our business could be adversely
affected. In addition, we rely on third parties to provide content through
strategic relationships and other arrangements. If we were to experience
difficulties in maintaining these relationships or
10
<PAGE> 12
developing new relationships on a timely basis and on terms favorable to us, our
business could be adversely affected.
Our primary computer hardware and software is housed with Exodus
Communications, a third-party provider of Internet communications services, at
its Seattle Data Center. Any damage from fire, power loss, communications
failures, vandalism and other malicious acts, human error or similar occurrences
could adversely affect our business.
Our advertisements are served by Adforce Services, Inc., a third-party
provider of Internet advertising management and delivery services. Any failure
on the part of Adforce to properly serve our advertisements would reduce our
revenues, which could adversely affect our business.
COMPETITION IN OUR INDUSTRY IS GROWING, AND WE MAY HAVE DIFFICULTY COMPETING
WITH COMPANIES PROVIDING MEDIA SERVICES, CONTENT OR E-COMMERCE OFFERINGS SIMILAR
TO OURS
Competition for Internet content and service providers is intense. We
compete for affinity-channels, users, e-commerce and advertising revenues and
content with many other entities, such as:
- companies providing Internet infrastructure services;
- entities that provide sports and other affinity-related content and
services (many of which have been established by traditional media
companies through Internet entities targeted to sports and other
enthusiasts generally);
- vendors of sports and other affinity information, merchandise, products
and services distributed through online sites and other means, including
retail stores, mail, facsimile and private online bulletin board
services; and
- television, radio and other established media entities that broadcast
sporting and other affinity-related events.
We have, and might have in the future, business relationships with some of
our competitors, and some of our current partners may become competitors in the
future. Some of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition,
significantly larger customer bases and significantly greater financial,
technical and marketing resources than we do, and may be better able to attract
affinity-channels and other content providers, as well as advertisers, users and
consumers. These competitors may be able to respond more quickly than we can to
new or emerging technologies and changes in online user preferences and to
devote greater resources than we can to developing and operating networks of
affinity-channels. These competitors may develop infrastructure services,
networks of affinity-channels and/or content and e-commerce offerings that are
comparable or superior to ours.
Barriers to entry are minimal, and current and potential competitors could
replicate our infrastructure services, acquire or develop affinity-channels and
launch new vertical categories or networks at a relatively low cost. We expect
that the number of our direct and indirect competitors will increase in the
future, and this might adversely affect our business, operating results and
financial condition. Increased competition could result in lower revenues and
loss of affinity-channels, any of which could materially and adversely affect
our business, operating results and financial condition.
11
<PAGE> 13
OUR BUSINESS MODEL IS NEW AND UNPROVEN
Our business model is based on the aggregation and organization of selected
affinity-channels into networks that share common infrastructure services. This
represents an unproven business model, and we cannot assure you that we will
succeed in building a profitable business.
We depend on advertising revenues for a substantial portion of our
revenues. Our ability to generate advertising revenues is dependent on, among
other things, the levels of traffic and stickiness on our networks. If we are
unable to attract significant traffic to our networks and affinity-channels, or
if our stickiness is low, our ability to generate advertising revenues and our
business will be adversely affected.
WE DEPEND ON ADVERTISING AND SPONSORSHIP CONTRACTS
We currently depend on advertising and sponsorship contracts for
substantially all of our revenues, and we expect this dependency to continue for
the foreseeable future. Currently, a small number of advertisers accounts for
substantially all of our advertising revenues. In 1999, three advertisers each
accounted for more than 10% of our advertising revenues. Our failure to sell a
sufficient number of advertisements and sponsorships on, or to attract
advertisers or sponsors to, our networks and affinity-channels would adversely
affect our business. Most of our advertising and sponsorship contracts are, and
we expect these contracts to continue to be, short term or subject to
termination at any time with little or no notice. The cancellation of even a
small number of advertising or sponsorship contracts could have an adverse
effect on our business.
We promote our networks and services by reference to surveys and reports of
third-party ratings agencies such as Nielsen//NetRatings. If our ratings by
these agencies were to be downgraded, or if these agencies changed their rating
methodologies in a way that made our networks and services appear less
attractive to advertisers or sponsors, our revenues could decrease, which would
have an adverse effect on our business. In addition, any such occurrences could
make it more difficult for us to recruit affinity-channels, media partners and
publishers.
WE INTEND TO DEVELOP ADDITIONAL NETWORKS AND WE MAY BE UNSUCCESSFUL IN DOING
SO
We intend to expand our business by developing additional networks. To
date, we have focused exclusively on sports, and we have no experience
developing networks in any other areas. In order to expand into new areas, we
will have to identify and develop relationships with related content providers
and/or media partners. We will also have to attract, hire and retain additional
personnel with expertise in the new content areas. We cannot assure you that we
will be able to develop the necessary relationships and hire the necessary
personnel. We also expect to incur significant expenses in connection with our
efforts to expand into new areas. Furthermore, our expansion efforts will
require significant management attention, which may strain our resources. If we
are unable to develop the necessary relationships and hire the necessary
personnel, or if we incur significant expenses that are not offset by revenues
generated by the new networks, or if development of the new networks places a
strain on our management resources, our business could be adversely affected.
12
<PAGE> 14
OUR BUSINESS MODEL DEPENDS ON OUR ABILITY TO SUCCESSFULLY DEVELOP AND OPERATE
OUR NETWORKS AND DEPLOY NEW OFFERINGS AND TECHNOLOGY
Our success will depend on our ability to successfully develop and operate
our networks. We have experienced reliability problems with our databases and
other systems in the past. Although we have taken steps to increase the
reliability of our systems, we cannot assure you that we will not experience
reliability problems in the future. Any reliability problems that adversely
affect our ability to operate our networks, add new affinity-channels to our
networks or handle the same or increased levels of traffic on our networks would
be likely to adversely affect our business.
The Internet services industry is characterized by rapid technological
change, changes in user and customer preferences, frequent new content and
product introductions and enhancements, and emerging industry standards. The
introduction of new technologies and the emergence of new industry standards and
practices could render our existing infrastructure services less attractive and
unmarketable. In addition, if we are unable to integrate new technologies and
standards effectively, or introduce new content and e-commerce offerings, our
ability to remain competitive will be adversely affected. Our existing network
is based on the aggregation and organization of content and e-commerce
affinity-channels that share infrastructure services. Our success will depend on
our ability to add new affinity-channels and substantially increase network
traffic, which will place increased demands on our databases and other
infrastructure services. If we are unable to expand the capacity of our
databases and other systems to accommodate increased affinity-channels and
network traffic, content, network performance and our users' experience will be
adversely affected, which would adversely affect our business.
Our future success will also depend in part on other factors, including our
ability to do the following:
- enhance the existing content and e-commerce offerings of our
affinity-channels;
- enable our affinity-channels to develop new content and e-commerce
offerings that address the needs of our prospective users;
- respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis; and
- develop, enhance and improve the responsiveness, functionality and
features of our infrastructure services, networks and affinity-channels.
If we are unable to integrate and capitalize on new technologies and
standards effectively, our business could be adversely affected.
OUR SUCCESS WILL DEPEND ON OUR ABILITY TO DEVELOP A SCALABLE E-COMMERCE
PLATFORM AND GENERATE SIGNIFICANT E-COMMERCE REVENUES
The e-commerce offerings of our affinity-channels to date have been limited
to a small number of affiliates on our network and our relationship with a
third-party e-commerce provider. We are developing e-commerce affinity-channels
that will focus on selling products to specific affinity groups. We cannot
assure you that we will be successful in these efforts. If we are unable to
successfully develop these affinity-channels, or if we are unable to generate
significant e-commerce revenues, our growth will be limited and our business
will be adversely affected. To generate significant e-commerce revenues, we will
have to identify and establish relationships with retailers in the specific
markets for which we have affinity-channels. We will also have to further
develop our technology and infrastructure services to
13
<PAGE> 15
support e-commerce on our existing and future networks. If we fail to do any of
these, our business will be adversely affected.
OUR GROWTH MAY STRAIN OUR RESOURCES
Our business has grown rapidly over the last year. The number of our
employees has grown from approximately 5 employees at December 31, 1998 to 137
employees at February 15, 2000. We have significantly expanded the scope of our
operating and financial systems in order to implement a system of internal
controls. Our rate of growth places a significant strain on our resources for a
number of reasons, including the following:
- the need for continued development of our financial and information
management systems;
- the need to manage relationships with numerous affinity-channels,
advertisers, media partners and other third parties;
- the difficulties in hiring and retaining skilled management, technical
and other personnel necessary to support and manage our business; and
- the need to train and manage our growing employee base.
The addition of new infrastructure services, networks, vertical categories
and affinity-channels and the attention they demand may also strain our
management resources. We cannot assure you that we will adequately address these
risks and, if we do not, our business could be adversely affected.
THE LOSS OF KEY PERSONNEL, OR THE INABILITY TO ATTRACT AND RETAIN ADDITIONAL
QUALIFIED PERSONNEL, COULD ADVERSELY AFFECT OUR BUSINESS
Our future success depends, in significant part, upon the continued
services of a relatively small number of key senior management and technical
personnel, many of whom have been with us for fewer than 12 months. In
particular, the continued services of James C. Heckman, Jr., Chairman of the
Board and Chief Executive Officer, and William C. Sornsin, Jr., Senior Vice
President and Chief Technology Officer, are important to our success. We
currently have key-man life insurance coverage only for Mr. Heckman, and the
amount of this insurance may be inadequate to compensate us for his loss. A
number of our senior personnel have been hired only recently. Our success will
depend on the ability of these new executives to work well with our current
management personnel and other employees. We have entered into employment
agreements with certain key officers. However, we cannot assure you that we will
be able to retain these or other key employees or that we will be successful in
attracting, assimilating and retaining other personnel in the future. In
particular, we need to hire qualified marketing, advertising, sales and
merchandise personnel as well as engineers to continue the development of our
infrastructure services and to support our affinity-channels. These personnel
are in high demand. The loss of any of our key senior management or technical
personnel or the inability to attract and retain additional qualified personnel
could adversely affect our business.
WE MAY ACQUIRE OTHER BUSINESSES AND WE MAY HAVE DIFFICULTY INTEGRATING THESE
BUSINESSES
We have in the past, and may in the future, broaden the scope of our
business by acquiring businesses that complement our current infrastructure
services, increase our market share or otherwise offer growth opportunities.
However, our experience in acquiring and assimilating other companies is
limited. We may not be successful in overcoming
14
<PAGE> 16
problems encountered in connection with such acquisitions, and our inability to
do so could adversely affect our business. Future acquisitions would expose us
to increased risks, including risks associated with the following:
- assimilating new operations, technologies, products, content,
affinity-channels and personnel;
- diverting resources from our existing infrastructure services;
- diverting management attention from other business concerns;
- entering into new markets in which we have limited or no experience;
- the inability to generate revenues from new businesses sufficient to
offset associated acquisition or operating costs;
- maintaining uniform standards, controls, procedures and policies; and
- the impairment of relationships with employees, affinity-channels,
publishers, media partners and customers as a result of the integration
of new businesses.
Failure to integrate successfully any business, product, content,
technology or personnel could adversely affect our business.
Because business acquisitions typically involve significant amounts of
intangible assets, our operating results may be adversely affected by
amortization of intangible assets acquired. In addition, in the event of future
acquisitions or business combinations, we could do any of the following:
- issue equity securities that would dilute current shareholders'
percentage ownership in us;
- use cash or incur substantial debt; or
- assume contingent liabilities.
WE PLAN TO EXPAND INTO INTERNATIONAL MARKETS, WHICH INVOLVES ADDITIONAL RISKS
As part of our business strategy, we plan to expand into international
markets, which involves additional risks. In marketing our infrastructure
services and business model internationally, we will face new competitors. In
addition, expansion into international markets will require us to hire and
retain additional personnel to execute our international strategy and may
require us to create localized versions of our technology platform and other
services on a cost effective basis. We cannot assure you that we will be
successful in attracting, hiring or retaining the necessary personnel, creating
localized versions of our technology platform and other service applications, or
marketing or distributing our infrastructure services and business model abroad.
Even if we are successful, our international revenues may not offset the expense
of establishing and maintaining international operations. To date, we have only
limited experience in marketing and distributing our infrastructure services and
business model internationally. Additional difficulties and risks inherent in
doing business internationally include the following:
- compliance with a variety of local regulatory requirements and changes in
those requirements;
- export controls relating to technology, tariffs and other trade barriers;
- difficulties in staffing and managing foreign operations;
15
<PAGE> 17
- potentially weaker protection of intellectual property rights in foreign
countries, including the possibility that trademark registrations or
patents will not be available to protect our intellectual property rights
in those countries;
- political instability in foreign countries;
- fluctuations in foreign currency exchange rates;
- longer payment cycles and greater difficulty in collecting accounts
receivable;
- seasonality in sports and other affinities outside of the United States;
and
- potentially adverse tax consequences.
ANY INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD ADVERSELY
AFFECT OUR BUSINESS
Proprietary rights are important to our success and our competitive
position. To protect our proprietary rights, we rely generally on copyright,
trademark and trade secret laws, confidentiality agreements with third parties,
proprietary information and assignment of invention agreements and employment or
consulting agreements with our employees and consultants, and license agreements
with our affiliates. Despite such protection, a third party could, without
authorization, copy or otherwise misappropriate our technology or information
from our systems, including our databases. Our agreements with employees,
consultants and others who participate in development activities could be
breached. We may not have adequate remedies for any breach, and our trade
secrets may otherwise become known or independently developed by competitors. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States, and effective
copyright, trademark and trade secret protection may not be available in those
jurisdictions.
We have applied to register several trademarks in the United States and
will seek to register additional trademarks and file patent applications as
appropriate. We cannot assure you that we will be successful in obtaining any of
the patents or trademark registrations for which we apply. Even if these
applications mature into patents or registered trademarks, they may be
successfully challenged by others or invalidated. If the applications are denied
because third parties own the trademarks or similar technology, or if our rights
to use the trademarks or patented subject matter are challenged by owners of
similar rights, the use of the trademarks or patented subject matter may be
restricted unless we enter into arrangements with the third parties, which may
be unavailable on commercially reasonable terms.
We also use content from affiliates, publishers, media partners, sports
writers, athletes, sports personalities and other third parties, and it is
possible that we could become subject to infringement actions based upon our use
of this content. We generally obtain representations as to the origin and
ownership of this content; however, this may not adequately protect us. Any of
these claims, even if they were without merit, could subject us to costly
litigation and the diversion of our technical and management personnel.
There has been substantial litigation in the computer and online industries
regarding intellectual property assets. Third parties may claim infringement by
us with respect to current and future content, products, trademarks or other
proprietary rights. Any claims, even if they were without merit, could be
time-consuming, result in costly litigation, divert management's attention,
cause release delays, require us to redesign our networks or require us to enter
into royalty or licensing agreements, any of which could harm our
16
<PAGE> 18
business. These royalty and licensing agreements, if required, may not be
available on commercially reasonable terms, if at all.
WE FACE RISKS ASSOCIATED WITH MAINTAINING OR ACQUIRING NEW DOMAIN NAMES
We currently hold various Internet addresses relating to our assets and
brands, including rivalnetworks.com and rivals.com. The acquisition and
maintenance of Internet addresses generally is regulated by governmental
agencies and their designees. The regulation of Internet addresses in the United
States and in foreign countries and the application of trademark laws to
Internet addresses are uncertain and subject to change. As a result, we may not
be able to acquire or maintain appropriate Internet addresses in all countries
where we may conduct business in a cost-effective manner, or at all. In
addition, we may not be able to prevent third parties from acquiring Internet
addresses that are similar to our addresses, which could adversely affect our
business.
OUR SPORTS-RELATED BUSINESS MAY BE RESTRICTED BY RIGHTS OF SPORTS LEAGUES AND
PLAYERS' ASSOCIATIONS
The operation of our sports-related business and our ability to expand into
new sports-related areas may be restricted by rights asserted by sports leagues
and players' associations. Sports leagues, such as the National Football League,
typically own league and team trademarks, and we may be required to obtain a
license to any of their trademarks that we use. In addition, the leagues also
own other rights, such as the rights to display highlights of games, that we may
wish to use in our business in the future. License agreements with the leagues
for trademarks or other rights, if required, may not be available on terms
acceptable to us or at all, and failure to obtain these license agreements could
adversely affect our business.
Players' associations have certain rights to license athlete names,
likenesses and other attributes for groups of athletes, referred to as group
licensing rights. We may be required to obtain licenses from players'
associations for these group licensing rights in order to conduct certain
aspects of our business. If licenses are not available or are not provided on
terms acceptable to us and we are required to modify our properties, our
business could be adversely affected.
POTENTIAL YEAR 2000 PROBLEMS RELATED TO OUR BUSINESS SYSTEMS COULD ADVERSELY
AFFECT OUR BUSINESS
The risks posed by year 2000 issues could adversely affect our business in
a number of significant ways. Our information technology systems could be
substantially impaired or cease to operate due to year 2000 problems.
Additionally, the online medium could face serious disruptions arising from the
year 2000 problem. We also rely on information technology supplied by third
parties and other third party services which are likewise dependent on
information technology systems and on their own third party vendors' systems.
Year 2000 problems experienced by us or any such third parties could adversely
affect our business.
Although we have not experienced any year 2000 problems, our experience in
this regard is extremely limited. We currently do not have a formal year 2000
contingency plan. We cannot assure you that we will not experience year 2000
problems, either based on our own systems or based on the systems of entities
with which we do business or may acquire. If we were to experience year 2000
problems, our business could be adversely affected.
17
<PAGE> 19
RISKS RELATED TO OUR INDUSTRY
MALFUNCTIONS OF THIRD-PARTY SYSTEMS AND THE STRAIN ON OUR OWN SYSTEMS DUE TO
INCREASED TRAFFIC COULD ADVERSELY AFFECT OUR BUSINESS
In the past, our affinity-channels have experienced significant increases
in traffic as a result of certain sports-related events. To the extent the
number of users increases, our technology platform and affinity-channels must
accommodate a higher volume of traffic. Our technology platform and
affinity-channels have in the past experienced, and may in the future
experience, slower response times or other problems for a variety of reasons.
System interruptions or increases in response time could result in a loss of
potential or existing users or advertisers and, if sustained or repeated, could
reduce the appeal of our networks to users, content and e-commerce providers,
media partners, publishers and advertisers. In addition, our users depend on
Internet service providers and other online service providers for access to our
affinity-channels. These providers have experienced significant outages in the
past, particularly as a result of increased traffic, and could experience
outages, delays and other difficulties due to system failures unrelated to our
systems in the future. These types of occurrences could cause users to perceive
that our networks and affinity-channels do not function properly and could
therefore adversely affect our ability to attract and retain users, affiliates,
media partners, publishers and advertisers.
ANY FAILURE OF OUR NETWORK INFRASTRUCTURE COULD DECREASE THE AVAILABILITY OF
OUR AFFINITY-CHANNELS
The performance, reliability and availability of our affinity-channel
networks are critical to our reputation and ability to attract and retain users,
affiliates, media partners, publishers and advertisers. We cannot guarantee
that:
- we will have uninterrupted access to the Internet;
- users will be able to reach our affinity-channels; or
- communications on our networks will be secure.
Any disruption in Internet access provided by third parties or any failure
of third parties to handle higher volumes of user traffic to our networks and
affinity-channels could adversely affect our business. We do not currently have
completely redundant systems or a formal disaster recovery plan.
Despite precautions taken by us and by the companies that now or in the
future may host our affinity-channel networks, our system is susceptible to
natural and man-made disasters such as earthquakes, fires, floods, power loss
and sabotage. Our networks are also vulnerable to disruptions from computer
viruses and attempts by hackers to penetrate our network security. In addition,
there have been several recent incidents in which individuals have intentionally
caused service disruptions of major websites. If these outages, delays or
service disruptions occur in the future, traffic to our affinity-channels could
grow more slowly than anticipated or decline, and our affinity-channels may lose
users and revenues.
Services based on sophisticated software and computer systems often
encounter development delays and the underlying software may contain undetected
errors that could cause system failures when introduced. Any system error or
failure that causes interruption in availability of content or e-commerce
offerings, or an increase in response time, could
18
<PAGE> 20
result in a loss of potential or existing advertisers, affiliates, media
partners, publishers and users and, if sustained or repeated, could reduce the
attractiveness of our content services to such entities or individuals.
Expanding our infrastructure services could require substantial financial and
operational resources in 2000 and future periods.
OUR REVENUES DEPEND ON ADVERTISERS AND SPONSORS ADOPTING THE INTERNET MEDIA AS
AN ATTRACTIVE PLATFORM
The Internet has not been available for a sufficient period of time to
gauge its effectiveness as an advertising platform when compared with
traditional media. There is intense competition among sellers of advertising
space on online media, making it difficult to project pricing models or
anticipate whether we or our affiliates will be successful in selling
advertising space. Market acceptance of the Internet as an advertising platform
is highly uncertain for a number of reasons, including the following:
- lack of widely accepted standards for measuring Internet traffic;
- concerns about privacy and security among users;
- the limited acceptance to date of the Internet for widespread commercial
use; and
- inadequate development of network infrastructure and enabling
technologies.
TRACKING AND MEASUREMENT STANDARDS FOR ADVERTISING ARE EVOLVING AND CREATE
UNCERTAINTY ABOUT THE VIABILITY OF ADVERTISING ON THE INTERNET
It is important to our advertisers that we accurately measure the size and
demographics of our user base and the delivery of advertisements on our
affinity-channels. There are currently no widely accepted standards to measure
the effectiveness of the Internet as a platform for attracting audiences or
targeting particular demographic groups. If measurement standards do not
develop, we may be unable to retain current advertisers or attract new
advertisers. We depend on third parties to provide these measurement services.
If they are unable to provide these services in the future, we would be required
to perform them ourselves or obtain them from another provider. This could cause
us to incur additional costs or cause interruptions in our business while we are
replacing these services. Companies may choose not to advertise on our
affinity-channels or may pay less for advertising if they do not perceive our
measurements or measurements made by third parties to be reliable.
OUR BUSINESS DEPENDS ON THE DEVELOPMENT AND GROWTH OF E-COMMERCE ON THE
INTERNET
The use of the Internet for retail transactions is a recent development,
and the continued demand and growth of a market for services and products via
online media is uncertain. The Internet may ultimately prove not to be a viable
commercial marketplace for a number of reasons, including the following:
- unwillingness of consumers to shift their purchasing from traditional
retailers to Internet retailers;
- lack of acceptable transaction and data security;
- concern for privacy of personal information;
- limitations on access and ease of use;
- congestion leading to delayed or extended response times;
19
<PAGE> 21
- inadequate development of Internet infrastructure to keep pace with
increased levels of use; and
- increased government regulations and taxation.
ONLINE SECURITY CONCERNS COULD HINDER E-COMMERCE
The need to securely transmit confidential information over the Internet
has been a significant barrier to e-commerce and electronic communications. Any
well-publicized compromise of security could deter people from using the
Internet to conduct transactions that involve transmitting confidential
information, such as credit card numbers. To the extent that our activities or
those of third-party contractors involve the storage and transmission of
proprietary or personal information, security breaches could damage our
reputation and expose us to a risk of loss or litigation and possible liability.
Our business could be adversely affected if our security measures do not prevent
security breaches, and we cannot assure you that we can prevent any security
breaches.
In addition, we could be liable for the misuse of personal information. The
Federal Trade Commission, the European Union and certain state and local
authorities have been investigating certain Internet companies regarding their
use of personal information. Recently, a number of highly publicized actions
have been brought against Internet companies alleging invasion of privacy and
other offenses. The privacy and other concerns that prompted these actions could
result in heightened levels of scrutiny of companies that, like us, have access
to users' personal information. We could incur additional expenses if new
regulations regarding the use of personal information are introduced or if these
authorities choose to investigate our privacy practices. Responding to new
regulations or governmental investigations could be expensive and time-consuming
and could divert management attention, any of which could have an adverse effect
on our business.
WE COULD BE SUBJECT TO LIABILITY FOR ONLINE CONTENT ON OUR NETWORKS
The nature and breadth of the content on our networks could expose us to
liability in various areas, including claims relating to:
- defamation, libel, negligence, personal injury and other legal theories
based on the nature and content of the material appearing on our
networks;
- copyright or trademark infringement or other wrongful acts due to the
actions of third parties; and
- use of third-party content made available through our affinity-channels
or through content and material posted by our media partners and
participants on online pages or in chat rooms and bulletin boards, such
as information provided by our affiliates, publishers, media partners and
users.
Because of the large amount of content that is published on our
affinity-channels on a daily basis, it is difficult to verify the originality or
accuracy of this information. Any claim would likely result in our incurring
substantial costs and would also be a drain on our financial and other
resources. In addition, such claims could disrupt our relationships with our
affiliates, publishers, advertisers, media partners and other third parties.
This could reduce traffic on our affinity-channel networks, negatively affect
our user base, or reduce our revenues from advertising and e-commerce.
20
<PAGE> 22
IMPOSITION OF GOVERNMENT REGULATIONS AND OTHER LEGAL UNCERTAINTIES ASSOCIATED
WITH ONLINE MEDIA COULD ADVERSELY AFFECT OUR BUSINESS
The laws governing online media remain largely unsettled, even in areas
where there have been some legislative action. It may take years to determine
whether and how existing laws such as those governing intellectual property,
privacy and libel apply to online media generally. Such legislation could hamper
the growth in use of online media generally and decrease the acceptance of
online media as a communications and commercial medium, which could have an
adverse affect on our business.
Because of the Internet's popularity and increasing use, new laws and
regulations directed specifically at e-commerce may be adopted. These laws and
regulations may cover issues such as the collection and use of data from
affinity-channel visitors, including the placing of small information files, or
"cookies," on a user's hard drive to gather information; related privacy issues;
pricing; taxation; telecommunications over the Internet; content; copyrights;
distribution; and quality of products and services.
We cannot assure you that violations of local or other laws will not be
alleged or charged by local, state or foreign governments, that we might not
unintentionally violate such laws or that such laws will not be modified, or new
laws enacted, in the future. In addition, the growing popularity and use of
online media has burdened the existing telecommunications infrastructures, and
many areas with high traffic have begun to experience interruptions in phone
service. As a result, certain local telephone carriers have petitioned
governmental agencies to regulate Internet service providers and online service
providers in a manner similar to long-distance telephone carriers and to impose
access fees on Internet service providers and online service providers. If any
of these petitions or the relief that they seek is granted, the costs of
communicating via online media could increase substantially, potentially
adversely affecting the growth in the use of online media. Any of these
developments could have an adverse effect on our business.
IMPOSITION OF SALES AND OTHER TAXES ON E-COMMERCE TRANSACTIONS MAY HINDER
E-COMMERCE
We generally do not collect sales or other taxes on goods sold on our
e-commerce affinity-channels except in states where we have a physical or
limited presence. However, one or more states may seek to impose sales tax
collection obligations on companies like ours, which engage in or facilitate
online commerce. A number of proposals have been made at the state and local
level that would impose additional taxes on the sale of goods and services
online. Such proposals, if adopted, could substantially impair the growth of
e-commerce and increase our costs and could adversely affect our opportunity to
derive financial benefits from e-commerce. In particular, states may impose
discriminatory, multiple or special taxes on the Internet if the current
moratorium on the application of these taxes, due to end on October 21, 2001, is
not extended. If the moratorium ends, federal taxes may also be imposed on
e-commerce. If any state, federal, or foreign jurisdiction were to successfully
assert that we should collect sales or other taxes on transactions effected on
our networks, our business could be adversely affected.
21
<PAGE> 23
RISKS ASSOCIATED WITH OUR OFFERING
BECAUSE OUR SHARES HAVE NOT BEEN PUBLICLY TRADED BEFORE THIS OFFERING, THE
INITIAL PUBLIC OFFERING PRICE MAY NOT ACCURATELY REFLECT THE TRADING PRICE OF
OUR STOCK
There has not previously been a public market for our common stock. We
cannot predict the extent to which investor interest will lead to the
development of a sustained trading market or how liquid that market, if
developed, might become. The initial public offering price for the shares will
be determined by negotiations among us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market.
OUR STOCK PRICE MAY BE VOLATILE
The stock market has experienced significant price and volume fluctuations,
and the market prices of securities of technology companies, particularly
Internet-related companies, have been highly volatile. These fluctuations are
often unrelated to the operating performance of particular companies. Our stock
price may also be affected by the stock trading prices of other Internet
companies. Investors may not be able to resell their shares at or above the
initial public offering price. Any shortfall in revenue or operating results or
other inability to meet the expectations of securities and industry analysts
could adversely affect our stock price.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has been instituted
against that company. Any such litigation, even if without merit, could result
in substantial costs and a diversion of management attention and resources.
WE MAY NEED ADDITIONAL FINANCING TO ACHIEVE OUR BUSINESS OBJECTIVES OR ACHIEVE
PROFITABILITY
We currently anticipate that our available cash resources, combined with
the net proceeds from this offering, will be sufficient to meet our working
capital and capital expenditure needs for at least the 12 months following the
date of this prospectus. Nevertheless, we may need to raise additional funds to
maintain and develop our business and position in the marketplace. We cannot
assure you that additional financing will be available on terms favorable to us,
or at all. If we cannot obtain needed funds on acceptable terms, or at all, we
would be limited in our ability to do the following:
- fund more rapid expansion;
- develop or enhance the content or e-commerce offerings of our affiliates;
- further develop or upgrade our infrastructure services;
- further develop our existing network of affinity-channels or launch new
networks or vertical categories;
- respond to competitive pressures; or
- acquire complementary products, businesses or technologies.
Even if we succeed in raising additional funding, it may have a dilutive
effect on the percentage ownership of our then-current shareholders because we
may need to raise these
22
<PAGE> 24
funds by issuing equity or convertible debt securities. Also, any new securities
may have rights and privileges senior to the rights of the common stock.
OUR OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS CAN EXERT CONTROL OVER
MATTERS REQUIRING SHAREHOLDER APPROVAL
After this offering, executive officers, directors and holders of 5% or
more of our outstanding common stock will, in the aggregate, beneficially own
approximately % of our outstanding common stock. These shareholders will be
able to significantly influence all matters requiring approval by our
shareholders, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership may also
have the effect of delaying, deterring or preventing a change in control and may
make some transactions more difficult or impossible without the support of these
shareholders.
PROVISIONS IN OUR CHARTER DOCUMENTS AND WASHINGTON LAW MAY DELAY OR PREVENT AN
ACQUISITION OF OUR COMPANY
Provisions of our amended and restated articles of incorporation and
bylaws, as well as provisions of Washington law, may make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
shareholders. See "Description of Capital Stock" for a discussion of such
anti-takeover provisions.
THE NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE OPEN MARKET IN THE
NEAR FUTURE COULD DEPRESS OUR STOCK PRICE
If our shareholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market following this offering, the market price of our common stock
could fall. These sales also might make it more difficult for us to sell equity
securities in the future at a time and price that we deem appropriate. After
this offering, we will have outstanding shares of common stock. In
addition, after this offering we will have outstanding 7,663,451 warrants that
have to be exercised within 180 days of the date of this prospectus or they will
expire. Of the shares outstanding after this offering, the shares
being offered hereby are freely tradable. This leaves 23,050,196 shares eligible
for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES DATE
- ---------- ----
<C> <S>
0 The date of this prospectus
0 90 days after the date of this prospectus
19,999,853 180 days after the date of this prospectus
3,050,343 At various times after 180 days from the date of this
prospectus
</TABLE>
Our directors, officers and shareholders and substantially all of our
optionees have agreed that they will not sell, directly or indirectly, any
common stock without the prior written consent of Goldman, Sachs & Co. for a
period of 180 days from the date of this prospectus.
Upon the closing of this offering, we intend to file a registration
statement to register for resale the 15,259,160 shares of common stock reserved
for issuance under our stock option plans and employee stock purchase plan. We
expect this registration to become effective immediately upon filing. As of
February 15, 2000, options to purchase a total of 7,929,980 shares of common
stock were outstanding, of which 1,217,845 shares will be immediately
23
<PAGE> 25
exercisable upon the closing of this offering. These stock options generally
have exercise prices significantly below the assumed initial public offering of
our common stock. The possible sale of a significant number of these shares may
cause the price of our common stock to fall.
Certain shareholders, representing approximately 18,344,125 shares of
common stock, have the right, subject to certain conditions, to include their
shares in certain registration statements relating to our securities. By
exercising their registration rights and causing a large number of shares to be
registered and sold in the public market, these holders may cause the price of
our common stock to fall. In addition, any demand to include such shares in our
registration statements could have an adverse effect on our ability to raise
needed capital.
AS A NEW INVESTOR, YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is expected to be substantially higher
than the net tangible book value per share of the outstanding common stock
immediately after the offering. Investors purchasing common stock in this
offering will therefore incur immediate dilution of approximately $ in net
tangible book value per share, assuming an initial public offering price of
$ per share. To the extent that outstanding options and warrants to purchase
common stock are exercised, there will be further dilution. See "Dilution."
24
<PAGE> 26
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled "Prospectus Summary, "Risk
Factors," Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," contains forward-looking statements.
These statements relate to future events or our future financial performance and
involve known and unknown risks, uncertainties and other factors that may cause
our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by the
forward-looking statements. These risks and other factors include those listed
under "Risk Factors" and elsewhere in this prospectus. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions. In evaluating
these statements, you should specifically consider various factors, including
the risks outlined under "Risk Factors."
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these
forward-looking statements.
USE OF PROCEEDS
We expect to receive net proceeds from the sale of the shares of common
stock in this offering of approximately $ million (approximately $
million if the underwriters' over-allotment option is exercised in full), at an
assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses.
We intend to use the net proceeds from this offering primarily for general
corporate purposes, including working capital. The amounts that we actually
expend will vary significantly, depending on a number of factors, including
future revenue growth, if any, and the amount of cash we generate from
operations. As a result, we will retain broad discretion in the allocation of
the net proceeds of this offering. In addition, we may use a portion of the net
proceeds to acquire complementary products, technologies or businesses; however,
we currently have no commitments or agreements and are not involved in any
negotiations with respect to any such transactions. Pending use of the net
proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. In addition, our existing bank line of credit prohibits the
payment of dividends without our bank's consent.
25
<PAGE> 27
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the automatic conversion of all
shares of preferred stock outstanding as of December 31, 1999 into
18,344,125 shares of common stock upon completion of this offering; and
- on a pro forma as adjusted basis to give effect to the sale of the shares
of common stock offered hereby at an assumed initial offering price of
$ per share (less estimated underwriting discounts and commissions
and estimated offering expenses) and the application of the net proceeds
from the offering.
You should read this table in conjunction with our Financial Statements and
the related Notes, Selected Financial Data and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Shareholders' equity:
Convertible preferred stock: Series A, B, C and D
Preferred stock, no par value: 20,608,946 shares
authorized (actual and pro forma);
shares authorized (pro forma as adjusted);
18,344,125 shares outstanding (actual); no
shares outstanding (pro forma and pro forma as
adjusted)...................................... $ 33,279 $ -- $ --
Common stock, no par value: 40,000,000 shares
authorized (actual and pro forma);
shares authorized (pro forma as adjusted);
1,901,349 shares outstanding (actual);
20,245,474 shares outstanding (pro forma);
shares outstanding (pro forma as
adjusted)...................................... 20,359 53,638
Shareholder notes receivable........................ (298) (298)
Unearned compensation -- employee stock options..... (3,957) (3,957)
Deferred expense -- affiliate stock options......... (6,122) (6,122)
Accumulated deficit................................. (22,687) (22,687)
-------- -------- -------
Total shareholders' equity................... 20,574 20,574
-------- -------- -------
Total capitalization......................... $ 20,574 $ 20,574 $
======== ======== =======
</TABLE>
The data in the table above excludes:
- 7,302,213 shares of common stock issuable upon exercise of options
outstanding as of December 31, 1999, at a weighted average exercise price
of $1.0346 per share;
- 247,831 shares of common stock available for issuance under our 1998
Stock Option Plan and 1999 Network Affiliates Stock Option Plan as of
December 31, 1999; on March 8, 2000, our board of directors approved an
increase of 5,600,000 shares of
26
<PAGE> 28
common stock available for issuance under our 1998 Stock Option Plan and
1999 Network Affiliates Stock Option Plan and approved a 2000 Employee
Stock Purchase Plan pursuant to which 400,000 shares of common stock are
available for issuance. See "Management -- Stock Plans.";
- 6,378,212 shares of common stock issuable upon exercise of warrants
outstanding as of December 31, 1999 at a weighted average exercise price
of $13.26 per share; and
- 7,663,451 shares of common stock issuable upon exercise of warrants
outstanding as of December 31, 1999 at a weighted average exercise price
of $14.15 per share and which may only be exercised within 180 days of
the date of this prospectus, after which they expire.
For additional information regarding these shares, see "Management -- Stock
Plans," "Certain Transactions," "Description of Capital Stock" and Note of
Notes to Financial Statements.
27
<PAGE> 29
DILUTION
(IN THOUSANDS, EXCEPT SHARE DATA)
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
common stock after this offering. Our pro forma net tangible book value as of
December 31, 1999 was $22,203,767 or approximately $1.21 per share of common
stock. Pro forma net tangible book value per share represents the amount of our
total tangible assets less total liabilities, divided by the pro forma number of
shares of common stock outstanding. Dilution in net tangible book value per
share represents the difference between the amount per share paid by purchasers
of shares of common stock in this offering and the net tangible book value per
share of common stock immediately after the completion of this offering. After
giving effect to the sale of the shares of common stock in this offering at an
assumed public offering price of $ per share (less estimated underwriting
discounts and commissions and estimated offering expenses), our pro forma as
adjusted net tangible book value as of December 31, 1999 would have been
$ or approximately $ per share. This represents an immediate
increase in net tangible book value of $ per share to existing shareholders
and an immediate dilution in net tangible book value of $ per share to new
investors, or approximately % of the initial public offering price of
$ per share. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of December
31, 1999............................................... $
Increase per share attributable to new investors.......... $
------
Pro forma as adjusted net tangible book value per share
after this offering....................................... $
======
Dilution per share to new investors......................... $
======
</TABLE>
The following table shows, on a pro forma basis as of December 31, 1999,
and after giving effect to this offering, the differences between existing
holders of common stock and the new investors with respect to the number of
shares of common stock purchased from us, the total consideration paid to us and
the average price per share paid (based on an assumed initial public offering
price of $ per share, before deducting estimated underwriting discounts and
commissions and estimated offering expenses).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENTAGE SHARE
---------- ------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders..... 24,692,167 % $50,697,314 % $ 2.05
New investors............. $
---------- ----- ----------- ------
Total................... 100.0% $ 100.0% $
========== ===== =========== ======
</TABLE>
The foregoing discussion and table are based on actual shares outstanding
on December 31, 1999. The foregoing discussion assumes no exercise of any stock
options outstanding as of December 31, 1999. As of December 31, 1999 there were
options outstanding to purchase 7,302,213 shares of common stock at a weighted
average exercise price of $1.03 per share. To the extent any of these options
are exercised, there will be further dilution to investors. See
"Capitalization," "Management -- Stock Plans," "Description of Capital Stock"
and Note 5 of Notes to Financial Statements.
28
<PAGE> 30
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data set forth below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our Financial Statements and related Notes
included elsewhere in this prospectus. The consolidated statements of operations
data for the period from March 11, 1998 (inception) to December 31, 1998 and the
year ended December 31, 1999 and the consolidated balance sheet data as of
December 31, 1998 and December 31, 1999 are derived from, and are qualified by
reference to, the audited Financial Statements and related Notes appearing
elsewhere in this prospectus, which have been audited by Deloitte & Touche LLP,
independent auditors. Historical results are not necessarily indicative of
results to be expected for any future period.
<TABLE>
<CAPTION>
MARCH 11, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
--------------- -------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................................ $ 368 $ 1,168
Cost of revenues........................................ 396 827
-------- --------
Gross margin......................................... (28) 341
Operating expenses:
Sales and marketing.................................. 369 4,645
Production and content............................... 168 2,867
Product development.................................. 443 3,320
General and administrative........................... 202 3,246
Non-cash affinity-channel acquisition costs.......... 2 6,112
Non-cash stock-based compensation-employees.......... -- 863
Depreciation and amortization........................ 52 882
--------
Total operating expenses........................... 1,236 21,935
--------
Loss from operations.................................... (1,264) (21,594)
Interest and other income (expense), net................ (7) 160
-------- --------
Net loss before minority interest....................... (1,271) (21,434)
Minority interest....................................... -- 18
Net loss................................................ $ (1,271) $(21,416)
======== ========
Basic and diluted net loss per share.................... $(118.13) $ (31.93)
======== ========
Weighted-average common shares used in computing basic
and diluted net loss per share....................... 10,759 670,653
======== ========
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 90 $ 9,661
Working capital......................................... (645) 11,154
Total assets............................................ 613 26,505
Convertible preferred stock............................. $ 1,012 $ 33,279
Total shareholders' equity (deficiency)................. (251) 20,574
</TABLE>
See Note 1 of Notes to Financial Statements for an explanation of the
determination of the shares used in computing basic and diluted net loss per
share.
29
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and our Financial Statements and related
Notes included elsewhere in this prospectus. This discussion contains
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors including, but not
limited to, those set forth under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
We are a leading developer and operator of affinity-channel networks. We
began operations in March 1998. During the period from inception through August
1999, we had insignificant revenues and were primarily engaged in developing
technology for the aggregation, integration and distribution of Internet
content, raising capital, and hiring employees. In August 1999, we launched our
current network, Rivals.com, with 395 live affinity-channels. Since then, we
have continued to focus on building and developing affinity-channel networks,
broadening the functionality of our infrastructure services, and developing a
broader range of vertical categories. We have also added sales and business
development personnel to generate advertising revenues and identify other
potential networks. We began generating material revenues in the second half of
1999.
To date, our revenues have been derived principally from the sale of
advertisements on our sports network. Advertising revenues represented 93.2% of
total revenues for 1999. We sell advertisements, such as banners, tiles,
sponsorships and promotions, on our network. Our advertising contracts generally
have terms of less than three months. Advertising rates are dependent on whether
the advertisements are for general distribution throughout our network or for
targeted audiences and properties within affinity-channels. Advertising revenues
are generally recognized based on the actual number of impressions served,
provided that no significant delivery obligations remain and collection of the
resulting receivable is probable. Delivery obligations typically include
guarantees of a minimum number of impressions, or number of times that an
advertisement appears in page views downloaded by users. Payments received from
advertisers prior to displaying their advertisements on our network are recorded
as deferred revenues on our balance sheet.
In addition to advertising revenues, we derive e-commerce revenues from the
sale of specialty merchandise. We have also recently begun receiving revenues
from third-party e-commerce websites who pay us a percentage of the gross sales
attributable to purchasers who originate from our network.
Our cost of advertising revenues consists primarily of payments to content
affiliates based on a contractually agreed percentage share of advertising
revenues attributable to their affinity-channels. Our cost of advertising
revenues also includes third-party advertising delivery costs.
Our cost of e-commerce revenues includes payments to e-commerce affiliates
based on a contractually agreed percentage share of e-commerce revenues
attributable to their affinity-channels. Cost of e-commerce revenues also
includes commissions to the content affiliates that deliver purchasers to
e-commerce affiliates. Our e-commerce affiliates are liable for the cost of
goods sold and other inventory-related costs.
30
<PAGE> 32
We have incurred significant losses since our inception, and as of December
31, 1999 we had an accumulated deficit of approximately $22.7 million. These
losses have been funded primarily through the issuance of preferred equity
securities.
We believe that our future success will depend largely on our ability to
continue to offer attractive services to our existing and future affiliates.
Accordingly, we expect our operating expenses to increase significantly as we,
among other things:
- acquire, develop and launch other affinity-channels, vertical categories
and networks;
- attract and retain qualified personnel;
- continue to develop and upgrade our infrastructure services; and
- expand internationally.
As a result, we expect to incur significant operating losses for the
foreseeable future. In light of the rapidly evolving nature of our business and
our limited operating history, we believe that period-to-period comparisons of
our revenues and operating results are not necessarily meaningful, and you
should not rely upon them as indications of future performance.
We recorded deferred compensation of approximately $4.8 million in 1999 in
connection with the grant of certain stock options to employees. We will
amortize this stock compensation expense over the vesting period of the related
options. As a result, we expect to amortize the following amounts of
employee-related deferred compensation annually: approximately $2.4 million in
2000; approximately $1.0 million in 2001; $449,288 in 2002; and $99,483 in 2003.
Non-cash stock compensation expense related to stock options granted to our
affinity-channels upon joining our network is recognized as non-cash
affinity-channel acquisition costs and receives variable plan accounting
treatment, which requires us to value these options at fair market value at the
end of each reporting period.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES
Total revenues increased from $368,435 in 1998 to approximately $1.2
million in 1999. Advertising revenues were approximately $1.1 million in 1999
compared to $348,282 in 1998. In 1998, advertising revenues were derived solely
from print-based advertising. In conjunction with the launch of our sports
network in 1999, we began generating revenues from the sale of online
advertising. Advertising revenues represented 93.2% of total revenues for the
year ended December 31, 1999. Three advertisers each accounted for more than 10%
of our advertising revenues in 1999. We anticipate that advertising revenues
will continue to account for substantially all of our revenues for the
foreseeable future.
We began recognizing revenues from our current e-commerce operations in
1999. E-commerce revenues represented 6.8% of total revenues for
1999. During 1999, our e-commerce revenues were derived primarily from the sale
of specialty merchandise through e-commerce affiliates and to a lesser extent
commissions from third parties on sales of sports-related merchandise that were
attributable to purchasers who originated from our network.
31
<PAGE> 33
COST OF REVENUES
Cost of advertising revenues increased from $370,811 in 1998 to $698,097 in
1999. This increase was primarily due to payments to our content affiliates and
third-party advertising delivery costs. Cost of advertising revenues represented
64% of advertising revenues in 1999. We anticipate that the cost of advertising
revenues will increase in absolute dollars as we continue to add content
affiliates though cost of advertising revenues will vary as a percentage of
advertising revenues from period to period.
Cost of e-commerce revenues was $129,316 in 1999. Approximately $100,000 of
this cost represented a one-time write-off of inventory and cost of inventory
sold, and the balance was primarily attributable to payments to e-commerce
affiliates and commissions paid to content affiliates. We anticipate that the
cost of e-commerce revenues will continue to grow in absolute dollars as a
result of the growth of e-commerce revenues.
SALES AND MARKETING
Sales and marketing expenses consist of salaries and other expenses related
to personnel engaged in advertising sales, marketing and public relations. In
addition, sales and marketing expenses include advertising and promotional
expenditures such as third-party delivery costs of internal promotions on our
network. In the limited circumstances where our affiliates sell advertising on
their own affinity-channels, sales and marketing expenses also include a
percentage commission on these sales. Sales and marketing expenses increased
from $368,840 in 1998 to approximately $4.6 million in 1999. This increase was
primarily due to the addition of sales, marketing and public relations personnel
during 1999, amortization of non-cash advertising, and increased marketing costs
associated with promotional activities. Also included in sales and marketing
expenses for 1999 is a non-cash charge of $633,516, which represents the
amortized portion of the approximately $7.5 million of prepaid advertising
received in consideration for the issuance of preferred stock. We expect that
our sales and marketing expenses will continue to grow in absolute dollars for
the foreseeable future and vary as a percentage of total revenues from period to
period.
PRODUCTION AND CONTENT
Production and content expenses consist primarily of salary and other
expenses for operations personnel, costs of incentive programs to affiliates,
customer service costs, and costs of Internet access and web hosting services.
Production and content expenses increased from $168,025 in 1998 to approximately
$2.9 million in 1999. This increase was primarily attributable to an increase in
the number of operations personnel and an increase in the number of
affinity-channels joining the network. Also included in production and content
expenses for 1999 is a non-cash expense of $60,640, which represents the
amortized portion of the value of content received in consideration for the
issuance of preferred stock warrants and a non-cash charge of $372,386, which
represents the fair value of stock options awarded under our affiliate incentive
programs. We expect that our production and content expenses will continue to
increase in absolute dollars in the foreseeable future and vary as a percentage
of revenues from period to period.
PRODUCT DEVELOPMENT
Product development expenses consist primarily of salaries and other
expenses related to engineers and software developers. Product development
expenses increased from $443,307 in 1998 to approximately $3.3 million in 1999.
This increase was primarily attributable to an increase in the number of
engineers and software developers and
32
<PAGE> 34
associated costs related to developing and upgrading our technology platform.
Also included in product development expenses for 1999 is a non-cash charge of
$643,479, which represents an expense under variable plan accounting for stock
options awarded to a third-party contractor. We expect that our network
development expenses will continue to increase in absolute dollars in the
foreseeable future and vary as a percentage of total revenues from period to
period.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist of salary and other expenses
related to general corporate functions as well as fees for professional services
and costs of facilities. General and administrative expenses increased from
$202,129 in 1998 to approximately $3.2 million in 1999. This increase was
primarily due to the increase in the number of our executive and administrative
personnel to support the growth of our business. We expect that general and
administrative expenses will continue to grow in absolute dollars as we hire
additional personnel and incur additional expenses related to the growth of our
business and its operations as a public company and to vary as a percentage of
total revenues from period to period.
NON-CASH AFFINITY-CHANNEL ACQUISITION COSTS
Non-cash affinity-channel acquisition costs consist of the amortization
expense under variable plan accounting for stock options granted to
affinity-channels upon joining our network. Non-cash affinity-channel
acquisition costs increased from $1,912 in 1998 to approximately $6.1 million
1999. This increase was primarily due to an increase in the number of
affinity-channels joining our network.
DEPRECIATION AND AMORTIZATION
Depreciation consists primarily of the depreciation of property and
equipment. Depreciation expenses increased from $7,805 in 1998 to $462,393 in
1999. This increase was primarily due to increases in facilities, equipment and
related costs associated with increases of personnel. We expect depreciation
expenses to continue to increase as we invest in additional property and
equipment and to vary as a percentage of total revenues from period to period.
Amortization consists of amortization of intangibles associated with asset
acquisitions, and amortization of the cost of domain names. Amortization
expenses increased from $44,085 in 1998 to approximately $419,261 in 1999. This
increase was primarily due to an increase in the number of affinity-channels
joining our network.
INTEREST AND OTHER INCOME (EXPENSE)
Interest income represents interest earned on cash and cash equivalents.
Interest income increased from $5,434 in 1998 to $243,548 in 1999. This increase
was primarily due to a higher average cash balance as a result of capital
received from the issuance of shares of our preferred stock. Interest expense
consists of interest incurred on our existing revolving loan due to a third
party. Interest expense increased from $12,477 in 1998 to $83,711 in 1999. This
increase was due to a higher outstanding balance on our revolving line of
credit.
33
<PAGE> 35
QUARTERLY RESULTS OF OPERATIONS
The following tables, set forth certain consolidated statement of operations
data for each of the four quarters in 1999, including such amounts expressed as
a percentage of total revenues. This quarterly information is unaudited but has
been prepared on the same basis as our audited consolidated financial statements
appearing elsewhere in this prospectus. In the opinion of management, all
necessary adjustments, consisting only of normal recurring adjustments, have
been included to present fairly the unaudited quarterly results when read in
conjunction with our audited consolidated financial statements and related notes
appearing elsewhere in this prospectus. Operating results for any quarter are
not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
--------- -------- --------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Advertising revenues........................................ $ 29 $ 71 $ 249 $ 739
E-commerce revenues......................................... 7 -- 1 72
------- ------- ------- --------
Total revenues............................................ 36 71 250 811
Cost of advertising revenues................................ 11 28 158 501
Cost of e-commerce revenues................................. -- -- 5 124
------- ------- ------- --------
Total cost of revenues.................................... 11 28 163 625
Advertising gross margin.................................... 18 43 91 238
E-commerce gross margin..................................... 7 -- (4) (52)
------- ------- ------- --------
Total gross margin........................................ 25 43 87 186
Operating expenses:
Sales and marketing....................................... 161 261 1,478 2,745
Production and content.................................... 248 142 973 1,505
Product development....................................... 375 504 902 1,539
General and administrative................................ 179 653 1,045 1,368
Non-cash affinity-channel acquisition costs............... 53 13 1,357 4,689
Non-cash stock-based compensation -- employees............ -- -- 388 475
Depreciation and amortization............................. 54 118 296 413
------- ------- ------- --------
Total operating expenses................................ 1,070 1,691 6,439 12,735
Loss from operations........................................ (1,045) (1,648) (6,352) (12,549)
Interest and other income (expense), net.................... (30) 54 16 119
Minority Interest........................................... -- -- -- 18
Net loss.................................................... $(1,075) $(1,594) $(6,336) $(12,412)
======= ======= ======= ========
AS A PERCENTAGE OF REVENUES:
Advertising revenues........................................ 81% 100% 100% 91%
E-commerce revenues......................................... 19 -- -- 9
------- ------- ------- --------
Total revenues............................................ 100 100 100 100
Cost of advertising revenues(1)............................. 38 39 64 68
Cost of e-commerce revenues(2).............................. -- -- 500 172
------- ------- ------- --------
Total cost of revenues.................................... 31 39 65 77
Advertising gross margin(1)................................. 62 61 36 32
E-commerce gross margin(2).................................. 100 -- (400) (72)
------- ------- ------- --------
Total gross margin........................................ 69 61 35 23
Operating expenses:
Sales and marketing....................................... 447 368 591 338
Production and content.................................... 689 200 389 186
Product development....................................... 1,042 710 361 190
General and administrative................................ 497 920 418 169
Non-cash affinity-channel acquisition costs............... 147 18 543 578
Non-cash stock-based compensation -- employees............ -- -- 155 59
Depreciation and amortization............................. 150 166 118 51
------- ------- ------- --------
Total operating expenses................................ 2,972 2,382 2,576 1,570
Loss from operations........................................ (2,903) (2,321) (2,541) (1,547)
Interest and other income (expense), net.................... (83) 76 6 15
Minority interest........................................... -- -- -- 2
------- ------- ------- --------
Net loss.................................................... (2,986)% (2,245)% (2,534)% (1,530)%
======= ======= ======= ========
</TABLE>
- ---------------
(1) Expressed as a percentage of advertising revenues
(2) Expressed as a percentage of e-commerce revenues
34
<PAGE> 36
Total revenues and gross margin increased in each quarter of 1999. However,
we expect these growth rates to decrease in the future, and our revenue growth
may not be sustainable at all. We incurred increasing operating expenses and net
losses in each quarter of 1999. We expect to continue to incur increasing
operating expenses, net losses and negative cash flows on a quarterly and annual
basis for the foreseeable future. We need to generate significant revenues to
achieve profitability, and we cannot assure you that our revenues will be
sufficient to achieve this goal.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed operations primarily through private
sales of equity securities. From inception through December 31, 1999, we raised
approximately $23.6 million through sales of convertible preferred stock.
Issuances of common stock from inception through December 31, 1999, yielded
proceeds of $396,720. As of December 31, 1999, we had approximately $9.7 million
in cash and cash equivalents.
Net cash used by operating activities was $814,940 in the period from
inception to December 31, 1998 and approximately $10.9 million during the year
ended December 31, 1999. In each period, net cash used by operating activities
resulted from our net loss resulting primarily from developing and operating our
networks, partially off-set by non-cash charges including depreciation and
amortization of deferred stock compensation for employees and affiliates.
Net cash used by investing activities was $145,356 in the period from
inception to December 31, 1998 and approximately $5.0 million during the year
ended December 31, 1999. Net cash used by investing activities for both of these
periods consisted primarily of capital expenditures for computer and network
equipment, software, office equipment, furniture, fixtures and leasehold
improvements.
Net cash provided by financing activities was approximately $26.5 million
from inception through December 31, 1999. Net cash provided by financing
activities consisted primarily of proceeds from issuances of preferred stock.
Net cash provided by financing activities also included a contribution from a
minority shareholder in connection with the joint venture, borrowings under our
bank credit facility and issuances of convertible promissory notes.
At December 31, 1999, the Company had a $1,000,000 line of credit with
Imperial Bank. Borrowings under the line of credit bear interest at the bank's
prime rate. As of December 31, 1999, $923,134 was outstanding under the line of
credit, bearing interest at 8.5%. The line of credit is secured by the Company's
tangible and intangible property. Under the facility, we are required to comply
with certain restrictive covenants which include, among other items, maintenance
of certain financial ratios. In January 2000, the Company's line of credit was
increased to $6,000,000. The new line of credit bears interest at the bank's
prime rate with interest payable monthly and matures on January 4, 2004.
We have no material commitments other than facility leases, leasehold
improvements and sponsorship of the Hula Bowl. As of December 31, 1999, future
minimum lease payments under non-cancellable operating leases were approximately
$6.7 million. See Note 7 of Notes to Financial Statements included elsewhere in
this prospectus.
We currently anticipate that the net proceeds of this offering, together
with our currently available funds, will be sufficient to meet our anticipated
needs for working capital and capital expenditures for at least the next 12
months. If additional funds are required, financing may not be available on
acceptable terms, if at all, and may be dilutive to our shareholders.
35
<PAGE> 37
YEAR 2000 ISSUES
To date, our systems and software have not experienced any material
disruption due to the onset of the year 2000, and we have completed our year
2000 preparedness activities. The risks posed by year 2000 issues could
adversely affect our business in a number of significant ways. Our information
technology systems could be substantially impaired or cease to operate due to
year 2000 problems. Additionally, the online medium could face serious
disruptions arising from the year 2000 problem. We also rely on information
technology supplied by third parties and other third party services which are
likewise dependent on information technology systems and on their own third
party vendors' systems. Year 2000 problems experienced by us or any such third
parties could adversely affect our business.
Although we have not experienced any year 2000 problems, our experience in
this regard is extremely limited. We cannot assure you that we will not
experience year 2000 problems, either based on our own systems or based on the
systems of entities with which we do business. We cannot quantify the amount of
our potential exposure, but do not believe it to be material.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivatives and Hedging
Activities" ("SFAS 133"). SFAS 133, as amended by SFAS 137, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The Company does not currently hold
any derivatives and management does not expect this pronouncement to materially
impact the results of its operations.
36
<PAGE> 38
BUSINESS
OVERVIEW
We are a leading developer and operator of affinity-channel networks.
Affinity-channels are content or e-commerce websites owned by individuals or
organizations that provide in-depth, original content or specialized merchandise
relevant to highly specific topics, or affinities. We aggregate and organize
selected affinity-channels by general subject matter, or vertical categories,
onto networks that share common infrastructure services. Our infrastructure
services are designed to enable entrepreneurs to develop and deliver, as part of
our integrated network, their proprietary content or e-commerce offerings
efficiently and profitably. Our first network, Rivals.com, is focused on sports
and as of February 15, 2000, included more than 500 affinity-channels.
By participating in our networks, our affinity-channels, or affiliates, can
benefit from increased traffic, enhanced performance and features, greater
revenues and reduced operating and technology costs. In addition, our
affinity-channel networks enable advertisers to more effectively and efficiently
target specific demographic groups. We help our content and e-commerce
affiliates and our advertisers realize these benefits by providing
infrastructure services that include:
TECHNOLOGY SERVICES. Our goal is to remove all the technical challenges
and costs that our affiliates encounter in operating an affinity-channel to
allow them to focus on producing in-depth, quality content and selling
specialized merchandise. We have built a scalable and reliable technology
platform that includes proprietary, easy to use tools that enable our affiliates
to efficiently create and maintain their affinity-channels.
ADVERTISING AND SPONSORSHIP SERVICES. We have an advertising sales force
that sells advertising on behalf of our affiliates. This provides economies of
scale allowing our sales force to offer advertisers a single efficient channel
to reach large numbers of targeted consumers. By enabling the buyers and sellers
of advertising to transact in this mutually beneficial way, we help our
affiliates receive more advertising revenues, and give advertisers a more
effective forum for advertising.
CONTENT SERVICES. We provide knowledgeable and experienced channel
producers to assist, train and maintain regular contact with our affiliates. We
also provide experts within specific categories who deliver commentary and
breaking news to relevant affinity-channels within the network. In addition, we
provide our affiliates with access to multi-media content and databases of
general content, such as photos and statistics.
E-COMMERCE SERVICES. We match e-commerce affiliates with their related
content affiliates which enables our affinity-channels to deliver integrated
content and e-commerce offerings. We offer our e-commerce affiliates a
comprehensive package of services, including managerial support, marketing
services, customer service, digital photography and transaction processing.
NETWORK DEVELOPMENT SERVICES. Our network development services include
recruiting new content and e-commerce affiliates to further develop our existing
network and assist in launching new networks. We invite affiliates to join our
networks after completing an extensive process to identify the leading content
creators and premier retailers focused on our targeted affinities.
We generate revenues from advertising and e-commerce. We collect all online
advertising and e-commerce revenues generated by our networks and distribute to
each affiliate a share of the revenues related to its affinity-channel. Our
solution provides us with
37
<PAGE> 39
significant leverage and economies of scale. Each new affiliate brings
additional revenue opportunities without significant incremental cost to us. In
addition, our revenue sharing model enables us to share in the growth and
success of our affinity-channels.
All affinity-channels are hosted on our proprietary, content-neutral
technology platform, which currently supports our sports network and is designed
to be replicated to support additional affinity-channel networks. Our
application tier consists of software that manages the website user interface,
runs applications like data feeds, message boards, chat and e-commerce, and
retrieves content from the database tier. Our database tier consists of a main
content database, as well as member registration, message board, player profile/
recruiting and sports statistics databases.
During January 2000, Rivals.com was the fourth stickiest web property on
the Internet with an average of approximately 67 minutes spent on our network
per user per month, and was first in stickiness among websites focused on sports
content, according to data by Nielsen//Net Ratings. In addition, during January
2000, Rivals.com had more than 5.4 million unique users, according to AdForce.
The Rivals.com network includes affinity-channels for fans and athletes that
focus on college, high school and professional sports, a wide range of
participatory and leisure sports and other sports-related topics, such as
recruiting.
Our objective is to be the leading developer and operator of
affinity-channel networks that enable our entrepreneurial affiliates to deliver
the highest level of in-depth content and relevant e-commerce offerings
efficiently and profitably. To achieve this objective, we intend to rapidly
create new networks of affinity-channels and enhance our existing networks and
infrastructure services.
INDUSTRY BACKGROUND
The Internet has grown rapidly in recent years and is now recognized as a
mass medium for communication, commerce and multimedia content. International
Data Corporation, or IDC, estimates that world-wide Internet users will grow
from 144 million in 1998 to 602 million in 2003 and world-wide consumer
e-commerce will grow from $16 billion in 1998 to $209 billion in 2003. This
opportunity is, in part, driving the growth in online advertising, as retailers
seek to build online awareness of their products and services. Forrester
Research estimates that annual spending on online advertising in the United
States will increase from $2.8 billion in 1999 to $22.2 billion in 2004.
As an advertising medium, the Internet provides several advantages over
traditional media, including the ability to more closely target specific
demographic groups. Targeting makes advertising more effective, and advertisers
seek to buy space on websites and networks that address specific demographic
groups and attract a high level of visitors. To date, it generally has been
impractical for advertisers to effectively buy advertising from
affinity-channels. Advertisers have therefore traditionally focused on buying
advertising from large, broad-based websites and advertising services companies.
THE DEMAND FOR IN-DEPTH CONTENT AND SPECIALIZED MERCHANDISE IS NOT ADEQUATELY
MET BY VERTICAL PORTALS
Among other things, individuals use the Internet to find information and
products that interest them. Vertical portals, or websites that focus on one
subject such as personal finance, have emerged in an attempt to address user
demand for specific content or
38
<PAGE> 40
merchandise. These vertical portals often attempt to cover all areas of a
vertical subject within one website. As a result, the content tends to address
events and issues of interest to a wide audience and excludes in-depth content
and specialized merchandise that is relevant to affinity groups. In addition,
the information and merchandise on vertical portals are often generic and widely
available, which means that vertical portals are not offering a unique product.
The result is limited user satisfaction, loyalty and stickiness.
CHALLENGES FACED BY AFFINITY-CHANNELS AND ADVERTISERS
User demand for targeted, relevant, interactive and in-depth content and
specialized merchandise, and the failure of vertical portals to satisfy this
demand, are resulting in the rapid growth of affinity-channels. IDC estimates
that the total number of websites will grow, on average, by 70% per year between
1998 and 2003. While rich in content and specialized merchandise, and attractive
from a targeted advertising perspective, affinity-channels are faced with
several inherent operational and economic challenges.
Many different types of content creators and e-commerce providers,
including local journalists, media personalities, consumers and merchants, are
creating affinity-channels. Building and operating a successful affinity-channel
present significant challenges as there are many competing demands on these
creators' and providers' time and financial resources. For example, the cost of
building and operating an affinity-channel involves the employment or
opportunity cost of at least one writer or editor. It also involves the
technological complexities and costs of website production, hosting, maintenance
and scaling.
Affinity-channel creators also face significant challenges in developing a
successful business due to the difficulties in capitalizing on revenue
opportunities. In order to generate significant revenues, affinity-channels need
to have high levels of traffic and stickiness. Moreover, converting traffic and
stickiness into revenues can be difficult for affinity-channels due to their
limited resources and the challenges that they face in gaining the attention of
advertisers.
By meeting user demand for in-depth content and specialized merchandise,
affinity-channels are expected to attract an increasing proportion of online
advertising revenues. Forrester Research estimates that by 2004, 25% or $5.6
billion of online advertising will be spent on niche websites in the United
States. While affinity-channels can be attractive to advertisers, they are
difficult for advertisers to reach due to their large number and fragmented
nature. Certain advertising services companies have emerged to try to address
this difficulty by aggregating websites and offering to serve, sell and manage
advertisements for them. While this can make it more efficient for advertisers
to place advertisements on smaller websites it often does not meet the need for
targeted advertising and can lead to low advertising rates for the owners of
these websites. As a result, although affinity-channels may meet user demand for
in-depth content and specialized merchandise, they typically do not maximize
their revenue opportunities and advertisers do not maximize the effectiveness of
their advertising.
OUR SOLUTION
Our solution is to develop and operate affinity-channel networks that
benefit users, affinity-channel owners and advertisers. Our solution meets user
demand for in-depth content and specialized merchandise by aggregating and
organizing, on a single technology platform, a large number of affinity-channels
into networks such as sports. Within a network,
39
<PAGE> 41
we further organize the affinity-channels into vertical categories, such as
college football. Our solution enables affinity-channels to operate as
sustainable businesses by providing infrastructure services that can lead to
increased traffic, improved performance and features, greater revenues and
reduced operating and technology costs. In addition, our solution enables
advertisers to improve the effectiveness of their advertising by providing them
with a means to buy space on affinity-channels and networks that can target
specific demographic groups and attract a high level of visitors. Our solution
provides significant advantages for our users, affiliates and advertisers that
include the following:
HIGH QUALITY CONTENT, E-COMMERCE AND USER EXPERIENCE
CONTENT AND E-COMMERCE OFFERINGS ARE CONSISTENTLY HIGH QUALITY AND
IN-DEPTH. We are continually searching for and recruiting the leading affinity
publishers and merchants across all media to develop and operate their
affinity-channels on our networks. Once invited to join the network,
affinity-channels are contracted to the network on an exclusive basis. Our
approach ensures that our networks have the affinity-channels most likely to
meet user demand for targeted, relevant, in-depth content and specialized
merchandise. In addition, we have our own channel producers and merchandise
managers to ensure that the quality of the content and e-commerce offerings is
maintained and to promote content and traffic sharing.
AFFILIATES REMAIN MOTIVATED AND MAINTAIN OWNERSHIP OF THEIR
AFFINITY-CHANNEL. In our solution, our affiliates retain ownership of their
affinity-channels which allows them to maintain their entrepreneurial motivation
and control over their content and merchandise. In addition, our solution
incentivizes our affiliates to remain active in the network through the enhanced
economic potential inherent in our solution, including long-term incentive plans
and other material benefits. These incentives, combined with our infrastructure
services, allow our affiliates to focus on their content and e-commerce
offerings.
USER EXPERIENCE IS ENHANCED. We enhance the user experience by providing
consistently in-depth content and specialized merchandise that is not generally
available and is of acute interest to the user. In addition, we provide users
with access to targeted forums about highly specific topics through chat
services and message boards. We also enhance the user experience by organizing
our affiliates in a consistent and easy to use manner that includes one-click
access to related affinity-channels.
INTEGRATED INFRASTRUCTURE SERVICES
USE OF ADVANCED TECHNOLOGY. We have developed an advanced, feature-rich
technology platform that is reliable, scalable and designed to ensure high
performance across a range of important metrics, such as availability and speed.
Our platform includes sophisticated and easy to use publishing and community
management tools. These tools enable affinity-channels to be efficiently created
and maintained, content to be filtered, tagged and organized, and message board
and chat communities to be customized and moderated. Selected content can be
shared, where relevant, with other affinity-channels across the network. Our
affiliates are therefore able to manage, with minimal expertise and effort,
individually robust and scalable affinity-channels.
ACCESS TO ADDITIONAL DATABASES AND MULTI-MEDIA CONTENT. Our solution
provides our affiliates with access to databases of general content, such as
photographs, which they use to supplement their original content. We also
partner with media companies, such as Fox, for access to multi-media content,
such as video, that may be relevant to our affiliates.
40
<PAGE> 42
SHARING OF TRAFFIC ACROSS MULTIPLE AFFINITY-CHANNELS. We facilitate traffic
sharing among our affiliates by providing consistent, easy to use navigation
tools on all our affinity-channels. We also drive traffic across our multiple
affinity-channels through the use of expert affiliates who create proprietary
specialized content relevant to broad parts of the network. Among the
affinity-channels with which we launched our Rivals.com network, average daily
page views increased approximately 216% between the launch on August 23, 1999
and February 15, 2000.
ENHANCED ECONOMIC POTENTIAL
INCREASED ADVERTISING OPPORTUNITIES. A key element of our solution is to
increase advertising opportunities by leveraging our advertising sales force
across our networks. Not only does this provide cost advantages relative to
individual site sales efforts, it also opens up advertising possibilities not
previously available to our affiliates and advertisers. Our solution allows our
sales force to offer advertisers a single avenue to reach large and highly
targeted demographic groups. By enabling the buyers and sellers of advertising
to transact in this mutually beneficial way, our affiliates can receive more
revenues and advertisers can achieve more effective advertising.
INCREASED E-COMMERCE OPPORTUNITIES. Our solution increases e-commerce
opportunities for our affinity-channels. We do this by matching targeted
e-commerce affiliates with relevant content affiliates. This service leads to
increased traffic to the e-commerce affiliate and e-commerce commissions for the
content affiliate.
CORPORATE BENEFITS FOR AFFILIATES. We provide financial, legal and
administrative services for the benefit of our affiliates. We also leverage and
coordinate joint marketing initiatives to raise brand awareness of our
affiliates and the networks. In addition, we promote a strong culture among our
affiliates by holding conventions, distributing network news including traffic
measurement and rankings, and fostering communication among affiliates.
OUR STRATEGY
Our objective is to be the leading developer and operator of
affinity-channel networks. To do this we intend to rapidly extend our proven
expertise and business model into additional networks, enhance our existing
sports network and strengthen our infrastructure services. The key elements of
our strategy include:
RAPIDLY CREATE NEW NETWORKS OF AFFINITY-CHANNELS
We intend to rapidly leverage the successful execution of our business
model and infrastructure to create a leadership position in selected vertical
subjects on the Internet. We are currently evaluating numerous verticals and
geographic regions in which to deploy our solution. Our strategy for rapidly
entering new verticals and countries includes:
CAPITALIZING ON OUR EXPERIENCE IN DEVELOPING AND OPERATING RIVALS.COM. For
example, the way that we aggregate and organize affinity-channels is expected to
be similar in the new verticals. Our expertise with content management, the
promotion of traffic sharing and the development of e-commerce opportunities
will also facilitate the execution of our solution as we enter new vertical
networks.
LEVERAGING OUR INFRASTRUCTURE SERVICES. We have deliberately built our
infrastructure services, such as our proprietary technology and advertising
sales force, to be broadly applicable across different verticals.
41
<PAGE> 43
DEVELOPING STRATEGIC RELATIONSHIPS. Strategic relationships will enable us
to accelerate the roll-out of new networks and provide our affiliates with
access to relevant and timely content that may include multi-media.
ENHANCE OUR SPORTS NETWORK
We intend to further develop the breadth and depth of offerings on our
sports network, Rivals.com, by:
EXPANDING AND ENHANCING THE CONTENT AVAILABLE ON THE NETWORK. We will
continue to add affinity-channels into new and existing vertical categories by
recruiting affiliates that meet our quality standards. In addition, we will
remain focused on developing our existing affiliates and their content,
e-commerce and community offerings. For example, we intend to further promote
the use of multi-media content from strategic relationships with media companies
such as Fox.
INCREASING TRAFFIC AND STICKINESS ACROSS THE NETWORK. We intend to continue
our efforts to increase stickiness and drive traffic across the network through
cross-promotions, strategic relationships and technological refinements. Key
elements of this strategy include the sharing of highly relevant and timely
content and the application of consistent navigational features throughout the
network.
ATTRACTING TRAFFIC TO THE NETWORK. We expect to attract new traffic to the
network by continuing to add quality affinity-channels and by continuing to
sponsor grass-roots promotional activities. We will further encourage our
affiliates to continue promoting their affinity-channels by gaining exposure on
non-Internet media such as radio. This strategy allows us to increase traffic
without relying upon expensive broad-based advertising campaigns.
ENHANCE OUR INFRASTRUCTURE SERVICES
We intend to further enhance the infrastructure services we provide to our
affiliates by:
ENHANCING OUR TECHNOLOGY PLATFORM. Our proprietary technology platform
provides us with a key competitive advantage. We intend to maintain and extend
this advantage by continuing to invest heavily in research and development
activities. These activities will focus on further enhancements to the
functionality, speed and scalability of the networks. We also expect to develop
technology to enable users to access our networks via appliances such as
hand-held devices and to capitalize on the increasing availability of broadband
opportunities.
FURTHER DEVELOPING OUR E-COMMERCE SERVICES. We intend to rapidly make
e-commerce a core part of our business by implementing our existing e-commerce
solution across our networks. We will continue to develop e-commerce
affinity-channels and match them with our content affiliates that are focused on
the same affinity and target audience. This strategy is intended to enable our
content affiliates to increase e-commerce revenues while providing our
e-commerce affiliates with access to relevant and interested consumers.
EXPANDING AND ENHANCING OUR ADVERTISING SERVICES. We intend to broaden the
services that we provide advertisers to enable us to more effectively monetize
our traffic through increased advertising rates and utilization. For example, we
are implementing additional reporting and measurement services to enable
advertisers to more specifically target required demographic groups. We also
expect to continue to promote our company within the advertising industry to
raise awareness of the benefits of our solution and the targeted advertising
opportunities that we can provide.
42
<PAGE> 44
CULTIVATE ADDITIONAL REVENUE STREAMS
We are currently evaluating numerous verticals and geographic regions in
which to deploy our solution. Where we decide not to deploy our solution, we may
license our technology to third parties for royalties or transaction fees. In
addition, we intend to further explore revenue opportunities with third-party
content and e-commerce providers in return for delivering traffic to their
websites.
OUR INFRASTRUCTURE SERVICES
Our infrastructure services are designed to enable our affiliates to
develop and deliver their proprietary content and e-commerce offerings
efficiently and profitably. Our affiliates can benefit from increased traffic,
enhanced performance and features, greater revenues and reduced operating and
technology costs. Our advertisers benefit from the ability to more effectively
and efficiently target specific demographic groups. Our infrastructure services
include the following:
TECHNOLOGY SERVICES
We offer a suite of technology services to our affinity-channels. We have
built a scalable and reliable technology platform that enables us to rapidly
deploy and manage our growing number of affinity-channels. In addition, we have
designed this proprietary platform to be easily extended to additional networks.
Our technology services enable our affiliates to focus on their core competency
of in-depth content development or targeted e-commerce offerings without the
distractions and costs associated with website development and maintenance. In
addition, our technology services enable users of our network to enjoy high
performance affinity-channels that are easy to navigate due to our consistent
affinity-channel design architecture.
Our technology services include proprietary, easy to use tools that enable
our affiliates to efficiently create and maintain their affinity-channels. Once
an affinity-channel is created, our publishing tools allow the affiliate to
easily post stories, upload images and manage message boards and chat
communities. We also provide functionality that provides data feeds, multi-media
production and hosting services. In order to strengthen our technology platform
and the services we provide to our affinity-channels, we will continue to
integrate new leading-edge technologies and respond to changing customer needs.
ADVERTISING AND SPONSORSHIP SERVICES
We offer the following advertising and sponsorship services to our
affiliates and advertisers:
AFFILIATE SERVICES. Our dedicated and experienced sales force sells
advertising on behalf of our affiliates. Our solution allows us to provide our
affiliates with access to a broad group of advertisers that would be difficult
for an independent affinity-channel to reach. This access typically leads to
higher advertising rates and greater utilization of advertising inventory than
our affiliates might achieve independently. We also sell remnant banner
inventory on our network through third-party service providers, such as Adsmart
and DoubleClick. In addition, we provide valuable reporting and measurement
services, such as traffic reports, and permit independent advertising efforts by
our affiliates.
ADVERTISER SERVICES. Our network of affinity-channels provides advertisers
with efficient access to highly targeted demographic groups. We provide a wide
range of advertising
43
<PAGE> 45
alternatives that include banner advertisements, buttons, tiles, micro-sites and
textlinks, as well as sponsorship programs. In addition, we provide data
collection and reporting services to enhance the effectiveness of advertisers'
efforts.
CONTENT SERVICES
We offer extensive content services to our affiliates. We provide
knowledgeable and experienced channel producers to assist, train and maintain
regular contact with our affiliates. This support includes advice on how to
promote their brand, increase and sustain growth in traffic, improve technical
performance and enhance and sustain the editorial quality of their content. Our
channel producers also act as the primary liaison for our affiliates and
coordinate activities among affinity-channels.
We also provide experts within specific categories who deliver commentary
and breaking news to relevant affinity-channels throughout the network. In
addition, we provide our affiliates with access to multi-media content and
databases of general content, such as photos and statistics. Through strategic
relationships with multi-media companies, such as Fox, we provide access to
streaming video content.
In addition, we support our affinity-channels on certain legal issues, such
as protecting copyright and trademark rights and ensuring legal compliance for
contests and sweepstakes. We also help our affinity-channels maintain the
integrity of their content by responding to letters from third parties and
competitors on issues such as infringement.
E-COMMERCE SERVICES
Our e-commerce services allow our affiliates to pursue targeted e-commerce
opportunities. We match e-commerce affiliates with their related content
affiliates which enables our affinity-channels to deliver integrated content and
e-commerce offerings. This service can lead to increased traffic to the
e-commerce affiliate and e-commerce commissions for the content affiliate.
We offer our e-commerce affiliates a comprehensive package of services.
Managerial support is provided by experienced merchandise managers who work
closely with our e-commerce affiliates to provide skilled advice, assistance and
training. We also provide marketing services to our e-commerce affiliates
through advertising, grass-root promotions, direct e-mail offers and search
engine registration. In addition, we provide a customer service call center to
handle customer service inquiries. Our digital photography service enables
e-commerce affiliates to obtain high resolution digital photographs of their
product offerings. We also provide comprehensive transaction processing
services, including billing, delivery status and confirmation, payment
collection and tax collection and remittance. Additionally, every two weeks we
send each e-commerce affiliate a payment and sales report that itemizes
transactions, network commissions and sales taxes. We also bear the risk of loss
for the delivery of the affiliate's merchandise to the customer.
NETWORK DEVELOPMENT SERVICES
Our network development services include recruiting new content and
e-commerce affiliates to further develop our existing network and assist in
launching new networks.
We invite content affiliates to join our network after we have completed an
extensive process to identify the leading content creators, online or offline,
that are focused on a specific subject. We recruit these publishers by
highlighting the operational and economic
44
<PAGE> 46
benefits of our solution. Once an affiliate decides to join our network, we
obtain exclusive rights to its online content.
We invite e-commerce affiliates to join our network after identifying
existing premier retailers in each market for which we have a targeted, content
affinity-channel. We recruit these retailers by highlighting the benefits of our
e-commerce services and access to traffic from similarly focused content
affinity-channels. Currently, when an e-commerce affiliate joins our network, we
obtain exclusive online retailing rights for its merchandise.
When affiliates join our network we integrate their existing
affinity-channels into our technology platform through the use of standardized
templates. We work with those affiliates that do not have existing websites to
transfer their existing content and e-commerce offerings to our technology
platform.
45
<PAGE> 47
OUR SPORTS NETWORK
We launched our current sports network, Rivals.com, in August 1999. As of
February 15, 2000, we had 541 affinity-channels on this network, with an
additional 109 under contract and in the process of being brought "live". Within
this network, we have individual channels in the following categories, among
others:
<TABLE>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
SIGNED,
CATEGORY LIVE NOT LIVE TOTAL DESCRIPTION SELECTED AFFINITY-CHANNELS
- -----------------------------------------------------------------------------------------------------------------------------
COLLEGE AND HIGH SCHOOL SPORTS
- -----------------------------------------------------------------------------------------------------------------------------
College Sports 285 53 338 In-depth coverage of the athletic programs ugasports.rivals.com
of nearly every Division I college in the kentucky.rivals.com
U.S. Channels in this category also cover michiganstate.rivals.com
athletic activities by region and pennstate.rivals.com
conference.
- -----------------------------------------------------------------------------------------------------------------------------
High School Sports 61 9 70 High school sports coverage at various gavsv.rivals.com
levels ranging from athletic programs of a hickoryhusker.rivals.com
single high school or region to statewide njhoops.rivals.com
score-reporting. texashoops.rivals.com
- -----------------------------------------------------------------------------------------------------------------------------
College Recruiting 29 4 33 Coverage by recruiting experts who borderwars.rivals.com
research and report on the recruiting of fastbreakrecruiting.rivals.com
high school athletes by college football insidersreport.rivals.com
and basketball programs. jucojunction.rivals.com
- -----------------------------------------------------------------------------------------------------------------------------
PROFESSIONAL SPORTS
- -----------------------------------------------------------------------------------------------------------------------------
NFL 56 7 63 NFL coverage including channels for teams nfldigest.rivals.com
and divisions, and a number of specialty raiderfanmagazine.rivals.com
affinity-channels covering injuries, draft rams.rivals.com
information, statistics and analysis. redskins.rivals.com
- -----------------------------------------------------------------------------------------------------------------------------
NBA 34 2 36 Coverage including team reporting and lakers.rivals.com
analysis and special-interest topics such 76ers.rivals.com
as draft reports and analysis, player nets.rivals.com
performance evaluations, fantasy spurs.rivals.com
information, and player news and notes.
- -----------------------------------------------------------------------------------------------------------------------------
NHL 20 1 21 Coverage of NHL teams, games, and issues lakings.rivals.com
of most of the teams in the league, flames.rivals.com
including statistics, league-wide oilers.rivals.com
editorials and reports. stars.rivals.com
- -----------------------------------------------------------------------------------------------------------------------------
Major League 0 22 22 Coverage of MLB teams that include bluejays.rivals.com
Baseball in-depth coverage of the games, the orioles.rivals.com
players, draft analysis, and other issues redsox.rivals.com
of interest to fans, including fantasy sfgiants.rivals.com
league information.
- -----------------------------------------------------------------------------------------------------------------------------
OTHER SPORTS
- -----------------------------------------------------------------------------------------------------------------------------
Tennis 21 0 21 Coverage of local, regional, national, and tenniscorner.rivals.com
international tennis competitions, annak.rivals.com
training techniques and equipment reviews. menstennis.rivals.com
midwesttennis.rivals.com
- -----------------------------------------------------------------------------------------------------------------------------
Extreme Sports 12 5 17 Coverage of snowboarding, skiing, wakecentral.rivals.com
skateboarding, surfing, wakeboarding and concretewaves.rivals.com
cycling. freestyleskier.rivals.com
therideidea.rivals.com
- -----------------------------------------------------------------------------------------------------------------------------
Outdoor Sports 10 1 11 Coverage of local and regional outdoor archerynetwork.rivals.com
activities, such as fishing, hunting and asaarchery.rivals.com
archery. bowhunting.rivals.com
capmel.rivals.com
- -----------------------------------------------------------------------------------------------------------------------------
Soccer 6 5 11 Coverage of regional, national, and collegesoccerdaily.rivals.com
international soccer games and crewfan.rivals.com
tournaments. manchesterunited.rivals.com
spinningball.rivals.com
- -----------------------------------------------------------------------------------------------------------------------------
Motor Sports 7 0 7 Coverage of events, personalities, racingpress.rivals.com
technical issues, trends, equipment, racecarfan.rivals.com
racetracks and team news. racecentral.rivals.com
tachzone.rivals.com
- -----------------------------------------------------------------------------------------------------------------------------
Total 541 109 650
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 48
Rivals.com ranks as the number 4 Web property in stickiness (the average
total time spent per month per unique user on a Web property), according to
Nielsen//NetRatings' January 2000 at-home user data. Unique users spent an
average total time of approximately 67 minutes on Rivals.com during January.
Additionally, according to Nielsen//NetRatings, Rivals.com has been the number 1
sports site on the Internet in stickiness every month since its August 1999
launch.
STICKIEST MAJOR WEB PROPERTIES DURING THE MONTH OF JANUARY 2000
<TABLE>
-----------------------------------------------------------------
TOTAL TIME SPENT
RANK DOMAIN HRS.:MIN.:SEC.
<C> <S> <C>
-----------------------------------------------------------------
1 eBay.com.............................. 2:05:48
2 Pogo.................................. 1:09:15
3 E Trade............................... 1:08:41
4 RIVALS.COM............................ 1:06:55
5 Yahoo!................................ 1:00:43
-----------------------------------------------------------------
</TABLE>
Source: Nielsen//NetRatings, January 2000. Includes Web
properties with unique audience greater than 300,000 during the
month of January
Since its launch in August 1999, our Rivals.com network's unique users per
month grew to 5,431,812 in January 2000, according to Adforce.
TECHNOLOGY
The core of our network model is the ability to share applications and
databases across a common technology platform which may be rapidly deployed to
launch multiple networks of affinity-channels. This technology is designed to
support our infrastructure services with reliability and scalability to minimize
the technical barriers associated with creating and maintaining
affinity-channels. Our platform also supports network-specific features such as
statistics for our sports network.
47
<PAGE> 49
Our technology platform's architecture is comprised of an end-user tier, an
application tier and a database tier.
[DIAGRAM]
We primarily use Microsoft Windows NT for operating systems, IIS for
Internet web server software, and SQL Server 7.0 for database environment. Our
internally-developed applications are written using various programming
languages such as C/C++, Active Server Pages, HTML, XML, javascript and SQL.
END-USER TIER
This tier is comprised of the standard web browsers used by consumers and
affiliates to respectively access and publish the affinity-channels. We support
the current versions of Netscape and Internet Explorer and are
backward-compatible to Netscape 3.0 and Internet Explorer 3.0.
APPLICATION TIER
This tier consists of software running on a series of web servers and
dedicated application servers. The software manages the website user interface,
runs applications like data feeds, message boards, chat and e-commerce, and
retrieves content from the database tier. All software except chat, multi-media
production and hosting and advertising serving is of proprietary design.
USER INTERFACE AND CACHING. This is the website as seen by end-users and is
supported by its interfaces with underlying applications and databases. The web
pages are built dynamically by combining site-specific content and links with
relevant content from other affinity-channels. Frequently changing news and
information are placed prominently to encourage repeat visits. A common
navigation design enables users to visit multiple affinity-
48
<PAGE> 50
channels in the network without relearning the location of key features. Our
"just-in" technology enables automatic cross-site publishing. Sophisticated
in-memory caching software enables us to serve dynamic pages to users as static
HTML.
PUBLISHER AND CUSTOMER SERVICE TOOL. This is our "admin" tool and it
enables affiliates to remotely and independently manage their affinity-channels,
post stories, upload images, add links, manage message boards and chats, and
perform other administrative tasks. Our staff uses this tool to create and
classify new affinity-channels and respond to customer service issues such as
registration or store purchases. The tool uses a simple point-and-click
interface and requires no HTML knowledge.
MESSAGE BOARDS. This application combines key end-user features with
moderation tools, content database integration and scalability, including the
ability to split traffic across multiple web servers.
CHAT. We currently use Eshare, a commercial product, to provide chat
functionality to our affinity-channels. Proprietary code integrates this
application with our user interface and member database.
DATA FEEDS. These applications continuously acquire content feeds from
internal or third-party suppliers, such as STATS, Inc. and Fox. We store this
data in our content database for retrieval and display in various forms.
MULTI-MEDIA PRODUCTION AND HOSTING. Activate.net, a third-party service
provider, uses our admin tool to post video and audio content and assign it to
particular affinity-channels in a turnkey fashion. This allows Activate.net on
our behalf to host both live and archived streaming content, acquire data from
satellite, cable, videotape and other sources, and produce interactive events
such as chat or audio simulcasts.
ADVERTISING SERVING. Advertising banner serving and campaign management and
reporting are provided entirely by AdForce, a third-party advertising services
provider. Our personnel use our admin tool to enable campaign targeting by,
among others, affinity-channel, page, region, and category.
E-COMMERCE. Our existing e-commerce affinity-channels are enabled using
Yahoo Store. We are currently developing technology that will combine our
existing content database and user interface with third-party technology to
create an integrated e-commerce solution.
DATABASE TIER
Our database tier consists of a main content database, as well as member
registration, message board, player profile/recruiting and sports statistics
databases. Our databases are of proprietary design and data is stored in
double-byte character set format, a prerequisite to support Asian languages.
CONTENT DATABASE. The heart of our technology platform, this database
stores and organizes content associated with affinity-channels and categories.
For a given affinity-channel, it enables the display of news, links, community
features and other content specific to that affinity, while maintaining
affiliate branding opportunities and targeted advertisements and e-commerce
promotions.
MESSAGE BOARD DATABASE. This database supports our message board
application to provide message board functionality to our affinity channels.
49
<PAGE> 51
MEMBER REGISTRATION DATABASE. This database contains all "members" who have
registered for message boards, premium content, or other features. Demographic
information is requested during the registration process, including the user's
approval or disapproval to send news updates or other information.
PLAYER PROFILE/RECRUITING DATABASE. This sports network-specific database
currently contains more than 75,000 entries for high school, college and
professional athletes, including statistics, photos, scouting videos,
biographies and commentary.
STATISTICS DATABASE. This is another sports network-specific database that
maintains recent and historical box scores, rosters, game results and other
statistics for over 1,500 teams in various sports.
DATA CENTER
Our servers, excluding multimedia servers, which are partner-hosted, are
housed at the Seattle data center of Exodus Communications pursuant to an
Internet-hosting agreement. Exodus maintains an extensive national network and
provides redundant Internet connections to multiple Internet access points, a
secure physical environment, climate control and redundant power. In addition,
Exodus provides us with 24-hour-a-day, seven-day-a-week network monitoring and
escalation. We believe Exodus has adequate available floor space at its Seattle
data center to support our growth. In addition, we are planning to support a
distributed, redundant site by placing some of our servers in additional Exodus
or other companies' data centers in other locations. Our one year agreement with
Exodus provides for automatic one year renewal periods, but allows us to
terminate the agreement for any reason upon 30 days prior written notice.
NETWORK DEVELOPMENT
As of February 15, 2000, our network development organization included 25
engineers. We believe that strong technology development capabilities are
essential to our strategy of becoming the leading developer and operator of
affinity-channel networks. We have invested significant time and resources in
recruiting experienced engineers and software developers. In addition, we have
developed a process that involves several functional groups at all levels within
our company and is designed to provide a framework for defining and addressing
the activities required to bring product concepts and development projects to
market successfully.
In addition, our network development organization includes 16 individuals
involved in adding affinity-channels to our network. This team focuses on adding
affinity-channels into new and existing vertical categories by recruiting
affiliates that meet our quality standards.
SALES AND MARKETING
As of February 15, 2000, we had a sales and marketing organization of 26
sales and marketing professionals. The group is made up of advertising sales
professionals concentrating primarily on selling strategic sponsorships and
promotions to senior level brand marketers and advertising executives. Our sales
team consults regularly with advertisers on the design and placement of
advertisements, sponsorships and promotions across the network. We currently
have sales offices in New York City, Chicago, Los Angeles and Seattle.
50
<PAGE> 52
Our marketing efforts are designed to enhance our affiliates' brands rather
than promoting our brand. To attract users to our network, we have relied
primarily on word-of-mouth, grass-roots promotional activities and distribution
or sponsorship relationships with high traffic websites. We also employ a
variety of methods to promote our brand within the advertising community to
raise awareness of the benefits of our network and the targeted advertising
opportunities that we can provide.
BUSINESS DEVELOPMENT
We have a dedicated team of experienced individuals evaluating
opportunities to expand our business. The focus of these individuals is to
develop and execute a long-term strategy for launching new networks, expanding
into additional geographic regions, entering into strategic relationships and
adding new vertical categories to our existing sports network. This team seeks
to leverage upon our success and expertise in developing our sports network into
additional networks and to diversify our revenue base.
STRATEGIC RELATIONSHIP
News America Incorporated is an investor in our company. In addition, we
have a content sharing agreement with News Digital Media, a subsidiary of News
America, that gives our affiliates free and direct access to the worldwide
collection of sports video for which FoxSports.com has digital rights.
FoxSports.com also provides access to daily headlines, news and video for our
affinity-channels. In return, we will provide FoxSports.com with access to
team-specific news, audio and video content, insider reports, recruiting
information and rankings from our network, with links back to the originating
affinity-channels.
INTERNATIONAL JOINT VENTURE
We have entered into an agreement with Chrysalis Holdings Limited for the
purpose of establishing in Europe a network of sports targeted affinity-channels
similar to what we have established in the United States. This European-focused
network will be substantially identical in all material respects to what we have
in the U.S. sports vertical, with the exception that the coverage of specific
teams and sports will reflect European interests.
COMPETITION
The market for our services continues to develop and rapidly evolve and is
characterized by an increasing number of market entrants with competing
services. We expect that competition will continue to intensify. A number of
companies offer competitive services addressing our target markets. We compete
for affinity-channels, users and advertising and e-commerce revenues. Our
competitors include other Internet infrastructure services companies such as
DoubleClick, Infospace and 24/7 Media. Our competitors also include content
providers such as ESPN and Sportsline, as well as community sites. In addition
to entities that provide services and content, we compete with vendors of
information, merchandise, products and services distributed through online sites
and other means, including retail stores, mail, facsimile and private online
bulletin board services, and television, radio and other established media
entities that broadcast events.
51
<PAGE> 53
Significant competitive factors include:
- quantity and breadth of infrastructure services;
- depth of content and e-commerce offerings; and
- access to targeted demographic groups.
We have and might have in the future business relationships with some of
our competitors, and some of our current partners may become competitors in the
future. Some of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do, and may be better able to attract affinity-channels and
other content providers, as well as advertisers, users and consumers. These
competitors may be able to respond more quickly than we can to new or emerging
technologies and changes in online user preferences and to devote greater
resources than we can to building our business. These competitors may develop
content and e-commerce offerings comparable or superior to ours.
Barriers to entry are minimal, and current and potential competitors can
launch new online sites or networks at a relatively low cost. We expect that the
number of our direct and indirect competitors will increase in the future which
may result in lower revenues and loss of users, any of which could materially
and adversely affect our business, operating results and financial condition.
Increased competition could result in lower revenues and loss of users, any of
which could materially adversely affect our business, operating results and
financial condition.
INTELLECTUAL PROPERTY
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our future success and we rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. We have entered into confidentiality and invention
assignment agreements with our employees and contractors, and nondisclosure
agreements with our affiliates, suppliers and strategic partners in order to
limit access to and disclosure of our proprietary information. There can be no
assurance that these contractual arrangements or the other steps we have taken
to protect our intellectual property will prove sufficient to prevent
misappropriation of our technology or to deter the independent third-party
development of similar technologies.
We have applied to register several trademarks in the United States and
will seek to register additional trademarks and file patent applications as
appropriate. We cannot assure you that we will be successful in obtaining any of
the patents or trademark registrations for which we have applied. Even if these
applications mature into patents or registered trademarks, they may be
successfully challenged by others or invalidated. If the applications are denied
because third parties own the trademarks or similar technologies, or if our
rights to use the trademarks or patented subject matter are challenged by owners
of similar rights, the use of the trademarks or patented subject matter may be
restricted unless we enter into arrangements with the third parties, which may
be unavailable on commercially reasonable terms.
The computer software market is characterized by frequent and substantial
intellectual property litigation that is often complex and expensive and
involves a significant diversion of resources and uncertainty of outcome. In the
future, we may need to pursue litigation to
52
<PAGE> 54
enforce and protect our intellectual property and trade secrets or to defend
against a claim of infringement or invalidity. We have been and expect to
continue to be subject to legal proceedings and claims from time to time in the
ordinary course of our business, including claims of alleged infringement of
third-party proprietary rights by us and our licensees. We attempt to avoid
infringing known proprietary rights of third parties in our product development
efforts. However, we have not conducted and do not conduct comprehensive patent
searches to determine whether the technology used in our products infringes
patents held by third parties. In addition, it is difficult to proceed with
certainty in a rapidly evolving technological environment in which there may be
numerous patent applications pending, many of which are confidential when filed,
with regard to similar technologies.
To date, we have not been notified that our technologies infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement by us with respect to past, current or
future technologies. We expect that participants in our markets will be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any such claim, whether meritorious
or not, could be time-consuming, result in costly litigation, cause services
upgrade delays or require us to enter into royalty or licensing agreements. Such
royalty or licensing agreements might not be available on terms acceptable to us
or at all. As a result, any such claim could have a material adverse effect upon
our business, results of operations and financial condition.
LEGAL PROCEEDINGS
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business, including
possible claims of alleged infringement of third-party trademarks and other
intellectual property rights by the company and our licensees. Such claims, even
if not meritorious, could result in the expenditure of significant financial and
managerial resources.
EMPLOYEES
As of February 15, 2000, we had a total of 137 employees, including 29 in
sales and marketing, 25 in engineering, 45 in network development and content, 8
in e-commerce, and 29 in administration and finance. None of our employees is
represented by a collective bargaining agreement, nor have we experienced any
work stoppage. We consider our relations with our employees to be good.
FACILITIES
We are headquartered in Seattle, Washington, where we lease approximately
13,770 square feet pursuant to a lease that expires on November 30, 2001. We
have an option to terminate the lease at the end of March 2001. In November
1999, we entered into a new lease for approximately 53,500 square feet at 1513
5th Ave., Seattle, Washington. We intend to relocate our executive offices to
this new facility in May 2000. The lease expires February 17, 2005.
In addition, we lease smaller offices in Seattle, for backoffice
operations, and in Los Angeles, California, Chicago, Illinois, New York, New
York and Detroit, Michigan for sales and marketing. We believe that our current
facilities, including the new lease for 53,500 square feet, will be adequate to
accommodate our needs for the next twelve months.
53
<PAGE> 55
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors as of February 15, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James C. Heckman, Jr. ........... 34 Chief Executive Officer and Chairman of the
Board of Directors
Saul Gamoran..................... 40 Executive Vice President, Secretary and Director
William C. Sornsin, Jr. ......... 38 Chief Technology Officer and Senior Vice
President, Engineering
Karen Northup.................... 28 Chief Financial Officer
Scott Ehrlich.................... 31 Executive Vice President
Jonathan D. Lazarus(1)(2)........ 48 Director
Mike Slade(1)(2)................. 42 Director
Ann Winblad(1)................... 49 Director
</TABLE>
- -------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
James C. Heckman, Jr. has served as our Chief Executive Officer and
Chairman of our Board of Directors since our inception in September of 1998.
From 1995 through the present, Mr. Heckman was founder and president of Heckman
Media, Inc., a publisher of numerous sports-related publications covering both
amateur and professional sports. Mr. Heckman attended the University of
Washington from 1983 to 1987 where he majored in Communities.
Saul Gamoran has served as our Executive Vice President since June 1999,
our Secretary since November 1999 and a member of our Board of Directors since
February 2000. From June 1996 through June 1999, Mr. Gamoran was Executive Vice
President and General Counsel of Play-By-Play Toys and Novelties. Prior to that,
Mr. Gamoran served as President of Renaissance Strategies Ltd. Mr. Gamoran
received a B.S. in Speech from Northwestern University and a J.D. from
Northwestern University School of Law.
William C. Sornsin, Jr. has served as our Chief Technology Officer and
Senior Vice President, Engineering since January 1999. From November 1996
through December 1998, Mr. Sornsin was Group Manager for the Microsoft Network
at Microsoft Corp. Prior to that, from August 1991 through November 1996, Mr.
Sornsin served in various managerial roles at Microsoft and was involved in such
activities as product planning and development. Mr. Sornsin received a B.S. in
Engineering from the University of Iowa as well as a MBA from the Anderson
Graduate School of Management at UCLA.
Karen Northup has served as our Chief Financial Officer since November
1999. From February 1998 to November 1999, Ms. Northup served as acting Chief
Financial Officer and Controller of Telocity, Inc. From May 1996 to December
1998, Ms. Northup was employed by Frontier Global Center, Inc., first as
Controller and later as Marketing Product Manager. Prior to that, Ms. Northup
was a Senior Associate at Coopers & Lybrand LLP. Ms. Northup is a Certified
Public Accountant, a Certified Management Accountant and received a B.S. in
Accountancy from Arizona State University.
Scott Ehrlich has served as our Executive Vice President since November
1999. From September 1997 to November 1999, Mr. Ehrlich served as Senior Vice
President and
54
<PAGE> 56
Executive Producer for News America Digital Publishing as part of that company's
founding management team. From March 1996 to September 1997, he served as
Director, Issues Information and Online Services for Fox News Channel. Prior to
that, from February 1994 to March 1996, Mr. Ehrlich was Director of Research for
NBC Cable, a division of the National Broadcasting Corporation. Mr. Ehrlich
received a B.A. in Drama and Political Science from Kenyon College and a Masters
in Political Management from the Graduate School of Political Management.
Jonathan D. Lazarus has been a member of our Board of Directors since
February 1999. Mr. Lazarus was with Microsoft Corporation from 1985 through 1996
in a series of executive positions serving most recently as Vice President,
Strategic Relations. Mr. Lazarus serves on the board of directors of Data
Channel, Inc., HomeGrocer.com, Vision Solutions and Ziff-Davis. He has also
served as an advisor to Microsoft Corporation and ZDTV.
Mike Slade has been a member of our Board of Directors since March 1999.
From 1993 through 1999, Mr. Slade was Chairman and Chief Executive Officer of
Starwave, Inc. Prior to that, Mr. Slade served in various managerial roles,
including Vice President of Special Projects, for the Asymetrix Corporation. Mr.
Slade received a B.A. in Economics from Colorado College and a MBA from the
Stanford University Graduate School of Management.
Ann Winblad has been a member of our Board of Directors since March 1999.
Ms. Winblad has been a general partner of Hummer Winblad Venture Partners, a
venture capital investment firm, since 1989. She is a member of the board of
trustees of the University of St. Thomas. Ms. Winblad also serves on the boards
of directors of Net Perceptions Inc., a developer and supplier of realtime
recommendation technology for the Internet, Liquid Audio Inc., a provider of an
open platform that enables the digital delivery of music over the Internet, The
Knot, an Internet-based wedding services company, and several private companies.
Ms. Winblad received a B.A. in Mathematics and Business Administration from the
College of St. Catherine and an M.A. in Education with an Economics focus from
the University of St. Thomas.
BOARD OF DIRECTORS
We currently have authorized five directors. Each director is elected for a
period of one year at our annual meeting of shareholders and holds office until
the next annual meeting or until his or her successor is duly elected and
qualified. Pursuant to an Amended and Restated Voting Agreement, each of
SOFTBANK Capital Partners and News America Incorporated may appoint one member
of our board of directors for the two-year period following the offering.
SOFTBANK Capital Partners has designated Jonathan Lazarus as its director
nominee, although Mr. Lazarus has no affiliation with SOFTBANK Capital Partners.
COMMITTEES
Our board of directors has an audit committee and a compensation committee.
The audit committee consists of Mike Slade, Ann Winblad and Jonathan Lazarus.
The audit committee reviews and monitors our corporate financial reporting and
our internal accounting procedures, consults with and reviews the services
provided by our independent accountants and makes recommendations to our board
of directors regarding the selection of independent accountants. The
compensation committee consists of Messrs. Slade and Lazarus. The compensation
committee reviews and makes recommendations to our board of directors regarding
the compensation and benefits of our employees and directors.
55
<PAGE> 57
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee is currently, or has ever
been since our formation one of our officers or employees. No member of our
compensation committee has served as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
COMPENSATION
In March 2000, the board approved compensation guidelines for directors who
are not our officers or employees. The compensation guidelines provide that
these directors will be reimbursed for expenses incurred in attending any board
or committee meeting. Directors who are also our officers or employees will not
receive reimbursement for expenses incurred in attending board or committee
meetings.
EXECUTIVE OFFICERS
Our executive officers are appointed by our board of directors and serve
until their successors are elected or appointed by our board of directors.
COMPENSATION
The following table contains information for the fiscal year ended December
31, 1999 regarding the compensation earned by our Chief Executive Officer, and
each of the other most highly compensated officers whose compensation exceeded
$100,000 during 1999. In accordance with the rules of the SEC, the compensation
described in this table does not include perquisites and other personal benefits
received by the executive officers named in the table below that do not exceed
the lesser of $50,000 or 10% of the total salary and bonus reported for these
officers.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------------
-------------------- SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS(1) UNDERLYING OPTIONS
--------------------------- -------- -------- ------------------
<S> <C> <C> <C>
James C. Heckman, Jr.(2)...................... $137,047 $46,512 2,080,000
Jeffrey P. Rice(3)............................ 124,167 -- 313,334
</TABLE>
- -------------------------
(1) Represents amounts earned in fiscal year 1999.
(2) Mr. Heckman served as our chief executive officer during fiscal 1999.
(3) Mr. Rice served as our chief operating officer and chief financial officer
during fiscal 1999.
OPTION GRANTS IN FISCAL YEAR 1999
The following table sets forth information concerning grants of stock
options to each of the executive officers named in the table above during the
fiscal year 1999. All options granted to these executive officers in fiscal 1999
were granted under the 1998 Stock Option Plan. 33.33% of the shares subject to
each option vests and becomes exercisable on the first anniversary of the date
of grant, and an additional 2.78% of the shares subject to each option vests
monthly thereafter. The percentage of the total options set forth below is based
on an aggregate of 7,556,251 options granted to employees as of December 31,
1999. All
56
<PAGE> 58
options were granted at a fair market value as determined by the board of
directors on the date of grant. The board of directors determined the fair
market value based on our financial results and prospects. Amounts represent
hypothetical gains that could be achieved for the options if exercised at the
end of the option term. The assumed 5% and 10% rates of stock price appreciation
are provided in accordance with rules of the SEC and do not represent our
estimate or projection of the future common stock price. The assumed 5% and 10%
rates of stock price appreciation are based on the fair market value of the
shares at December 31, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED IN 1999 PER SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
James C. Heckman,
Jr. .................. 80,000 1.06% $0.275 1/3/2009 $ 1,058 $ 2,988
2,000,000 26.47 0.275 3/4/2009 264,338 746,533
Jeffrey P. Rice......... 80,000 1.06 0.250 1/3/2009 1,258 3,188
160,000 2.12 0.250 2/28/2009 25,147 63,723
60,000 0.79 0.250 5/19/2009 9,430 23,896
13,334 0.18 1.000 9/28/2009 8,383 21,242
</TABLE>
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1999 AND OPTION VALUES AT
DECEMBER 31, 1999
The following table sets forth information concerning exercisable and
unexercisable stock options held by the executive officers named in the summary
compensation table at December 31, 1999. The value of unexercised in-the-money
options is based on the fair market value of the shares at December 31, 1999
minus the actual exercise prices. All options were granted under our 1998 Stock
Option Plan. These options vest over four years and otherwise generally conform
to the terms of our 1998 Stock Option Plan.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FEBRUARY 15, 2000 FEBRUARY 15, 2000
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James C. Heckman, Jr. .... 833,333 $479,166 41,667 1,205,000 $155,210 $4,508,425
Jeffrey P. Rice........... 87,501 68,127 4,722 287,779 17,708 1,087,171
</TABLE>
EMPLOYMENT AGREEMENTS
On March 5, 1999, we entered into an employment agreement with James C.
Heckman, Jr. for a term of 2 years. Mr. Heckman serves as our President and
Chief Executive Officer and is paid a salary at the rate of $175,000 per year.
Pursuant to the agreement, Mr. Heckman is entitled to receive incentive bonuses
at the discretion of our board of directors and is entitled to general benefits
available to all of our employees including reimbursement of reasonable business
expenses.
Mr. Heckman was also granted an option to purchase 2,000,000 shares of our
common stock at $0.275 per share. The option vests as to 25% of the shares on
the one year anniversary of the grant and vests as to 2.08% of the shares each
month thereafter for the
57
<PAGE> 59
following thirty-six months. In the event of a change of control and subsequent
constructive termination or termination without cause within the twelve month
period following the change of control, one year of vesting will accelerate. In
the event of an involuntary termination, Mr. Heckman will be entitled to
severance benefits, including salary and health insurance for a period of six
months from the date of the involuntary termination.
On June 12, 1999, we entered into an employment agreement with Saul
Gamoran, which may be terminated by either party upon 30 days written notice.
Mr. Gamoran serves as our Executive Vice President and is paid a salary at the
rate of $175,000 per year. Pursuant to the agreement, Mr. Gamoran is entitled to
receive incentive bonuses at the discretion of our board of directors and is
entitled to general benefits available to all of our employees including
reimbursement of reasonable business expenses.
Mr. Gamoran was also granted an immediately exercisable option to purchase
250,000 shares of our common stock at $0.25 per share. The option vests as to
25% of the shares on the one year anniversary of the grant and vests as to 2.08%
of the shares each month thereafter for the following thirty-six months. In the
event of an involuntary termination or termination without cause, one year of
vesting will accelerate. In addition, Mr. Gamoran was permitted to purchase
100,000 shares of our Series C Preferred Stock in September 1999 for $3.54 per
share.
On January 11, 1999, we entered into an employment letter agreement with
William C. Sornsin, Jr. under which his employment may be terminated at will.
Mr. Sornsin serves as our Chief Technology Officer and Senior Vice President,
Engineering and is paid a salary at the rate of $175,000 per year. Pursuant to
the agreement, Mr. Sornsin is entitled to receive incentive bonuses at the
discretion of our board of directors and is entitled to general benefits
available to all of our employees including reimbursement of reasonable business
expenses.
Mr. Sornsin was also granted an option to purchase 240,000 shares of our
common stock at $0.25 per share. The option vests as to one third of the shares
on the one year anniversary of the grant and vests as to 2.78% of the shares
each month thereafter for the following twenty-four months.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
Our articles of incorporation limit the liability of directors and officers
to the fullest extent permitted by the Washington Business Corporation Act as it
currently exists or as it may be amended in the future. Consequently, subject to
the Washington Business Corporation Act, neither our directors nor our officers
will be personally liable for monetary damages for breach of their fiduciary
duties as directors or officers, except liability associated with any of the
following:
- any breach of their duty of loyalty to the corporation or its
shareholders;
- acts or omissions which involve intentional misconduct or a knowing
violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemption; or
- any transaction from which the indemnified party derived an improper
personal benefit of money, property or services.
The limitation of a director's liability does not apply to liabilities
arising under the federal securities laws and does not affect the availability
of equitable remedies such as injunctive relief or rescission.
58
<PAGE> 60
Our articles of incorporation and bylaws also provide that we shall
indemnify our directors and executive officers and may indemnify our other
officers and employees and other agents to the fullest extent permitted by law.
We believe that indemnification under our bylaws covers at least negligence and
gross negligence on the part of indemnified parties. Our bylaws also 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 in such capacity, regardless
of whether our bylaws would permit indemnification.
We intend to enter into indemnification agreements with each of our
officers and directors containing provisions that require us to, among other
things, indemnify such officers and directors against liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to cover our directors and officers under any of
our liability insurance policies applicable to our directors and officers. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
STOCK PLANS
EMPLOYEES STOCK OPTION PLAN
Our 1998 Stock Option Plan was approved by our board of directors in March
1998 and by our shareholders at their annual meeting in September 1998. Our
board of directors amended the plan in December 1998, March 1999, April 1999,
June 1999 and March 2000. We have reserved a total of 13,459,160 shares of our
common stock for issuance under the plan. On each January 1, beginning in 2001,
the aggregate number of shares reserved for issuance under this plan will
increase automatically by a number of shares equal to 4% of our outstanding
shares of capital stock on December 31 of the preceding year. The plan provides
for the granting to our employees of incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended, and for the
granting to employees, including officers and directors, non-employee directors
and consultants of non-statutory stock options. Unless terminated sooner, this
plan will terminate automatically in 2008.
Our 1998 Stock Option Plan is currently administered by our board of
directors, which determines the terms of the options granted, including the
exercise price, the number of shares subject to each option, the vesting and the
form of consideration payable upon such exercise. In addition, the board has the
authority to amend, suspend or terminate the plan, provided that it cannot take
any action that would impair the rights of an optionee with respect to any
option previously granted and then outstanding under the plan without the
consent of the optionee.
Options granted under our 1998 Stock Option Plan are not generally
transferable by the optionee except by will or the laws of intestate succession,
and each option is exercisable during the lifetime of the optionee only by the
optionee. Options granted under the plan must generally be exercised within
three months of the end of optionee's status as our employee or consultant, or
within twelve months after his or her termination by death or disability, but in
no event later than the expiration of the option's ten year term. The exercise
price of any incentive stock options granted under this plan and any
non-statutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of
59
<PAGE> 61
the Internal Revenue Code of 1986, must be at least equal to the fair market
value of our common stock on the date of grant. With respect to any participant
who owns stock possessing more than 10% of the voting power of all classes of
our outstanding capital stock, the exercise price of any incentive or
nonstatutory stock option granted must equal at least 110% of the fair market
value on the grant date and the term of an incentive stock option granted to
such a participant must not exceed five years. The term of all other options
granted under the plan may not exceed ten years.
Our 1998 Stock Option Plan provides that in the event of our merger with or
into another corporation or a sale of substantially all of our assets, our board
may, by accelerating the vesting schedule, provide for the optionee to have the
right, prior to the closing of the transaction, to exercise the option as to
some or all of the optioned stock, provided that the decision to accelerate does
not interfere with any "pooling of interests" accounting treatment used in
connection with the transaction. All options will terminate upon the closing of
the transaction.
NETWORK AFFILIATES STOCK OPTION PLAN
Our 1999 Network Affiliates Stock Option Plan was approved by our board of
directors in April 1999. We have reserved a total of 1,400,000 shares of our
common stock for issuance under the plan. On each January 1, beginning in 2001,
the aggregate number of shares reserved for issuance under this plan will
increase automatically by a number of shares equal to 0.5% of our outstanding
shares of capital stock on December 31, of the preceding year. The plan provides
for the granting to consultants of non-statutory stock options. Unless
terminated sooner, this plan will terminate automatically in 2009.
Our 1999 Network Affiliates Stock Option Plan is currently administered by
our board of directors, which determines the terms of the options granted,
including the exercise price, the number of shares subject to each option, the
vesting and the form of consideration payable upon such exercise. In addition,
the board has the authority to amend, suspend or terminate the plan, provided
that it may not adversely affect the rights of an optionee with respect to any
option previously granted and then outstanding under the plan without the
consent of the optionee.
Options granted under our 1999 Network Affiliates Stock Option Plan are not
generally transferable by the optionee except by will or the laws of intestate
succession, and each option is exercisable during the lifetime of the optionee
only by the optionee. Options granted under the plan must generally be exercised
within three months of the end of optionee's status as our consultant, but in no
event later than the expiration of the option's ten year term. The exercise
price of the stock options granted under this plan must be at least equal to 85%
of the fair market value of our common stock on the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting power
of all classes of our outstanding capital stock, the exercise price of any stock
option granted must equal at least 110% of the fair market value on the grant
date. The term of all options granted under this plan may not exceed ten years.
Our 1999 Network Affiliate Stock Option Plan provides that in the event of
our merger with or into another corporation or a sale of substantially all of
our assets, our board may, by accelerating the vesting schedule, provide for the
optionee to have the right, prior to the closing of the transaction, to exercise
the option as to some or all of the optioned stock, provided that the decision
to accelerate does not interfere with any "pooling of interests" accounting
treatment used in connection with the transaction. All options will terminate
upon the closing of the transaction.
60
<PAGE> 62
2000 EMPLOYEE STOCK PURCHASE PLAN
In March 2000, we adopted our 2000 Employee Stock Purchase Plan. We have
reserved 400,000 shares of common stock for issuance under the 2000 Employee
Stock Purchase Plan. On each January 1, beginning in 2001, the aggregate number
of shares reserved for issuance under this plan will increase automatically by a
number of shares equal to 1.5% of our outstanding shares of capital stock on
December 31 of the preceding year. Our 2000 Employee Stock Purchase Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code in order to provide our employees with an opportunity
to purchase common stock through payroll deductions. An aggregate of 400,000
shares of common stock has been reserved for issuance under the 2000 Employee
Stock Purchase Plan and made available for purchase thereunder, subject to
adjustment in the event of a stock split, stock dividend or other similar change
in the common stock or our capital structure. All of our employees (and
employees of our "subsidiary corporation" and "parent corporation" (as defined
by the Internal Revenue Code) designated by the administrator) whose customary
employment is for more than five months in any calendar year and more than 20
hours per week are eligible to participate in the 2000 Employee Stock Purchase
Plan. In addition, employees must have been employed for 24 months or more to
participate in the 2000 Employee Stock Purchase Plan. Non-employee directors,
consultants, and employees subject to the rules or laws of a foreign
jurisdiction that prohibit or make impractical the participation of such persons
in the 2000 Employee Stock Purchase Plan are not eligible to participate in the
2000 Employee Stock Purchase Plan.
The 2000 Employee Stock Purchase Plan designates offer periods, purchase
periods and exercise dates. The Internal Revenue Code allows for offer periods
of up to 27 months and purchase periods of any length within an offer period.
Initially, the purchase periods under the 2000 Employee Stock Purchase Plan
coincide with the offer periods such that the purchase periods are of six
months' duration commencing each January 1 and July 1 (except that the initial
purchase period commenced on the effective date of this offering and will end on
December 31, 2000). Exercise dates are the last date of each purchase period,
that is June 30 and December 31. In the event we merge with or into another
corporation or dispose of all or substantially all of our assets, or in the
event of other transactions in which our stockholders before the transaction own
less than 50% of the total combined voting power of all our outstanding
securities after the transaction, the administrator may elect to shorten the
offer period then in progress.
On the first day of each offer period, a participating employee is granted
a purchase right, which is a form of option to be automatically exercised on the
next exercise date. Deductions are to be made from the salary of participants
(in accordance with their authorizations) and credited to their accounts under
the 2000 Employee Stock Purchase Plan. When the purchase right is exercised, the
participant's withheld salary is used to purchase shares of common stock. The
price per share at which shares of common stock are to be purchased under the
2000 Employee Stock Purchase Plan for any six month period is the lesser of (A)
85% of the fair market value of the common stock on the date of the grant of the
option (the commencement of the offer period) or (B) 85% of the fair market
value of the common stock on the exercise date (the last day of the offer
period).
Payroll deductions may range from 1% to 10% (in whole-percentage
increments) of a participant's regular base pay, exclusive of bonuses, overtime,
shift-premiums, commissions, reimbursements or other expense allowances.
Participants may not make direct cash payments to their accounts. The Internal
Revenue Code imposes certain limitations on the amount of common stock that may
be purchased during any calendar year.
61
<PAGE> 63
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMMON STOCK ISSUANCES
In July, September and December of 1999 pursuant to certain option
agreements Mr. Heckman exercised 666,667, 41,666 and 125,000 incentive stock
options, respectively, for an aggregate consideration of $708,332.75. In each of
January and February of 2000 Mr. Heckman exercised 41,667 incentive stock
options for a aggregate consideration of $961,674.36. In connection with these
exercises, Mr. Heckman gave us promissory notes in the aggregate principal
amount of $1,670,007.10.
In June 1999, pursuant to an option agreement, Mr. Gamoran exercised
250,000 non-qualified stock options for cash consideration of $62,500.
SALE OF PREFERRED STOCK
In June 1998 and January 1999, we sold an aggregate of 1,240,000 shares of
our Series A preferred stock to the following investors at a price of $0.25 per
share:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF AGGREGATE
SERIES A PURCHASE FORM OF
NAME OF PURCHASER PREFERRED STOCK PRICE CONSIDERATION
----------------- --------------- ----------- ---------------------
<S> <C> <C> <C>
Heckman Media, Inc.(1) 1,240,000 $ 310,000 Transfer of assets
and payment of
commissions debt
</TABLE>
In March 1999, we sold an aggregate of 6,861,734 shares of our Series B
preferred stock to the following investors at a price of $1.05 per share:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF AGGREGATE
SERIES B PURCHASE FORM OF
NAME OF PURCHASER PREFERRED STOCK PRICE CONSIDERATION
----------------- --------------- ----------- ---------------------
<S> <C> <C> <C>
Entities affiliated with Hummer Winblad 3,811,217(3) $ 4,001,778 Cash
Venture Partners(2)
Intel Corporation 1,905,609 $ 2,000,890 Cash
Entities affiliated with The Phoenix 952,804(5) $ 1,000,444 Cash
Partners(4)
Great Northern Ventures LLC 192,104 $ 201,709 Cash and conversion
of convertible note
</TABLE>
62
<PAGE> 64
In September 1999, we sold an aggregate of 6,637,640 shares of our Series C
preferred stock to the following investors at a price of $3.54 per share:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF AGGREGATE
SERIES C PURCHASE FORM OF
NAME OF PURCHASER PREFERRED STOCK PRICE CONSIDERATION
----------------- --------------- ----------- -----------------------
<S> <C> <C> <C>
News America Incorporated 4,238,999 $15,006,056 Advertising Credit and
Cash
Hummer Winblad Venture Partners IV, 1,313,509 $ 4,649,822 Cash
L.P.(3)
Intel Corporation 656,755 $ 2,324,913 Cash
The Phoenix Partners IV Limited 328,377 $ 1,162,455 Cash
Partnership
Saul Gamoran 100,000 $ 354,000 Cash
</TABLE>
In February 2000 we sold an aggregate of 3,000,000 shares of our Series E
preferred stock to the following investors at a price of $11.50 per share:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF AGGREGATE
SERIES E PURCHASE FORM OF
NAME OF PURCHASER PREFERRED STOCK PRICE CONSIDERATION
----------------- --------------- ----------- ----------------
<S> <C> <C> <C>
SOFTBANK Capital Partners(6) 3,000,000(7) $34,500,000 Cash
</TABLE>
- ---------------
(1) James C. Heckman, Jr., our Chairman and Chief Executive Officer, is
president of Heckman Media, Inc.
(2) Ann Winblad, a member of our board of directors, is a partner of Hummer
Winblad Venture Partners. Funds affiliated with Hummer Winblad Venture
Partners own beneficially more than 5% of the outstanding shares of our
common stock. For a description of this affiliation and disclaimers of
beneficial ownership, see "Principal Shareholders."
(3) Includes 3,620,656 shares purchased by Hummer Winblad, III, L.P. and 190,561
shares purchased by Hummer Winblad Technology Funds II, L.P.
(4) Funds affiliated with The Phoenix Partners own beneficially more than 5% of
the outstanding shares of our common stock.
(5) Includes 714,603 shares purchased by The Phoenix Partners IV Limited
Partnership and 238,201 shares purchased by The Phoenix Partners III Limited
Partnership.
(6) SOFTBANK Capital Partners and funds affiliated with SOFTBANK Capital
Partners own beneficially more than 5% of the outstanding shares of our
common stock. For a description of this affiliation and disclaimers of
beneficial ownership, see "Principal Shareholders."
(7) Includes 2,957,100 shares purchased by SOFTBANK Capital Partners LP and
42,900 shares purchased by SOFTBANK Capital Advisors Fund LP.
WARRANT ISSUANCES
In November 1998, in connection with a convertible promissory note in the
amount of $200,000, we issued to Great Northern Ventures LLC warrants to
purchase up to 19,047 shares of Series B preferred stock at a purchase price of
$1.05 per share. William C.
63
<PAGE> 65
Sornsin, Jr., our Chief Technology Officer and Senior Vice President,
Engineering, is the managing member of Great Northern Ventures, LLC.
In September 1999, in connection with the Series C preferred stock
financing, we issued to News America Incorporated a warrant to purchase up to
1,465,333 shares of Series D preferred stock at a purchase price of the lesser
of (i) $11.50 per share and (ii) the price per share at which shares are offered
and sold to the public in our initial public offering of common stock and a
warrant to purchase up to 5,861,333 shares of common stock at a purchase price
of $14.15 per share.
In September 1999, in connection with the Series C preferred stock
financing, we issued to Heckman Media, Inc. a warrant to purchase up to 427,357
shares of Series C preferred stock at a purchase price of $3.54 per share.
In February 2000, in connection with the Series E preferred stock
financing, we issued to entities affiliated with SOFTBANK Capital Partners LP
warrants to purchase up to 1,802,120 shares of Series F preferred stock at a
purchase price of $14.15 per share.
Each share of preferred stock is convertible into one share of our common
stock under certain conditions, including the closing of an initial public
offering of our common stock. The holders of each of our series of preferred
stock are subject to, and the beneficiaries of, rights, preferences, privileges
and restrictions in connection with the shares of preferred stock that they
hold. See "Description of Capital Stock -- Preferred Stock." The holders of our
Series B preferred stock are entitled to elect one of the members of our board
of directors. Certain holders of our common stock and Series A preferred stock
are entitled to elect two of the members of our board of directors. These
directors and the director designated by the holders of our Series B preferred
stock are entitled to designate one of the members of our board of directors.
The holders of our Series E preferred stock are entitled to elect one of the
members of our board of directors.
CONTENT AND LINK AGREEMENT WITH NEWSAMERICA DIGITAL PUBLISHING, INC.
We have entered into a Content and Link Agreement and related Technology
License Agreement with News America Digital Publishing, Inc. under which we have
agreed to share sports-related content with Fox Sports and to cooperate in
related activities, such as marketing. The Content and Link Agreement also
contains mutual non-compete provisions that limit each party's ability to
conduct business with direct competitors of the other party as well as requiring
us, prior to entering into a similar arrangement with respect to geographic
areas outside the United States, to offer future opportunities to News America
Digital Publishing, Inc.
EMPLOYMENT AGREEMENT
We have entered into employment agreements with our chief executive
officer, executive vice president and chief technology officer. See
"Management -- Employment Agreements."
We believe that each of the transactions described above were on terms no
less favorable than could have been obtained from unaffiliated third parties.
All future transactions between us and any director or executive officer will be
subject to approval by a majority of the disinterested members of our board.
64
<PAGE> 66
PRINCIPAL SHAREHOLDERS
The table below sets forth information regarding the beneficial ownership
of our common stock by the following:
- each shareholder known by us to own beneficially more than 5% of our
common stock;
- each of our executive officers named in the compensation table above;
- each of our directors; and
- all directors and executive officers as a group.
As of February 15, 2000, there were 1,901,349 shares of our common stock
outstanding. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission. For the purpose of this section, all
statements are based on information provided by the persons or entities named in
the table. For each person or entity, the table indicates the number of shares
beneficially owned and the percentage of all our outstanding shares represented
by that number. The percentage is shown as of February 15, 2000 and as adjusted
to reflect the common stock sold in this offering. For each person or entity,
the number of shares, and therefore the percentages calculated using the number
of shares, includes additional shares of common stock not currently outstanding
but subject to options or warrants held by that person or entity that are
currently exercisable or that will become exercisable within 60 days of February
15, 2000. However, those additional shares are not included when calculating the
number and percentage of any other person or entity. Unless indicated otherwise,
the persons and entities named in the table have sole voting and investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable. The address for individuals for whom an address
is not given is Rivals.com, Inc., 71 Columbia Street, Suite 550, Seattle,
Washington 98014.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OUTSTANDING
-----------------------------------
NAME OR GROUP OF BENEFICIAL OWNERS NUMBER OF SHARES PRIOR TO OFFERING AFTER OFFERING
---------------------------------- ---------------- ----------------- --------------
<S> <C> <C> <C>
News America Incorporated(1).......... 11,565,665 46.2% %
c/o News America Digital Publishing,
Inc.
620 Avenue of the Americas, 6th
Floor
New York, NY 10011
Hummer Winblad Venture Partners....... 5,124,726 20.5
2 South Park, 2nd Floor
San Francisco, CA 94107
Ann Winblad(2)........................ 5,124,726 20.5
2 South Park, 2nd Floor
San Francisco, CA 94107
Softbank Capital Partners(3).......... 4,802,120 13.9
10 Langley Road, Ste. 403
Newton Center, MA 02159
James C. Heckman, Jr.(4).............. 3,664,023 19.2
</TABLE>
65
<PAGE> 67
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OUTSTANDING
-----------------------------------
NAME OR GROUP OF BENEFICIAL OWNERS NUMBER OF SHARES PRIOR TO OFFERING AFTER OFFERING
---------------------------------- ---------------- ----------------- --------------
<S> <C> <C> <C>
Intel Corporation..................... 2,562,364 10.2%
RN1-33, P.O. Box 58119
2200 Mission College Blvd.
Santa Clara, CA 95052
The Phoenix Partners.................. 1,281,181 5.1
1000 Second Avenue, Suite 3600
Seattle, WA 98104
Jeffrey P. Rice(5).................... 628,873 2.5
Saul Gamoran.......................... 500,000 2.0
Mike Slade(6)......................... 142,619 * *
Jonathan Lazarus(7)................... 75,000 * *
All directors and executive officers
as a group (8 persons)(8)........... 10,158,472 37.7
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock
(1) Includes 7,326,666 shares pursuant to warrants exercisable prior to 180 days
after this offering.
(2) Includes 5,124,726 shares held by Hummer Winblad Venture Partners of which
Ms. Winblad is a partner. Ms. Winblad disclaims beneficial ownership to such
shares except as to her portional interest therein, if any.
(3) Includes 1,802,120 shares pursuant to warrants exercisable prior to 180 days
after this offering.
(4) Includes (i) 1,240,000 shares held by Heckman Media, Inc., of which Mr.
Heckman is President, (ii) 1,163,333 shares pursuant to options exercisable
within 60 days of February 15, 2000, and (iii) 427,357 shares pursuant to
warrants exercisable prior to three years after this offering.
(5) Includes 261,390 shares pursuant to options exercisable within 60 days of
February 15, 2000.
(6) Includes 95,000 shares pursuant to options exercisable within 60 days of
February 15, 2000.
(7) Includes 75,000 shares pursuant to options exercisable within 60 days of
February 15, 2000.
(8) Includes 5,124,726 shares held by Hummer Winblad Venture Partners of which
Ann Winblad is a partner, and 1,969,723 shares pursuant to options
exercisable within 60 days of February 15, 2000.
66
<PAGE> 68
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
shares, without par value, to be divided into two classes to be
designated common stock and preferred stock. Of the shares authorized,
shares shall be designated as common stock and shares shall
be designated as preferred stock. The following description of our capital stock
is only a summary. You should refer to our articles of incorporation and bylaws
as in effect upon the closing of this offering, which are included as exhibits
to the registration statement of which this prospectus forms a part, and by the
provisions of applicable Washington law.
COMMON STOCK
As of February 15, 2000, there were 1,901,349 shares of common stock
outstanding which were held of record by approximately 24 shareholders. There
will be shares of common stock outstanding (assuming no exercise of
the underwriters' over-allotment option and no exercise of outstanding options
after , 2000) after giving effect to the sale of our common stock
in this offering. There are 7,929,980 shares issuable upon exercise of
outstanding options under our 1998 stock option plan and 1999 network affiliates
stock option plan. See "Management -- Stock Plans" for a description of our
stock plans.
The holders of our common stock are entitled to one vote per share held of
record on all matters submitted to a vote of the shareholders. Our amended and
restated articles of incorporation to be filed concurrently with completion of
this offering, does not provide for cumulative voting in the election of
directors. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by our board of
directors out of funds legally available for that purpose. In the event of our
liquidation, dissolution or winding up, holders of our common stock are entitled
to share ratably in all assets remaining after payment of liabilities, subject
to prior distribution rights of preferred stock, if any, then outstanding.
Holders of our common stock have no preemptive or other subscription or
conversion rights. There are no redemption or sinking fund provisions applicable
to our common stock. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock to be issued upon the completion
of this offering will be fully paid and non-assessable.
PREFERRED STOCK
As of February 15, 2000, there were 21,344,125 shares of convertible
preferred stock outstanding, which were held of record by approximately 50
shareholders. All outstanding shares of Series A, Series B, Series C and Series
E preferred stock will be converted into an aggregate of 21,344,125 shares of
common stock automatically upon completion of this offering. Upon the completion
of this offering and filing of our amended and restated articles of
incorporation, our board will be authorized, without action by the shareholders,
to issue shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof. These rights,
preferences and privileges include dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms and the
number of shares constituting any series or the designation of any series, all
or any of which may be greater than the rights of the common stock.
67
<PAGE> 69
The issuance of preferred stock could adversely affect the voting power of
holders of common stock and the likelihood that the holders of common stock will
receive dividend payments and payments upon liquidation. In addition, the
issuance of preferred stock could have the effect of delaying or preventing a
change in our control without further action by the shareholders. We have no
present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
Pursuant to the amended and restated investor rights agreement we entered
into with holders of 18,344,125 shares of our preferred stock, the holders of
these shares are entitled to registration rights regarding these shares. The
registration rights provide that if we propose to register any securities under
the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, they are entitled to notice and
are entitled to include shares of the common stock issuable upon conversion of
their preferred stock in the registration. This right is subject to conditions
and limitations, including the right of the underwriters to limit the number of
shares included in the registration. The holders of these shares may also
require us to file a registration statement under the Securities Act at our
expense with respect to their shares of the common stock issuable upon
conversion of their preferred stock. We are required to us our best efforts to
effect this registration, subject to conditions and limitations. Furthermore,
the holders of these shares may require us to file additional registration
statements on Form S-3, subject to conditions and limitations.
WASHINGTON ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Washington law and our certificate of incorporation
and bylaws could make our acquisition by means of a tender offer, a proxy
contest or otherwise more difficult and could also make the removal of incumbent
officers and directors more difficult. These provisions, summarized below, are
expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
us to first negotiate with us. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.
WASHINGTON ANTI-TAKEOVER LAW
Washington law imposes restrictions on transactions between a corporation
and its significant shareholders under circumstances defined in Chapter 23B.19
of the Washington Business Corporation Act. Specifically, a "target corporation"
is prohibited, with exceptions defined in the statute, from engaging in
specified significant business transactions with an "acquiring person," which is
defined as a person or group of persons that beneficially owns 10% or more of
the voting securities of the target corporation. The restriction applies for a
period of five years from the date of the acquisition, unless the transaction or
acquisition of shares is approved by a majority of the members of the target
corporation's board of directors prior to the time of acquisition. Prohibited
transactions include, among other things:
- a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person;
68
<PAGE> 70
- termination of 5% or more of the employees of the target corporation as a
result of the acquiring person's acquisition of 10% or more of the
shares; or
- allowing the acquiring person to receive any disproportionate benefit as
a shareholder.
After the five-year period, a "significant business transaction" may occur,
as long as it complies with the "fair price" provisions of the statute. A
corporation may not "opt out" of this statute. This provision may have the
effect of delaying, deferring or preventing a change in control of our company.
UNDESIGNATED PREFERRED STOCK
The authorization of undesignated preferred stock makes it possible for the
board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
us. These and other provisions may have the effect of deferring hostile
takeovers or delaying changes in control or management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is .
NASDAQ STOCK MARKET NATIONAL MARKET LISTING
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "RIVL."
69
<PAGE> 71
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common
stock outstanding based on shares outstanding as of February 15, 2000. Of these
shares, the shares sold in this offering will be freely transferable
without restriction under the Securities Act, unless they are held by
"affiliates" as that term is used under the Securities Act and the Regulations
promulgated thereunder.
Of these shares, the remaining 23,050,196 shares were sold by us in
reliance on exemptions from the registration requirements of the Securities Act,
are restricted securities within the meaning of Rule 144 under the Securities
Act and become eligible for sale in the public market as follows:
- beginning 90 days after the effective date, no shares will become
eligible for sale, subject to the provisions of Rules 144 and 701;
- beginning 181 days after the effective date, 19,999,853 additional shares
will become eligible for sale, subject to the provisions of Rules 144,
144(k) or 701, upon the expiration of agreements not to sell such shares
entered into between the underwriters and such shareholders;
- beginning on November 3, 2000, the remaining 3,050,343 shares will become
eligible for sale from time to time, subject to the provisions of Rule
144.
Beginning 180 days after the date of this prospectus, approximately
2,586,619 additional shares subject to vested options as of the date of
completion of this offering will be available for sale subject to compliance
with Rule 701 and upon the expiration of agreements not to sell such shares
entered into between the underwriters and such shareholders. Any shares subject
to lock-up agreements may be released at any time without notice by the
underwriters.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of completion of this
offering, a number of shares that does not exceed the greater of 1% of the then
outstanding shares of common stock (approximately shares immediately
after this offering), or the average weekly trading volume in the common stock
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with respect to such sale and certain other limitations and
restrictions. In addition, a person who is not deemed to have been our affiliate
at any time during the 90 days preceding a sale and who has beneficially owned
the shares proposed to be sold for at least two years, would be entitled to sell
such shares under Rule 144(k) without regard to the requirements described
above.
Any of our employees, officers or directors of or consultant who purchased
his or her shares prior to the date of completion of this offering or who holds
vested options as of that date pursuant to a written compensatory plan or
contract is entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public-information, holding-period, volume-limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding-period restrictions, in each case commencing 90
days after the date of completion of this offering. However, we and our
officers, directors and shareholders have agreed not to sell or otherwise
dispose of any shares of our common
70
<PAGE> 72
stock for the 180-day period after the date of this prospectus without the prior
written consent of the underwriters. See "Underwriting."
As soon as practicable after the date of completion of this offering, we
intend to file a registration statement on Form S-8 under the Securities Act to
register shares of common stock reserved for issuance under our 1998 stock
option plan and 1999 network affiliates stock option plan, thus permitting the
resale of such shares by non-affiliates in the public market without restriction
under the Securities Act. Such registration statements will become effective
immediately upon filing.
Prior to this offering, there has been no public market for our common
stock, and any sale of substantial amounts in the open market may adversely
affect the market price of our common stock offered hereby.
71
<PAGE> 73
UNDERWRITING
The Company and the underwriters named below (the "Underwriters") have
entered into an underwriting agreement with respect to the shares being offered.
Subject to certain conditions, each Underwriter has severally agreed to purchase
the number of shares indicated in the following table. Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Chase Securities Inc. are
the representatives of the Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................
Chase Securities Inc........................................
-----------
Total.............................................
===========
</TABLE>
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional
shares from the Company to cover such sales. They may exercise
that option for 30 days. If any shares are purchased pursuant to this option,
the Underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the Underwriters by the Company. Such amounts are
shown assuming both no exercise and full exercise of the Underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by the Company No Exercise Full Exercise
------------------- ----------- -------------
<S> <C> <C> <C>
Per Share.............................. $ $
Total.................................. $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this Prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the Underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
The Company has agreed with the Underwriters not to dispose of or hedge any
of its common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this Prospectus continuing
through the date 180 days after the date of this Prospectus, except with the
prior written consent of the representatives. This agreement does not apply to
any existing employee benefit plans. See "Shares Available for Future Sale" for
a discussion of certain transfer restrictions.
Prior to the Offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
72
<PAGE> 74
In connection with the Offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the Offering. Stabilizing
transactions consist of certain bids or purchases 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. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The Underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
At our request, the Underwriters have reserved at the initial public
offering price up to shares of common stock for sale to friends and
employees of RivalNetworks through a directed share program. There can be no
assurance that any of the reserved shares will be so purchased. The number of
shares available for sale to the general public in the offering will be reduced
by the number of reserved shares sold. Any reserved shares not so purchased will
be offered to the general public on the same basis as the other shares offered
hereby.
The Company estimates that its share of the total expenses of the Offering,
excluding underwriting discounts and commissions, will be approximately
$ .
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
73
<PAGE> 75
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Morrison & Foerster LLP, Palo Alto, California. Pillsbury Madison & Sutro
LLP, Palo Alto, California, is acting as counsel for the Underwriters in
connection with certain legal matters relating to the shares of common stock
offered hereby.
EXPERTS
The financial statements included in this Prospectus and the related
financial statement schedules included elsewhere in the registration statement
have been audited by Deloitte and Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
In August 1999, we engaged Deloitte & Touche LLP to audit our financial
statements and dismissed Ernst & Young LLP as our principal accountant. The
board of directors has approved the appointment of Deloitte & Touche LLP as our
principal accountant. No report was issued by Ernst & Young LLP on any of our
financial statements. In connection with the services conducted by Ernst & Young
LLP for any period, there were no disagreements with Ernst & Young LLP on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedures, which, if not resolved to Ernst & Young LLP's
satisfaction, would have caused them to reference the subject matter of the
disagreement in their opinion.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C., a registration statement on Form S-1 under the Securities Act with respect
to the shares of common stock offered hereby. This prospectus does not contain
all the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to us and our common
stock, reference is made to the registration statement and to the exhibits and
schedules filed therewith. Statements contained in this prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of the contract or
other document filed as an exhibit to the registration statement, each statement
being qualified in all respects by this reference. A copy of the registration
statement may be inspected by anyone without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of all or any portion of the registration
statement may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees.
The Commission maintains a website at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
74
<PAGE> 76
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Rivals.com, Inc.:
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Cash Flows..................... F-5
Consolidated Statement of Changes in Shareholders' Equity
(Deficit).............................................. F-6
Notes to Consolidated Financial Statements................ F-7
Sports Washington:
Independent Auditors' Report.............................. F-25
Statement of Direct Revenues and Direct Expenses.......... F-26
Note to Statement of Direct Revenues and Direct
Expenses............................................... F-27
</TABLE>
F-1
<PAGE> 77
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Rivals.com, Inc.
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Rivals.com,
Inc. and subsidiary (the Company) as of December 31, 1998 and 1999, and the
related consolidated statements of operations, changes in shareholders' equity
(deficit), and cash flows for the period from March 11, 1998 (inception) to
December 31, 1998, and the year ended December 31, 1999. The financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Rivals.com, Inc. and subsidiary
as of December 31, 1998 and 1999, and the results of their operations and their
cash flows for the period from March 11, 1998 (inception) to December 31, 1998
and the year ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
March 9, 2000
F-2
<PAGE> 78
RIVALS.COM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS' EQUITY AT
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------ ------------ -----------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 90,336 $ 9,660,753
Accounts receivable, net of allowance for doubtful
accounts of $-0- and $79,028, respectively.............. 62,500 1,262,432
Other receivables......................................... 48,675
Prepaid expenses.......................................... 66,768 5,131,730
----------- ------------
Total current assets.................................... 219,604 16,103,590
Goodwill, net of accumulated amortization of $24,115 and
$72,344, respectively..................................... 217,032 168,802
Property, equipment, and leasehold improvements, net........ 83,057 3,058,363
Prepaid licenses and other long-term assets................. 93,377 7,174,650
----------- ------------
$ 613,070 $ 26,505,405
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and other current liabilities............ $ 346,129 $ 3,562,608
Convertible notes payable................................. 408,863 --
Deferred revenue.......................................... 103,167 463,994
Line of credit............................................ 6,000 923,134
----------- ------------
Total current liabilities............................... 864,159 4,949,736
Commitments and contingencies (Note 5)......................
Minority interest........................................... 981,701
Shareholders' equity (deficit):
Preferred stock, no par value -- Authorized 25,411,066
shares
Series A Designated -- 4,060,000 shares; issued and
outstanding, 4,000,000 and 4,060,000 shares,
respectively. Aggregate liquidation preference of
$1,015,000.............................................. 988,460 1,002,860 --
Series B Designated -- 7,733,613 shares; issued and
outstanding, -0- and 7,646,485, respectively. Aggregate
liquidation preference of $8,028,809. Warrants -- issued
and outstanding -0- and 40,469, respectively............ 23,335 8,021,943 --
Series C Designated -- 7,350,000 shares; issued and
outstanding -0- and 6,637,640, respectively. Aggregate
liquidation preference of $23,497,246.
Warrants -- issued and outstanding -0- and 427,387,
respectively............................................ -- 23,417,570 --
Series D Designated -- 1,465,333 shares; issued and
outstanding -0- and -0-, respectively. Aggregate
liquidation preference of $-0-. Warrants -- issued and
outstanding -0- and 1,465,333, respectively............. -- 836,420 --
Series E Designated -- 3,000,000 shares; issued and
outstanding -0- and -0-, respectively. Aggregate
liquidation preference of $-0-.......................... -- -- --
Series F Designated -- 1,802,120 shares; issued and
outstanding -0- and -0-, respectively. Aggregate
liquidation preference of $-0-. Warrants -- issued and
outstanding -0- and 1,802,120, respectively............. -- -- --
Common stock, no par value -- Authorized, 50,000,000 shares;
issued and outstanding 24,688 and 1,882,709 shares,
respectively. Warrants -- issued and outstanding -0- and
5,861,331, respectively................................... 16,386 20,358,613 $ 53,637,406
Shareholder notes receivable................................ -- (297,628) (297,628)
Unearned compensation -- employee stock options............. (3,956,746) (3,956,746)
Deferred expense -- affiliate stock options................. (8,302) (6,121,970) (6,121,970)
Accumulated deficit......................................... (1,270,968) (22,687,094) (22,687,094)
----------- ------------ ------------
Total shareholders' equity (deficit)...................... (251,089) 20,573,968 20,573,968
----------- ------------ ------------
$ 613,070 $ 26,505,405 $ 26,505,405
=========== ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 79
RIVALS.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MARCH 11, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- ------------
<S> <C> <C>
Advertising revenues..................................... $ 348,282 $ 1,087,941
E-commerce revenues...................................... 20,153 79,981
----------- ------------
Total revenues...................................... 368,435 1,167,922
Cost of revenues -- Advertising.......................... 370,811 698,097
Cost of revenues -- E-commerce........................... 25,446 129,316
----------- ------------
Total cost of revenues.............................. 396,257 827,413
----------- ------------
Gross margin............................................. (27,822) 340,509
Operating expenses:
Sales and marketing (including $0 and $633,516,
respectively of non-cash advertising expense)....... 368,840 4,645,556
Production and content (including $0 and $433,026,
respectively of non-cash stock-based compensation
expense)............................................ 168,025 2,867,391
Product development (including $0 and $643,479,
respectively of non-cash expense)................... 443,307 3,319,595
General and administrative............................. 202,129 3,245,966
Non-cash affinity-channel acquisition costs............ 1,912 6,111,508
Non-cash stock compensation -- employees............... -- 863,101
Depreciation and amortization.......................... 51,890 881,654
----------- ------------
Total operating expenses............................ 1,236,103 21,934,771
----------- ------------
Loss from operations..................................... (1,263,925) (21,594,262)
Interest and other income................................ 5,434 243,548
Interest expense......................................... (12,477) (83,711)
----------- ------------
Net loss before minority interest........................ (1,270,968) (21,434,425)
Minority interest........................................ -- 18,299
----------- ------------
Net loss................................................. $(1,270,968) $(21,416,126)
=========== ============
Basic and diluted net loss per share..................... $ (118.13) $ (31.93)
=========== ============
Weighted average common shares -- basic and diluted...... 10,759 670,653
=========== ============
Pro forma data (unaudited):
Pro forma basic and diluted net loss per common share.. $ (1.69)
============
Shares used in calculation of proforma basic and
diluted net loss per common share................... 12,688,382
============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 80
RIVALS.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MARCH 11, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(1,270,968) $(21,416,126)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Minority interest in net loss........................... -- (18,299)
Non-cash interest expense............................... -- 10,346
Accretion of debt discount.............................. 7,198 41,437
Depreciation and amortization........................... 51,890 881,654
Non-cash affinity-channel acquisition costs............. 1,912 6,111,508
Non-cash stock based compensation -- employees.......... -- 863,101
Non-cash stock based compensation -- operating
expenses............................................... -- 1,710,021
Issuance of preferred stock for services................ 75,000 --
Issuance of common stock for services................... -- 5,000
Provision for bad debt.................................. -- 79,028
Loss on disposal of fixed assets........................ -- 13,182
Cash provided (used by) changes in operating assets and
liabilities:
Accounts receivable................................... (62,500) (1,278,960)
Other receivables..................................... (48,675)
Prepaid assets........................................ (66,768) (1,467,119)
Accounts payable and other current liabilities........ 346,129 3,216,479
Deferred revenue...................................... 103,167 360,827
----------- ------------
Net cash used in operating activities.............. (814,940) (10,936,596)
INVESTING ACTIVITIES:
Purchases of property, equipment and leasehold
improvements............................................ (90,862) (3,450,886)
Purchases of prepaid long-term assets..................... (54,494) (1,519,062)
----------- ------------
Net cash used in investing activities.............. (145,356) (4,969,948)
FINANCING ACTIVITIES:
Proceeds from the issuance of convertible notes........... 401,665 468,803
Proceeds from the issuance of Series A preferred stock,
net..................................................... 613,460 14,400
Proceeds from the issuance of Series B preferred stock,
net..................................................... 23,335 7,069,160
Proceeds from the issuance of Series C preferred stock,
net..................................................... -- 15,914,544
Receivables from shareholders............................. -- (297,628)
Issuance of common stock.................................. 6,172 390,548
Contribution of minority investor......................... -- 1,000,000
Proceeds from line of credit, net......................... 6,000 917,134
----------- ------------
Net cash provided by financing activities.......... 1,050,632 25,476,961
----------- ------------
Net increase in cash and cash equivalents................... 90,336 9,570,417
Cash and cash equivalents, beginning of period.............. -- 90,336
----------- ------------
Cash and cash equivalents, end of period.................... $ 90,336 $ 9,660,753
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid -- Interest:
Interest................................................ $ 1,177 $ 31,929
Income taxes............................................ -- --
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of Series A Preferred Stock for acquired
assets.................................................. 300,000
Conversion of convertible notes and accrued interest to
Series B Preferred Stock................................ 929,448
Issuance of Series C Preferred Stock for advertising...... 7,503,026
Issuance of common stock for assets....................... 114,693
Issuance of warrants to purchase Series D Preferred Stock
for prepaid content..................................... 836,420
Issuance of warrants to purchase common stock for prepaid
content................................................. 1,771,098
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 81
RIVALS.COM, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE UNEARNED
PREFERRED STOCK COMMON STOCK COMPENSATION --
------------------------ SHAREHOLDER ----------------------- EMPLOYEE STOCK
SHARES AMOUNT NOTE SHARES AMOUNT OPTIONS
---------- ----------- ----------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 11, 1998 (INCEPTION)
Issuance of Series A preferred
stock, net of offering costs of
$11,540......................... 4,000,000 $ 988,460 $ -- -- $ -- $ --
Warrants issued with convertible
notes........................... 23,335
Exercised stock options........... 24,688 6,172
Unearned compensation expense
relating to issuance of stock
options......................... 10,214
Amortization of unearned
compensation on stock options...
Net loss..........................
---------- ----------- --------- --------- ----------- -----------
BALANCE, DECEMBER 31, 1998......... 4,000,000 $ 1,011,795 $ -- 24,688 $ 16,386 $ --
---------- ----------- --------- --------- ----------- -----------
Issuance of Series A preferred
stock, net of offering costs of
$600............................ 60,000 14,400
Warrants issued with convertible
notes........................... 25,299
Issuance of Series B preferred
stock, net of offering costs of
$55,500......................... 6,761,296 7,043,861
Conversion of convertible notes to
preferred stock................. 885,189 929,448
Issuance of Series C preferred
stock, net of offering costs of
$79,676......................... 6,637,640 23,417,570
Preferred stock warrant issued for
services........................ 836,420
Common stock warrant issued for
services........................ 1,771,098
Exercised stock options........... (251,116) 1,685,828 390,548
Issuance of common stock for
certain assets.................. 172,193 119,693
Advance to shareholder............ (46,512)
Unearned compensation expense
relating to issuance of stock
options......................... 6,282,545 (4,819,847)
Unearned compensation relating to
change in market value on stock
options granted to affiliates... 11,778,343
Amortization of unearned
compensation on stock options... 863,101
Amortization of unearned
compensation relating to change
in market value on stock options
granted to affiliates...........
Net loss..........................
---------- ----------- --------- --------- ----------- -----------
BALANCE, DECEMBER 31, 1999......... 18,344,125 $33,278,793 $(297,628) 1,882,709 $20,358,613 $(3,956,746)
---------- ----------- --------- --------- ----------- -----------
<CAPTION>
UNEARNED
COMPENSATION --
AFFILIATE STOCK ACCUMULATED
OPTION DEFICIT TOTAL
--------------- ------------ ------------
<S> <C> <C> <C>
BALANCE, MARCH 11, 1998 (INCEPTION)
Issuance of Series A preferred
stock, net of offering costs of
$11,540......................... $ -- $ -- $ 988,460
Warrants issued with convertible
notes........................... 23,335
Exercised stock options........... 6,172
Unearned compensation expense
relating to issuance of stock
options......................... (10,214) --
Amortization of unearned
compensation on stock options... 1,912 1,912
Net loss.......................... (1,270,968) (1,270,968)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1998......... $ (8,302) $ (1,270,968) $ (251,089)
------------ ------------ ------------
Issuance of Series A preferred
stock, net of offering costs of
$600............................ 14,400
Warrants issued with convertible
notes........................... 25,299
Issuance of Series B preferred
stock, net of offering costs of
$55,500......................... 7,043,861
Conversion of convertible notes to
preferred stock................. 929,448
Issuance of Series C preferred
stock, net of offering costs of
$79,676......................... 23,417,570
Preferred stock warrant issued for
services........................ 836,420
Common stock warrant issued for
services........................ 1,771,098
Exercised stock options........... 139,432
Issuance of common stock for
certain assets.................. 119,693
Advance to shareholder............ (46,512)
Unearned compensation expense
relating to issuance of stock
options......................... (1,462,698) --
Unearned compensation relating to
change in market value on stock
options granted to affiliates... (11,778,343) --
Amortization of unearned
compensation on stock options... 480,023 1,343,124
Amortization of unearned
compensation relating to change
in market value on stock options
granted to affiliates........... 6,647,350 6,647,350
Net loss.......................... (21,416,126) (21,416,126)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1999......... $ (6,121,970) $(22,687,094) $ 20,573,968
------------ ------------ ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 82
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Rivals.com, Inc. (the "Company" or "Rivals.com") was incorporated in the
state of Washington on March 11, 1998 as Rival Media, Inc. and commenced
operations in April 1998. The Company began generating revenue from its
operations in June of 1998. On March 18, 1998, Rival Media, Inc. changed its
corporate name to Rival Communications, Inc. On March 5, 1999, Rival
Communications changed its corporate name to Rivalnet, Inc. On July 15, 1999,
Rivalnet, Inc. changed its corporate name to Rivals.com, Inc.
The Company is a developer and operator of affinity-channel networks.
Affinity-channels are content or e-commerce websites owned by individuals or
organizations that provide in-depth, original content or specialized merchandise
relevant to highly specific topics, or affinities. The Company aggregates and
organizes selected affinity-channels by general subject matter, or vertical
categories, onto networks that share common infrastructure services. The
Company's infrastructure services are designed to enable entrepreneurs to
develop and deliver, as part of its integrated network, their proprietary
content or e-commerce offerings. The Company's first network, Rivals.com, is
focused on sports and as of February 15, 2000, included more than 500
affinity-channels.
The Company generates revenues from online advertising and e-commerce. It
collects all online advertising and e-commerce revenues and each affiliate
receives a share of the revenues related to its affinity-channel.
PREDECESSOR ENTITY
Prior to June 19, 1998, Heckman Media, a company wholly owned by the
Company's Chief Executive Officer, operated in the print publication industry
and offered two primary operating lines, consisting of advertising sales and
Sports Washington, a print publication. On June 19, 1998, the Company entered
into a Series A Preferred Stock Purchase Agreement with Heckman Media whereby
Heckman Media was issued 1,200,000 shares of Rivals.com Series A Preferred Stock
in exchange for certain intangible assets of Heckman Media, including Sports
Washington.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiary Rivals.com Ltd., and Rivals Europe Limited, which
the Company has 75% ownership. Rivals Europe Limited was incorporated in
December 22, 1999. All significant intercompany accounts and transactions have
been eliminated.
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 amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-7
<PAGE> 83
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of 90 days or less to be cash equivalents. Cash and cash equivalents
are carried at cost, which approximates market.
PREPAID EXPENSES
DEFERRED ADVERTISING. In connection with its Series C Preferred Stock
financing, the Company is to receive future advertising in exchange for the
issuance of 2,119,499 shares of its Series C Preferred Stock with an aggregate
fair market value of $7,503,026. Advertising expense is recorded as costs are
incurred. Total advertising costs incurred during the periods ended December 31,
1998 and 1999, were $101,753 and $2,012,653, respectively.
PREPAID LICENSE FEES. The Company enters into agreements with third party
journalists whereby the Company receives exclusive use of the journalist's
domain name as well as an exclusive license for online content in return for a
one-time upfront license fee. Such payments are capitalized and amortized over
the life of the agreement.
PREPAID CONTENT. In connection with its Series C Preferred Stock financing,
the Company entered into an agreement with a third party whereby the Company
received future website content in exchange for the issuance of a warrant to
purchase 1,465,333 shares of its Series D Preferred Stock and a warrant to
purchase 5,861,331 shares of Common Stock with an aggregate fair market value of
$836,420 and $1,771,098, respectively. The resulting prepaid content asset is
amortized over the life of the agreement.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are recorded at cost. The
Company adopted Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1") on
January 1, 1999. Costs incurred during the application development stage are
capitalized and amortized over the estimated life of the software. The Company
capitalized $206,169 in internally developed software costs during the year
ended December 31, 1999. Depreciation is computed using the straight-line method
over the following estimated useful lives:
<TABLE>
<S> <C>
Computer hardware............................... 2-3 years
Office furniture and equipment.................. 5-7 years
Internally developed software costs............. 3 years
Leasehold improvements.......................... lesser of lease-term
or estimated useful life
</TABLE>
Amortization related to capitalized software was $20,462 for the year ended
December 31, 1999.
OTHER LONG-TERM ASSETS
Other long-term assets consist of goodwill, acquired intangible assets, and
purchased domain name licenses and are amortized over their estimated useful
lives. Goodwill and
F-8
<PAGE> 84
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
acquired intangible assets are amortized over five years. Purchased domain name
licenses are amortized over an estimated useful life of five years.
REVENUE RECOGNITION
Advertising revenues are derived from the sale of advertising on the
Company's affinity channels through short-term contracts. Advertising revenues
are generally recognized based on the actual number of impressions served,
provided that no significant Company obligations exist and the collection of the
resulting receivable is considered probable. Company obligations typically
include guarantees of a minimum number of "impressions" or number of times an
advertisement is viewed by users of the Company's affinity-channel network. Also
included in advertising revenues are amounts earned for sponsorships. The
Company hosts and organizes promotional events for a fixed fee. Revenue is
recognized at the conclusion of the promotional event if collection is
reasonably assured.
E-commerce revenues are derived from the sale of specialty merchandise.
E-commerce revenues are recognized once payment is assured and the product has
shipped the Company records the e-commerce revenues on a gross basis in those
cases where the Company acts as the principal in the e-commerce transaction,
takes title to the goods during shipment, has economic risk related to
collection, customer service and return. The Company records the e-commerce
revenue on a net basis in those cases where the Company neither acts as
principal nor takes title to the goods.
COST OF REVENUES
Cost of advertising revenues consists primarily of payments to content
affiliates based on a contractually agreed percentage share of advertising
revenues attributable to their affinity-channels. Cost of advertising revenues
also includes third-party advertising delivery costs.
Cost of e-commerce revenues includes payments to e-commerce affiliates
based on a contractually agreed percentage share of e-commerce revenues
attributable to their affinity-channels. Cost of e-commerce revenues also
includes commissions paid to the content affiliates that deliver purchasers to
e-commerce sites.
PRODUCTION AND CONTENT
Production and content expenses consist primarily of salary and other
expenses for operations personnel, costs of incentive programs to affiliates,
customer service costs, and costs of Internet access and web hosting services.
Also included in production and content expenses is a non-cash charge which
represents the amortized portion of the value of content received in
consideration for the issuance of preferred and common stock warrants and a
non-cash charge which represents the fair value of stock options awarded in
conjunction with our affiliate incentive programs.
SALES AND MARKETING
Sales and marketing expenses consist of salaries and other expenses related
to personnel engaged in advertising sales, marketing and public relations. In
addition, sales and marketing expenses include advertising and promotional
expenditures, such as third-party
F-9
<PAGE> 85
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
delivery costs of internal promotions on our network. Sales and marketing
expenses also include a percentage commission for affiliates who sell
advertising on their own affinity channels. Also included in sales and marketing
expenses is a non-cash charge which represents the amortized portion of the
value of advertising received in consideration for the issuance of preferred
stock.
PRODUCT DEVELOPMENT
Product development expenses consist primarily of salaries and other
expenses related to engineers and software developers. Also included in product
development expenses is a non-cash charge which represents an expense under
variable plan accounting for stock options awarded to a third party contractor.
NON-CASH AFFINITY-CHANNEL ACQUISITION COST
The non-cash stock compensation expense related to stock options granted to
affinity-channels upon joining our network, receives variable plan accounting
treatment, which values these options at fair market value at the end of each
reporting period.
DEPRECIATION AND AMORTIZATION
Amortization consists primarily of the amortization of cash payments,
amortization of intangibles associated with asset acquisitions, and amortization
of the cost of domain names.
Depreciation and amortization consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Property and equipment depreciation.................. $ 7,805 $462,393
Publisher signing bonus amortization................. 10,122 294,813
Goodwill amortization................................ 24,115 48,229
Intangible amortization.............................. 5,885 11,771
Domain Name amortization............................. 3,963 40,017
Acquired asset amortization.......................... -- 24,431
------- --------
$51,890 $881,654
======= ========
</TABLE>
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salary and other
expenses related to general corporate functions as well as fees for professional
services and costs of facilities.
LONG-LIVED ASSETS
The Company periodically evaluates the carrying value of its long-lived
assets, including, but not limited to, property, equipment and leasehold
improvements and other long-term assets. The carrying value of a long-lived
asset is considered impaired when the undiscounted net cash flow from such asset
is estimated to be less than its carrying value.
F-10
<PAGE> 86
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Should a long-lived asset be deemed to be impaired, the Company would record the
difference between the undiscounted net cash flow and carrying value as
impairment. Management does not believe that there were any long-lived assets
which were subject to impairment at December 31, 1999.
SHAREHOLDERS' EQUITY
DETACHABLE STOCK PURCHASE WARRANTS. Proceeds from debt issued with
detachable stock purchase warrants are allocated between the debt and the
warrants based on their relative fair values. The fair value of the warrants was
calculated using the Black-Scholes option pricing model with the following
assumptions: risk-free rate of 5.5%, expected dividend yield of -0-%, volatility
of 80% and expected life of 2 years.
STOCK-BASED COMPENSATION. The Company's stock option plan is subject to the
provisions of Statement of Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). Under the provisions of this standard,
employee and director stock-based compensation expense is measured using either
the intrinsic-value method as prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), or the fair value
method described in SFAS 123. Companies choosing the intrinsic-value method are
required to disclose the pro forma impact of the fair value method on net
income. The Company has elected to account for its employee and director
stock-based awards under the provisions of APB 25. Under APB 25, compensation
cost for stock options is measured as the excess, if any, of the fair value of
the underlying common stock on the date of grant over the exercise price of the
stock option. Stock-based compensation expense for all equity instruments is
recognized using the aggregated percentage of compensation accrued method as
prescribed by FASB Interpretation No. 28, "Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans" ("FIN 28").
The Company is required to implement the provisions of SFAS 123 for
stock-based awards to other than employees and directors. The Company accounts
for stock options issued to non-employees in accordance with SFAS 123.
UNEARNED COMPENSATION. Unearned compensation represents the unamortized
difference between the option exercise price and the deemed fair market value of
the Company's common stock for shares subject to grant at the grant date, for
options issued under the Company's stock incentive plan (Note 5). The Company's
stock-based compensation expense is subject to the provisions of FIN 28. The
amortization of deferred compensation is charged to operations and is amortized
over the vesting period of the options using an accelerated basis based on the
related vesting periods.
NET LOSS PER SHARE. Basic earnings per share is computed using the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is computed using the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent shares
consist of the incremental common shares issuable upon conversion of the
exercise of stock options and warrants (using the treasury stock method) or the
conversion of convertible preferred stock. Common equivalent shares are excluded
from the computation if their effect is antidilutive. None of the convertible
preferred stock, options and warrants to purchase common stock outstanding
during the period presented was included in the computation of diluted loss per
F-11
<PAGE> 87
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
share as they were antidilutive. Preferred stock convertible into, and options
and warrants to purchase, 5,244,953 and 33,087,910 shares of common stock were
excluded from the calculations of diluted loss per share for the periods ended
December 31, 1998 and 1999, respectively.
Pro forma net loss per share is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's convertible preferred stock into shares of the
Company's common stock effective upon the closing of the Company's initial
public offering as if such conversion occurred on the date the shares were
originally issued.
UNAUDITED PRO FORMA SHAREHOLDERS' EQUITY. The Company's Board of Directors
has authorized the filing of a registration statement with the Securities and
Exchange Commission to register shares of its common stock in connection with a
proposed initial public offering (the IPO). If the IPO is consummated under the
terms presently anticipated, all of the outstanding shares of convertible
preferred stock as of December 31, 1999 will be converted into 18,344,125 shares
of common stock upon the closing of the IPO. The effect of the conversion of the
preferred stock outstanding at December 31, 1999 has been reflected in the
unaudited pro forma shareholders' equity.
SHAREHOLDER NOTES RECEIVABLE. The Company allowed two officers to exercise
stock options in exchange for interest bearing promissory notes. The promissory
notes bear interest at 6%. The notes and interest are due on December 31, 2002.
COMPREHENSIVE INCOME
The Company has adopted the provisions of Statements of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130")
effective January 1, 1998. SFAS 130 requires the presentation of comprehensive
income and its components. Comprehensive income is the change in equity from
transactions and other events and circumstances other than those resulting from
investments by owners and distributions to owners. For the period from March 11,
1998 (inception) to December 31, 1998 and the year ended December 31, 1999, the
components of other comprehensive income were insignificant.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and trade
receivables. The Company places its cash equivalents with major financial
institutions.
The Company sells advertising to various companies across several
industries. Accounts receivable are typically unsecured and are derived from
revenues earned from customers primarily located in the United States. The
Company performs ongoing credit evaluations of its customers and maintains
reserves for potential credit losses.
At December 31, 1998, two customers accounted for 100% of accounts
receivable with the larger of the two customers comprising 84% of the total. At
December 31, 1999, approximately 70% of accounts receivable was comprised of
five customers who individually accounted for more than 10% of total accounts
receivable. Accounts receivable are generally
F-12
<PAGE> 88
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
unsecured and uninsured. To date, the Company has not experienced significant
collection issues.
STOCK SPLIT
On December 4, 1998, the Board approved a four-to-one stock split of its
common stock. All references to shares, share prices and per share amounts have
been adjusted to reflect the stock split.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued "Accounting for Derivatives and Hedging
Activities" ("SFAS 133"), as amended by SFAS 137. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The Company does not currently hold
any derivatives and management does not expect this pronouncement to materially
impact its results of operations.
2. BALANCE SHEET INFORMATION
Prepaid expenses:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Deferred advertising.......................... $ -- $2,870,159
Prepaid licenses and affiliate payments....... 63,708 528,603
Prepaid content............................... -- 727,680
Prepaid other................................. 3,060 1,005,288
------- ----------
$66,768 $5,131,730
======= ==========
</TABLE>
Property, equipment, and leasehold improvements:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Computer hardware............................. $75,442 $2,186,215
Office furniture and fixtures................. 15,420 990,303
Capitalized internally developed software
costs...................................... -- 206,169
Leasehold improvements........................ -- 139,110
------- ----------
90,862 3,521,797
Accumulated depreciation and amortization..... (7,805) (463,434)
------- ----------
$83,057 $3,058,363
======= ==========
</TABLE>
F-13
<PAGE> 89
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Prepaid licenses and other long-term assets:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Deferred advertising............................. $ -- $3,999,351
Prepaid licenses and affiliate payments.......... 40,409 735,324
Prepaid content.................................. -- 1,819,199
Other............................................ 52,968 620,776
------- ----------
$93,377 $7,174,650
======= ==========
</TABLE>
Accounts payable and other current liabilities:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Accounts payable................................. $196,247 $2,209,326
Commissions payable.............................. -- 387,412
Other current liabilities........................ 149,882 965,870
-------- ----------
$346,129 $3,562,608
======== ==========
</TABLE>
3. DEBT
LINE OF CREDIT
At December 31, 1999, the Company had a $1,000,000 line of credit with a
financial institution. The line of credit bears interest at prime (8.5% at
December 31, 1999), with interest payable monthly. The line of credit principal
balance was $923,134 at December 31, 1999. The line of credit is secured by the
Company's tangible and intangible property. Under the facility, we are required
to comply with certain restrictive covenants which include, among other items,
maintenance of certain financial ratios. In January 2000, the Company's line of
credit was increased to $6,000,000. The new line of credit bears interest at
prime with interest payable monthly. The line of credit matures on January 4,
2004.
CONVERTIBLE NOTES PAYABLE
Between October 1998 and February 1999, the Company issued convertible
promissory notes with detachable warrants in the amount of $915,000, bearing
interest at 8% per year. On March 5, 1999, the outstanding principal and accrued
interest on the convertible notes of $929,448 was converted into 885,189 shares
of the Company's Series B convertible preferred stock at $1.05 per share. The
unamortized debt discount was expensed on the date of the conversion. In
connection with these notes, the Company issued warrants to the note holders to
purchase up to 87,128 shares of Series B Preferred Stock at $1.05 per share. The
warrants are exercisable immediately and expire in February 2003. Proceeds from
debt were allocated between the debt and the warrants based on their relative
fair values. The value ascribed to the warrants was $48,634.
The weighted average interest rate on short-term borrowings outstanding was
17.1% and 16.0% as of December 31, 1998 and 1999, respectively.
F-14
<PAGE> 90
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
No provision for federal income tax has been recorded as the Company has
incurred net operating losses through December 31, 1999. At December 31, 1999,
the Company had approximately $16,010,722 of net operating loss carryforwards
for federal income tax reporting purposes available to offset future taxable
income; such carryforwards expire from 2019 to 2020. Under the Tax Reform Act of
1986, the amounts of and benefits from net operating losses carried forward may
be impaired or limited in certain circumstances. Events which may cause
limitations in the amount of net operating losses that the Company may utilize
in any one year include, but are not limited to, a cumulative ownership change
of more than 50% over a three-year period.
The tax effects of temporary differences and net operating loss
carryforwards that give rise to the Company's deferred tax assets and
liabilities are as follows:
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Current tax provision (benefit)
US federal....................................... $(455,215) $(4,877,200)
Deferred tax provision (benefit)
US federal....................................... 33,286 (2,071,281)
Credits.......................................... 0 (14,427)
--------- -----------
Total deferred..................................... 33,286 (2,085,708)
--------- -----------
Total tax benefit.................................. (421,929) (6,962,908)
Valuation allowance................................ 421,929 6,962,908
--------- -----------
Total provision.................................... $ 0 $ 0
========= ===========
</TABLE>
A reconciliation of the provision for income taxes to the federal statutory
rate of 34% is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Tax at statutory rate.............................. (34.00)% (34.00)%
Permanent differences.............................. 2.36 2.36%
Change in valuation allowance...................... 31.64 31.64%
------ ------
Effective tax rate................................. --% --%
====== ======
</TABLE>
F-15
<PAGE> 91
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated tax effects of significant temporary differences and
carryforwards that give rise to deferred income tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.................... $ 455,215 $ 5,548,577
Compensation expense -- stock options.............. 650 2,423,957
Accrued liabilities................................ -- 96,114
R&D Credits........................................ -- 14,427
--------- -----------
Gross deferred tax assets....................... 455,865 8,083,075
Deferred tax liabilities:
Depreciation....................................... (3,246) (108,366)
Prepaid license fee................................ (30,690) (373,709)
--------- -----------
Gross deferred tax liabilities.................. (33,936) (482,075)
--------- -----------
Net deferred tax assets......................... 421,929 7,601,000
Valuation Allowance.................................. (421,929) (7,601,000)
--------- -----------
Deferred tax balance................................. $ -- $ --
========= ===========
</TABLE>
The Company has recorded a 100% valuation allowance equal to the net
deferred tax asset balance based upon management's determination that the
recognition criteria for realization have not been met. The net change in the
valuation allowance during the period from March 11, 1998 (inception) to
December 31, 1998, and the year ended December 31, 1999 was $421,929 and
$6,962,908, respectively.
5. SHAREHOLDERS' EQUITY (DEFICIT)
AUTHORIZED SHARES
At incorporation, the Company was authorized to issue 100,000,000 shares,
consisting of 80,000,000 shares of common stock with no par value and 20,000,000
shares of preferred stock with no par value. The preferred stock may be issued
in one or more series.
On June 19, 1998, the Company filed its Restated Articles of Incorporation.
The effect was to designate the rights and preference of 4,000,000 shares of
Series A Preferred Stock.
On November 6, 1999, the Company filed its Second Restated Articles of
Incorporation. The effect was to increase the designated number of Series A
Preferred Stock from 4,000,000 to 5,600,000.
On January 7, 1999, the Company filed its Third Restated Articles of
Incorporation. The effect was to increase the number of authorized shares to
40,000,000, consisting of 25,000,000 shares of common stock and 15,000,000
shares of preferred stock and to increase the designated number of Series A
Preferred Stock from 1,400,000 to 8,600,000. In addition, a four-for-one stock
split that was approved by the Company's Board of Directors on December 4, 1998
became effective upon the filing of this Restated Certificate of Incorporation.
On March 5, 1999, the Company filed its Fourth Restated Articles of
Incorporation. The effect was to decrease the number of authorized shares to
37,310,000, consisting of
F-16
<PAGE> 92
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25,000,000 shares of Common Stock and 12,310,000 shares of preferred stock. Of
the preferred stock, 4,060,000 was designated Series A Preferred Stock and
8,250,000 was designated Series B Preferred Stock. The Series B Preferred Stock
contains substantially the same rights and preferences as the previous series of
preferred stock.
On September 28, 1999, the Company filed its Fifth Restated Articles of
Incorporation. The effect was to increase the number of authorized shares to
60,608,946, consisting of 40,000,000 shares of Common Stock and 20,608,946
shares of preferred stock. Of the preferred stock, 4,060,000 was designated
Series A Preferred Stock, 7,733,613 was designated Series B Preferred Stock,
7,350,000 was designated Series C Preferred Stock, and 1,465,333 was designated
Series D Preferred Stock. The Series C and D Preferred Stock contains
substantially the same rights and preferences as the previously issued Series A
Preferred Stock and Series B Preferred Stock. To date, no Series D Preferred
Stock has been issued.
On December 21, 1999, the Company filed its Sixth Restated Articles of
Incorporation. The effect was to change the authorized number of shares of all
classes of Company stock to 75,411,066 shares, consisting of 50,000,000 shares
of common stock and 25,411,066 shares of preferred stock. Of the preferred
stock, 4,060,000 was designated Series A Preferred Stock, 7,733,613 was
designated Series B Preferred Stock, 7,350,000 was designated Series C Preferred
Stock, 1,465,333 was designated Series D Preferred Stock, 3,000,000 was
designated as Series E Preferred Stock, and 1,802,120 was designated as Series F
Preferred Stock. The Series E and F Preferred Stock contains substantially the
same rights and preferences as the previously issued Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock. To date, no Series F
Preferred Stock has been issued.
CONVERTIBLE PREFERRED STOCK
On June 19, 1998, the Company acquired certain assets of Sports Washington,
a division of Heckman Media Inc., a company wholly owned by the Company's Chief
Executive Officer in exchange for 1,200,000 shares of Series A Preferred stock
for a total purchase price of $300,000 (See Note 10). Additionally, the Company
issued 300,000 shares of Series A Preferred stock to certain officers of the
Company for services rendered and recorded compensation expense for $75,000.
Between June 19, 1998 and February 15, 1999, the Company issued 2,500,000 shares
of Series A Convertible voting Preferred Stock at $0.25 per share resulting in
proceeds of $613,460 net of issuance costs of $12,140.
In conjunction with the Series C Preferred Stock financing, the Company
issued a warrant to purchase 427,357 shares of Series C Preferred Stock at $3.54
per share to the Company's Chief Executive Officer. The warrant is immediately
exercisable and expires on September 30, 2002. The Company has recorded the
warrant issued to its Chief Executive Officer under APB 25.
In conjunction with the September 30, 1999 issuance of Series C Preferred
Stock, the Company also issued a warrant to a Series C Preferred Stock
shareholder to purchase 1,465,333 shares of Series D Preferred Stock at $11.50
per share that is immediately exercisable and expires on the earlier of
September 30, 2002 or fifteen days after receiving notification from the Company
that it is filing a registration statement under the Securities Act of 1933.
This shareholder also received an additional warrant to purchase 5,861,331
F-17
<PAGE> 93
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
shares of common stock at an exercise price of $14.15 that are immediately
exercisable and expire on the earlier of September 30, 2002 or 180 days
following the closing of the Company's Initial Public Offering. Immediately upon
issuance, the Company recorded a prepaid content asset of $836,420 related to
the Series D Preferred Stock warrant and $1,771,098 related to the common stock
warrant. This represents the fair value of the warrants. The warrants were
valued using the Black Scholes pricing method with the following assumptions for
all periods presented: an estimated life of the warrants of two years; a
volatility of 80%; and a risk free interest rate of 5.5%. This prepaid content
asset is being amortized over the life of the agreement.
Each share of Series A, Series B, Series C, and Series D Preferred Stock is
convertible on a one-for-one basis to common stock at the option of the holder
or automatically upon registration of the Company's common stock pursuant to a
public offering under the Securities Act of 1933 (an "Offering"). The Series A,
Series B, Series C and Series D preferred stock would be converted upon an
Offering at a price of not less than $7.08 per share with aggregate proceeds of
not less than $15,000,000, or by the written consent of the majority of the
holders of the outstanding shares of Series A, Series B and Series C preferred
stock. The conversion price is subject to adjustment in certain instances
including stock splits, and dividends and recapitalizations.
The holder of each share of preferred stock has the right to one vote for
each share of common stock into which such preferred stock can be converted.
Preferred stockholders have the same voting rights and powers as common
stockholders. Certain holders of the Company's preferred stock and warrants have
registration rights.
Dividends are not cumulative and are payable only when and if declared by
the Board of Directors. Dividends are payable at a rate of $0.02, $0.09, $0.32,
$1.035, $0.92 and $1.13 per share per annum on each outstanding share of Series
A, Series B, Series C, Series D, Series E, and Series F preferred stock,
respectively.
In the event of a liquidation of the Company, the holders of Series E and
Series F preferred stock will receive a liquidation preference of $11.50 and
$14.50 per share, respectively, as well as any declared but unpaid dividends on
each share over the holders of Series A, Series B, Series C and Series D
preferred stock and common stock. Upon satisfaction of Series E and F
preferences, distributions will be made to Series A, Series B, Series C and
Series D preferred stockholders in an amount up to $0.25, $1.05, $3.54, and
$11.50 per share, respectively as well as any declared but unpaid dividends. Any
remaining amounts will be distributed among the holders of the preferred and
common stockholders on a pro rata basis.
1998 STOCK OPTION PLAN
On March 18, 1998, the Board of Directors approved the 1998 Stock Option
Plan (the "1998 Plan"). The 1998 Plan provides employees of the Company an
opportunity to purchase shares of stock pursuant to options which may qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and employees, officers, directors, independent
contractors and consultants of the Company an opportunity to purchase shares of
stock pursuant to options which are not described in Section 422 of the Code
("non-qualified stock options"). As of December 31, 1999 an aggregate of
8,859,160 shares of common stock were reserved for issuance pursuant to the
F-18
<PAGE> 94
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1998 Plan. The 1998 Plan also provides for the sale or bonus of stock to
eligible individuals in connection with the performance of services for the
Company. Finally, the 1998 Plan authorizes the grant of stock appreciation
rights ("SARS"), either separately or in tandem with stock options, which
entitle holders to cash compensation measured by appreciation in the value of
the stock. To date the Company has not issued any SARS. If an option is
surrendered, or for any other reason ceases to be exercisable in whole or in
part, the shares which were subject to option but on which the option has not
been exercised shall continue to be available under the 1998 Plan. The Plan is
administered by the Board of Directors. Options granted under the 1998 Plan
typically are granted at fair market value and vest over four years, 25% one
year from the date of grant and ratably thereafter on a monthly basis.
1999 NETWORK AFFILIATE STOCK OPTION PLAN
On April 21, 1999, the Board of Directors approved the 1999 Network
Affiliate Stock Option Plan (the "Network Affiliate Plan"). The Network
Affiliate Plan provides the Company's affiliates and consultants an opportunity
to purchase shares of stock pursuant to options that qualify as non-qualified
stock options. An aggregate of 400,000 shares of common stock were reserved for
issuance pursuant to the Network Affiliate Plan. The Network Affiliate Plan is
administered by the Board of Directors. Options granted under the Network
Affiliate Plan are typically granted at fair market value and vest over four
years, 25% one year from the date of grant and ratably thereafter on a monthly
basis.
Stock option activity and option price information:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Balance, March 11, 1998 (inception)............. -- --
Granted....................................... 1,571,152 $0.10
Exercised..................................... (24,688) 0.25
Canceled...................................... (341,980) 0.05
---------- -----
Balance, December 31, 1998...................... 1,204,484 0.11
---------- -----
Granted....................................... 8,416,767 0.95
Exercised..................................... (1,685,828) 0.23
Canceled...................................... (633,210) 0.29
---------- -----
Balance, December 31, 1999...................... 7,302,213 $1.03
========== =====
Options Exercisable, December 31, 1999.......... 1,671,848 $0.43
========== =====
</TABLE>
At December 31, 1999 the Company had an aggregate of 246,431 shares of
common stock available for future issuance under its stock option plans.
F-19
<PAGE> 95
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information regarding stock option grants during the period March 11, 1998
(inception) to December 31, 1998 and the year ended December 31, 1999 is
summarized as follows:
<TABLE>
<CAPTION>
MARCH 11 (INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
------------------------------- ---------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE FAIR EXERCISE FAIR
SHARES PRICE VALUE SHARES PRICE VALUE
--------- -------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Exercise price exceeds
market price............. 526,672 $0.250 $0.025 2,120,000 $0.265 $0.237
Exercise price equals
market price............. 1,044,480 $0.025 $0.025 4,287,624 $0.299 $0.299
Exercise price is less than
market price............. -- -- -- 2,009,143 $ 3.06 $ 6.09
</TABLE>
For various price ranges, weighted average characteristics of outstanding
stock options at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
-------------------------------- --------------------
REMAINING WEIGHTED WEIGHTED
LIFE AVERAGE AVERAGE
RANGE OF EXERCISE PRICES SHARES (YEARS) PRICE SHARES PRICE
------------------------ --------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
$0.025-0.0275............. 681,993 8.81 $0.0253 359,319 $0.0250
0.250-0.275.............. 4,496,275 9.28 0.2565 1,218,779 0.2679
1.0000................... 703,886 9.69 1.0000 -- 1.0000
4.0000................... 1,420,059 9.90 4.0000 93,750 4.0000
--------- ---- ------- --------- -------
7,302,213 9.40 $1.0346 1,671,848 $0.4343
========= ==== ======= ========= =======
</TABLE>
The Company accounts for stock options and employee stock purchase plans in
accordance with APB 25. To the extent the options granted are below fair market
value, the Company records unearned compensation that is amortized using the
aggregated percentage of compensation accrued method as prescribed by FIN 28.
The fair value of options granted has been estimated at the date of grant using
a Black Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
MARCH 11, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- ------------
<S> <C> <C>
Stock option plans:
Expected life in years.......................... 5.0 5.0
Risk-free interest rate......................... 5.5% 5.5%
Volatility -- non-employees..................... 0.8 0.8
Dividend yield.................................. 0.0% 0.0%
</TABLE>
F-20
<PAGE> 96
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. The weighted average estimated fair value of stock options granted
in 1998, and 1999 was $.025, and $1.68 per share. Had compensation cost for
these plans been determined based on the Black-Scholes value at the grant dates
for awards as prescribed in SFAS 123, pro forma net income and loss per share
would have been:
<TABLE>
<CAPTION>
MARCH 11, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- ------------
<S> <C> <C>
Net loss as reported.............................. $1,270,968 $21,416,126
Net loss -- pro forma............................. $1,272,063 $21,570,337
Basic and diluted net loss per share -- pro
forma........................................... $ (118.23) $ (32.16)
</TABLE>
6. RELATED PARTIES
An officer of the Company is an owner of the building in which the Company
currently subleases space. Total rent expense in connection with this lease for
1998 and 1999 was $0 and $117,500, respectively.
7. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company rents office facilities and an automobile under operating
leases. In May 2000, the Company will relocate its Seattle, Washington
operations to a new facility under an operating lease agreement. The lease
agreement expires in February 2005. The lease contains an option to renew for an
additional five years. At December 31, 1999, the Company had commitments for
capital expenditures of approximately $1,750,000 relating to leasehold
improvements at the new facility.
At December 31, 1999, future minimum lease payments under non-cancelable
operating leases are:
<TABLE>
<S> <C>
2000....................................................... $1,204,558
2001....................................................... 1,575,337
2002....................................................... 1,280,722
2003....................................................... 1,227,190
2004....................................................... 1,229,786
2005 and thereafter........................................ 164,704
----------
Total minimum lease payments.......................... $6,682,297
==========
</TABLE>
Rental expense under operating leases totaled $10,590 and $244,531 for the
period from March 11, 1998 (inception) to December 31, 1998 and the year ended
December 31, 1999, respectively.
The Company has entered into an agreement to sponsor the 2001 and 2002 Hula
Bowl at a cost of $325,000 and $350,000 per year, respectively.
F-21
<PAGE> 97
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONTINGENCIES
In the course of business, the Company has various claims in process,
matters in litigation and other contingencies. The Company regularly assesses
all contingencies and believes that any ultimate liability arising from these
actions would not have a material adverse effect on the Company's financial
condition or results of operations as of December 31, 1999.
8. SEGMENT INFORMATION
As of December 31, 1999, the Company generated substantially all of its
revenues from advertising served on a common, aggregated and integrated network
of affinity-channels delivered through a common physical infrastructure, and
therefore the Company has only one reportable segment. Substantially all
revenues are generated from domestic sources. All Company long-lived assets are
physically located within the United States. Other than the $73,197 of operating
expenses recorded in the year ended December 31, 1999 related to the Company's
majority owned joint venture, all expenses have been incurred in the United
States.
Total operating expenses are controlled centrally by the operating
department based on established budgets. Operating department include sales and
marketing, production and content, product development, and general and
administration. Assets, technology, and personnel resources of the Company are
shared and utilized for all of the Company's service offerings. The Company does
not prepare operating statements by revenue source. The Company does not account
for, and does not report to management, its assets or capital expenditures by
revenue source.
Revenues are derived primarily from two sources: advertising sales and
e-commerce. Advertising revenues include national and local advertising.
E-commerce revenues include e-commerce transactions of merchandise.
<TABLE>
<CAPTION>
MARCH 11, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 30,
1998 1999
-------------- ------------
<S> <C> <C>
Revenue
Advertising revenue -- affinity-channels........ $ -- $1,087,941
Advertising revenue -- print publication........ 233,282 --
Advertising revenue -- promotional events....... 115,000 --
E-commerce revenue.............................. 20,153 79,981
-------- ----------
Total revenue........................... $368,435 $1,167,922
======== ==========
</TABLE>
F-22
<PAGE> 98
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CUSTOMER INFORMATION
The following table presents customers that individually represent 10% or
more of revenue in each respective period.
<TABLE>
<CAPTION>
MARCH 11, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- ------------
<S> <C> <C>
Customers
Customer A ..................................... 40% --
Customer B...................................... -- 29%
Customer C...................................... -- 15%
Customer D...................................... -- 13%
</TABLE>
9. INVESTMENT IN JOINT VENTURE
On November 17, 1999, the Company established Rivals.com Ltd, a wholly
owned subsidiary incorporated in London, England. On December 22, 1999, the
Company and Rivals.com, Ltd. entered into a joint venture agreement with another
party, Chrysalis Holding Limited (Chrysalis), forming a new company named Rivals
Europe with the purpose of carrying on the business of aggregating sports
related websites and content on the Internet in Europe. Under the license
agreement between the Company and Rivals Europe entered into on December 22,
1999, the Company licenses its technology and agrees to provide technical
support services to Rivals Europe in exchange for 75% of the issued and
outstanding stock of the joint venture. On December 22, 1999, Chrysalis invested
$1,000,000 in exchange for 25% of the issued and outstanding stock of Rivals
Europe. The Company consolidates results of the Rivals Europe in its financial
statements and reflects the 25% owned by Chrysalis as minority interest. All
intercompany transactions have been eliminated. For the period ended December
31, 1999, the Company recorded no revenue and total operating expenses of
$73,196 related to the joint venture.
10. BUSINESS COMBINATION
On June 19, 1998, the Company issued 1,200,000 shares of Series A Preferred
Stock in exchange for certain intangible assets from Heckman Media. Heckman
Media is wholly owned by the Company's Chief Executive Officer. The assets
acquired primarily consisted of assets related to a periodical published by
Heckman Media; Sports Washington. In addition to the periodical, the Company
acquired contact lists, customer lists, a telephonic information line, a related
web site, and intellectual property. The results of Sports Washington have been
"carved out" of Heckman Media. Sports Washington operations began to be included
in the Company's financial statements on the effective date of the acquisition,
June 19, 1998. This transaction has been accounted for under the purchase
method. The Company continues to publish the Sports Washington periodical,
however, amounts were not material to the operating results of the Company.
F-23
<PAGE> 99
RIVALS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The allocation of purchase price, as determined after the release of shares
from escrow was finalized, is summarized as follows:
<TABLE>
<CAPTION>
BOOK AND
FAIR VALUE
----------
<S> <C>
Purchase price.............................................. 300,000
Fair value of intangible assets acquired.................... $ 58,854
--------
Excess of purchase price over assets acquired, allocated to
goodwill (amortized on a straight line basis over five
years).................................................... $241,146
========
</TABLE>
The accompanying statement presents direct revenues and expenses for the
year ended December 31, 1997 and period ended June 19, 1998, respectively and
represents a "carve out" of the Sports Washington operating line from Heckman
Media. The Company has excluded the advertising operating line of Heckman Media
as the Company did not continue the operations of the advertising operating
line. The Company has continued to produce the Sports Washington periodical.
Management believes that the audited statement of direct revenues and
expenses for the year ended December 31, 1997 and the period ended June 19, 1998
represents the operations that preceded Rivals.com and continues to exist
subsequent to the acquisition on June 19, 1998.
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 1,
1997 THROUGH THROUGH
DECEMBER 31, JUNE 18,
1997 1998
------------ ----------
<S> <C> <C>
Direct revenues....................................... $97,613 $28,986
Direct expenses....................................... 64,071 23,105
------- -------
Excess of direct revenues over direct expenses........ $33,542 $ 5,881
======= =======
</TABLE>
11. SUBSEQUENT EVENTS
In January 2000, the Company paid $2,500,000 in cash in exchange for
certain assets of Alliance Sports, Inc. As part of the agreement, the Company
received all the intellectual property, domain names, accounts receivable, and
fixed assets of Alliance Sports. In addition, the Company renegotiated all the
existing contracts between certain consultants of Alliance Sports such that
these consultants now have agreements with the Company with similar terms to
those of other affiliates of the Company. This acquisition will be accounted for
under the purchase method.
In February 2000, the Company closed a private equity placement of
3,000,000 shares of Series E Preferred Stock at $11.50 per share resulting in
proceeds of $34,484,500 net of offering costs of $15,500. In conjunction with
the Company's convertible Series E Preferred Stock financing, the Company issued
a warrant to purchase 1,802,120 shares of convertible Series F Preferred Stock
at $14.15 per share to a shareholder that is immediately exercisable and expires
180 days following the closing of the Company's Initial Public Offering. The
Series E and Series F preferred stock would be converted upon an Offering with
aggregate proceeds of not less than $40,000,000.
F-24
<PAGE> 100
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Rivals.com, Inc.
Seattle, Washington
We have audited the accompanying statements of direct revenues and direct
expenses of the Sports Washington Operating Line of Heckman Media for the year
ended December 31, 1997 and the period from January 1, 1998 to June 19, 1998.
These statements are the responsibility of Heckman Media's management. Our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements referred to above are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements referred to above. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statements referred to above. We believe that our audits provide a
reasonable basis for our opinion.
The operations covered by the statements referred to above were a part of
Heckman Media and have no separate legal status. As described in Note 1 to the
statements, the statements referred to above have been prepared from Heckman
Media financial records and no allocations of overhead expenses have been made.
These statements are not necessarily indicative of the costs and expenses that
would have been incurred by Sports Washington, an operating line of Heckman
Media, on a stand-alone basis.
In our opinion, the statements referred to above present fairly, in all
material respects, the direct revenues and direct expenses of the Sports
Washington Operating Line of Heckman Media for the year ended December 31, 1997
and the period from January 1, 1998 to June 19, 1998 in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
March 9, 2000
Seattle, Washington
F-25
<PAGE> 101
HECKMAN MEDIA-SPORTS WASHINGTON
STATEMENT OF DIRECT REVENUES AND DIRECT EXPENSES
<TABLE>
<CAPTION>
JANUARY 1, 1997 JANUARY 1, 1998
THROUGH THROUGH
DECEMBER 31, 1997 JUNE 18, 1998
----------------- ---------------
<S> <C> <C>
Direct revenues...................................... $97,613 $28,986
Direct expenses...................................... 64,071 23,105
------- -------
Excess of direct revenues over direct expenses....... $33,542 $ 5,881
======= =======
</TABLE>
See Accompanying note to statements
F-26
<PAGE> 102
HECKMAN MEDIA-SPORTS WASHINGTON
NOTE TO STATEMENT OF DIRECT REVENUES AND DIRECT EXPENSES
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Prior to June 19, 1998, Heckman Media a company wholly owned by the Chief
Executive Officer of Rivals.com, Inc. operated in the print publication
industry. Heckman Media offered two primary operating lines which consisted of
advertising sales and Sports Washington, a print publication. On June 19, 1998,
Rivals.com, Inc. entered into a Series A Preferred Stock Purchase Agreement with
Heckman Media whereby Heckman Media was issued 1,200,000 shares of our Series A
Preferred Stock in exchange for certain intangible assets of Heckman Media,
including Sports Washington.
The accompanying audited statement presents direct revenues and expenses
for the year ended December 31, 1997 and period ended June 19, 1998,
respectively, which represents a "carve out" of the Sports Washington operating
line from Heckman Media. Rivals.com, Inc. has excluded the advertising operating
line of Heckman Media as Rivals.com, Inc. did not continue the operations of the
advertising operating line. Rivals.com, Inc. has continued to produce the Sports
Washington periodical.
Management believes that the audited statement of direct revenues and
expenses for the year ended December 31, 1997 and the period ended June 19, 1998
represents the operations that preceded Rivals.com and continue to exist
subsequent to the acquisition on June 19, 1998.
DIRECT REVENUE
Direct revenues are generated through the subscription of print
publications. Revenues are recognized over the term of the subscriptions.
DIRECT EXPENSES
Direct expenses primarily consist of costs associated with printing and
distribution of the publications.
F-27
<PAGE> 103
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGED CHARGED TO
BEGINNING TO OTHER BALANCE AT
OF COST AND ACCOUNTS -- DEDUCTIONS -- END OF
PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
------------ ---------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Deducted from asset
accounts.................
Allowance for uncollectable
accounts.................... $0 $ 0 $0(1) $ 0
Inventory reserve........... 0 0 0(2) 0
-- -------- -- --------
$0 $ 0 $0 $ 0
== ======== == ========
Year Ended December 31, 1999:
Deducted from asset
accounts.................
Allowance for uncollectable
accounts.................... $0 $ 79,028 $0(1) $ 79,028
Inventory reserve........... 0 69,129 0(2) 69,129
-- -------- -- --------
$0 $148,157 $0 $148,157
== ======== == ========
</TABLE>
- -------------------------
(1) Write-off of uncollectable accounts, net of recoveries
(2) Write-off of bad inventory
S-1
<PAGE> 104
- ---------------------------------------------------------
- ---------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 7
Special Note Regarding Forward-
Looking Statements................ 25
Use of Proceeds..................... 25
Dividend Policy..................... 25
Capitalization...................... 26
Dilution............................ 28
Selected Consolidated Financial
Data.............................. 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 30
Business............................ 37
Management.......................... 54
Certain Relationships and Related
Transactions...................... 62
Principal Shareholders.............. 65
Description of Capital Stock........ 67
Shares Eligible for Future Sale..... 70
Underwriting........................ 72
Legal Matters....................... 74
Experts............................. 74
Change in Accountants............... 74
Additional Information.............. 74
Index to Financial Statements....... F-1
</TABLE>
-------------------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to an unsold allotment or subscription.
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
Shares
RIVALNETWORKS, INC.
Common Stock
-------------------------
[RIVALNETWORKS LOGO]
-------------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
CHASE H&Q
Representatives of the Underwriters
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 105
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Rivals.com, Inc. in
connection with the sale of Common Stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $
NASD filing fee.............................................
Nasdaq National Market listing fee..........................
Printing and engraving costs................................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue Sky fees and expenses..................................
Transfer Agent and Registrar fees...........................
Miscellaneous expenses......................................
-------
Total..................................................... $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a corporation to indemnify its directors,
officers, employees and agents against certain liabilities they may incur in
such capacities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), provided they acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
corporation. Section 23B.08.320 of the WBCA authorizes a corporation to limit or
eliminate a director's liability to the corporation or its shareholders for
monetary damages for breaches of fiduciary duties, other than for (1) acts or
omissions that involve intentional misconduct or a knowing violation of law, (2)
unlawful distributions to shareholders, or (3) transactions from which a
director derives an improper personal benefit.
Article 9 of the Registrant's Sixth Amended and Restated Articles of
Incorporation provides for the indemnification of directors to the fullest
extent permissible under Washington law.
Section 5 of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if such
person acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of the Registrant, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
II-1
<PAGE> 106
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification between the underwriters and the registrant from and against
certain liabilities arising in connection with the offering which is the subject
of this registration statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES; USES OF PROCEEDS FROM SALES OF
REGISTERED SECURITIES
During the past two years, we and our predecessors Rival Media, Inc., Rival
Communications, Inc., a Washington corporation and Rivalnet, Inc., a Washington
corporation (collectively, "Predecessor"), have issued unregistered securities
to a limited number of persons as described below. The information regarding our
shares of stock has been adjusted to give effect to the four-for-one stock split
of our Series A preferred stock effected in January 1999.
(1) From inception through February 15, 2000, we granted options to
purchase an aggregate of 7,929,980 shares of our common stock to our
employees and consultants at exercise prices ranging from $0.025 to
$10.00 pursuant to our 1998 Stock Option Plan.
(2) From April 21, 1999 through February 15, 2000, we granted options to
purchase an aggregate of 225,740 shares of our common stock at
exercise prices ranging from $0.25 to $4.00 to our network affiliates
pursuant to our 1999 Network Affiliates Option Plan.
(3) From inception through February 15, 2000, we sold an aggregate of
1,901,349 shares of our common stock at prices ranging from $0.025 to
$0.275 per share.
(4) On June 19, 1998, Predecessor issued an aggregate of 3,200,000 shares
of Series A preferred stock which are convertible into 3,200,000
shares of common stock, to 12 investors for a consideration of $0.25
per share of Series A preferred stock or an aggregate of $800,000. The
purchasers consisted of one investor who is presently related to a
director and purchased 100,000 shares, one investor that is an
affiliate of a director and purchased 1,200,000 shares and 10
unaffiliated investors who purchased 1,900,000 shares.
(5) On September 27, 1998, Predecessor issued an aggregate of 800,000
shares of Series A preferred stock, which are convertible into 800,000
shares of common stock, to 11 investors for a consideration of $0.25
per share of Series A preferred stock or an aggregate of $200,000. The
purchasers consisted of one investor who is presently related to a
director and purchased 40,000 shares, one investor that is an
affiliate of a director and purchased 40,000 and 9 unaffiliated
investors who purchased 720,000 shares. All but four of the purchasers
had previously purchased Series A preferred stock in June 1998.
(6) On February 15, 1998, Predecessor issued an aggregate of 60,000 shares
of Series A preferred stock, which are convertible into 60,000 shares
of common stock, to one investor for a consideration of $0.25 per
share of Series A preferred stock, or an aggregate of $15,000.
(7) In November and December of 1998 and January and February of 1999,
Predecessor issued a total of 19 warrants to purchase Preferred Stock
in connection with a bridge loan transaction. The warrants are
exercisable for an
II-2
<PAGE> 107
aggregate of up to 89,524 shares of our Series B Preferred Stock,
which are in turn convertible into 89,524 shares of our Common Stock.
The purchasers consisted of 19 unaffiliated investors, some of whom
had invested in us previously.
(8) On March 5, 1999, April 3, 1999 and May 18, 1999, Predecessor issued
an aggregate of 7,646,485 shares of Series B preferred stock, which
are convertible into 7,646,485 shares of common stock, to 28 investors
for a consideration of $1.05 per share of Series B preferred stock or
an aggregate of approximately $8,028,809. The purchasers consisted of
two investors that are affiliates of a director and purchased
3,811,217 shares, one investor that is a director and purchased 47,619
and 25 unaffiliated investors who purchased 3,835,268 shares.
(9) In August 1999, we issued to Heckman Media, Inc. a warrant to purchase
427,357 shares of Series C preferred stock at an exercise price of
$3.54 per share. The warrant may be exercised incrementally and
carries a cashless exercise feature. The warrant terminates after
three years or on a change of control.
(10) In September 1999, we issued an aggregate of 6,637,640 shares of
Series C preferred stock, which are convertible into 6,637,640 shares
of common stock, to five investors for a consideration of $3.54 per
share of Series C preferred stock, or an aggregate of approximately
$23,497,245. The purchasers consisted of one investor that is an
affiliate of a director and purchased 1,313,509 shares, one investor
that is a director and purchased 100,000 shares and three unaffiliated
investors who purchased 5,324,131 shares.
(11) In September 1999, we issued to News America Incorporated a warrant to
purchase 1,465,333 shares of Series D preferred stock at a price equal
to the lesser of $11.50 and the price of our common stock in this
offering. If exercised, the warrant must be exercised in whole. The
warrant terminates upon the earlier to occur of the three year
anniversary of the day it was issued, a change in control or 15 days
after the warrant holder receives notice of this offering.
(12) In September 1999, we issued to News America Incorporated a warrant to
purchase 5,861,331 shares of our common stock at an exercise price per
share of $14.15. The warrant may be exercised incrementally, may not
be exercised until after this offering and terminates 180 days after
this offering.
(13) On February 11, 2000, we issued an aggregate of 3,000,000 shares of
Series E preferred stock which are convertible into 3,000,000 shares
of common stock, to one investor for a consideration of $11.50 per
share of Series E preferred stock, or an aggregate of approximately
$34,500,000.
(14) On February 11, 2000, we issued to affiliates of Softbank Capital
Partners warrants to purchase 1,802,120 shares of Series F preferred
stock at a price of $14.15 per share. The warrants are immediately
exercisable, may be exercised in increments and terminate 180 days
after this offering.
Except as indicated above, none of the foregoing transactions involved any
underwriters, underwriting discounts or commissions or any public offering and
we believe that each transaction was exempt from the registration requirements
of the Securities Act by virtue of Section 4(2) thereof, Regulation D
promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such
II-3
<PAGE> 108
Rule 701. The recipients in such transactions represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationships with us and the
Predecessor, to information about us and the Predecessor.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
The Exhibits are as set forth on the Exhibit Index hereto.
(b) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<S> <C>
II -- Valuation of Accounts................................. S-1
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement 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 Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, as amended, the
registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Seattle, State of Washington, on the 13th day of March, 2000.
RIVALS.COM, INC.
By: /s/ JAMES C. HECKMAN, JR.
------------------------------------
James C. Heckman, Jr.
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James C. Heckman, Jr. and Saul Gamoran
and each of them, his attorneys-in-fact, each with the power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES C. HECKMAN, JR. Chief Executive Officer and March 13, 2000
- ----------------------------------- Chairman of the Board of Directors
(James C. Heckman, Jr.) (Principal Executive Officer)
/s/ KAREN NORTHUP Chief Financial Officer (Principal March 13, 2000
- ----------------------------------- Financial Officer)
(Karen Northup)
/s/ SAUL GAMORAN Executive Vice President and March 13, 2000
- ----------------------------------- Director
(Saul Gamoran)
/s/ JONATHAN D. LAZARUS Director March 13, 2000
- -----------------------------------
(Jonathan D. Lazarus)
</TABLE>
II-5
<PAGE> 110
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MIKE SLADE Director March 13, 2000
- -----------------------------------
(Mike Slade)
/s/ ANN WINBLAD Director March 13, 2000
- -----------------------------------
(Ann Winblad)
</TABLE>
II-6
<PAGE> 111
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Sixth Amended and Restated Articles of Incorporation of the
Registrant, as currently in effect
3.2* Form of Amended and Restated Articles of Incorporation of
the Registrant, to be filed upon the closing of this
offering
3.3 Bylaws of the Registrant, as currently in effect
3.4* Amended and Restated Bylaws of the Registrant, to be in
effect after the closing of this offering
4.1* Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4
5.1* Opinion of Morrison & Foerster, LLP
10.1* Form of Indemnification Agreement between the Registrant and
each of its directors and officers
10.2 Employment Agreement dated March 5, 1999 for James C.
Heckman, Jr.
10.3 Employment Letter Agreement dated January 11, 1999 for
William C. Sornsin, Jr.
10.4 Lease Agreement dated November 22, 1999 between the
Registrant and Pine Street Development L.L.C.
10.5 Sublease Agreement dated June 30, 1999 between the
Registrant and Think New Ideas, Inc.
10.6 Sublease Agreement dated June 17, 1999 between the
Registrant and Bowne Internet Solutions, Inc.
10.7 Amended and Restated Investors' Rights Agreement between the
Registrant and the Investors listed therein
10.8 Amended and Restated Voting Agreement between the Registrant
and the Investors listed therein
10.9 Amended and Restated 1998 Stock Option Plan
10.10 1999 Network Affiliate Stock Option Plan
10.11* Asset Purchase Agreement between the Registrant,
AllianceSports, LLC, Greg Gough and Cayce Terry, dated
January 8, 2000
10.12* Content and Link Agreement between the Registrant and News
Digital Media dated September 30, 1999
10.13* Shareholders Agreement among the Registrant, Rivals.com
Limited, Chrysalis Holdings Limited and Rivals Europe
Limited dated December 22, 1999
16.1 Letter from Ernst & Young LLP
23.1 Consent of Deloitte & Touche LLP, Independent Accountants
23.2 Independent Auditors' Report on Supplemental Schedule
23.3 Consent of Counsel (see Exhibit 5.1)
24.1 Power of Attorney (see page II-6)
27.1 Financial Data Schedules
</TABLE>
- -------------------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 1.1
[RIVALS.COM, INC.]
COMMON STOCK, NO PAR VALUE
UNDERWRITING AGREEMENT
__________, 2000
Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Hambrecht & Quist LLC
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
2765 Sand Hill Road
Menlo Park, CA 94025
Ladies and Gentlemen:
[Rivals.com, Inc.], a Washington corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
__________ shares (the "Firm Shares") and, at the election of the Underwriters,
up to __________ additional shares (the "Optional Shares") of Common Stock
("Stock") of the Company (the Firm Shares and the Optional Shares that the
Underwriters elect to purchase pursuant to Section 2 hereof being collectively
called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-__________) (the
"Initial Registration Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and no
stop order suspending the effectiveness of the Initial Registration Statement,
any post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule 424(a) of
the rules and regulations of the Commission under the Act is hereinafter called
a "Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information
-1-
<PAGE> 2
contained in the form of final prospectus filed with the Commission pursuant to
Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by
virtue of Rule 430A under the Act to be part of the Initial Registration
Statement at the time it was declared effective, each as amended at the time
such part of the Initial Registration Statement became effective or such part of
the Rule 462(b) Registration Statement, if any, became or hereafter becomes
effective, are hereinafter collectively called the "Registration Statement"; and
such final prospectus, in the form first filed pursuant to Rule 424(b) under the
Act, is hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto, and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its subsidiaries has sustained since
the date of the latest audited financial statements included in the Prospectus
any material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
there has not been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, shareholders' equity or results
of operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus;
(e) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its subsidi-
-2-
<PAGE> 3
aries; and any real property and buildings held under lease by the Company and
its subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries;
(f) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Washington, with
power and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject to
no material liability or disability by reason of the failure to be so qualified
in any such jurisdiction; and each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Stock contained in the Prospectus; and all
of the issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and (except for directors' qualifying shares) are owned directly or indirectly
by the Company, free and clear of all liens, encumbrances, equities or claims;
(h) The Shares to be issued and sold by the Company to the Underwriters
hereunder have been duly and validly authorized and, when issued and delivered
against payment therefor as provided herein, will be duly and validly issued and
fully paid and non-assessable and will conform to the description of the Stock
contained in the Prospectus;
(i) The issue and sale of the Shares by the Company and the compliance
by the Company with all of the provisions of this Agreement and the consummation
of the transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions of the
Certificate of Incorporation or Bylaws of the Company or any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the Company
of the transactions contemplated by this Agreement, except the registration
under the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the Shares by
the Underwriters;
(j) Neither the Company nor any of its subsidiaries is in violation of
its Certificate of Incorporation or Bylaws or in default in the performance or
observance of any material obliga-
-3-
<PAGE> 4
tion, agreement, covenant or condition contained in any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound;
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock," insofar as they purport to constitute a summary
of the terms of the Stock, under the caption "Stock Plans," and under the
caption "Underwriting," insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate, complete and fair;
(l) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position, shareholders'
equity or results of operations of the Company and its subsidiaries; and, to the
best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(m) The Company is not and, after giving effect to the offering and sale
of the Shares, will not be an "investment company," as such term is defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act");
(n) Neither the Company nor any of its affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba within the
meaning of Section 517.075, Florida Statutes;
(o) Deloitte & Touche LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(p) The financial statements included in the Registration Statement and
the Prospectus, together with the related schedule and notes, present fairly the
financial position of the Company and its consolidated subsidiaries at the dates
indicated and the statement of operations, stockholders' equity and cash flows
of the Company and its consolidated subsidiaries for the periods specified; such
financial statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis through the periods
involved. The supporting schedules included in the Registration Statement
present fairly in accordance with GAAP the information required to be stated
therein. The selected financial data and the summary financial information
included in the Prospectus present fairly the information shown therein and have
been compiled on a basis consistent with that of the audited financial
statements and the related notes thereto included in the Registration Statement.
The pro forma financial statements and the related notes thereto included in the
Registration Statement and the Prospectus present fairly the information shown
therein, have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements and have been properly
compiled on the base described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred to
therein;
-4-
<PAGE> 5
(q) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit timely preparation of financial
statements in conformity in all material respects with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences; and
(r) The Company has reviewed its operations and that of its subsidiaries
and any third parties with which the Company or any of its subsidiaries has a
material relationship to evaluate the extent to which the business or operations
of the Company or any of its subsidiaries will be affected by the Year 2000
Problem. As a result of such review, the Company has no reason to believe, and
does not believe, that the Year 2000 Problem will have a material adverse effect
on the general affairs, management, the current or future consolidated financial
position, business prospects, shareholders' equity or results of operations of
the Company and its subsidiaries or result in any material loss or interference
with the Company's business or operations. The "Year 2000 Problem" as used
herein means any significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of mechanical or
electrical systems of any kind will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.
(s) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or five percent (5%) or greater securityholders, except as set forth
in the Registration Statement.
(t) The Company holds all material licenses, certificates and permits
from governmental authorities that are necessary to the conduct of its business.
(u) This Agreement has been duly authorized, executed and delivered by
the Company.
(v) Other than as set forth in the Prospectus, the Company owns or
possesses adequate rights in all patents, trademarks, service marks, trade
names, copyrights, trade secrets, information, proprietary rights or processes
("Intellectual Property") necessary for its business, without any conflict with
or infringement of the interests of others, and has taken all reasonable steps
necessary to secure interests in such Intellectual Property from its
contractors. Except as set forth in the Prospectus, the Company is not aware of
outstanding options, licenses or agreements of any kind relating to the
Intellectual Property of the Company that are required to be described in the
Prospectus, and, except as set forth in the Prospectus, the Company is not a
party to or bound by any options, licenses or agreements with respect to the
Intellectual Property of any other person or entity that are required to be set
forth in the Prospectus. None of the technology employed by the Company has been
obtained or is being used by the Company in violation of any contractual
obligation binding on the Company or any of its officers, directors, employees
or otherwise in violation of the rights of any persons. Except as disclosed in
the Prospectus, the Company has not received any written or oral communications
alleging that the Company has violated, infringed or conflicted with, or, by
conducting its business as set forth in the
-5-
<PAGE> 6
Prospectus, would violate, infringe or conflict with any of the Intellectual
Property of any other person or entity. The Company knows of no material
infringement by others of Intellectual Property owned by or licensed to the
Company.
(w) There are no contracts, agreements or understandings between the
Company and any person granting such person (i) the right to require the Company
to file a registration statement under the Act with respect to any securities of
the Company, except as disclosed in the Prospectus or (ii) to require the
Company to include such securities with the Shares registered pursuant to the
Registration Statement.
(x) No relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders, customers or
suppliers of the Company on the other hand, which is required by the Act to be
described in the Registration Statement or the Prospectus which is not so
described.
(y) There are no outstanding loans, advances (except normal advances for
business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(z) The Company has not distributed and will not distribute prior to the
later of (i) the First Time of Delivery, or any Second Time of Delivery, as the
case may be, and (ii) completion of the distribution of the Shares, any offering
material in connection with the offering and sale of the Shares other than any
Preliminary Prospectus, the Prospectus, the Registration Statement and other
materials, if any, permitted by the Act.
(aa) Each certificate signed by any officer of the Company and delivered
to the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
(bb) Substantially all outstanding Stock, and all securities convertible
into or exercisable or exchangeable for Stock, are subject to valid, binding and
enforceable agreements (collectively, the "Lock-up Agreements") that restrict
the holders thereof from selling, making any short sale of, granting any option
for the purchase of, or otherwise transferring or disposing of, any of such
shares of Stock, or any such securities convertible into or exercisable or
exchangeable for Stock, for a period of one hundred eighty (180) days after the
date of the Prospectus without the prior written consent of the Company or
Goldman, Sachs & Co.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $................, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as
-6-
<PAGE> 7
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction, the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to __________ Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering sales of
shares in excess of the number of Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of thirty (30) calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be purchased
and the date on which such Optional Shares are to be delivered, as determined by
you but in no event earlier than the First Time of Delivery (as defined in
Section 4 hereof) or, unless you and the Company otherwise agree in writing,
earlier than two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight (48) hours
prior notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight (48) hours in advance. The Company will cause the
certificates representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of DTC or its designated custodian
(the "Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 9:30 a.m., New York City time, on
__________, 2000 or such other time and date as Goldman, Sachs & Co. and the
Company may agree upon in writing, and, with respect to the Optional Shares,
9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co. in the
written notice given by Goldman, Sachs & Co. of the Underwriters' election to
purchase such Optional Shares, or such other time and date as Goldman, Sachs &
Co. and the Company may agree upon in writing. Such time and date for delivery
of the Firm Shares is herein called the "First Time of Delivery," such time and
date for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery," and each such time and date for
delivery is herein called a "Time of Delivery."
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7 hereof, will be delivered at the offices of
Morrison & Foerster LLP, 755 Page Mill Road, Palo Alto, CA 94304 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
such
-7-
<PAGE> 8
Time of Delivery. A meeting will be held at the Closing Location at __________
p.m., New York City time, on the New York Business Day next preceding such Time
of Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus which shall be
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any supplement to
the Prospectus or any amended Prospectus has been filed and to furnish you with
copies thereof; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or suspending any
such qualification, promptly to use its best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to furnish
the Underwriters with copies of the Prospectus in New York City in such
quantities as you may reasonably request, and, if the delivery of a prospectus
is required at any time prior to the expiration of nine months after the time of
issue of the Prospectus in connection with the offering or sale of the Shares
and if at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such period to amend or supplement the
Prospectus in order to comply with the Act, to notify you and upon your request
to prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time
-8-
<PAGE> 9
to time reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a prospectus in
connection with sales of any of the Shares at any time nine months or more after
the time of issue of the Prospectus, upon your request but at the expense of
such Underwriter, to prepare and deliver to such Underwriter as many copies as
you may request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date one hundred eighty (180) days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose of, except
as provided hereunder any securities of the Company that are substantially
similar to the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to receive,
Stock or any such substantially similar securities (other than pursuant to
employee stock option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement), without your prior written consent;
(f) To furnish to its shareholders as soon as practicable after the end
of each fiscal year an annual report (including a balance sheet and statements
of income, shareholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and, as
soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), to make available to its shareholders
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail;
(g) During a period of five (5) years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to shareholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
shareholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ"); and
-9-
<PAGE> 10
(j) To file with the Commission such information on Form 10-Q or Form
10-K as may be required by Rule 463 under the Act.
(k) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (a) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (b) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares; (c)
all expenses in connection with the qualification of the Shares for offering and
sale under state securities laws as provided in Section 5(b) hereof, including
the fees and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky survey (d) all fees and
expenses in connection with listing the Shares on the NASDAQ; (e) the filing
fees incident to, and the fees and disbursements of counsel for the Underwriters
in connection with, securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Shares; (f) the cost of
preparing stock certificates; (g) the cost and charges of any transfer agent or
registrar; and (h) all other costs and expenses incident to the performance of
its obligations hereunder which are not otherwise specifically provided for in
this Section. It is understood, however, that, except as provided in this
Section, and Sections 8 and 11 hereof, the Underwriters will pay all of their
own costs and expenses, including the fees of their counsel, stock transfer
taxes on resale of any of the Shares by them, and any advertising expenses
connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 5(a) hereof;
if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 p.m., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
-10-
<PAGE> 11
(b) Pillsbury Madison & Sutro LLP, counsel for the Underwriters, shall
have furnished to you such written opinion or opinions (a draft of each such
opinion is attached as Annex II(a) hereto), dated such Time of Delivery, with
respect to the matters covered in paragraphs (i), (ii), (vii) and (xiii) of
subsection (c) below as well as such other related matters as you may reasonably
request, and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such matters;
(c) Morrison & Foerster LLP, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is attached as
Annex II(b) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Washington, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery)
have been duly and validly authorized and issued and are fully paid and
non-assessable; and the Shares conform to the description of the Stock
contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such qualification
or is subject to no material liability or disability by reason of
failure to be so qualified in any such jurisdiction (such counsel being
entitled to rely in respect of the opinion in this clause upon opinions
of local counsel and in respect of matters of fact upon certificates of
officers of the Company, provided that such counsel shall state that
they believe that both you and they are justified in relying upon such
opinions and certificates);
(iv) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws
of its jurisdiction of incorporation; and all of the issued shares of
capital stock of each such subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable, and (except
for directors' qualifying shares and except as otherwise set forth in
the Prospectus) are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims (such counsel
being entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect to matters of fact upon
certificates of officers of the Company or its subsidiaries, provided
that such counsel shall state that they believe that both you and they
are justified in relying upon such opinions and certificates);
(v) The Company and its subsidiaries have good and marketable
title in fee simple to all real property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or
-11-
<PAGE> 12
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by
the Company and its subsidiaries; and any real property and buildings
held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to
be made of such property and buildings by the Company and its
subsidiaries (in giving the opinion in this clause, such counsel may
state that no examination of record titles for the purpose of such
opinion has been made, and that they are relying upon a general review
of the titles of the Company and its subsidiaries, upon opinions of
local counsel and abstracts, reports and policies of title companies
rendered or issued at or subsequent to the time of acquisition of such
property by the Company or its subsidiaries, upon opinions of counsel to
the lessors of such property and, in respect to matters of fact, upon
certificates of officers of the Company or its subsidiaries, provided
that such counsel shall state that they believe that both you and they
are justified in relying upon such opinions, abstracts, reports,
policies and certificates);
(vi) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is a
party or of which any property of the Company or any of its subsidiaries
is the subject which, if determined adversely to the Company or any of
its subsidiaries, would individually or in the aggregate have a material
adverse effect on the current or future consolidated financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries; and, to the best of such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental authorities
or threatened by others;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company with
all of the provisions of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the Certificate
of Incorporation or Bylaws of the Company or any statute or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties;
(ix) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
is required for the issue and sale of the Shares or the consummation by
the Company of the trans-
-12-
<PAGE> 13
actions contemplated by this Agreement, except the registration under
the Act of the Shares, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(x) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or Bylaws or in default in
the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound;
(xi) The statements set forth in the Prospectus under the
caption "Description of Capital Stock," insofar as they purport to
constitute a summary of the terms of the Stock, under the caption "Stock
Plans," and under the caption "Underwriting," insofar as they purport to
describe the provisions of the laws and documents referred to therein,
are accurate, complete and fair;
(xii) The Company is not an "investment company," as such term
is defined in the Investment Company Act; and
(xiii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the
Act and the rules and regulations thereunder; although they do not
assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Registration Statement or the
Prospectus, except for those referred to in the opinion in subsection
(xi) of this Section 7(c), they have no reason to believe that, as of
its effective date, the Registration Statement or any further amendment
thereto made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or
that, as of its date, the Prospectus or any further amendment or
supplement thereto made by the Company prior to such Time of Delivery
(other than the financial statements and related schedules therein, as
to which such counsel need express no opinion) contained an untrue
statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that, as of
such Time of Delivery, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel need
express no opinion) contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made,
-13-
<PAGE> 14
not misleading; and they do not know of any amendment to the
Registration Statement required to be filed or of any contracts or other
documents of a character required to be filed as an exhibit to the
Registration Statement or required to be described in the Registration
Statement or the Prospectus which are not filed or described as
required;
(d) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, Deloitte & Touche LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a draft of the
form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(e) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares [being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(f) On or after the date hereof (i) no downgrading shall have occurred
in the rating accorded the Company's debt securities by any "nationally
recognized statistical rating organization," as that term is defined by the
Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the Company's
debt securities;
(g) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on NASDAQ; (ii) a suspension or
material limitation in trading in the Company's securities on NASDAQ; (iii) a
general moratorium on commercial banking activities declared by either federal
or New York or California state authorities; or (iv) the outbreak or escalation
of hostilities involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any such event specified
in this clause (iv) in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
-14-
<PAGE> 15
(h) The Shares to be sold at such Time of Delivery shall have been duly
listed for quotation on NASDAQ; and
(i) The Company has obtained and delivered to the Underwriters executed
copies of an agreement from all directors, officers and shareholders of the
Company, substantially to the effect set forth in Subsection 5(e) hereof in form
and substance satisfactory to you;
(j) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement; and
(k) The Company shall have furnished or caused to be furnished to you at
such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (e) of this Section
and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
each Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, 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 not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, 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 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 made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and
-15-
<PAGE> 16
will reimburse the Company for any legal or other expenses reasonably incurred
by the Company in connection with investigating or defending any such action or
claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or
-16-
<PAGE> 17
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Company that you have
so arranged for the purchase of such Shares, or the Company notifies you that it
has so arranged for the purchase of such Shares, you or the Company shall have
the right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
-17-
<PAGE> 18
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
-18-
<PAGE> 19
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail to the
address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
-19-
<PAGE> 20
If the foregoing is in accordance with your understanding, please sign
and return to us six (6) counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement between each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
RIVALS.COM, INC.
By_______________________________
Name_____________________________
Title____________________________
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
By____________________________________
Name__________________________________
Title_________________________________
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By____________________________________
Name__________________________________
Title_________________________________
-20-
<PAGE> 21
HAMBRECHT & QUIST LLC
By____________________________________
Name__________________________________
Title_________________________________
On behalf of each of the Underwriters
-21-
<PAGE> 22
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares to be Maximum Option
Underwriter Purchased Exercised
- ---------------------------------------------------- ----------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co.................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Hambrecht & Quist LLC..............................
----------------- ------------------
Total......................................
================= ==================
</TABLE>
S-1
<PAGE> 23
ANNEX I
FORM OF ANNEX I DESCRIPTION OF COMFORT LETTER
FOR REGISTRATION STATEMENTS ON FORM S-1
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance
with standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
[separately] furnished to the representatives of the Underwriters (the
"Representatives")[and are attached hereto];
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which [have
been separately furnished to the Representatives] [and are attached
hereto] and on the basis of specified procedures including inquiries of
officials of the Company who have responsibility for financial and
accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i)
below comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations, nothing came to their attention that cause them to believe
that the unaudited condensed consolidated financial statements do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect
to the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
agrees with the corresponding
A-1
<PAGE> 24
amounts (after restatements where applicable) in the audited
consolidated financial statements for such five fiscal years which were
included or incorporated by reference in the Company's Annual Reports on
Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302, 402 and
503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of
the latest audited financial statements included in the Prospectus,
inquiries of officials of the Company and its subsidiaries responsible
for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) (1) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of
the Act and the related published rules and regulations, or (2)
any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows
included in the Prospectus for them to be in conformity with
generally accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree with
the corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements
included in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in clause (B)
were not determined on a basis substantially consistent with the
basis for the audited consolidated financial statements included
in the Prospectus;
-22-
<PAGE> 25
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those
statements;
(E) as of a specified date not more than five days prior
to the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital
stock upon exercise of options and stock appreciation rights,
upon earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on
the date of the latest financial statements included in the
Prospectus) or any increase in the consolidated long-term debt
of the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other
items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared
with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in clause (E) there were any decreases in
consolidated net revenues or operating profit or the total or
per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
the comparable period of the preceding year and with any other
period of corresponding length specified by the Representatives,
except in each case for decreases or increases which the
Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination in accordance with
generally accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the Representatives,
which are derived from the general accounting records of the Company and
its subsidiaries, which appear in the Prospectus, or in Part II of, or
in exhibits and schedules to, the Registration Statement specified by
the Representatives, and have compared certain of such amounts,
percentages and financial information with the accounting records of the
Company and its subsidiaries and have found them to be in agreement.
A-3
<PAGE> 1
EXHIBIT 3.1
SIXTH AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
RIVALS.COM, INC.
ARTICLE 1. NAME
The name of this corporation is Rivals.com, Inc.
ARTICLE 2. SHARES
2.1 AUTHORIZED CAPITAL. This corporation is authorized to issue two (2)
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is 75,411,066, consisting of 50,000,000 shares of Common Stock, without par
value, and 25,411,066 shares of Preferred Stock, without par value. The Common
Stock is subject to the rights and preferences of the Preferred Stock, as set
forth below.
2.2 RIGHTS AND PREFERENCES OF PREFERRED STOCK.
2.2.1 Designations. The first series of Preferred Stock shall be
designated "Series A Preferred Stock" and shall consist of 4,060,000 shares (the
"Series A Stock"). The second series of Preferred Stock shall be designated
"Series B Preferred Stock" and shall consist of 7,733,613 shares (the "Series B
Stock"). The third series of Preferred Stock shall be designated "Series C
Preferred Stock" and shall consist of 7,350,000 shares (the "Series C Stock").
The fourth series of Preferred Stock shall be designated "Series D Preferred
Stock" and shall consist of 1,465,333 shares (the "Series D Stock"). The fifth
series of Preferred Stock shall be designated "Series E Preferred Stock" and
shall consist of 3,000,000 shares (the "Series E Stock"). The sixth series of
Preferred Stock shall be designated "Series F Preferred Stock" and shall consist
of 1,802,120 shares (the "Series F Stock").
2.2.2 Dividends. Dividends shall be declared and set aside for
any shares of Series A Stock, Series B Stock, Series C Stock, Series D Stock,
Series E Stock and Series F Stock only upon resolution of the Board; provided,
that:
(a) General. Holders of record of outstanding shares of
Series A Stock, Series B Stock, Series C Stock, Series D Stock, Series E Stock
and Series F Stock shall be entitled to receive, out of funds legally available
therefor, a noncumulative cash dividend of (i) $0.0225 per annum per share on
each outstanding share of Series A Stock, (ii) $0.0945 per annum per share on
each outstanding share of Series B Stock, (iii) $0.3186 per annum per share on
each outstanding share of Series C Stock, (iv) $1.035 per annum per share on
each outstanding share of Series D Stock, (v) $0.92 per annum per share on each
outstanding share of Series E Stock and (vi) $1.13 per annum per share on each
outstanding share of Series F Stock, if
<PAGE> 2
and when declared by the Board in its discretion. Such dividend, if and when so
declared, shall be paid at such time or times as shall be determined by the
Board.
(b) Limitation on Other Dividends. The Series A Stock,
Series B Stock, Series C Stock, Series D Stock, Series E Stock and Series F
Stock shall be preferred as to the payment of cash dividends, so declared by the
Board of Directors, over the Common Stock. No cash dividends shall be declared
on the Common Stock unless or until the dividends set forth in Section 2.2.2(a)
shall have been paid or declared and set apart for payment and a cash dividend
in an amount equal to or greater than the dividend declared on the Common Stock
(dividends shall be compared on an as-converted-to-Common Stock basis) shall
have been declared and paid, or declared and a sum sufficient for the payment
thereof set apart, on the Series A Stock, Series B Stock, Series C Stock, Series
D Stock, Series E Stock and Series F Stock. In the event that any cash dividends
are paid or declared and set apart on any share of Common Stock, an additional
dividend shall be paid or declared and set apart with respect to all outstanding
shares of Series A Stock, Series B Stock, Series C Stock, Series D Stock, Series
E Stock or Series F Stock (on an as-converted-to-Common Stock basis) in an
amount per share equal to the amount paid or declared and set apart for each
share of Common Stock.
2.2.3 Liquidation Rights. Upon the voluntary or involuntary
dissolution, liquidation or winding up of this corporation, the assets of this
corporation available for distribution to its shareholders shall be distributed
in the following order and amounts:
(a) General
(i) First, (A) the holders of shares of Series E
Stock shall be entitled to receive $11.50 for each outstanding share of Series E
Stock held by them (as adjusted for stock splits, stock dividends,
recapitalizations and the like) and (B) the holders of shares of Series F Stock
shall be entitled to receive $14.15 for each outstanding share of Series F Stock
held by them (as adjusted for stock splits, stock dividends, recapitalizations
and the like); in addition, each such holder shall be entitled to receive any
declared but unpaid dividend per share on such outstanding share of Series E
Stock and Series F Stock (collectively, such liquidation payment amounts are
referred to as the "Parity Liquidation Amount"). If, upon the occurrence of such
event, the assets of this corporation shall be insufficient to permit the
payment of the full Parity Liquidation Amount, then the assets of this
corporation available for distribution shall be distributed ratably among the
holders of shares of Series E Stock and Series F Stock, in the same proportions
as the aggregate of the Parity Liquidation Amount each such holder would
otherwise be entitled to receive bears to the total Parity Liquidation Amount
that would otherwise be payable to all such holders.
(ii) Second, (A) the holders of shares of Series
A Stock shall be entitled to receive $0.25 for each outstanding share of Series
A Stock held by them (as adjusted for stock splits, stock dividends,
recapitalizations and the like), (B) the holders of shares of Series B Stock
shall be entitled to receive $1.05 for each outstanding share of Series B Stock
held by them (as adjusted for stock splits, stock dividends, recapitalizations
and the like), (C) the
- 2 -
<PAGE> 3
holders of shares of Series C Stock shall be entitled to receive $3.54 for each
outstanding share of Series C Stock held by them (as adjusted for stock splits,
stock dividends, recapitalizations and the like), (D) the holders of shares of
Series D Stock shall be entitled to receive $11.50 for each outstanding share of
Series D Stock held by them (as adjusted for stock splits, stock dividends,
recapitalizations and the like), (E) the holders of shares of Series E Stock
shall be entitled to receive an additional $11.50 for each outstanding share of
Series E Stock held by them (as adjusted for stock splits, stock dividends,
recapitalizations and the like) and (F) the holders of shares of Series F Stock
shall be entitled to receive an additional $14.15 for each outstanding share of
Series F Stock held by them (as adjusted for stock splits, stock dividends,
recapitalizations and the like); in addition, each such holder shall be entitled
to receive any declared but unpaid dividend per share on such outstanding share
of Series A Stock, Series B Stock, Series C Stock, Series D Stock, Series E
Stock and Series F Stock (collectively, such liquidation payment amounts are
referred to as the "Second Parity Liquidation Amount"). If, upon the occurrence
of such event, the assets of this corporation shall be insufficient to permit,
upon completion of the distribution required by subsection (i) of this Section
2.2.3(a), the payment of the full Second Parity Liquidation Amount, then the
assets of this corporation available for distribution shall be distributed
ratably among the holders of shares of Series A Stock, Series B Stock, Series C
Stock, Series D Stock, Series E Stock and Series F Stock, in the same
proportions as the aggregate of the Second Parity Liquidation Amount each such
holder would otherwise be entitled to receive bears to the total Second Parity
Liquidation Amount that would otherwise be payable to all such holders.
(iii) If, upon completion of the distribution
required by subsection (i) and (ii) of this Section 2.2.3(a), any assets remain
in this corporation, then the remaining assets of this corporation available for
distribution to shareholders shall be distributed among the holders of Series A
Stock, Series B Stock, Series C Stock, Series D Stock, Series E Stock, Series F
Stock and Common Stock on a pro rata basis based upon the number of shares of
Common Stock held by each (on an as-converted-to-Common Stock basis) until (A)
with respect to the holders of Series A Stock, such holders shall have received
an aggregate of $1.00 per share (including amounts paid pursuant to subsection
(ii) of this Section 2.2.3(a)), (B) with respect to the holders of Series B
Stock, such holders have received an aggregate of $4.20 per share (including
amounts paid pursuant to subsection (ii) of this Section 2.2.3(a)), (C) with
respect to the holders of Series C Stock, such holders have received an
aggregate of $8.85 per share (including amounts paid pursuant to subsection (ii)
of this Section 2.2.3(a)), (D) with respect to the holders of Series D Stock,
such holders have received an aggregate of $23.00 per share (including amounts
paid pursuant to subsection (ii) of this Section 2.2.3 (a)), (E) with respect to
the holders of Series E Stock, such holders shall have received an aggregate of
$34.50 per share (including amounts paid pursuant to subsections (i) and (ii) of
this Section 2.2.3(a)), and (F) with respect to the holders of Series F Stock,
such holders shall have received an aggregate of $42.45 per share (including
amounts paid pursuant to subsections (i) and (ii) of this Section 2.2.3(a)). If
the assets of the corporation available for distribution (upon completion of the
distributions required by subsections (i) and (ii) of this Section 2.2.3(a))
shall be insufficient to permit the payment of the full amounts payable to the
holders of the Series A Stock, Series B Stock, Series C Stock, Series D Stock,
Series E Stock and Series F Stock pursuant to this subsection (iii) of this
Section
- 3 -
<PAGE> 4
2.2.3(a), then such assets to be distributed to the holders of shares of Series
A Stock, Series B Stock, Series C Stock, Series D Stock, Series E Stock and
Series F Stock pursuant to the foregoing sentence shall be distributed ratably
among the holders of shares of Series A Stock, Series B Stock, Series C Stock,
Series D Stock, Series E Stock and Series F Stock in the same proportion as the
aggregate amount to be distributed to the holders of shares of Series A Stock,
Series B Stock, Series C Stock, Series D Stock, Series E Stock and Series F
Stock pursuant to the foregoing sentence bears to the maximum amounts payable to
such holders pursuant to the foregoing sentence.
(b) Limitation. Upon the completion of the distributions
contemplated pursuant to Section 2.2.3(a), if assets remain in this corporation,
such remaining assets shall be distributed to the holders of any other class or
series of Preferred Stock of this corporation having a liquidation preference to
the extent of, and in accordance with, such preference, and then the holders of
Common Stock shall be entitled to share ratably in the remaining assets of this
corporation based on the number of shares of Common Stock held by each of them.
(c) Treatment of Consolidations, Mergers and Sales of
Assets. The sale of all or substantially all of the assets of this corporation,
or the acquisition of this corporation by another entity by means of merger,
consolidation, share exchange, reorganization or otherwise pursuant to which
shares of capital stock of this corporation are converted into cash, securities
or other property of the acquiring entity or any of its affiliates shall be
regarded as a liquidation within the meaning of this Section 2.2.3; provided,
however, that each holder of Series A Stock, Series B Stock, Series C Stock,
Series D Stock, Series E Stock or Series F Stock shall have the right to elect
to receive the benefits of the payment that such holder would be entitled to
receive had such holder converted such shares of Series A Stock, Series B Stock,
Series C Stock, Series D Stock, Series E Stock or Series F Stock into shares of
Common Stock pursuant to the provisions of Section 2.2.5 or other applicable
conversion provisions in lieu of receiving payment in liquidation, dissolution
or winding up of this corporation pursuant to this Section 2.2.3; provided,
further that this provision shall not apply if the holders of voting capital
stock of this corporation immediately prior to such merger, consolidation, share
exchange, reorganization or sale of assets beneficially own, directly or
indirectly, more than fifty percent (50%) of the combined voting power of the
capital stock of the corporation resulting from such merger, consolidation,
share exchange, reorganization or sale of assets.
(d) Distributions Other Than Cash. Whenever the
distribution provided for in this Section 2.2.3 shall be payable in property
other than cash, the value of such distribution shall be the fair market value
of such property as determined in good faith by the Board.
2.2.4 Voting Power. Except as otherwise expressly provided in
Section 2.2.7, or as required by law, each holder of Series A Stock, Series B
Stock, Series C Stock, Series D Stock, Series E Stock or Series F Stock shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the largest number of whole shares of Common Stock
- 4 -
<PAGE> 5
into which such holder's shares of Series A Stock, Series B Stock, Series C
Stock, Series D Stock, Series E Stock or Series F Stock could be converted under
Section 2.2.5, at the record date for the determination of shareholders entitled
to vote on such matter, or, if no such record date is established, at the date
on which notice of the meeting of shareholders at which the vote is to be taken
is mailed, or the date any written consent of shareholders is solicited if the
vote is not to be taken at a meeting. Except as otherwise expressly provided
herein or as required by the Washington Business Corporation Act, the holders of
shares of Series A Stock, Series B Stock, Series C Stock, Series D Stock, Series
E Stock, Series F Stock and Common Stock shall vote together as a single class
on all matters.
2.2.5 Conversion Rights. The holders of Series A Stock, Series B
Stock, Series C Stock, Series D Stock, Series E Stock and Series F Stock shall
have the following rights with respect to the conversion of Series A Stock,
Series B Stock, Series C Stock, Series D Stock, Series E Stock and Series F
Stock into shares of Common Stock:
(a) General
(i) Voluntary Conversion. Each share of Series A
Stock, Series B Stock, Series C Stock, Series D Stock, Series E Stock or Series
F Stock may, at the option of the holder, be converted at any time into such
number of fully paid and nonassessable shares of Common Stock as are equal to
the Series A Conversion Rate, the Series B Conversion Rate, the Series C
Conversion Rate, the Series D Conversion Rate, Series E Conversion Rate or
Series F Conversion Rate, as the case may be (determined under Section
2.2.5(b)).
(ii) Mandatory Conversion. Each share of Series
A Stock, Series B Stock, Series C Stock and Series D Stock shall be converted
automatically, without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to this
corporation or its transfer agent, into the number of shares of Common Stock
into which such Series A Stock, Series B Stock, Series C Stock and Series D
Stock is convertible pursuant to Section 2.2.5(a)(i) upon the earliest of (A)
immediately prior to the closing of a firmly underwritten, public offering by
this corporation of shares of Common Stock, registered under the Securities Act
of 1933, as amended, in which the aggregate gross offering proceeds to the
Company are at least $15,000,000 (before deduction of underwriters' discounts
and commissions and expenses of the offering) and the public offering price per
share is at least $7.08 (as adjusted for stock splits, stock dividends,
recapitalizations and the like), or (B) the consent of or vote by the holders of
a majority of the Series A Stock, Series B Stock and Series C Stock then
outstanding, voting together as a single class on an as-converted basis, to such
conversion. Each share of Series E Stock and Series F Stock shall be converted
automatically, without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to this
corporation or its transfer agent, into the number of shares of Common Stock
into which such Series E Stock and Series F Stock is convertible pursuant to
Section 2.2.5(a)(i) upon the closing of a firmly underwritten, public offering
by this corporation of shares of Common Stock, registered under the Securities
Act of 1933, as amended, in which the aggregate gross offering proceeds to the
Company are at least
- 5 -
<PAGE> 6
$40,000,000 (before deduction of underwriters' discounts and commissions and
expenses of the offering).
(b) Conversion Rate. The conversion rate for Series A
Stock in effect at any time (the "Series A Conversion Rate") shall equal $0.25
divided by the Series A Conversion Price (calculated as provided in Section
2.2.5(c)); the conversion rate for Series B Stock in effect at any time (the
"Series B Conversion Rate") shall equal $1.05 divided by the Series B Conversion
Price (calculated as provided in Section 2.2.5(c)); the conversion rate for
Series C Stock in effect at any time (the "Series C Conversion Rate") shall
equal $3.54 divided by the Series C Conversion Price (calculated as provided in
Section 2.2.5(c)), the conversion rate for Series D Stock in effect at any time
(the "Series D Conversion Rate") shall equal $11.50 divided by the Series D
Conversion Price (calculated as provided in Section 2.2.5(c)), the conversion
rate for Series E Stock in effect at any time (the "Series E Conversion Rate")
shall equal $11.50 divided by the Series E Conversion Price (calculated as
provided in Section 2.2.5(c)) and the conversion rate for Series F Stock in
effect at any time (the "Series F Conversion Rate") shall equal $14.15 divided
by the Series F Conversion Price (calculated as provided in Section 2.2.5(c)).
(c) Conversion Price. The conversion price for Series A
Stock in effect from time to time, except as adjusted in accordance with Section
2.2.5(d), shall be $0.25 (the "Series A Conversion Price"); the conversion price
for Series B Stock in effect from time to time, except as adjusted in accordance
with Section 2.2.5(d), shall be $1.05 (the "Series B Conversion Price"); the
conversion price for Series C Stock in effect from time to time, except as
adjusted in accordance with Section 2.2.5(d), shall be $3.54 (the "Series C
Conversion Price"), the conversion price for Series D Stock in effect from time
to time, except as adjusted in accordance with Section 2.2.5(d), shall be $11.50
(the "Series D Conversion Price"), the conversion price for Series E Stock in
effect from time to time, except as adjusted in accordance with Section
2.2.5(d), shall be $11.50 (the "Series E Conversion Price") and the conversion
price for Series E Stock in effect from time to time, except as adjusted in
accordance with Section 2.2.5(d), shall be $14.15 (the "Series E Conversion
Price").
(d) Adjustments to Applicable Conversion Price
(i) Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event (as defined below) after the
date on which any shares of Series A Stock, Series B Stock, Series C Stock,
Series D Stock, Series E Stock or Series F Stock were first issued (the
"Purchase Date" with respect to such series), the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, the Series D
Conversion Price, the Series E Conversion Price and the Series F Conversion
Price shall, simultaneously with the happening of such Extraordinary Common
Stock Event, be adjusted by multiplying each of the then effective Series A
Conversion Price, the then effective Series B Conversion Price, the then
effective Series C Conversion Price, the then effective Series D Conversion
Price, the then effective Series E Conversion Price and the then effective
Series F Conversion Price by a fraction, the numerator of which shall be the
number of shares of
- 6 -
<PAGE> 7
Common Stock outstanding immediately prior to such Extraordinary Common Stock
Event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such Extraordinary Common Stock Event, and the
product so obtained shall thereafter be the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, the Series D
Conversion Price, the Series E Conversion Price or the Series F Conversion
Price, as the case may be. The Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price, the Series D Conversion Price,
the Series E Conversion Price or the Series F Conversion Price, as so adjusted,
shall be readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events. "Extraordinary Common Stock Event"
shall mean (A) the issuance of additional shares of Common Stock as a dividend
or other distribution on outstanding Common Stock of this corporation, (B) a
subdivision of outstanding shares of Common Stock into a greater number of
shares of Common Stock, or (C) a combination of outstanding shares of Common
Stock into a smaller number of shares of Common Stock.
(ii) Issuance of Additional Stock
(A) If this corporation shall issue any
Additional Stock (as defined below) after the Purchase Date for a series without
consideration or for a consideration per share less than the Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price, the Series
D Conversion Price, the Series E Conversion Price or the Series F Conversion
Price in effect immediately prior to the issuance of such Additional Stock, the
Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price, the Series D Conversion Price, the Series E Conversion Price
or the Series F Conversion Price, as the case may be, shall be adjusted (unless
the Purchase Date for such series has not yet occurred or such adjustment is
waived by written agreement of the holders of a majority of the outstanding
shares of Series A Stock, Series B Stock, Series C Stock, Series D Stock, Series
E Stock or Series F Stock, as the case may be), upon such issuance (except as
otherwise provided in this Section 2.2.5(d)(ii)) to a price equal to the
quotient obtained by dividing the total computed under clause (1) below by the
total computed under clause (2) below as follows:
(1) an amount equal to the sum of
(x) the result obtained by multiplying the number of shares of Common Stock
deemed outstanding immediately prior to such issuance (which shall include the
actual number of shares outstanding plus all shares issuable upon the conversion
or exercise of all outstanding convertible securities, warrants and options) by
the Series A Conversion Price then in effect, the Series B Conversion Price then
in effect, the Series C Conversion Price then in effect, the Series D Conversion
Price then in effect, the Series E Conversion Price then in effect or the Series
E then in effect, as the case may be, and (y) the aggregate consideration, if
any, received by this corporation upon the issuance of such Additional Stock;
(2) the number of shares of Common
Stock of this corporation outstanding immediately after such issuance (including
the shares deemed outstanding as provided above).
- 7 -
<PAGE> 8
(B) No adjustment of the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion Price,
the Series D Conversion Price, the Series E Conversion Price or the Series F
Conversion Price shall be made in an amount less than $.01 per share, provided
that any adjustments that are not required to be made by reason of this sentence
shall be carried forward and shall be taken into account in any subsequent
adjustment made to the Series A Conversion Price, the Series B Conversion Price,
the Series C Conversion Price, the Series D Conversion Price, the Series E
Conversion Price or the Series F Conversion Price, as the case may be. Except as
provided in Section 2.2.5(d)(i) above or Sections 2.2.5(d)(ii)(E)(3) and (4)
below, no adjustment of the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price, the Series D Conversion Price, the Series
E Conversion Price or the Series F Conversion Price shall have the effect of
increasing the Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price, the Series D Conversion Price, the Series E
Conversion Price or the Series F Conversion Price above the Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price, the Series
D Conversion Price, the Series E Conversion Price or the Series F Conversion
Price, as the case may be, in effect immediately prior to such adjustment.
(C) In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid before deducting any discounts, commissions or other expenses allowed,
paid or incurred by this corporation for any underwriting or otherwise in
connection with its issuance and sale.
(D) In the case of the issuance of
Common Stock for consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be its fair value as determined
by the Board irrespective of any accounting treatment.
(E) In the case of the issuance of
options to purchase or rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common Stock, or options to purchase
or rights to subscribe for such convertible or exchangeable securities (which
options, rights, convertible or exchangeable securities are not excluded from
the definition of Additional Stock), the following provisions shall apply:
(1) the aggregate maximum number of
shares of Common Stock deliverable upon exercise of such options to purchase or
rights to subscribe for Common Stock shall be deemed to have been issued at the
time such options or rights were issued for a consideration equal to the
consideration (determined in the manner provided in Sections 2.2.5(d)(iii)(C)
and (D) above) received by this corporation upon the issuance of such options or
rights plus the minimum purchase price provided in such options or rights for
the Common Stock covered thereby, but no further adjustment to the Series A
Conversion Price, Series B Conversion Price, the Series C Conversion Price, the
Series D Conversion Price, the Series E Conversion Price or the Series F
Conversion Price, as the case may be, shall be made for the actual issuance of
Common Stock upon the exercise of such options or rights in accordance with
their terms;
- 8 -
<PAGE> 9
(2) the aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued for a consideration equal to the consideration received by this
corporation for any such securities and related options or rights, plus the
additional consideration, if any, to be received by this corporation upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in Sections 2.2.5(d)(iii)(C) and (D) above), but no further adjustment
to the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price, the Series D Conversion Price, the Series E Conversion Price
or the Series F Conversion Price, as the case may be, shall be made for the
actual issuance of Common Stock upon the conversion or exchange of such
securities in accordance with their terms;
(3) if such options, rights or
convertible or exchangeable securities by their terms provide, with the passage
of time or otherwise, for any increase in the consideration payable to this
corporation, or decrease in the number of shares of Common Stock issuable, upon
the exercise, conversion or exchange thereof, the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, the Series D
Conversion Price, the Series E Conversion Price or the Series F Conversion
Price, as the case may be, computed upon the original issue thereof, and any
subsequent adjustments based thereon, shall, upon such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease with
respect to such options, rights and securities not already exercised, converted
or exchanged prior to such increase or decrease becoming effective, but no
further adjustment to the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price, the Series D Conversion Price, the Series
E Conversion Price or the Series F Conversion Price, as the case may be, shall
be made for the actual issuance of Common Stock upon the exercise of any such
options or rights or the conversion or exchange of such securities in accordance
with their terms;
(4) upon the expiration of any such
options or rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price, the Series D Conversion Price, the Series
E Conversion Price or the Series F Conversion Price, as the case may be, shall
promptly be readjusted to such Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price, Series E Conversion
Price or Series F Conversion Price, as the case may be, as would have been
obtained had the adjustment which was made upon the issuance of such options,
rights or securities or options or rights related to such securities been made
upon the basis of the issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options or rights, upon the conversion
or exchange of such securities or upon the exercise of the options or rights
related to such securities; and
- 9 -
<PAGE> 10
(5) if any such options or rights
shall be issued in connection with the issue and sale of other securities of
this corporation, together comprising one integral transaction in which no
specific consideration is allocated to such options or rights by the parties
thereto, such options or rights shall be deemed to have been issued for such
consideration as determined in good faith by the Board.
(F) "Additional Stock" shall mean any
shares of Common Stock issued (or deemed to have been issued pursuant to Section
2.2.5(d)(ii)(E)) by this corporation after the Purchase Date other than:
(1) Common Stock issued pursuant to
a transaction described in Section 2.2.5(d)(i);
(2) Shares of Common Stock and
options therefor issued to directors, officers, employees or consultants of this
corporation pursuant to a stock option, stock purchase, or other equity
incentive plan or agreement unanimously approved by the Board (an "Employee
Stock Plan");
(3) Common Stock issued or issuable
upon conversion of Preferred Stock;
(4) Common Stock issuable upon
commitments to issue Common Stock, or upon conversion or exercise of options,
warrants or notes, outstanding on the Purchase Date;
(5) Such additional securities that
are designated as excluded from the definition of Additional Stock by the
written consent of holders of a majority of the then outstanding Preferred
Stock; provided however, if the exclusion of such additional securities from the
definition of Additional Stock affects the holders of Series E Stock or Series F
Stock (the "Series E/F Holders") in a manner different than the other holders of
Preferred Stock and adverse to the Series E/F Holders, then the exclusion of
such additional securities from the definition of Additional Stock shall also
require the written consent of holders of a majority of the then outstanding
Series E Stock and Series F Stock;
(6) Common Stock issued pursuant to
a firm commitment underwritten public offering of the Company's securities in
which the outstanding shares of Series A Stock, Series B Stock, Series C Stock,
Series E Stock or Series F Stock are converted into Common Stock;
(7) Common Stock issued or issuable
upon conversion or exercise of any securities convertible into or exchangeable
or exercisable for shares of Common Stock issued in connection with commercial
credit arrangements, equipment financings or similar transactions approved by
the Board in which the Company's purpose is other than equity financing; or
- 10 -
<PAGE> 11
(8) Capital stock issued or
issuable in connection with business combinations or corporate partnering
agreements approved by the Board in which the Company's principal purpose is
other than equity financing.
(iii) Adjustment of Series E Conversion Price in
Special Circumstances
(A) Upon the consummation of a firmly
underwritten, public offering by this corporation of shares of Common Stock,
registered under the Securities Act of 1933, as amended, if the initial public
offering price per share in such offering is less than the Series E Conversion
Price in effect immediately prior to such offering, then the Series E Conversion
Price shall be adjusted to equal the initial public offering price per share.
This special one-time adjustment shall apply only to the Series E Conversion
Price.
(B) In the event the corporation, within
one year of the Series E Purchase Date, issues options to purchase Common Stock
pursuant to stock grants, option plans, purchase plans or other stock incentive
programs or arrangements approved by the Board of Directors (other than employee
options authorized and issued pursuant to an acquisition by the corporation of
another entity) whereby the shares issuable upon exercise of such options are in
excess of the sum of (i) 500,000 shares and (ii) the __________ shares reserved
as of the date hereof for issuance (the shares in excess of such sum being
hereinafter referred to as the "Excess Shares"), then at such time the Series E
Conversion Price shall be adjusted according to the calculation below. This
special one-time adjustment shall apply only to the Series E Conversion Price
and shall be made, if necessary, on the one year anniversary of the Series E
Purchase Date. Excess Shares shall not be deemed to be Additional Stock under
this Section 2.2.5(d).
adjusted Series E Conversion Price = Series E Conversion Price in effect
immediately prior to adjustment multiplied by Prior Shares (as defined below)
and divided by Post Shares (as defined below).
(C) For the purposes of this Section
2.2.5(d)(iii), the following definitions shall apply:
(1) "Prior Shares" shall mean the number of shares of Common stock
outstanding immediately prior to such adjustment, which number of shares
shall include (x) all shares of Common Stock issuable, directly or
indirectly, upon conversion of all outstanding convertible securities,
including all convertible securities issuable upon exercise of
outstanding options, warrants or other rights to purchase convertible
securities, (y) all shares of Common Stock issuable, directly or
indirectly, upon exercise of all outstanding options, warrants or other
rights to purchase, directly or indirectly, shares of Common Stock, and
(z) all shares reserved for issuance under this corporation's stock
option, stock purchase and other employee benefit plans, but excluding
(A) shares covered by clause (y) above, and (B)
- 11 -
<PAGE> 12
the Excess Shares.
(2) "Post Shares" shall mean the sum of the Prior Shares and the Excess
Shares.
(e) Capital Reorganization or Reclassification. If the
Common Stock issuable upon the conversion of Series A Stock, Series B Stock,
Series C Stock, Series D Stock, Series E Stock or Series F Stock shall be
changed into the same or different number of shares of any class or classes of
stock of this corporation, whether by capital reorganization, reclassification
or otherwise (other than a subdivision or combination of shares or stock
dividend provided for in Section 2.2.5(d)(i) or a merger, consolidation, share
exchange or reorganization provided for in Section 2.2.3(c)), then and in each
such event the holder of each share of Series A Stock, Series B Stock, Series C
Stock, Series D Stock, Series E Stock or Series F Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property receivable upon such reorganization,
reclassification or other change by holders of the number of shares of Common
Stock into which such share of Series A Stock, Series B Stock, Series C Stock,
Series D Stock, Series E Stock or Series F Stock might have been converted
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(f) Certificate as to Adjustments; Notice by This
Corporation. In each case of an adjustment or readjustment of the Series A
Conversion Rate, the Series B Conversion Rate, the Series C Conversion Rate, the
Series D Conversion Rate, the Series E Conversion Rate or the Series F
Conversion Rate, this corporation at its expense will furnish each holder of
Series A Stock, Series B Stock, Series C Stock, Series D Stock, Series E Stock
or Series F Stock, as the case may be, with a certificate showing such
adjustment or readjustment and stating in detail the facts upon which such
adjustment or readjustment is based.
(g) Exercise of Conversion Privilege
(i) Generally. Promptly after receiving the
certificate representing shares of any Series A Stock, Series B Stock, Series C
Stock, Series D Stock, Series E Stock or Series F Stock being converted, this
corporation shall: (A) issue and deliver to the holder of the shares being
converted, or, if permitted by applicable securities laws, to the nominee or
nominees of such holder, a certificate or certificates as such holder may
request for the number of whole shares of Common Stock issuable in accordance
with the provisions of this Section 2.2.5 upon the conversion of such shares of
Series A Stock, Series B Stock, Series C Stock, Series D Stock, Series E Stock
or Series F Stock, as the case may be, (B) pay to such holder or its nominee any
declared but unpaid dividends on the shares being converted and (C) pay to such
holder cash, as provided in Section 2.2.5(h), in respect of any fraction of a
share of Common Stock issuable upon such conversion. Conversion shall be deemed
to have been effected immediately prior to the close of business on the
Conversion Date (as defined below), and at such time, whether or not
certificates representing the shares being converted shall have been received by
this corporation or its transfer agent, the rights of the holder as holder of
the converted shares of Series A Stock, Series B Stock, Series C Stock, Series D
Stock, Series E
- 12 -
<PAGE> 13
Stock or Series F Stock, as the case may be, shall cease and the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares of Common Stock represented
thereby.
(ii) Voluntary Conversion. Before any holder of
shares of Series A Stock, Series B Stock, Series C Stock, Series D Stock, Series
E Stock or Series F Stock shall be entitled to voluntarily convert such shares
to Common Stock pursuant to Section 2.2.5(a)(i), such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of this
corporation or of any transfer agent for such shares and, if appropriate, shall
give written notice by mail, postage prepaid, addressed to the same location at
which the certificate or certificates were or will be surrendered, of the
election to convert such shares and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. With respect to a voluntary conversion pursuant to Section 2.2.5(a)(i),
the date when written notice of the holder's election to convert is received by
this corporation or a transfer agent for the shares to be converted, together
with the certificate or certificates representing the shares to be converted,
shall be the "Conversion Date."
(iii) Mandatory Conversion. Holders of shares of
Series A Stock, Series B Stock, Series C Stock, Series D Stock, Series E Stock
or Series F Stock converted pursuant to the mandatory conversion provisions of
Section 2.2.5(a)(ii) shall promptly surrender the certificate or certificates
therefor, duly endorsed, at the office of this corporation or of any transfer
agent for such shares and, if other than the record holder of the converted
shares, shall state the name or names in which the certificate or certificates
for shares of Common Stock are to be issued. Whether or not such certificate or
certificates have been so surrendered, with respect to mandatory conversions
pursuant to Section 2.2.5(a)(ii), the dates specified in Section 2.2.5(a)(ii)
for automatic conversion shall be the "Conversion Date."
(h) Cash in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional shares shall be issued
upon the conversion of shares of Series A Stock, Series B Stock, Series C Stock,
Series D Stock, Series E Stock or Series F Stock, but this corporation shall pay
to the holder of such shares a cash adjustment in respect of such fractional
shares in an amount equal to the same fraction of the market price per share of
the Common Stock (as determined in a reasonable manner prescribed by the Board)
at the close of business on the Conversion Date. The determination as to whether
or not any fractional shares are issuable shall be based upon the total number
of shares of Series A Stock, Series B Stock, Series C Stock, Series D Stock,
Series E Stock and Series F Stock being converted at any one time by any holder
thereof, not upon each share of Series A Stock, Series B Stock, Series C Stock,
Series D Stock, Series E Stock or Series F Stock being converted.
(i) Partial Conversion. In the event some but not all of
the shares of Series A Stock, Series B Stock, Series C Stock, Series D Stock,
Series E Stock or Series F Stock represented by a certificate or certificates
surrendered by a holder are converted, this corporation shall execute and
deliver to or on the order of the holder, at the expense of this corporation, a
- 13 -
<PAGE> 14
new certificate representing the shares of Series A Stock, Series B Stock,
Series C Stock, Series D Stock, Series E Stock or Series F Stock that were not
converted.
(j) Reservation of Common Stock. This corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Stock, Series B Stock, Series C Stock, Series D
Stock, Series E Stock and Series F Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Stock, Series B Stock, Series C Stock, Series
D Stock, Series E Stock and Series F Stock, and, if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series A Stock, Series B
Stock, Series C Stock, Series D Stock, Series E Stock and Series F Stock, this
corporation shall take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
2.2.6 No Reissuance of Stock. No share or shares of Series A
Stock, Series B Stock, Series C Stock, Series D Stock, Series E Stock or Series
F Stock converted, purchased or otherwise acquired by this corporation shall be
reissued, and all such shares shall be canceled, retired and eliminated from the
shares which this corporation shall be authorized to issue. This corporation may
from time to time take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of Series A Stock, Series B Stock, Series
C Stock, Series D Stock, Series E Stock or Series F Stock, as the case may be,
accordingly.
2.2.7 Protective Limitations. (a) Except as expressly provided
herein or as required by law, so long as any shares of Preferred Stock remain
outstanding, this corporation shall not, without the approval (by vote or
written consent) of the holders of a majority of the then outstanding shares of
Series A Stock, Series B Stock and Series C Stock, voting together as a single
class:
(i) authorize or issue (or obligate itself to
authorize or issue) any security of this corporation senior to or on a parity
with the Series A Stock, Series B Stock, Series C Stock or Series D Stock as
stated by the terms hereof;
(ii) increase the number of authorized shares of
any class or series of capital stock of this corporation;
(iii) amend or waive any provision of this
corporation's articles of incorporation or bylaws if such amendment or waiver
would have a material adverse effect on the rights, preferences or privileges of
the Series A Stock, Series B Stock or Series C Stock;
(iv) sell, lease, convey or otherwise dispose of
all or substantially all of its assets, or effect any merger or consolidation
with another corporation (other than a merger or consolidation in which the
holders of a majority of the voting power of this corporation's capital stock
immediately prior to such merger or consolidation own more than
- 14 -
<PAGE> 15
fifty percent (50%) of the combined voting power of the capital stock of the
corporation resulting from such merger or consolidation);
(v) pay or declare any dividends on any shares
of capital stock of this corporation;
(vi) increase the size of the Board;
(vii) take any action which would result in
taxation to the holders of Preferred Stock under Section 305 of the Internal
Revenue Code;
(viii) redeem, purchase or otherwise acquire (or
pay into or set aside for a sinking fund for such purpose) any share or shares
of Common Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for this corporation or any
subsidiary pursuant to agreements under which this corporation has the option to
repurchase such shares at cost upon the occurrence of certain events, such as
the termination of employment, or through the exercise of any right of first
refusal;
(ix) enter into any agreement in which any
officer or director has a material interest other than in the ordinary course of
business, without the unanimous approval of the Board of Directors of the
Company; or
(x) effect any voluntarily dissolution or
liquidation of the Company, or any voluntary bankruptcy filing.
(b) Except as expressly provided herein or as required
by law, so long as any shares of Preferred Stock remain outstanding, this
corporation shall not, without the approval (by vote or written consent) of the
holders of a majority of the then outstanding shares of Series E Stock and
Series F Stock, voting together as a single class:
(i) amend or repeal any provision of, or add any
provision to, this corporation's articles of incorporation or bylaws if such
action would alter or change the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of the Series E Stock or the Series
F Stock;
(ii) authorize any other equity security,
including any other security convertible into or exercisable for any equity
security, in each case having any preference or priority as to dividends,
liquidation, redemption or voting superior to or on a parity with any such
preference or priority of the Series E Stock or the Series F Stock;
(iii) effect a reclassification or
recapitalization of any outstanding shares of Preferred Stock or Common Stock
into shares having any preference or priority as to dividends or liquidation
superior to or on a parity with any such preference or priority of the Series E
Stock or the Series F Stock;
- 15 -
<PAGE> 16
(iv) enter into any agreement or transaction
with any founder, officer or director of the Company other than in the ordinary
course of business and on an arm's length basis;
(v) issue debt securities in excess of the net
worth of the corporation; or
(vi) declare or pay a dividend on the
corporation's Common Stock (other than a dividend payable solely in shares of
the Common Stock).
(c) Except as expressly provided herein or as required
by law, this corporation shall not amend its articles of incorporation or bylaws
in a manner which affects any series of Preferred Stock materially and adversely
as compared to any other series of Preferred Stock without the approval (by vote
or written consent) of the holders of a majority of the then outstanding shares
of such adversely affected series of Preferred Stock.
2.2.8 Notices of Record Date. In the event of:
(a) any capital reorganization of this corporation, any
reclassification or recapitalization of the capital stock of this corporation,
any merger or consolidation of this corporation, or any transfer of all or
substantially all of the assets of this corporation, or
(b) any voluntary or involuntary dissolution,
liquidation or winding up of this corporation,
then and in each such event this corporation shall mail or deliver or cause to
be mailed or delivered to each holder of Series A Stock, Series B Stock, Series
C Stock, Series D Stock, Series E Stock or Stock F Stock a notice specifying (i)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective and (ii) the time, if any, that is to be fixed, as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up. Such notice shall be mailed or delivered
at least ten (10) days prior to the date specified in such notice on which such
action is to be taken.
ARTICLE 3. REGISTERED OFFICE AND AGENT
The name of the registered agent of this corporation and the address of
its registered office are as follows:
Corporation Service Company
1010 Union Ave SE
Olympia, WA 98501
- 16 -
<PAGE> 17
ARTICLE 4. PREEMPTIVE RIGHTS
No preemptive rights shall exist with respect to shares of stock or
securities convertible into shares of stock of this corporation.
ARTICLE 5. CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall not exist
with respect to shares of stock of this corporation.
ARTICLE 6. DIRECTORS
Subject to the provisions of Section 2.2.7, the number of Directors of
this corporation shall be determined in the manner provided by the Bylaws and
may be increased or decreased from time to time in the manner provided therein.
ARTICLE 7. BYLAWS
Subject to the provisions of Section 2.2.7, the Board of Directors shall
have the power to adopt, amend or repeal the Bylaws of this corporation, subject
to the power of the shareholders to amend or repeal such Bylaws. Subject to the
provisions of Section 2.2.7, the shareholders shall also have the power to amend
or repeal the Bylaws of this corporation and to adopt new Bylaws.
ARTICLE 8. AMENDMENTS TO ARTICLES OF INCORPORATION
Subject to the provisions of Section 2.2.7, this corporation reserves
the right to amend or repeal any of the provisions contained in these Articles
of Incorporation in any manner now or hereafter permitted by the Washington
Business Corporation Act, and the rights of the shareholders of this corporation
are granted subject to this reservation.
ARTICLE 9. LIMITATION OF DIRECTOR LIABILITY
To the full extent that the Washington Business Corporation Act, as it
exists on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of Directors, a Director of this corporation shall
not be liable to this corporation or its shareholders for monetary damages for
conduct as a Director. Any amendments to or repeal of this Article 9 shall not
adversely affect any right or protection of a Director of this corporation for
or with respect to any acts or omissions of such Director occurring prior to
such amendment or repeal.
ARTICLE 10. SHAREHOLDER ACTIONS
Any action required or permitted to be taken at a meeting of
shareholders of the Company may be taken without a meeting or a vote if the
action is taken by shareholders holding of record or otherwise entitled to vote
in the aggregate not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on the action were present and voted, provided that at the time
the action is taken
- 17 -
<PAGE> 18
the Company is not a Public Company (as defined in the Washington Business
Corporation Act, as amended, the "Act"). Notice of the taking of action by
shareholders without a meeting by less than unanimous written consent of all
shareholders entitled to vote on the action shall be given to those shareholders
entitled to vote on the action who have not consented in writing and such notice
shall be deemed effective (in the manner described below) no fewer than one day
before the effective date of the action, except where longer notice is required
under the Act. The notice shall be in writing and may be transmitted by: mail,
private carrier or personal delivery; telegraph or teletype; telephone, wire or
wireless equipment which transmits a facsimile of the notice; or by any other
means permitted by the Act. Written notice shall be effective as provided in
Section 23B.01.410 of the Act (specifically including paragraph 5(a) thereof) or
any successor provisions thereto.
ARTICLE 11. VOTING BY MAJORITY
The shareholders shall be permitted to take action by the affirmative
vote of shareholders entitled to vote on an action holding a
majority-in-interest to the fullest extent permitted under RCW 23B.07.270(3).
- 18 -
<PAGE> 19
IN WITNESS WHEREOF, these Sixth Amended and Restated Articles of
Incorporation of Rivals.com, Inc. are executed by said corporation by its duly
authorized officer.
Dated: January 28, 2000
RIVALS.COM, INC.
By:
------------------------------------
James C. Heckman, Jr.
President
<PAGE> 20
CERTIFICATE OF OFFICER
OF
RIVALS.COM, INC.
Pursuant to the provisions of RCW 23B.10.070, the Sixth Amended and
Restated Articles of Incorporation of Rivals.com, Inc., a Washington corporation
(the "Corporation"), are hereby submitted for filing.
1. The name of record of the Corporation is Rivals.com, Inc.
2. The Articles of Incorporation of the Corporation, as amended to
date, are amended and restated in their entirety and replaced with the Sixth
Amended and Restated Articles of Incorporation of the Corporation (the "Restated
Articles") in the form attached hereto as Exhibit A.
3. The Restated Articles were approved by the Board of Directors of
the Corporation effective January ___, 2000, pursuant to RCW 23B.10.020 and RCW
23B.10.050 and by the holders of at least a majority of the outstanding shares
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock of the Company and the holders of at least a majority of the outstanding
shares of Common Stock of the Company in accordance with the Articles of
Incorporation of the Corporation and the provisions of RCW 23B.10.030 and RCW
23B.10.040 of the Washington Business Corporation Act.
IN WITNESS WHEREOF, the undersigned certifies that he is the Chief
Executive Officer and President of the Corporation and has executed these Sixth
Amended and Restated Articles of Incorporation this 28th day of January, 2000.
RIVALS.COM, INC.
By:
------------------------------------
James C. Heckman, Jr.
Chief Executive Officer and President
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
RIVAL COMMUNICATIONS, INC.
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1. OFFICES................................................................... 1
SECTION 2. SHAREHOLDERS.............................................................. 1
2.1 Annual Meeting.............................................................. 1
2.2 Special Meetings............................................................ 1
2.3 Meetings by Communication Equipment......................................... 1
2.4 Date, Time and Place of Meeting............................................. 1
2.5 Notice of Meeting........................................................... 2
2.6 Waiver of Notice............................................................ 2
2.7 Fixing of Record Date for Determining Shareholders.......................... 2
2.8 Voting Record............................................................... 3
2.9 Quorum...................................................................... 3
2.10 Manner of Acting............................................................ 3
2.11 Proxies..................................................................... 4
2.12 Voting of Shares............................................................ 4
2.13 Voting for Directors........................................................ 4
2.14 Action by Shareholders Without a Meeting.................................... 4
SECTION 3. BOARD OF DIRECTORS........................................................ 4
3.1 General Powers.............................................................. 4
3.2 Number and Tenure........................................................... 5
3.3 Annual and Regular Meetings................................................. 5
3.4 Special Meetings............................................................ 5
3.5 Meetings by Communications Equipment........................................ 5
3.6 Notice of Special Meetings.................................................. 5
3.6.1 Personal Delivery................................................ 6
3.6.2 Delivery by Mail................................................. 6
3.6.3 Delivery by Private Carrier...................................... 6
3.6.4 Facsimile Notice................................................. 6
3.6.5 Delivery by Telegraph............................................ 6
3.6.6 Oral Notice...................................................... 6
3.7 Waiver of Notice............................................................ 6
3.7.1 In Writing....................................................... 6
3.7.2 By Attendance.................................................... 7
3.8 Quorum...................................................................... 7
3.9 Manner of Acting............................................................ 7
3.10 Presumption of Assent....................................................... 7
3.11 Action by Board or Committees Without a Meeting............................. 7
3.12 Resignation................................................................. 8
3.13 Removal..................................................................... 8
3.14 Vacancies................................................................... 8
3.15 Executive and Other Committees.............................................. 8
3.15.1 Creation of Committees........................................... 8
3.15.2 Authority of Committees.......................................... 8
3.15.3 Quorum and Manner of Acting...................................... 9
3.15.4 Minutes of Meetings.............................................. 9
3.15.5 Registration..................................................... 9
3.15.6 Removal.......................................................... 9
3.16 Compensation................................................................ 9
SECTION 4. OFFICERS.................................................................. 10
4.1 Appointment and Term........................................................ 10
4.2 Resignation................................................................. 10
4.3 Removal..................................................................... 10
4.4 Contract Rights of Officers................................................. 10
4.5 Chairman of the Board....................................................... 10
4.6 President................................................................... 10
4.7 Vice President.............................................................. 11
4.8 Secretary................................................................... 11
4.9 Treasurer................................................................... 11
4.10 Salaries.................................................................... 11
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS..................................... 12
5.1 Contracts................................................................... 12
5.2 Loans to the Corporation.................................................... 12
5.3 Checks, Drafts, Etc......................................................... 12
5.4 Deposits.................................................................... 12
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER................................ 12
6.1 Issuance of Shares.......................................................... 12
6.2 Certificates for Shares..................................................... 12
6.3 Stock Records............................................................... 13
6.4 Restriction on Transfer..................................................... 13
6.5 Transfer of Shares.......................................................... 13
6.6 Lost or Destroyed Certificates.............................................. 14
SECTION 7. BOOKS AND RECORDS......................................................... 14
SECTION 8. ACCOUNTING YEAR........................................................... 15
SECTION 9. SEAL...................................................................... 15
SECTION 10. INDEMNIFICATION.......................................................... 15
10.1 Right to Indemnification.................................................... 15
10.2 Restrictions on Indemnification............................................. 15
10.3 Advancement of Expenses..................................................... 16
10.4 Right of Indemnitee to Bring Suit........................................... 16
10.5 Procedures Exclusive........................................................ 16
10.6 Nonexclusivity of Rights.................................................... 16
10.7 Insurance, Contracts and Funding............................................ 17
10.8 Indemnification of Employees and Agents of the Corporation.................. 17
10.9 Persons Serving Other Entities.............................................. 17
SECTION 11. AMENDMENTS............................................................... 17
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
3.15.5 Resignation...................................................... 9
3.15.6 Removal.......................................................... 9
3.16 Compensation................................................................ 9
SECTION 4. OFFICERS.................................................................. 10
4.1 Appointment and Term........................................................ 10
4.2 Resignation................................................................. 10
4.3 Removal..................................................................... 10
4.4 Contract Rights of Officers................................................. 10
4.5 Chairman of the Board....................................................... 10
4.6 President................................................................... 10
4.7 Vice President.............................................................. 11
4.8 Secretary................................................................... 11
4.9 Treasurer................................................................... 11
4.10 Salaries.................................................................... 11
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS..................................... 12
5.1 Contracts................................................................... 12
5.2 Loans to the Corporation.................................................... 12
5.3 Checks, Drafts, Etc......................................................... 12
5.4 Deposits.................................................................... 12
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER................................ 12
6.1 Issuance of Shares.......................................................... 12
6.2 Certificates for Shares..................................................... 12
6.3 Stock Records............................................................... 13
6.4 Restriction on Transfer..................................................... 13
6.5 Transfer of Shares.......................................................... 13
6.6 Lost or Destroyed Certificates.............................................. 14
SECTION 7. BOOKS AND RECORDS......................................................... 14
SECTION 8. ACCOUNTING YEAR........................................................... 15
SECTION 9. SEAL...................................................................... 15
SECTION 10. INDEMNIFICATION.......................................................... 15
10.1 Right to Indemnification.................................................... 15
10.2 Restrictions on Indemnification............................................. 15
10.3 Advancement of Expenses..................................................... 16
10.4 Right of Indemnitee to Bring Suit........................................... 16
10.5 Procedures Exclusive........................................................ 16
10.6 Nonexclusivity of Rights.................................................... 16
10.7 Insurance, Contracts and Funding............................................ 17
10.8 Indemnification of Employees and Agents of the Corporation.................. 17
10.9 Persons Serving Other Entities.............................................. 17
SECTION 11. AMENDMENTS............................................................... 17
</TABLE>
ii
<PAGE> 4
BYLAWS
OF
RIVAL COMMUNICATIONS, INC.
SECTION 1. OFFICES
The principal office of the corporation shall be located at the
principal place of business or such other place as the Board of Directors
("Board") may designate. The corporation may have such other offices, either
within or without the State of Washington, as the Board may designate or as the
business of the corporation may require from time to time.
SECTION 2. SHAREHOLDERS
2.1 ANNUAL MEETING
The annual meeting of the shareholders shall be held on such date, time
and place, either within or without the State of Washington, as may be
designated by resolution of the Board of Directors each year. At the meeting,
directors shall be elected and any other proper business may be transacted.
2.2 SPECIAL MEETINGS
The Chairman of the Board, the President or the Board may call special
meetings of the shareholders for any purpose. Further, a special meeting of the
shareholders shall be held if the holders of not less than twenty-five percent
(25%) of all the votes entitled to be cast on any issue proposed to be
considered at such special meeting have dated, signed and delivered to the
Secretary one or more written demands for such meeting, describing the purpose
or purposes for which it is to be held.
2.3 MEETINGS BY COMMUNICATION EQUIPMENT
Shareholders may participate in any meeting of the shareholders by any
means of communication by which all persons participating in the meeting can
hear each other during the meeting. Participation by such means shall constitute
presence in person at a meeting.
2.4 DATE, TIME AND PLACE OF MEETING
Except as otherwise provided herein, all meetings of shareholders,
including those held pursuant to demand by shareholders as provided herein,
shall be held on such date and at such time and place, within or without the
State of Washington, designated by or at the direction of the Board.
1
<PAGE> 5
2.5 NOTICE OF MEETING
Written notice stating the place, day and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called shall be given by or at the direction of the Board, the Chairman of the
Board, the President or the Secretary to each shareholder entitled to notice of
or to vote at the meeting not less than ten (10) nor more than sixty (60) days
before the meeting, except that notice of a meeting to act on an amendment to
the Articles of Incorporation, a plan of merger or share exchange, the sale,
lease, exchange or other disposition of all or substantially all of the
corporation's assets other than in the regular course of business or the
dissolution of the corporation shall be given not less than twenty (20) nor more
than sixty (60) days before such meeting. Such notice may be transmitted by
mail, private carrier, personal delivery, telegraph, teletype or communications
equipment which transmits a facsimile of the notice to like equipment which
receives and reproduces such notice. If these forms of written notice are
impractical in the view of the Board, the Chairman of the Board, the President
or the Secretary, written notice may be transmitted by an advertisement in a
newspaper of general circulation in the area of the corporation's principal
office. If such notice is mailed, it shall be deemed effective when deposited in
the official government mail, first-class postage prepaid, properly addressed to
the shareholder at such shareholder's address as it appears in the corporation's
current record of shareholders. Notice given in any other manner shall be deemed
effective when dispatched to the shareholder's address, telephone number or
other number appearing on the records of the corporation. Any notice given by
publication as herein provided shall be deemed effective five (5) days after
first publication.
2.6 WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Further, notice of the time, place and purpose of any
meeting will be deemed to be waived by any shareholder by attendance thereat in
person or by proxy, unless such shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting.
2.7 FIXING OF RECORD DATE FOR DETERMINING SHAREHOLDERS
For the purpose of determining shareholders entitled (a) to notice of or
to vote at any meeting of shareholders or any adjournment thereof, (b) to demand
a special meeting, or (c) to receive payment of any dividend, or in order to
make a determination of shareholders for any other purpose, the Board may fix a
future date as the record date for any such determination. Such record date
shall be not more than seventy (70) days, and in case of a meeting of
shareholders not less than ten (10) days prior to the date on which the
particular action requiring such determination is to be taken. If no record date
is fixed for the determination of shareholders entitled to notice of or to vote
at a meeting,
2
<PAGE> 6
the record date shall be the day immediately preceding the date on which notice
of the meeting is first given to shareholders. Such a determination shall apply
to any adjournment of the meeting unless the Board fixes a new record date,
which it shall do if the meeting is adjourned to a date more than one hundred
twenty (120) days after the date fixed for the original meeting. If no record
date is set for the determination of shareholders entitled to receive payment of
any stock dividend or distribution (other than one involving a purchase,
redemption, or other acquisition of the corporation's shares), the record date
shall be the date the Board authorizes the stock dividend or distribution.
2.8 VOTING RECORD
At least ten (10) days before each meeting of shareholders, an
alphabetical list of the shareholders entitled to notice of such meeting shall
be made, arranged by voting group and by each class or series of shares therein,
with the address of and number of shares held by each shareholder. This record
shall be kept at the principal office of the corporation for ten (10) days prior
to such meeting, and shall be kept open at such meeting, for the inspection of
any shareholder or any shareholder's agent.
2.9 QUORUM
A majority of the votes entitled to be cast on a matter by the holders
of shares that, pursuant to the Articles of Incorporation or the Washington
Business Corporation Act, are entitled to vote and be counted collectively upon
such matter, represented in person or by proxy, shall constitute a quorum of
such shares at a meeting of shareholders. If less than a majority of such votes
are represented at a meeting, a majority of the votes so represented may adjourn
the meeting from time to time without further notice if the new date, time or
place is announced at the meeting before adjournment. Any business may be
transacted at a reconvened meeting that might have been transacted at the
meeting as originally called, provided a quorum is present or represented
thereat. Once a share is represented for any purpose at a meeting other than
solely to object to holding the meeting or transacting business thereat, it is
deemed present for quorum purposes for the remainder of the meeting and any
adjournment thereof (unless a new record date is or must be set for the
adjourned meeting) notwithstanding the withdrawal of enough shareholders to
leave less than a quorum.
2.10 MANNER OF ACTING
If a quorum is present, action on a matter other than the election of
Directors shall be approved if the votes cast in favor of the action by the
shares entitled to vote and be counted collectively upon such matter exceed the
votes cast against such action by the shares entitled to vote and be counted
collectively thereon, unless the Articles of Incorporation or the Washington
Business Corporation Act requires a greater number of affirmative votes.
3
<PAGE> 7
2.11 PROXIES
A shareholder may vote by proxy executed in writing by the shareholder
or by his or her attorney-in-fact or agent. Such proxy shall be effective when
received by the Secretary or other officer or agent authorized to tabulate
votes. A proxy shall become invalid eleven (11) months after the date of its
execution, unless otherwise provided in the proxy. A proxy with respect to a
specified meeting shall entitle the holder thereof to vote at any reconvened
meeting following adjournment of such meeting but shall not be valid after the
final adjournment thereof.
2.12 VOTING OF SHARES
Except as provided in the Articles of Incorporation or in Section 2.13
hereof, each outstanding share entitled to vote with respect to a matter
submitted to a meeting of shareholders shall be entitled to one vote upon such
matter.
2.13 VOTING FOR DIRECTORS
Each shareholder entitled to vote at an election of Directors may vote,
in person or by proxy, the number of shares owned by such shareholder for as
many persons as there are Directors to be elected and for whose election such
shareholder has a right to vote, or (unless otherwise provided in the Articles
of Incorporation) each such shareholder may cumulate such shareholder's votes by
distributing among one or more candidates as many votes as are equal to the
number of such Directors multiplied by the number of such shareholder's shares.
Unless otherwise provided in the Articles of Incorporation, the candidates
elected shall be those receiving the largest number of votes cast, up to the
number of Directors to be elected.
2.14 ACTION BY SHAREHOLDERS WITHOUT A MEETING
Any action which could be taken at a meeting of the shareholders may be
taken without a meeting or a vote if the action is taken by shareholders holding
of record or otherwise entitled to vote in the aggregate not less than the
minimum number of votes necessary to authorize or take such action at a meeting
at which all shares entitled to vote on the action were present and voted. The
taking of action by shareholders without a meeting or vote must be evidenced by
one or more written consents describing the action taken, signed by shareholders
holding of record or otherwise entitled to vote in the aggregate not less than
the minimum number of votes necessary in order to take such action by written
consent.
SECTION 3. BOARD OF DIRECTORS
3.1 GENERAL POWERS
All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the corporation shall be managed under the
direction of, the Board, except as may be otherwise provided in these Bylaws,
the Articles of Incorporation or the Washington Business Corporation Act.
4
<PAGE> 8
3.2 NUMBER AND TENURE
The Board shall be composed of not less than two nor more than ten
Directors, the specific number to be set by resolution of the Board. The number
of Directors may be changed from time to time by amendment to these Bylaws, but
no decrease in the number of Directors shall have the effect of shortening the
term of any incumbent Director. Unless a Director dies, resigns, or is removed,
his or her term of office shall expire at the next annual meeting of
shareholders; provided, however, that a Director shall continue to serve until
his or her successor is elected or until there is a decrease in the authorized
number of Directors. Directors need not be shareholders of the corporation or
residents of the State of Washington and need not meet any other qualifications.
3.3 ANNUAL AND REGULAR MEETINGS
An annual Board meeting shall be held without notice immediately after
and at the same place as the annual meeting of shareholders. By resolution the
Board, or any committee thereof, may specify the time and place either within or
without the State of Washington for holding regular meetings thereof without
notice other than such resolution.
3.4 SPECIAL MEETINGS
Special meetings of the Board or any committee designated by the Board
may be called by or at the request of the Chairman of the Board, the President,
the Secretary or, in the case of special Board meetings, any three Directors
and, in the case of any special meeting of any committee designated by the
Board, by the Chairman thereof. The person or persons authorized to call special
meetings may fix any place either within or without the State of Washington as
the place for holding any special Board or committee meeting called by them.
3.5 MEETINGS BY COMMUNICATIONS EQUIPMENT
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by, or conduct the meeting
through the use of, any means of communication by which all Directors
participating in the meeting can hear each other during the meeting.
Participation by such means shall constitute presence in person at a meeting.
3.6 NOTICE OF SPECIAL MEETINGS
Notice of a special Board or committee meeting stating the place, day
and hour of the meeting shall be given to a Director in writing or orally.
Neither the business to be transacted at, nor the purpose of, any special
meeting need be specified in the notice of such meeting.
5
<PAGE> 9
3.6.1 PERSONAL DELIVERY
If notice is given by personal delivery, the notice shall be
effective if delivered to a Director at least two (2) days before the meeting.
3.6.2 DELIVERY BY MAIL
If notice is delivered by mail, the notice shall be deemed
effective if deposited in the official government mail at least five (5) days
before the meeting, properly addressed to a Director at his or her address shown
on the records of the corporation, with postage thereon prepaid.
3.6.3 DELIVERY BY PRIVATE CARRIER
If notice is given by private carrier, the notice shall be
deemed effective when dispatched to a Director at his or her address shown on
the records of the corporation at least three (3) days before the meeting.
3.6.4 FACSIMILE NOTICE
If notice is delivered by wire or wireless equipment which
transmits a facsimile of the notice, the notice shall be deemed effective when
dispatched at least two (2) days before the meeting to a Director at his or her
telephone number or other number appearing on the records of the corporation.
3.6.5 DELIVERY BY TELEGRAPH
If notice is delivered by telegraph, the notice shall be deemed
effective if the content thereof is delivered to the telegraph company for
delivery to a Director at his or her address shown on the records of the
corporation at least three (3) days before the meeting.
3.6.6 ORAL NOTICE
If notice is delivered orally, by telephone or in person, the
notice shall be deemed effective if personally given to the Director at least
two (2) days before the meeting.
3.7 WAIVER OF NOTICE
3.7.1 IN WRITING
Whenever any notice is required to be given to any Director
under the provisions of these Bylaws, the Articles of Incorporation or the
Washington Business Corporation Act, a waiver thereof in writing, signed by the
person or persons entitled to such notice and delivered to the corporation,
whether before or after the date and time of the meeting, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the
6
<PAGE> 10
Board or any committee designated by the Board need be specified in the waiver
of notice of such meeting.
3.7.2 BY ATTENDANCE
A Director's attendance at or participation in a Board or
committee meeting shall constitute a waiver of notice of such meeting, unless
the Director at the beginning of the meeting, or promptly upon his or her
arrival, objects to holding the meeting or transacting business thereat and does
not thereafter vote for or assent to action taken at the meeting.
3.8 QUORUM
A majority of the number of Directors fixed by or in the manner provided
in these Bylaws shall constitute a quorum for the transaction of business at any
Board meeting but, if less than a majority are present at a meeting, a majority
of the Directors present may adjourn the meeting from time to time without
further notice.
3.9 MANNER OF ACTING
If a quorum is present when the vote is taken, the act of the majority
of the Directors present at a Board meeting shall be the act of the Board,
unless the vote of a greater number is required by these Bylaws, the Articles of
Incorporation or the Washington Business Corporation Act.
3.10 PRESUMPTION OF ASSENT
A Director of the corporation who is present at a Board or committee
meeting at which any action is taken shall be deemed to have assented to the
action taken unless (a) the Director objects at the beginning of the meeting, or
promptly upon the Director's arrival, to holding the meeting or transacting any
business thereat, (b) the Director's dissent or abstention from the action taken
is entered in the minutes of the meeting, or (c) the Director delivers written
notice of the Director's dissent or abstention to the presiding officer of the
meeting before its adjournment or to the corporation within a reasonable time
after adjournment of the meeting. The right of dissent or abstention is not
available to a Director who votes in favor of the action taken.
3.11 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING
Any action which could be taken at a meeting of the Board or of any
committee created by the Board may be taken without a meeting if one or more
written consents setting forth the action so taken are signed by each of the
Directors or by each committee member either before or after the action is taken
and delivered to the corporation. Action taken by written consent of Directors
without a meeting is effective when the last Director signs the consent, unless
the consent specifies a later effective date. Any such written consent shall be
inserted in the minute book as if it were the minutes of a Board or a committee
meeting.
7
<PAGE> 11
3.12 RESIGNATION
Any Director may resign at any time by delivering written notice to the
Chairman of the Board, the President, the Secretary or the Board. Any such
resignation is effective upon delivery thereof unless the notice of resignation
specifies a later effective date and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
3.13 REMOVAL
At a meeting of shareholders called expressly for that purpose, one or
more members of the Board, including the entire Board, may be removed with or
without cause (unless the Articles of Incorporation permit removal for cause
only) by the holders of the shares entitled to elect the Director or Directors
whose removal is sought if the number of votes cast to remove the Director
exceeds the number of votes cast not to remove the Director. If the Articles of
Incorporation permit cumulative voting in the election of Directors, then a
Director may not be removed if the number of votes sufficient to elect such
Director if then cumulatively voted at an election of the entire Board or, if
there are classes of Directors, at an election of the class of Directors of
which such Director is a part, is voted against the Director's removal.
3.14 VACANCIES
Unless the Articles of Incorporation provide otherwise, any vacancy
occurring on the Board may be filled by the shareholders, the Board or, if the
Directors in office constitute fewer than a quorum, by the affirmative vote of a
majority of the remaining Directors. Any vacant office held by a Director
elected by the holders of one or more classes or series of shares entitled to
vote and be counted collectively thereon shall be filled only by the vote of the
holders of such class or series of shares. A Director elected to fill a vacancy
shall serve only until the next election of Directors by the shareholders.
3.15 EXECUTIVE AND OTHER COMMITTEES
3.15.1 CREATION OF COMMITTEES
The Board, by resolution adopted by the greater of a majority of
the Directors then in office and the number of Directors required to take action
in accordance with these Bylaws, may create standing or temporary committees,
including an Executive Committee, and appoint members thereto from its own
number and invest such committees with such powers as it may see fit, subject to
such conditions as may be prescribed by the Board, these Bylaws and applicable
law. Each committee must have two or more members, who shall serve at the
pleasure of the Board.
3.15.2 AUTHORITY OF COMMITTEES
Each committee shall have and may exercise all of the authority
of the Board to the extent provided in the resolution of the Board creating the
committee and any subsequent resolutions pertaining thereto and adopted in like
manner, except that no
8
<PAGE> 12
such committee shall have the authority to: (a) authorize or approve a
distribution except according to a general formula or method prescribed by the
Board, (b) approve or propose to shareholders actions or proposals required by
the Washington Business Corporation Act to be approved by shareholders, (c) fill
vacancies on the Board or any committee thereof, (d) adopt, amend or repeal
Bylaws, (e) amend the Articles of Incorporation pursuant to RCW 23B.10.020, (f)
approve a plan of merger not requiring shareholder approval, or (g) authorize or
approve the issuance or sale or contract for sale of shares, or determine the
designation and relative rights, preferences and limitations of a class or
series of shares except that the Board may authorize a committee or a senior
executive officer of the corporation to do so within limits specifically
prescribed by the Board.
3.15.3 QUORUM AND MANNER OF ACTING
A majority of the number of Directors composing any committee of
the Board, as established and fixed by resolution of the Board, shall constitute
a quorum for the transaction of business at any meeting of such committee but,
if less than a majority are present at a meeting, a majority of such Directors
present may adjourn the meeting from time to time without further notice. Except
as may be otherwise provided in the Washington Business Corporation Act, if a
quorum is present when the vote is taken the act of a majority of the members
present shall be the act of the committee.
3.15.4 MINUTES OF MEETINGS
All committees shall keep regular minutes of their meetings and
shall cause them to be recorded in books kept for that purpose.
3.15.5 RESIGNATION
Any member of any committee may resign at any time by delivering
written notice thereof to the Chairman of the Board, the President, the
Secretary or the Board. Any such resignation is effective upon delivery thereof,
unless the notice of resignation specifies a later effective date, and the
acceptance of such resignation shall not be necessary to make it effective.
3.15.6 REMOVAL
The Board may remove any member of any committee elected or
appointed by it but only by the affirmative vote of the greater of a majority of
the Directors then in office and the number of Directors required to take action
in accordance with these Bylaws.
3.16 COMPENSATION
By Board resolution, Directors and committee members may be paid
their expenses, if any, of attendance at each Board or committee meeting, or a
fixed sum for attendance at each Board or committee meeting, or a stated salary
as Director or a committee member, or a combination of the foregoing. No such
payment shall preclude
9
<PAGE> 13
any Director or committee member from serving the corporation in any other
capacity and receiving compensation therefor.
SECTION 4. OFFICERS
4.1 APPOINTMENT AND TERM
The officers of the corporation shall be those officers appointed from
time to time by the Board or by any other officer empowered to do so. The Board
shall have sole power and authority to appoint executive officers. As used
herein, the term "executive officer" shall mean the President, any Vice
President in charge of a principal business unit, division or function or any
other officer who performs a policy-making function. The Board or the President
may appoint such other officers and assistant officers to hold office for such
period, have such authority and perform such duties as may be prescribed. The
Board may delegate to any other officer the power to appoint any subordinate
officers and to prescribe their respective terms of office, authority and
duties. Any two or more offices may be held by the same person. Unless an
officer dies, resigns or is removed from office, he or she shall hold office
until his or her successor is appointed.
4.2 RESIGNATION
Any officer may resign at any time by delivering written notice thereof
to the corporation. Any such resignation is effective upon delivery thereof,
unless the notice of resignation specifies a later effective date, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
4.3 REMOVAL
Any officer may be removed by the Board at any time, with or without
cause. An officer or assistant officer, if appointed by another officer, may be
removed by any officer authorized to appoint officers or assistant officers.
4.4 CONTRACT RIGHTS OF OFFICERS
The appointment of an officer does not itself create contract rights.
4.5 CHAIRMAN OF THE BOARD
If appointed, the Chairman of the Board shall perform such duties as
shall be assigned to him or her by the Board from time to time and shall preside
over meetings of the Board and shareholders unless another officer is appointed
or designated by the Board as Chairman of such meetings.
4.6 PRESIDENT
If appointed, the President shall be the chief executive officer of the
corporation unless some other officer is so designated by the Board, shall
preside over meetings of the Board and shareholders in the absence of a Chairman
of the Board, and, subject to the
10
<PAGE> 14
Board's control, shall supervise and control all of the assets, business and
affairs of the corporation. In general, the President shall perform all duties
incident to the office of President and such other duties as are prescribed by
the Board from time to time. If no Secretary has been appointed, the President
shall have responsibility for the preparation of minutes of meetings of the
Board and shareholders and for authentication of the records of the corporation.
4.7 VICE PRESIDENT
In the event of the death of the President or his or her inability to
act, the Vice President (or if there is more than one Vice President, the Vice
President who was designated by the Board as the successor to the President, or
if no Vice President is so designated, the Vice President first elected to such
office) shall perform the duties of the President, except as may be limited by
resolution of the Board, with all the powers of and subject to all the
restrictions upon the President. Vice Presidents shall perform such other duties
as from time to time may be assigned to them by the President or by or at the
direction of the Board.
4.8 SECRETARY
If appointed, the Secretary shall be responsible for preparation of
minutes of the meetings of the Board and shareholders, maintenance of the
corporation records and stock registers, and authentication of the corporation's
records and shall in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the President or by or at the direction of the Board. In the absence of
the Secretary, an Assistant Secretary may perform the duties of the Secretary.
4.9 TREASURER
If appointed, the Treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in banks,
trust companies or other depositories selected in accordance with the provisions
of these Bylaws, and in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
or her by the President or by or at the direction of the Board. In the absence
of the Treasurer, an Assistant Treasurer may perform the duties of the
Treasurer. If required by the Board, the Treasurer or any Assistant Treasurer
shall give a bond for the faithful discharge of his or her duties in such amount
and with such surety or sureties as the Board shall determine.
4.10 SALARIES
The salaries of the officers shall be fixed from time to time by the
Board or by any person or persons to whom the Board has delegated such
authority. No officer shall
11
<PAGE> 15
be prevented from receiving such salary by reason of the fact that he or she is
also a Director of the corporation.
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 CONTRACTS
The Board may authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation. Such authority may be general or confined to
specific instances.
5.2 LOANS TO THE CORPORATION
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board. Such authority may be general or confined to specific
instances.
5.3 CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, or agent or agents, of the corporation and
in such manner as is from time to time determined by resolution of the Board.
5.4 DEPOSITS
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the Board may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 ISSUANCE OF SHARES
No shares of the corporation shall be issued unless authorized by the
Board, or by a committee designated by the Board to the extent such committee is
empowered to do so.
6.2 CERTIFICATES FOR SHARES
Certificates representing shares of the corporation shall be signed,
either manually or in facsimile, by the President or any Vice President and by
the Treasurer or any Assistant Treasurer or the Secretary or any Assistant
Secretary and shall include on their face written notice of any restrictions
which may be imposed on the transferability of such shares. All certificates
shall be consecutively numbered or otherwise identified.
12
<PAGE> 16
6.3 STOCK RECORDS
The stock transfer books shall be kept at the principal office of the
corporation or at the office of the corporation's transfer agent or registrar.
The name and address of each person to whom certificates for shares are issued,
together with the class and number of shares represented by each such
certificate and the date of issue thereof, shall be entered on the stock
transfer books of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
6.4 RESTRICTION ON TRANSFER
Except to the extent that the corporation has obtained an opinion of
counsel acceptable to the corporation that transfer restrictions are not
required under applicable securities laws, or has otherwise satisfied itself
that such transfer restrictions are not required, all certificates representing
shares of the corporation shall bear a legend on the face of the certificate, or
on the reverse of the certificate if a reference to the legend is contained on
the face, which reads substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
IN A FORM SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED."
6.5 TRANSFER OF SHARES
The transfer of shares of the corporation shall be made only on the
stock transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and canceled.
13
<PAGE> 17
6.6 LOST OR DESTROYED CERTIFICATES
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
corporation as the Board may prescribe.
SECTION 7. BOOKS AND RECORDS
The corporation shall:
(a) Keep as permanent records minutes of all meetings of its
shareholders and the Board, a record of all actions taken by the shareholders or
the Board without a meeting, and a record of all actions taken by a committee of
the Board exercising the authority of the Board on behalf of the corporation.
(b) Maintain appropriate accounting records.
(c) Maintain a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders, in
alphabetical order by class of shares showing the number and class of shares
held by each; provided, however, such record may be maintained by an agent of
the corporation.
(d) Maintain its records in written form or in another form capable of
conversion into written form within a reasonable time.
(e) Keep a copy of the following records at its principal office:
(i) the Articles of Incorporation and all amendments thereto as
currently in effect;
(ii) the Bylaws and all amendments thereto as currently in
effect;
(iii) the minutes of all meetings of shareholders and records of
all action taken by shareholders without a meeting, for the past three (3)
years;
(iv) the financial statements described in Section 23B.16.200(l)
of the Washington Business Corporation Act, for the past three (3) years;
(v) all written communications to shareholders generally within
the past three (3) years;
(vi) a list of the names and business addresses of the current
Directors and officers; and
(vii) the most recent annual report delivered to the Washington
Secretary of State.
14
<PAGE> 18
SECTION 8. ACCOUNTING YEAR
The accounting year of the corporation shall be the calendar year,
provided that if a different accounting year is at any time selected by the
Board for purposes of federal income taxes, or any other purpose, the accounting
year shall be the year so selected.
SECTION 9. SEAL
The Board may provide for a corporate seal which shall consist of the
name of the corporation, the state of its incorporation and the year of its
incorporation.
SECTION 10. INDEMNIFICATION
10.1 RIGHT TO INDEMNIFICATION
Each person who was, is or is threatened to be made a named party to or
is otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
Director or officer of the corporation or, that being or having been such a
Director or officer or an employee of the corporation, he or she is or was
serving at the request of an executive officer of the corporation as a Director,
officer, partner, trustee, employee or agent of another corporation or of a
partnership, joint venture, trust, employee benefit plan or other enterprise
(hereinafter an "indemnitee"), whether the basis of a proceeding is alleged
action in an official capacity as such a Director, officer, partner, trustee,
employee or agent or in any other capacity while serving as such a Director,
officer, partner, trustee, employee or agent, shall be indemnified and held
harmless by the corporation against all expense, liability and loss (including
counsel fees, judgments, fines, ERISA excise taxes or penalties and amounts to
be paid in settlement) actually and reasonably incurred or suffered by such
indemnitee in connection therewith, and such indemnification shall continue as
to an indemnitee who has ceased to be a Director, officer, partner, trustee,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators. Except as provided in Section 10.4 of this Section
with respect to proceedings seeking to enforce rights to indemnification, the
corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if a proceeding (or part
thereof) was authorized or ratified by the Board. The right to indemnification
conferred in this Section shall be a contract right.
10.2 RESTRICTIONS ON INDEMNIFICATION
No indemnification shall be provided to any such indemnitee for acts or
omissions of the indemnitee finally adjudged to be intentional misconduct or a
knowing violation of law, for conduct of the indemnitee finally adjudged to be
in violation of Section 23B.08.310 of the Washington Business Corporation Act,
for any transaction with respect to which it was finally adjudged that such
indemnitee personally received a benefit in money, property or services to which
the indemnitee was not legally entitled or if the
15
<PAGE> 19
corporation is otherwise prohibited by applicable law from paying such
indemnification, except that if Section 23B.08.560 or any successor provision of
the Washington Business Corporation Act is hereafter amended, the restrictions
on indemnification set forth in this Section 10.2 shall be as set forth in such
amended statutory provision.
10.3 ADVANCEMENT OF EXPENSES
The right to indemnification conferred in this Section 10.3 shall
include the right to be paid by the corporation the expenses incurred in
defending any proceeding in advance of its final disposition (hereinafter an
"advancement of expenses"). An advancement of expenses shall be made upon
delivery to the corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be deter-mined by final judicial decision from which there is no
further right to appeal that such indemnitee is not entitled to be indemnified
for such expenses under this Section 10.3.
10.4 RIGHT OF INDEMNITEE TO BRING SUIT
If a claim under Section 10.1 or 10.3 of this Section is not paid in
full by the corporation within sixty (60) days after a written claim has been
received by the corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty (20) days, the
indemnitee may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim. If successful in whole or in part, in
any such suit or in a suit brought by the corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. The
indemnitee shall be presumed to be entitled to indemnification under this
Section 10.4 upon submission of a written claim (and, in an action brought to
enforce a claim for an advancement of expenses, where the required undertaking
has been tendered to the corporation) and thereafter the corporation shall have
the burden of proof to overcome the presumption that the indemnitee is so
entitled.
10.5 PROCEDURES EXCLUSIVE
Pursuant to Section 23B.08.560(2) or any successor provision of the
Washington Business Corporation Act, the procedures for indemnification and
advancement of expenses set forth in this Section 10.5 are in lieu of the
procedures required by Section 23B.08.550 or any successor provision of the
Washington Business Corporation Act.
10.6 NONEXCLUSIVITY OF RIGHTS
The right to indemnification and the advancement of expenses conferred
in this Section 10.6 shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of the Articles of
Incorporation or Bylaws of the corporation, general or specific action of the
Board, contract or otherwise.
16
<PAGE> 20
10.7 INSURANCE, CONTRACTS AND FUNDING
The corporation may maintain insurance, at its expense, to protect
itself and any Director, officer, partner, trustee, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Washington Business Corporation Act. The corporation
may enter into contracts with any Director, officer, partner, trustee, employee
or agent of the corporation in furtherance of the provisions of this Section and
may create a trust fund, grant a security interest or use other means
(including, without limitation, a letter of credit) to ensure the payment of
such amounts as may be necessary to effect indemnification as provided in this
Section.
10.8 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION
The corporation may, by action of the Board, grant rights to
indemnification and advancement of expenses to employees and agents or any class
or group of employees and agents of the corporation (a) with the same scope and
effect as the provisions of this Section with respect to the indemnification and
advancement of expenses of Directors and officers of the corporation; (b)
pursuant to rights granted pursuant to, or provided by, the Washington Business
Corporation Act; or (c) as are otherwise consistent with law.
10.9 PERSONS SERVING OTHER ENTITIES
Any person who, while a Director, officer or employee of the
corporation, is or was serving (a) as a Director or officer of another foreign
or domestic corporation of which a majority of the shares entitled to vote in
the election of its Directors is held by the corporation or (b) as a partner,
trustee or otherwise in an executive or management capacity in a partnership,
joint venture, trust or other enterprise of which the corporation or a wholly
owned subsidiary of the corporation is a general partner or has a majority
ownership shall be deemed to be so serving at the request of an executive
officer of the corporation and entitled to indemnification and advancement of
expenses under Sections 10.1 and 10.3 of this section.
SECTION 11. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board, except that the Board may not repeal or amend any Bylaw
that the shareholders have expressly provided, in amending or repealing such
Bylaw, may not be amended or repealed by the Board. The shareholders may also
alter, amend and repeal these Bylaws or adopt new Bylaws. All Bylaws made by the
Board may be amended, repealed, altered or modified by the shareholders.
17
<PAGE> 21
The foregoing Bylaws were adopted by the shareholders of the corporation
on March 11, 1998.
------------------------------------
Secretary
<PAGE> 1
EXHIBIT 10.2
RIVALNET, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (The "Agreement") is dated as of March 5,
1999, by and between James C. Heckman, Jr. ("Employee") and Rivalnet, Inc., a
Washington corporation (the "Company").
1. Term of Agreement. This Agreement shall commence on the date hereof
and shall have a term of two (2) years (the "Original Term"). This Agreement may
be terminated by either party, with or without cause, on 30 days' written notice
to the other party. This Agreement may be extended for an additional one year
after the end of the Original Term if the parties mutually agree in writing to
such extension.
2. Duties.
(a) Position. Employee shall be employed as President and Chief
Executive Officer of the Company, and as such will have responsibility for
managing the Company and such other duties as may be designated by The Board of
Directors of The Company (the "Board") and will report to the Board.
(b) Obligations to the Company. Employee agrees to the best of his
ability and experience that he will at all times loyally and conscientiously
perform all of the duties and obligations required of and from Employee pursuant
to the express and implicit terms hereof, and to the reasonable satisfaction of
the Company. During the term of Employee's employment relationship with the
Company, Employee further agrees that he will devote all of his business time
and attention to the business of the Company, the Company will be entitled to
all of the benefits and profits arising from or incident to all such work
services and advice, Employee will not render commercial or professional
services of any nature to any person or organization, whether or not for
compensation, without the prior written consent of the Board, and Employee will
not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. Nothing in this
Agreement will prevent Employee from accepting speaking or presentation
engagements in exchange for honoraria or from serving on boards of charitable
organizations, or from owning no more than 1% of the outstanding equity
securities of a corporation whose stock is listed on a national stock exchange
or the Nasdaq National Market. Employee will comply with and be bound by the
Company's operating policies, procedures and practices from time to time in
effect during the term of Employee's employment.
3. At-Will Employment. The Company and Employee acknowledge that
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by either party at any time for any or no reason. If Employee's
employment terminates for any reason, Employee shall not be entitled to any
payments, benefits, damages, award or compensation other than as provided in
this Agreement. The rights and duties created by this Section 3 may not be
modified in any way except by written agreement executed by the Board.
1
<PAGE> 2
4. Compensation. For the duties and services to be performed by Employee
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonuses and other benefits described below in this
Section 4.
(a) Salary. Employee shall receive a monthly salary of $10,000, which
is equivalent to $120,000 on an annualized basis. Employee's monthly salary will
be payable in two equal payments per month pursuant to the Company's normal
payroll practices. In the event this Agreement is extended beyond the Original
Term, the base salary shall be reviewed at the time of such extension by the
Board or its Compensation Committee, and any increase will be effective as of
the date determined appropriate by the Board or its Compensation Committee. In
the event that the Company shall pay any employee a salary that exceeds the
salary paid to Employee, Employee's salary shall be increased to a level equal
to that of such other employee.
(b) Stock Options and Other Incentive Programs.
(i) Effective upon the Closing under the Series B Preferred Stock
Purchase Agreement, dated the date hereof, by and among the Company and the
purchaser listed on Exhibit A thereto (the "Closing"), the Board shall grant to
Employee an option (the "Option") to purchase 2,000,000 shares of the Company's
Common Stock ("Shares") an exercise price of $0.25, the fair market value per
Share on the date of the grant. These Shares will vest over a four-year period,
with one-fourth (1/4) of the Shares vesting on the first anniversary of the
initial commencement of your employment with the Company and 1/48 of the total
number of Shares vesting each month thereafter until all of the Shares are fully
vested (total vesting in 48 months). Vesting will, of course, depend on
Employee's continued employment with the Company. The option will be an
incentive stock option to the maximum extent allowed by the Internal Revenue
Code of 1986, as amended, and will be subject to the terms of the Company's 1998
Stock Option Plan (the "Plan") and standard form of Stock Option Agreement.
Subject to the discretion of the Board, Employee may be eligible to receive
additional grants of stock options or purchase rights from time to time in the
future, on such terms and subject to such conditions as the Board of Directors
shall determine as of the date of any such grant.
(ii) Notwithstanding the above and subject to the provisions of
Section 10 below, in the event that (A) Employee's employment is terminated by
the Company or a successor to the Company other than for Cause (as defined in
Section 6 below), or (B) in the event of a Constructive Termination, in either
case which occurs during the one (1)-year period following a Change of Control
(as defined in the Plan), Employee's vesting shall accelerate by one (1) year
and termination without Cause or Constructive Termination therefore the options
that would have become exercisable in the one (1)-year following the termination
without Cause or Constructive Termination shall become exercisable an the
effective date of such termination.
(c) Bonuses. Employee's entitlement to incentive bonuses from the
Company is discretionary and shall be determined by the Board or its
Compensation Committee in good faith based upon the extent to which Employee's
individual performance objectives and the Company's profitability objectives and
other financial and nonfinancial objectives are achieved during the applicable
bonus period.
2
<PAGE> 3
(d) Additional Benefits. Employee will be eligible to participate in
the Company's employee benefit plans of general application, including without
limitation, those plans covering medical, disability and life insurance in
accordance with the rules established for individual participation in any such
plan and under applicable law. Employee will be eligible for vacation and sick
leave in accordance with the policies in effect during the term of this
Agreement and will receive such other benefits as the Company generally provides
to its other employees of comparable position and experience.
(e) Reimbursement of Expenses. Employee shall be authorized to incur
on behalf and for the benefit of, and shall be reimbursed by, the Company for
reasonable expenses, provided that such expenses are substantiated in accordance
with Company policies.
5. Termination or Employment and Severance Benefits.
(a) Termination of Employment. This Agreement may be terminated
during its Original Term (or any extension thereof) upon the occurrence of any
of the following events:
(i) The Company's determination in good faith that it is
termination Employee for Cause (as defined in Section 6 below) ("Termination for
Cause");
(ii) The Company's determination that it is terminating Employee
without Cause, which determination may be made by the Company at any time at the
Company's sole discretion, for any or no reason ("Termination Without Cause");
(iii) The effective date of a written notice sent to the Company
from Employee stating that Employee is electing to terminate his employment with
the Company ("Voluntary Termination");
(iv) A change in Employee's status such that a Constructive
Termination (as defined in Section 5(b)(iv) below) has occurred; or
(v) following Employee's death or Disability (as defined in
Section 7 below).
(b) Severance Benefits. Employee shall be entitled to receive
severance benefits upon termination of employment only as set forth in this
Section 5(b):
(i) Voluntary Termination. If Employee's employment terminates by
Voluntary Termination, then Employee shall not be entitled to receive payment of
any severance benefits. Employee will receive payment(s) for all salary and
unpaid vacation accrued as of the date of Employee's termination of employment
and Employee's benefits will be continued under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law.
(ii) Involuntary Termination. If Employee's employment is
terminated under Section 5(a)(ii) or 5(a)(iv) above (such termination, an
"Involuntary Termination"),
3
<PAGE> 4
Employee will be entitled to receive payment of severance benefits equal to
Employee's regular monthly salary for six (6) months (the "Severance Period").
Such payments shall be made ratably over the Severance Period according to the
Company's standard payroll schedule. Employee will also be entitled to receive
payment on the date of termination of any bonus payable under Section 4(c).
Health insurance benefits with the same coverage provided to Employee prior to
the termination (e.g. medical, dental, optical, mental health) and in all other
respects significantly comparable to those in place immediately prior to the
termination will be provided at the Company's cost over the Severance Period.
Any unvested stock options or shares of restricted stock held by Employee as of
the date of Employee's termination of employment shall continue to vest through
the end of the Severance Period according to the vesting schedule set forth in
any agreement between Employee and the Company governing the issuance to
Employee of such securities; provided, however, that such continuation of
vesting shall nor apply to the Option in the event that the vesting of the
Option is accelerated pursuant to Section 4(b)(ii).
(iii) Termination for Cause. If Employee's employment is
terminated for Cause, then Employee shall not be entitled to receive payment of
any severance benefits. Employee will receive payment(s) for all salary and
unpaid vacation accrued as of the date of Employee's termination of employment
and Employee's benefits will be continued under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law.
(iv) Constructive Termination. "Constructive Termination" shall
be deemed to occur if (A)(1) there is a material adverse change in Employee's
position causing such position to be of materially reduced stature or
responsibility, (2) a reduction of more than 20% of Employee's base compensation
unless in connection with similar decreases of other similarly situated
employees of the Company, or (3) Employee's refusal to relocate to a facility or
location more than 50 miles from the Company's current location; and (B) within
the 30-day period immediately following such material change or reduction
Employee elects to terminate his employment voluntarily.
(v) Termination by Reason of Death or Disability. In the event
that Employee's employment with the Company terminates as a result of Employee's
death or Disability (as defined in Section 7 below), Employee or Employee's
estate or representative will receive all salary and unpaid vacation accrued as
of the date of Employee's death or Disability and any other benefits payable
under the Company's then existing benefit plans and policies in accordance with
such plans and policies in effect on the date of death or Disability and in
accordance with applicable law. In addition, Employee's estate or representative
will receive the amount of Employee's target bonus for the fiscal year in which
the death or Disability occurs to the extent that the bonus has been earned as
of the date of Employee's death or Disability, as determined by the Board or its
Compensation Committee based on the specific corporate and individual
performance targets established for such fiscal year.
6. Definition of Cause. For purposes of this Agreement, "Cause" for
Employee's termination will exist at any time after the happening of one or more
of the following events:
4
<PAGE> 5
(a) Employee's willful misconduct or gross negligence in performance
of his duties hereunder, including Employee's refusal to comply in any material
respect with the legal directives of the Board so long as such directives are
not inconsistent with the Employee's position and duties, and such refusal to
comply is not remedied within 10 working days after written notice from the
Board, which written notice shall state that failure to remedy such conduct may
result in Termination for Cause;
(b) Dishonest or fraudulent conduct, a deliberate attempt to do an
injury to the Company, or conduct that materially discredits the Company or is
materially detrimental to the reputation of the Company, including conviction of
a felony; or
(c) Employee's incurable material breach of any element of the
Company's Confidential Information and Invention Assignment Agreement, including
without limitation, Employee's theft or other misappropriation of the Company's
proprietary information.
7. Definition of Disability. For purposes of this Agreement,
"Disability" shall mean that Employee has been unable to perform his duties
hereunder as the result of his incapacity due to physical or mental illness, and
such inability, which continues for at least 120 consecutive calendar days or
150 calendar days during any consecutive twelve-month period, if shorter, after
its commencement, is determined to be total and permanent by a physician
selected by the Company and its insurers and acceptable to Employee or to
Employee's legal representative (with such agreement on acceptability not to be
unreasonably withheld).
8. Confidentiality Agreement. Employee shall sign, or has signed, a
Proprietary Information and Inventions Assignment Agreement (the
"Confidentiality Agreement") substantially in the form attached hereto as
Exhibit A. Employee hereby represents and warrants to the Company that he has
complied with all obligations under the Confidentiality Agreement and agrees to
continue to abide by the terms of the Confidentiality Agreement and further
agrees that the provisions of the Confidentiality Agreement shall survive any
termination of this Agreement or of Employee's employment relationship with the
Company.
9. Noncompetition Covenant. Employee hereby agrees that he shall not,
during the term of his employment pursuant to this Agreement and the Severance
Period, if any, do any of the following without the prior written consent of the
Board:
(a) Compete. Carry on any business or activity (whether directly or
indirectly, as a partner, stockholder, principal, agent, director, affiliate,
employee or consultant) which is competitive with the business conducted by the
Company (as conducted now or during the term of Employee's employment), nor
engage in any other activities that conflict with Employee's obligations to the
Company
(b) Solicit Business. Solicit or influence or attempt to influence
any client, customer or other person either directly or indirectly, to direct
his or its purchase of the Company's products and/or services to any person,
firm, corporation, institution or other entity in competition with the business
of the Company.
5
<PAGE> 6
(c) Solicit Personnel. During the term of this Agreement and for a
period of six (6) months thereafter, solicit or influence or attempt to
influence any person employed by the Company to terminate or otherwise cease his
employment with the Company or become an employee of any competitor of the
Company. The provisions of this Section 9 are to be read in conjunction the
provisions of the Confidentiality Agreement executed by Employee.
10. Limitation on Stock Option Acceleration Benefits. In the event that
any stock option acceleration benefits provided for in this Agreement to
Employee (i) constitute "parachute payments" within the meaning of Section 2806
of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for
this Section 10, would be subject to the excise tax imposed by Section 4999 of
the Code, then Employee's acceleration benefits under Section 4(b) shall be
payable either:
(a) in full, or
(b) as to such lesser amount which would result in no portion of
such benefits being subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by Employee on an after-tax basis, of the greatest amount of
benefits under Section 4(b), notwithstanding that all or some portion of such
benefits may be taxable under Section 4999 of the Code. Unless the Company or
Employee otherwise agree in writing, any determination required under this
Section 10 shall be made in writing by independent public accountants appointed
by Employee and reasonably acceptable to the Company (the "Accountants"), whose
determination shall be conclusive and binding upon Employee and the Company for
all purposes. For purposes of making the calculations required by this Section
10, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and Employee shall furnish to the Accountants such information
and documents as the Accountants may reasonably request in order to make a
determination under this Section 10. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 10.
11. Conflicts. Employee represents that his performance of all the terms
of this Agreement will not breach any other agreement to which Employee is a
party. Employee has not, and will not during the term of this Agreement, enter
into any oral or written agreement in conflict with any of the provisions of
this Agreement.
12. Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agrees expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to
6
<PAGE> 7
the benefit of, and be enforceable by, Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
13. Miscellaneous Provisions.
(a) No Duty to Mitigate. Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor, except as otherwise provided in this
Agreement, shall any such payment be reduced by any earnings that Employee may
receive from any other source.
(b) Amendments and Waivers. Any term of this Agreement may be
amended or waived only with the written consent of the parties.
(c) Sole Agreement. This Agreement, including any Exhibits hereto,
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(d) Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS), or 48 hours after being deposited in the U.S. mail as certified
or registered mail with postage prepaid, if such notice is addressed to the
party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(e) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Washington, without giving effect to the principles of conflict of laws.
(f) Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(g) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
Arbitration. Any dispute or claim arising out of or in connection
with this Agreement will be finally settled by binding arbitration in Seattle,
Washington in accordance with the rules of the American Arbitration Association
by one arbitrator appointed in accordance with said rules. The arbitrator shall
apply Washington law, without reference to rules of conflicts of law or rules of
statutory arbitration, to the resolution of any dispute. Judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. Notwithstanding the foregoing, the parties may apply to any court of
competent jurisdiction for preliminary or interim
7
<PAGE> 8
equitable relief, or to compel arbitration in accordance with this paragraph,
without breach of this arbitration provision. This Section 13(h) shall not apply
to the Confidentiality Agreement.
(i) Advice of Counsel. EACH PARTY TO THIS AGREEMENT
ACKNOWLEDGES THAT, IN EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE
OPPORTUNITY TO SEEK THF ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND
UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT
SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR
PREPARATION HEREOF.
[Signature page follows.]
8
<PAGE> 9
The parties have executed this Agreement the date first written above.
RIVALNET, INC.
By: /s/ Jeffrey P. Rice
-------------------------------------
Name: Jeffrey P. Rice
-----------------------------------
Title:
-----------------------------------
Address: 2107 Elliott Avenue, Suite 302
Seattle, Washington 98121
JAMES C. HECKMAN, JR.
Signature: /s/ James C. Heckman, Jr.
-----------------------------
Address: 2107 Elliott Avenue, Suite 302
Seattle, Washington 98121
9
<PAGE> 10
EXHIBIT A
PROPRIETARY INFORMATION AND
INVENTIONS ASSIGNMENT AGREEMENT
10
<PAGE> 1
EXHIBIT 10.3
Rival Communications, Inc.
2107 Elliott Avenue, Suite 302
Seattle, Washington 98121
(206) 728-7200
January _, 1999
Bill Somsin
2325 E. Thomas St.
Seattle, WA 98112
Dear Bill:
This letter is to confirm our understanding concerning your employment
by Rival Communications, Inc. in the position of Senior Vice President and Chief
Technology Officer. As we have discussed, commencing March 1, 1999, you will
initially be paid a salary of $7,000 per month, which will be paid semi-monthly
in accordance with the Company's normal payroll procedures. You will also be
entitled to receive employee benefits in accordance with the Company's customary
practices with respect to employees with similar experience, skills and
responsibilities, including medical (but not dental) insurance. At the Company's
expense, the Company will provide you with a parking space within one block of
the Company's office.
Your employment with the Company will be on an "at will" basis, meaning
that, unless otherwise agreed, either you or the Company may terminate your
employment at any time for any reason or no reason, without further obligation
or liability.
In addition, we are prepared to recommend that the Board of Directors of
the Company grant you an option to purchase 240,000 shares of common stock of
the Company ("Common Stock") at an exercise price of $0.25 per share. This
option will vest over a three-year period, with one-third vesting after one year
and the remainder vesting in equal monthly installments, and will be subject to
the terms and conditions of the Company's stock option plan and standard form of
stock option agreement.
The Company will also provide you with the opportunity to purchase
60,000 shares of Series A Preferred Stock of the Company at a purchase price of
$0.25 per share, or an aggregate purchase price of $15,000, upon the terms and
subject to the conditions of a stock purchase agreement reasonably acceptable to
you and the Company, provided that such purchase shall occur no later than
January 26, 1999. In addition, you will be provided with the opportunity to
invest up to $200,000 in the Company in the form of a Convertible Promissory
Note, upon the terms and subject to the conditions of the form of Note Purchase
Agreement, Convertible Promissory Note and Warrant approved by the
1
<PAGE> 2
Board of Directors of the Company and issued by the Company from time to time,
provided that such purchase shall also occur no later than January 26, 1999.
You will report directly to the President of the Company, and your
initial duties will include responsibility for and oversight of all software and
hardware development and configuration. In addition, you will assist the
President of the Company as requested and will be responsible for server
architecture, bandwidth issues, database technology, user interface design and
the "web farm" of the Company's Internet Web sites. You will also be given
notice of and the opportunity to attend meetings of the Board of Directors of
the Company.
You agree that to the best of your ability you will at all times loyally
and conscientiously perform all of the duties and obligations required of you
pursuant to the express and implicit terms hereof, and to the reasonable
satisfaction of the Company. During the term of your employment, you further
agree that you will devote all of your business time and attention to the
business of the Company, and that you will not render commercial or professional
services of any nature to any person or organization, whether or not for
compensation, without the prior written consent of the Company's Board of
Directors, and you will not directly or indirectly engage or participate in any
business that is competitive in any manner with the business of the Company.
Continuation of your employment with the Company is contingent upon the
execution, and delivery to an officer of the Company, of the Company's
Proprietary Information and Inventions Agreement, a copy of which is enclosed
for your review and execution.
In the event of any dispute or claim relating to or arising out of our
employment relationship, or the termination of our employment relationship, you
and the Company agree that all such disputes shall be fully, finally and
exclusively resolved by binding arbitration conducted by the American
Arbitration Association in Seattle, Washington, and we waive our rights to have
such disputes tried by a court or jury. However, we agree that this arbitration
provision shall not apply to any disputes or claims relating to or arising out
of the misuse or misappropriation of the Company's trade secrets or proprietary
information.
This letter, along with any agreements relating to proprietary rights
between you and the Company, set forth the terms of your employment with the
Company and supersedes any prior representations or agreements, whether written
or oral. This letter may not be modified except in writing and signed by the
Company and you.
To confirm your agreement with the terms of this letter, please sign and
date this letter in the space provided below and return it to me as soon as
possible. A duplicate copy is enclosed for your records.
We are delighted to be able to extend this offer to you and look forward
to continuing to work with you.
2
<PAGE> 3
Very truly yours
RIVAL COMMUNICATIONS, INC.
By: /s/James C. Heckman Jr.
---------------------------------
James C. Heckman, Jr.
President
AGREED TO AND ACCEPTED:
/s/ bill Sornsin
- ---------------------------------
Bill Sornsin
Date: 2/10/99
----------------------------
Enclosure: Proprietary Information and Inventions Agreement
3
<PAGE> 1
EXHIBIT 10.4
LEASE AGREEMENT
FIFTH AND PINE BUILDING
THIS LEASE made this ___day of November, 1999, between PINE STREET
DEVELOPMENT L.L.C., a Washington limited liability company ("Landlord"), and
RIVALS.COM, INC., a, Washington corporation ("Tenant").
As parties hereto, Landlord and Tenant agree:
1. LEASE: The following terms as used herein shall have the meanings
provided in this Section 1, unless otherwise specifically modified by provisions
of this Lease:
(a) BUILDING. The building commonly known as the Fifth and Pine
Building located on the real property described in Paragraph 2, Premises, with
an address of 1513 Fifth Avenue, Seattle, Washington.
(b) PREMISES. Consisting of the area on the fourth and fifth
floors of the Building, as outlined on the floor plan attached hereto as Exhibit
A, including the Tenant improvements described in Exhibit B.
(c) RENTABLE AREA OF THE PREMISES: Approximately 53,466 net
rentable square feet, subject to final verification based on Tenant's Final
Plans (as defined in Exhibit B). Once such area is finally determined, the Rent,
the Allowance, and any other items based on the area of the Premises shall be
appropriately adjusted. "Net rentable square feet" and "rentable area" as used
in this Lease shall mean "Rentable Area" as determined in accordance with the
American National Standard Method of measuring floor space in office buildings
as published by the Building Owners and Managers Association International dated
June 7, 1996 ("BOMA").
(d) BASIC PLANS DELIVERY DATE: [TO BE INSERTED]
(e) FINAL CONSTRUCTION DOCUMENTS DELIVERY DATE: [TO BE INSERTED]
(f) COMMENCEMENT DATE: February 1, 2000 or such earlier or later
date as provided in Section 3 hereof.
(g) EXPIRATION DATE: January 31, 2005
(h) RENT: PENTHOUSE OF 10,387 SQUARE FEET
YEARS 1-3:$32.00 PER RENTABLE SQUARE FOOT PER YEAR
1
<PAGE> 2
YEARS 4-5: $33.00 PER RENTABLE SQUARE FOOT PER YEAR
BALANCE OF SPACE OF 43,059 RENTABLE SQUARE FEET
YEAR 1-5 $20.60 PER RENTABLE SQUARE FOOT PER YEAR
(i) SECURITY DEPOSIT/LETTER OF CREDIT: $1,600,000. See Section 6
below.
(j) PARKING. Landlord shall provide Tenant with parking spaces
for up to thirty two (32) automobiles in garages located within three (3) blocks
of the Building. All such parking shall be on an unassigned basis, at the rates
and terms established by Landlord's agreement with the garage operator and
otherwise subject to the terms and conditions of Section 7 below.
(k) NOTICE ADDRESSES
Landlord: Pine Street Development L.L.C.
520 Pike Tower, Suite 2200
Seattle, Washington 98101
Tenant: Rivals.com, Inc.
1513 Pine Street
Seattle, Washington 98101
(l) EXHIBITS. The following exhibits or riders are made a part of
this Lease:
Exhibit A - Floor Plan of Premises
Exhibit B - Tenant Improvements
Exhibit C - Janitorial Specification
2. PREMISES: Landlord does hereby lease to Tenant, and Tenant does
hereby lease from Landlord, upon the terms and conditions herein set forth, the
Premises described in Section 1(b) hereof as shown on Exhibit A hereto, together
with rights of ingress and egress over common areas in the Building located on
the land ("Land") more particularly described as follows:
Lots 10 and 11 in Block 19 of Plats in an Addition to the Town (now
City) of Seattle, as laid out by A.A,. Denny, according to plat of
record in Volume 1 of Plats, page 33 of said records in King County,
Washington, except the portion thereof appropriated by the City of
Seattle for the widening of Pike Street in King County Superior Court
Cause No. 413941, as provided by Ordinance No. 10051 of the City of
Seattle.
3. COMMENCEMENT AND EXPIRATION DATES
(a) COMMENCEMENT DATE. Provided that the Premises together with
common facilities for access and service thereto have been substantially
2
<PAGE> 3
completed, and that Landlord's obligations under Sections 1 and 2 of Exhibit B
are complete and a valid Temporary Certificate of Occupancy has been issued for
the Building and the Premises ("Completed" or "Completion"), the Commencement
Date shall be the date specified in Section 1(f) or such earlier or later date
upon which the Premises and common facilities shall be Completed as may be
specified in a notice delivered to Tenant at least thirty (30) days prior to the
date specified in such notice; or any earlier date when the Tenant occupies the
Premises for Permitted Uses. When determined, Landlord shall confirm the
Commencement Date to Tenant in writing.
(b) TENANT OBLIGATIONS. If completion of the Premises is delayed
due to the failure of Tenant to fulfill any obligation under this Lease or any
exhibit hereto, including without limitation Tenant's failure to comply with the
Plan Delivery Dates in Section 1(d) and (e) and Exhibit B, the Lease shall be
deemed to have commenced upon the date when the Premises would have been
completed but for such delay by Tenant.
(c) TENANT TERMINATION RIGHTS. In the event, due to delays from
any cause other than Tenant's failure to comply with the terms of this Lease,
the Premises are not Complete and available for occupancy by Tenant within six
months following the date specified in Section 1(f), Tenant may, but shall not
be obligated to, terminate this Lease by written notice; provided, however, that
such six-month period shall be extended for delays due to causes beyond the
reasonable control of Landlord. Termination under this Section 3(c) shall be
Tenant's sole remedy and Tenant shall have no other rights or claims hereunder
at law or in equity. Notwithstanding the foregoing, if the Premises are not
Complete by the date specified in Exhibit 1(f) for any reason, Landlord will
pursue the Completion of the Premises with diligence.
(d) EXPIRATION DATE. The Lease shall expire on the date specified
in Section 1(g), provided that if the Tenant is unable to occupy the Premises
for a period of more than 30 days from the date specified in Section 1(f), this
Lease shall be extended for the same period of time beyond such date, etc.
(e) RENEWAL TERM. Landlord hereby grants Tenant the option to
extend the Lease Term for one (1) period of five (5) years (the "Renewal Term"),
upon all of the terms and conditions contained in this Lease, except for Rent
and parking. Rent shall be one hundred percent (100%) of the projected net fair
market rental rate on the effective date of such renewal for comparable term
extensions for comparable space in comparable first class buildings in the area
(the "FAIR MARKET RENEWAL RATE"). If Tenant wishes to exercise this extension
option, and provided Tenant is not then in default under this Lease, Tenant
shall provide written notice of its intent to extend at least nine (9) months
prior to the expiration of the then current Lease term. Within thirty (30) days
after receipt of such notice, Landlord shall inform Tenant of the proposed Rent
and parking
3
<PAGE> 4
proposal. If Landlord and Tenant cannot agree on a Rent within sixty (60) days
after Tenant's receipt of Landlord's notice, then the Fair Market Renewal Rent
shall be determined in accordance with the following binding arbitration
provisions.
(1) Within fifteen (15) business days after Tenant's
irrevocable election to extend the Lease term, Landlord and Tenant shall each
identify an impartial valuation expert and notify the other thereof. The expert
specified in each such notice must be a commercial real estate professional
having not less than ten (10) years' active experience as a real estate
professional in the downtown office leasing market in Seattle, Washington. If
either party fails to appoint an expert within such fifteen (15) day period,
then the determination of the expert first appointed shall be final, conclusive
and binding on both parties.
(2) The named experts shall together determine the Fair
Market Renewal Rate. If the experts fail to agree on the Fair Market Renewal
Rate within thirty (30) days of their appointment and the difference in their
conclusions about Fair Market Renewal Rate is ten percent (10%) or less of the
lower of the two determinations, Fair Market Renewal Rate shall be the average
of the two determinations.
(3) If the two experts fail to agree on Fair Market
Renewal Rate and the difference between the two determinations exceeds ten
percent (10%) of the lower of the two determinations, then the experts shall
appoint a third expert, similarly impartial and qualified, to determine the Fair
Market Renewal Rate. Such third expert shall determine the Fair Market Renewal
Rate within thirty (30) days of his or her appointment, and the average of the
determinations of the two closest experts is final, conclusive and binding on
Landlord and Tenant. Landlord and Tenant shall each execute and deliver an
agreement confirming annual rent for the extended term.
(4) Landlord and Tenant shall each pay the fees of any
expert appointed by Landlord and Tenant, respectively, and Landlord and Tenant
shall each pay one-half (_) of the fees of the third expert, if any.
(5) Landlord shall provide Tenant with a proposal for
parking during the Renewal Term at the same time that Landlord proposes the
amount of Rent for the Renewal Term. Tenant acknowledges, however, that because
the parking will be provided by a third party, it will not be subject to
adjustment, negotiation or arbitration in the same manner as Rent. Such third
party parking will be made available to Tenant by Landlord without mark-up or
profit by Landlord.
(f) RIGHT OF FIRST OFFER FOR THIRD FLOOR: Tenant shall have a
right of first offer ("Right of First Offer") with respect to any space on the
third (3rd) floor of the Building ("Offer Space") that becomes "Available for
Lease" (as defined
4
<PAGE> 5
below) in accordance with the provisions of this Section 3(f). Offer Space shall
be deemed "Available for Lease" when Landlord has determined that the existing
tenant in the Offer Space will not extend or renew the term of its lease for the
Offer Space, provided that Tenant's rights to the Offer Space shall not apply to
the initial lease of space on the third floor of the Building to Saltmine
Creative, Inc., and shall be subordinate to any rights of first offer, first
refusal or expansion granted under that lease. Within a reasonable time after
Landlord has determined that Offer Space is available for Lease (but prior to
putting the Offer Space on the market), Landlord shall notify Tenant thereof and
of the terms, conditions, and provisions under which Landlord proposes to lease
such space. Tenant shall have five (5) days from receipt of such notice within
which to elect to lease the space in question under the terms and provisions set
forth in Landlord's notice.
Exercise of such option by Tenant must be made by written
instrument delivered to Landlord within such five (5) day period. Should Tenant
exercise its rights hereunder, the space in question shall become subject to an
amendment to this Lease incorporating the Offer Space into the Premises on all
of the terms, provisions, and conditions of this Lease except as otherwise
provided in Landlord's notice to Tenant. Tenant may exercise its rights
hereunder only as to all space made available to it and not to a portion
thereof. If Tenant does not elect to lease such space upon the terms and
conditions offered by Landlord, Tenant's rights regarding the Offer Space shall
terminate and Landlord shall be entitled to lease such space to a third party
upon such terms and conditions as Landlord may determine in its sole discretion.
4. ACCEPTANCE OF PREMISES: If this Lease is entered into prior to the
completion of tenant improvements in the Premises, the acceptance of the
Premises by Tenant shall be deferred until Landlord informs Tenant of the
substantial completion of such construction. Within five (5) business days
("Inspection Period") after Landlord informs Tenant of such completion, Tenant
shall make such inspection of the Premises as Tenant deems appropriate. Except
as otherwise specified by Tenant in writing to Landlord within the Inspection
Period and except for latent defects not reasonably observable by Tenant, Tenant
shall be deemed to have accepted the Premises in their then condition. If, as a
result of such inspection, Tenant discovers minor deviations or variations from
the plans and specifications for Tenant's improvements which do not materially
affect Tenant's use of the Premises, Tenant shall, during the Inspection Period,
notify Landlord of such deviations. Landlord shall promptly repair all such
items. The existence of such items shall not postpone the Commencement Date of
this Lease or the obligation of Tenant to pay Rent.
5. RENT: Commencing on the Commencement Date, Tenant shall pay without
notice the Rent, the Pass Through Expenses (as defined in Section 10(a) below)
and Additional Rent (as defined in Section 20(f)) without deduction
5
<PAGE> 6
or offset in lawful money of the United States in advance on or before the first
day of each month at Landlord's Notice Address set forth in Section 1(k) hereof,
or to such other party or at such other place as Landlord may hereafter from
time to time designate in writing. Rent, Pass Through Expenses and Additional
Rent for any partial month at the beginning or end of the Lease term shall be
prorated in proportion to the number of days in such month.
6. SECURITY DEPOSIT:
(a) CASH DEPOSIT. As security for the performance of this Lease
by Tenant, Tenant has paid to Landlord the Security Deposit as specified in
Section 1(i) hereof, receipt of which is hereby acknowledged. At Tenant's
election, all or part of the Security Deposit of $1,600,000 may be in the form
of a letter of credit, in which case the provisions of Section 6(b) below shall
apply. Landlord may apply all or any part of the Security Deposit to the payment
of any sum in default or any other sum which Landlord may be required or may in
its reasonable discretion deem necessary to spend or incur by reason of Tenant's
default. In such event, Tenant shall, within five (5) days of written demand
therefor by Landlord, deposit with Landlord the amount so applied. The amount of
the Security Deposit held by Landlord and not applied by Landlord under the
provisions of this Section 6 shall be repaid to Tenant within thirty (30) days
after the expiration or sooner termination of this Lease. Landlord shall not be
required to keep any Security Deposit separate from its general funds and Tenant
shall not be entitled to any interest thereon.
(b) LETTER OF CREDIT
(i) Security Amount. Upon execution of this Lease, Tenant
shall provide Landlord with, and shall keep on deposit at all times during the
term hereof (except as provided in Section 6(b)(ii) below), a letter of credit
in the amount of $1,600,000 ("Credit Amount") to secure Tenant's performance of
its obligations under this Lease (the "Letter of Credit"). The terms of payment
to which Landlord may make a claim under the Letter of Credit are defined below.
(ii) Release Date. The Letter of Credit shall be
terminated at such time as Tenant provides Landlord with attestation from
DeLoitte & Touche LLP or another nationally recognized accounting firm approved
by Landlord, with such approval not being delayed or denied unreasonably, that
either (i) Tenant has maintained cash or cash equivalents totaling at least
$20,000,000 for at least six (6) consecutive calendar months; or (ii) Tenant has
earned a net profit from normal business operations for eight (8) consecutive
fiscal quarters ("Release Date"). Tenant shall provide Landlord with Tenant's
financial statements.
(iii) Reinstatement. If the Letter of Credit has been
released due to Tenant's satisfaction of the requirement stated in Section
6(b)(i) above and thereafter Tenant's cash or cash equivalents at any time total
less than $10 million, as determined by Tenant's audited financial statements,
Tenant shall provide Landlord with a new Letter of Credit in accordance with the
terms of this Section 6(b) in an amount equal to $1,600,000.
(iv) Terms of Payment. The Letter of Credit shall be
payable at sight, upon draft of Landlord, accompanied by the Letter of Credit
and
6
<PAGE> 7
a certificate signed by a duly authorized officer of Landlord that "Tenant has
committed an 'event of default' as defined in this Lease, as Tenant, beyond
applicable notice and cure periods." In such event, Landlord shall have the
right to draw the full amount of the Letter of Credit and use the proceeds, or
so much as is necessary, in payment of any rent or other sums due from Tenant
and in default hereunder, reimbursement of any expense incurred by Landlord, and
in payment of any damages incurred by Landlord by reason of Tenant's default.
Any proceeds of the Letter of Credit drawn by Landlord in excess of the amount
necessary to pay Landlord's expenses and damages incurred as a result of
Tenant's default shall be retained by Landlord as a cash Security Deposit in
accordance with the terms of Section 6(a) above.
(v) Term of Each Credit Facility. The first Letter of
Credit may be for a term less than the term of this Lease. The first Letter of
Credit shall be deposited with Landlord upon execution of this Lease, and any
subsequent Letter of Credit shall be deposited with Landlord no later than
forty-five (45) days prior to the expiration of the preceding Letter of Credit
unless the terms of 6 (b)(ii) have been met. Subject to 6(b)(ii), no Letter of
Credit shall have a term of less than one (1) year.
(vi) Actions Upon Non-Renewal. Notwithstanding Subsection
(v) above, upon Tenant's receipt of any notice from the issuing bank that it
will not renew or replace the Letter of Credit in the scheduled amount, as
required hereunder, for the succeeding period, Tenant shall promptly notify
Landlord of such notice and provide Landlord with a copy thereof. If such Letter
of Credit is not, in fact, renewed or replaced with a Letter of Credit from
another qualified issuer pursuant hereto not later than thirty (30) days prior
to expiration of such Letter of Credit, such event shall also be an event of
default hereunder, without the necessity of further written notice or time to
cure. If Tenant fails to renew or replace the then existing Letter of Credit
prior to such forty-five (45) day period, Landlord may draw upon such existing
Letter of Credit and hold such funds as a cash Security Deposit until a new
Letter of Credit in the amount required under the corresponding period as
outlined in the schedule set forth in Subsection (i) above has been provided to
Landlord, at which time Landlord shall return to Tenant without interest the
amount previously drawn against the prior Letter of Credit. Any draw upon a
Letter of Credit by Landlord pursuant to this Section shall not relieve Tenant
from its obligation to provide Landlord with a Letter of Credit in the
appropriate amount in future years.
(vii) Issuer. The Letters of Credit shall be issued by a
banking association reasonably acceptable to Landlord. The Letters of Credit
shall be assignable and transferable by Landlord.
(viii) Purpose of Credit Facility. Tenant acknowledges
that the Letters of Credit are intended to provide Landlord with the same
7
<PAGE> 8
unconditional and unhinderable access to such security as it would have if
Tenant were to deliver to Landlord cash funds as a Security Deposit.
7. PARKING: Leasing of parking by Tenant shall be subject to such
reasonable rules and regulations as Landlord, the parking operator, or the City
of Seattle may publish from time to time. Tenant shall sign a parking contract
with the Landlord, the garage operator or the City of Seattle. Tenant shall
provide Landlord with thirty (30) days' written notice prior to the Commencement
Date of the monthly parking required by Tenant, up to the maximum number
specified in Section 1(j) and Tenant will rent the stalls throughout the term of
the Lease if required by Landlord's agreement with the parking operator.
Notwithstanding the foregoing, Tenant's right to park in the Pacific Place
shopping center parking garage shall be revoked if Landlord's right to those
spaces is terminated. In such event, Landlord shall use commercially reasonable
efforts to locate replacement parking for Tenant. Once Landlord has identified
the location and other applicable terms related to the two (2) parking stalls in
the garage yet to be identified, Landlord shall so notify Tenant in writing.
8. USES: The Premises are to be used only for general office purposes
("Permitted Uses"), and for no other business or purpose without the prior
written consent of Landlord, which consent may be withheld if Landlord
determines that any proposed use is inconsistent with or detrimental to the
maintenance and operation of the Building as a first-class office building or is
inconsistent with any restriction on use of the Premises, the Building or the
Land contained in any lease, mortgage or other agreement or instrument by which
the Landlord is bound or to which any of such property is subject. Tenant shall
not commit any act other than a Permitted Use that will increase the then
existing rate of insurance on the Building without Landlord's consent. Tenant
shall promptly pay upon demand the amount of any increase in insurance rates
caused by any act or acts of Tenant. Tenant shall not commit or allow to be
committed any waste upon the Premises, or any public or private nuisance or
other act which disturbs the quiet enjoyment of any other tenant in the Building
or which is unlawful or which will cause any substantial noise, vibration, smoke
or fumes. If Tenant should disturb the quiet enjoyment of any other tenant in
the Building, Tenant shall provide adequate insulation or take other action as
necessary to eliminate the disturbance. Tenant shall comply with all laws
relating to its use or occupancy of the Premises and shall observe such
reasonable rules and regulations (not inconsistent with the terms of this Lease)
as may be adopted and made available to Tenant by Landlord from time to time for
the safety, care and cleanliness of the Premises or the Building, and for the
preservation of good order therein.
9. SERVICES AND UTILITIES
(a) STANDARD SERVICES. Landlord shall maintain the Premises and
8
<PAGE> 9
the public and common areas of the Building in good order and condition
consistent with the operation and maintenance of a first-class office building
in downtown Seattle, Washington. Landlord shall furnish the Premises with
electricity for normal office use, subject to the limitations set forth in
Exhibit B, paragraph I, including lighting and operation of low power usage
office machines, water and elevator service at all times during the term of the
Lease. Landlord shall also provide lamp replacement service for building
standard light fixtures, toilet room supplies, window washing at reasonable
intervals, and building janitorial service in accordance with the requirements
set forth on Exhibit C attached hereto. No janitorial service shall be provided
Saturdays, Sundays or legal holidays. The costs of any janitorial or other
service provided by Landlord to Tenant which are in addition to the services
ordinarily provided Building tenants shall be repaid by Tenant as part of the
Pass Through Expenses upon receipt of billings therefor.
From 7:00 a.m. to 6:00 p.m. on weekdays and from 8:00 a.m. to
1:00 p.m. on Saturdays, excluding legal holidays ("Normal Business Hours"),
Landlord shall furnish to the Premises heat and air conditioning. If requested
by Tenant, Landlord shall furnish heat and air conditioning at times other than
Normal Business Hours and the Landlord's cost of providing such services, shall
be paid by Tenant as part of the Pass Through Expenses upon receipt of billings
therefor. During other than Normal Business Hours, Landlord may restrict access
to the Building in accordance with the Building's security system, provided that
Tenant shall have at all times during the term of this Lease (24 hours of all
days) reasonable access to the Premises.
(b) INTERRUPTION OF SERVICES. Landlord shall not be liable for
any loss, injury or damage to person or property caused by or resulting from any
variation, interruption, or failure of such services due to any cause
whatsoever. No temporary interruption or failure of such services incident to
the making of repairs, alterations or improvements, or due to accident, strike
or other conditions or events shall be deemed an eviction of Tenant or relieve
Tenant from any of Tenant's obligations hereunder; provided, however, if such
interruption or failure shall continue for five (5) business days, Tenant's Rent
hereunder shall be thereafter equitably abated to the extent the Premises are
thereby rendered untenantable for Tenant's normal business operations until such
services shall be restored.
(c) ADDITIONAL SERVICES. The Building Standard mechanical system
is designed to accommodate cooling loads generated by lights and equipment using
up to 6.2 VA per square foot. Before installing lights and equipment in the
Premises which in the aggregate exceed such amount, Tenant shall obtain the
written permission of Landlord. Landlord may refuse to grant such permission
unless Tenant shall agree to pay the costs of Landlord for installation of
supplementary air conditioning or electrical systems as
9
<PAGE> 10
necessitated by such equipment or lights.
In addition, Tenant shall in advance, as part of the Pass Through
Expenses, on the first day of each month during the Lease term, pay Landlord the
actual costs incurred by Landlord in furnishing electricity for the operation of
such equipment or lights that exceed 6.2VA per square foot and the actual costs
incurred by Landlord for the operation and maintenance of supplementary air
conditioning units necessitated by Tenant's actual use of such equipment or
lights. Landlord shall be entitled to install and operate at Tenant's cost a
monitoring/metering system in the Premises to measure the added demands on
electrical, heating, ventilation and air conditioning systems resulting from
such equipment and lights and from Tenant's after-hours heating, ventilation and
air conditioning service requirements. Tenant shall comply with Landlord's
instructions for the use of drapes and thermostats in the Building.
10. COSTS OF OPERATIONS AND REAL ESTATE TAXES
(a) PASS THROUGH EXPENSES. In addition to the Rent stated in
Section 5 above, Tenant shall pay its pro rata share of operating costs and
taxes, as described below (the "Pass Through Expenses"). If Tenant is billed
directly by a provider of any of the Pass Through Expenses for its actual use,
Tenant shall pay the cost thereof directly to such provider. If Tenant is not
billed directly for any of such costs, Landlord shall pass such obligation
through to Tenant and Tenant shall pay such costs to Landlord. Upon Landlord's
request, Tenant shall pay its pro rata share of any of the Pass Through Expenses
directly to the provider thereof.
(b) DEFINITIONS. For the purposes of this section, "taxes" shall
mean taxes and assessments on real and personal property payable during any
calendar year with respect to the Land, the Building and all property of
Landlord, real or personal, used directly in the operation of the Building and
located in or on the Building, together with any taxes levied or assessed in
addition to or in lieu of any such taxes or any tax upon leasing of the Building
or the rents collected (excluding any net income or franchise tax).
"Operating costs" or "costs" shall mean all expenses of Landlord
for maintaining, operating and repairing the Land and Building and the personal
property used in connection therewith, including without limitation insurance
premiums, utilities, customary management fees and other expenses which in
accordance with generally accepted accounting and management practices would be
considered an expense of maintaining, operating or repairing the Building;
excluding, however: (i) costs of any special services rendered to individual
tenants for which a separate charge is collected; (ii) leasing commissions and
other leasing expenses; and (iii) costs of improvements required to be
capitalized in accordance with generally accepted accounting
10
<PAGE> 11
principles, except operating costs shall include amortization of capital
improvements made subsequent to initial development of the Building which are
designed with a reasonable probability of improving the operating efficiency of
the Building, provided that such amortization shall not exceed the reasonably
expected savings in operating costs, or which are reasonably responsive to
requirements imposed with respect to the Building under any amendment to any
applicable building, health, safety, fire or similar code ("code"), or any new
code, or any new interpretation of a code, which amendment, code or
interpretation is adopted after the Commencement Date of this Lease. In the
event the occupancy level of the Building for any year is not one hundred
percent (100%) of full occupancy, then the operating costs and taxes for such
year shall be proportionately adjusted by Landlord to reflect those operating
costs and taxes which would have occurred had the Building been one hundred
percent (100%) occupied during such year.
"Tenant's pro rata share" shall mean a percentage determined by
dividing the rentable area of the Premises by: 1) the rentable area of the
Building for expenses relating to the entire Building; and 2) by the rentable
area of the office space in the Building for expenses relating solely to the
office portion of the Building. Landlord will provide an accounting of such
calculation to Tenant annually.
"Year" shall mean the calendar year.
(c) ESTIMATED COSTS. At the beginning of each year, Landlord
shall furnish Tenant a written statement of estimated operating costs and taxes
for such year and a calculation of Tenant's pro rata share of any such amount.
Tenant shall pay one-twelfth (1/12) of that amount as Pass Through Expenses for
each month during the year. If at any time during the year Landlord reasonably
believes that the actual costs or taxes will vary from such estimated costs or
taxes by more than five percent (5%), Landlord may by written notice to Tenant
revise the estimate for such year, and Pass Through Expenses for the balance of
such year shall be paid based upon such revised estimates.
(d) ACTUAL COSTS. Within ninety (90) days after the end of each
year or as soon thereafter as practicable, Landlord shall deliver to Tenant a
written statement setting forth Tenant's pro rata share of the actual operating
costs and taxes during the preceding year. If the actual operating costs or
actual taxes, or both, exceed the estimates for each paid by Tenant during the
year, Tenant shall pay the amount of such excess to Landlord as part of the Pass
Through Expenses within thirty (30) days after receipt of such statement. If the
actual operating costs or actual taxes, or both, are less than the amount paid
by Tenant to Landlord, then the amount of such overpayment by Tenant shall be
credited against the next Rent payable by Tenant hereunder.
11
<PAGE> 12
(e) RECORDS AND ADJUSTMENTS. Landlord shall keep records showing
all expenditures made in connection with operating costs and taxes, and such
records shall be available for inspection by Tenant. Operating costs and taxes
shall be prorated for any portion of a year at the beginning or end of the term
of this Lease. Notwithstanding this Section 10, the Rent payable by Tenant shall
in no event be less than the Rent specified in Section 1(h) hereof.
(f) PERSONAL PROPERTY TAXES. Tenant shall pay all personal
property taxes with respect to property of Tenant located on the Premises or in
the Building. "Property of Tenant" shall include all improvements which are paid
for by Tenant and "personal property taxes" shall include all property taxes
assessed against the property of Tenant, whether assessed as real or personal
property.
11. CARE OF PREMISES: Landlord shall perform all normal maintenance and
repairs to the Premises which Landlord reasonably determines necessary to
maintain the Premises and the Building in good operating condition; provided
that Landlord shall not be required to maintain or repair any Property of Tenant
or any appliances (such as water heaters, refrigerators and the like) which are
part of the Premises. Tenant shall take good care of the Premises. Tenant shall
not make any alterations, additions or improvements ("Alterations") in or to the
Premises, or make changes to locks on doors, or add, disturb or in any way
change any plumbing or wiring ("Changes") without first obtaining the written
consent of Landlord and, where appropriate, in accordance with plans and
specifications approved by Landlord. Tenant shall reimburse Landlord for any
reasonable sums expended for examination and approval of architectural or
mechanical plans and specifications of the Alterations and Changes and direct
costs reasonably incurred during any inspection or supervision of the
Alterations or Changes. All damages or injury done to the Premises or Building
by Tenant or by any persons who may be in or upon the Premises or Building with
the express or implied consent of Tenant, including but not limited to the
cracking or breaking of any glass of windows and doors, shall be paid for by
Tenant.
12. ACCESS: Tenant shall permit Landlord and its agents to enter into
and upon the Premises at all reasonable times for the purpose of inspecting the
same or for the purpose of cleaning, repairing, altering or improving the
Premises or the Building. Upon reasonable notice, Landlord shall have the right
to enter the Premises for the purpose of showing the Premises to prospective
tenants within the period of one hundred eighty (180) days prior to the
expiration or sooner termination of the Lease term.
13. DAMAGE OR DESTRUCTION:
(a) DAMAGE AND REPAIR. If the Building is damaged by fire or any
12
<PAGE> 13
other cause to such extent that the cost of restoration, as reasonably estimated
by Landlord, will equal or exceed thirty percent (30%) of the replacement value
of the Building (exclusive of foundations) just prior to the occurrence of the
damage, or if insurance proceeds sufficient for restoration are for any reason
unavailable, then Landlord may no later than the sixtieth day following the
damage, give Tenant a notice of election to terminate this Lease. In the event
of such election, this Lease shall be deemed to terminate on the third day after
the giving of such notice, and Tenant shall surrender possession of the Premises
within a reasonable time thereafter, and the Rent, Pass Through Expenses and
Additional Rent shall be apportioned as of the date of Tenant's surrender and
any Rent paid for any period beyond such date shall be repaid to Tenant. If the
cost of restoration as estimated by Landlord shall amount to less than thirty
percent (30%) of said replacement value of the Building and insurance proceeds
sufficient for restoration are available, Landlord shall restore the Building
and the Premises (with improvements substantially comparable in quality to the
improvements to the Premises originally provided by Landlord hereunder) with
reasonable promptness, subject to delays beyond Landlord's control and delays in
the making of insurance adjustments by Landlord. Notwithstanding the cost of
restoration, to the extent that the Premises are rendered untenantable, the Rent
shall proportionately abate commencing on the date of damage, except in the
event such damage resulted from or was contributed to, directly or indirectly,
by the act, fault or neglect of Tenant, Tenant's officers, contractors, agents,
employees, clients, customers or licensees, in which event Rent shall abate only
to the extent Landlord receives proceeds from any rental income insurance policy
to compensate Landlord for loss of Rent hereunder. No damages, compensation or
claim shall be payable by Landlord for inconvenience, loss of business or
annoyance arising from any repair or restoration of any portion of the Premises
or the Building.
(b) DESTRUCTION DURING LAST YEAR OF TERM. In case the Building or
the Premises shall be substantially destroyed by fire or other cause at any time
during the last twelve (12) months of the term of this Lease, either Landlord or
Tenant may terminate this Lease upon written notice to the other within sixty
(60) days of the date of such destruction.
(c) TENANT IMPROVEMENTS. Landlord will not carry insurance of any
kind on any improvements paid for by Tenant as provided in Exhibit B or on
Tenant's furniture, furnishings, fixtures, equipment or appurtenances of Tenant
under this Lease and Landlord shall not be obligated to repair any damage
thereto or replace the same.
14. WAIVER OF SUBROGATION: Whether the loss or damage is due to the
negligence of either Landlord or Tenant or any other cause, Landlord and Tenant
each hereby release and relieve the other, its agents or employees, from
responsibility for, and waive its entire claim of recovery for (i) any loss or
damage
13
<PAGE> 14
to its real or personal property located anywhere in the Building, including the
Building itself, arising out of or incident to the occurrence of any of the
perils which are covered by its property and related insurance policies, and
(ii) any loss resulting from business interruption at the Premises or loss of
rental income from the Building, arising out of or incident to the occurrence of
any of the perils covered by any business interruption or loss of rental income
insurance policy held by it. Each party shall use best efforts to cause its
insurance carriers to consent to the foregoing waiver of rights of subrogation
against the other party. Notwithstanding the foregoing, no such release shall be
effective except to the extent the applicable insurance policy or policies shall
expressly permit such a release or contain a waiver of the carrier's right to be
subrogated.
15. INDEMNIFICATION: Tenant shall indemnify and hold Landlord harmless
from and against liabilities, damages, losses, claims and expenses, including
attorneys fees, arising from any act, omission, or negligence of Tenant or its
officers, contractors, licensees, agents, employees, clients or customers in or
about the Building or Premises or arising from any injury or damage to any
person or property, occurring in or about the Building or Premises or arising
from any breach or default under this Lease by Tenant. The foregoing provisions
shall not be construed to make Tenant responsible for loss, damage, liability or
expense resulting from injuries to third parties caused by the negligence of
Landlord, or its officers, contractors, licensees, agents, employees, clients or
customers or other tenants of the Building.
Landlord shall indemnify and hold Tenant harmless from and against all
liabilities, damages, losses, claims and expenses, including attorneys fees,
arising from any act, omission or negligence of Landlord or its officers,
contractors, licensees, agents or employees in or about the Building or
Premises. or from any breach or default under this Lease by Landlord. Landlord
shall not be liable for any loss or damage to persons or property sustained by
Tenant or other persons, which may be caused by theft, or by any act or neglect
of Tenant or any other tenant or occupant of the Building or any third parties.
16. INSURANCE:
(a) TENANT'S INSURANCE. Tenant shall, throughout the term of this
Lease and any renewal hereof, at its own expense, keep and maintain in full
force and effect, a policy of commercial general liability insurance including
contractual liability coverage insuring Tenant's obligations under Section 15,
insuring Tenant's activities upon , in or about the Premises or the Building
against claims of bodily injury or death or property damage or loss with a limit
of not less than Two Million Dollars ($2,000,000) combined single limit and what
is commonly referred to as "all risk" coverage insurance (excluding earthquake
and flood) on Tenant's leasehold improvements in an amount not less than one
hundred percent (100%) of the current replacement value thereof.
14
<PAGE> 15
(b) INSURANCE POLICY REQUIREMENTS. All insurance policies
required under this Section 16 shall be with companies reasonably approved by
Landlord and each policy shall provide that it is not subject to cancellation or
reduction in coverage except after thirty (30) days' prior written notice to
Landlord. Tenant shall deliver to Landlord upon the Commencement Date and from
time to time thereafter, certificates evidencing the existence and amounts of
all such policies.
17. ASSIGNMENT AND SUBLETTING:
(a) ASSIGNMENT OR SUBLEASE. Tenant shall not assign, mortgage,
encumber or otherwise transfer this Lease or sublet the whole or any part of the
Premises without in each case first obtaining Landlord's prior written consent.
Such consent shall not be unreasonably withheld except: (1) Landlord may
withhold its consent if in Landlord's judgment occupancy by any proposed
assignee, subtenant or other transferee: (i) is not consistent with the
maintenance and operation of a first-class office building due to the nature of
the proposed occupant's business or the manner of conducting its business or its
experience or reputation in the community, or (ii) is likely to cause
disturbance to the normal use and occupancy of the Building; (2) Landlord may
withhold in its absolute and sole discretion, consent to any mortgage,
hypothecation, pledge or other encumbrance of any interest in this Lease or the
Premises by Tenant or any subtenant, whereby this Lease or any interest therein
becomes collateral for any obligation of Tenant; and (3) Landlord may withhold
its consent to the extent Landlord determines necessary to comply with a
restriction on use of the Premises, the Building or the Land contained in any
lease, mortgage, or other agreement or instrument by which the Landlord is bound
or to which any of such property is subject. No such assignment, subletting or
other transfer shall relieve Tenant of any liability under this Lease. Consent
to any such assignment, subletting or transfer shall not operate as a waiver of
the necessity for consent to any subsequent assignment, subletting or transfer.
In lieu of granting any such consent, Landlord reserves the right to terminate
this Lease or, in the case of a subletting of less than all the Premises, to
terminate this Lease with respect to such portion of the Premises, as of the
proposed effective date of such subletting or assignment, in which event
Landlord may enter into the relationship of landlord and tenant with such
proposed assignee or subtenant based upon the Rent and other compensation and
terms agreed to by such subtenant or assignee and otherwise upon the terms and
conditions of this Lease. In addition, if during the first two years of the Term
Tenant enters into a sublease approved by Landlord, the term of which sublease
is two (2) years or more, Landlord shall be entitled to retain all consideration
payable by the subtenant under such sublease to the extent such consideration
exceeds the consideration payable by Tenant under this Lease with respect to the
area subleased, prorated based on the area subleased. In connection with each
request for an
15
<PAGE> 16
assignment or subletting, Tenant shall pay $300.00 for the cost of processing
such assignment or subletting, including attorneys fees, upon demand of
Landlord. Tenant shall provide Landlord with copies of all assignments,
subleases and assumption instruments.
If Tenant is a corporation or partnership, any transfer of this
Lease by merger, consolidation or liquidation, or any change in the ownership
of, or power to vote, a majority of its outstanding voting stock or partnership
interests shall constitute an assignment for the purpose of this Section 17. An
initial public offering and any subsequent offerings will not be considered an
assignment.
(b) ASSIGNEE OBLIGATIONS. As a condition to Landlord's approval,
any potential assignee otherwise approved by Landlord shall assume in writing
all obligations of Tenant under this Lease and shall be jointly and severally
liable with Tenant for the payment of Rent and performance of all terms,
covenants and conditions of this Lease.
(c) SUBLESSEE OBLIGATIONS. Any sublessee shall assume all
obligations of Tenant as to that portion of the Premises which is subleased to
such sublessee and shall be jointly and severally liable with Tenant for rental
and other payments and performance of all terms, covenants, and conditions of
this Lease with respect to such portion of the Premises.
18. SIGNS: Tenant shall not place or in any manner display any sign,
graphics, or any advertising matter anywhere in or about the Premises or the
Building at places visible (either directly or indirectly) from anywhere outside
the Premises without first obtaining Landlord's written consent thereto, such
consent to be at Landlord's sole discretion. Any such consent by Landlord shall
be upon the understanding and condition that, upon request of Landlord, Tenant
shall remove the same at the expiration or sooner termination of this Lease and
Tenant shall repair any damage to the Premises or the Building caused thereby.
Notwithstanding the foregoing, provided Tenant is not in default under this
Lease beyond any applicable notice and cure period, Tenant shall be entitled to
install and maintain, at Tenant's sole cost, exterior signage on Landlord's
exterior directory, consistent with Landlord's signage program for the Building.
Tenant realizes that this directory will be shared with other tenants of the
Building. All such signage shall comply with all applicable laws and codes and
be subject to Landlord's prior written approval, which Landlord may withhold in
its sole discretion, with respect to the size, location and design of such
signage.
19. LIENS AND INSOLVENCY:
(a) LIENS. Tenant shall keep its interest in this Lease and any
property of Tenant (other than unattached personal property) and the Premises,
the Land and the Building free from any liens or other encumbrances arising out
of any work performed or materials ordered or obligations incurred by or on
behalf of Tenant and hereby indemnifies and holds Landlord harmless from any
liability from any such lien, including, without limitation, liens arising from
any
16
<PAGE> 17
work performed by or on behalf of Tenant pursuant to Exhibit B hereto. In
the event any lien is filed against the Building, the Land or the Premises by
any person claiming by, through or under Tenant, Tenant shall, upon request of
Landlord, at Tenant's expense immediately cause such lien to be released of
record.
(b) INSOLVENCY. If Tenant becomes insolvent or voluntarily or
involuntarily becomes a debtor or alleged debtor in a bankruptcy proceeding, or
if a receiver, assignee or other liquidating officer is appointed for the
business of Tenant, Landlord at its option may terminate this Lease and Tenant's
right of possession under this Lease and in no event shall this Lease or any
rights or privileges hereunder be an asset of Tenant in any bankruptcy,
insolvency or reorganization proceeding.
20. DEFAULT:
(a) CUMULATIVE REMEDIES. All rights of Landlord herein enumerated
shall be cumulative, and none shall exclude any other right or remedy allowed by
law. In addition to the other remedies provided in this Lease, Landlord shall be
entitled to restrain by injunction the violation or attempted violation of any
of the covenants, agreements or conditions of this Lease.
(b) TENANT'S RIGHT TO CURE. Tenant shall have a period of five
(5) business days from the date of written notice from Landlord to Tenant within
which to cure any default in the payment of Rent, Pass Through Expenses,
Additional Rent or other sums due hereunder. Tenant shall have a period of
fifteen (15) days from the date of written notice from Landlord to Tenant within
which to cure and other default hereunder which is capable of being cured by
Tenant; provided, however, that with respect to any default capable of being
cured by Tenant but which cannot be cured within such fifteen (15) day period,
the default shall not be deemed to be uncured if Tenant commences to cure within
fifteen (15) days and for so long as Tenant is diligently prosecuting the cure
thereof.
(c) ABANDONMENT. Abandonment means an absence from the Premises
of five (5) days or more while Tenant is in default or Landlord otherwise
reasonably determines that Tenant has abandoned the Premises and its interest
under this Lease. Abandonment by Tenant shall be considered a default with no
right to cure, allowing Landlord to reenter the Premises under Section 20(d).
(d) LANDLORD'S REENTRY. Upon a default under this Lease by Tenant
and expiration of any applicable cure period, Landlord, at its option, may enter
the Premises or any part thereof, and expel, remove or put out Tenant or any
other persons who may be thereon, together with all personal property found
17
<PAGE> 18
therein; and Landlord may terminate this Lease, or it may from time to time,
without terminating this Lease, relet the Premises or any part thereof for such
term or terms (which may be for a term less than or extending beyond the term
hereof) and at commercially reasonable rental or rentals and upon such other
terms and conditions as Landlord in its sole discretion may deem advisable, with
the right to repair, remodel and change the Premises, Tenant remaining liable
for any deficiency computed as provided in Section 20(e). In the case of any
default, reentry and/or dispossession by summary proceedings or otherwise, all
Rent, Pass Through Expenses and Additional Rent shall become due thereupon and
be paid up to the time of such reentry or dispossession, together with such
expenses as Landlord may reasonably incur for attorneys fees, advertising
expenses, brokerage fees and/or putting the Premises in good order or preparing
the same for re-rental, together with interest thereon as provided in Section
35(f) hereof, accruing from the date of any such expenditure by Landlord.
(e) RELETTING THE PREMISES. At the option of Landlord, rents
received by Landlord from such reletting shall be applied first to the payment
of any indebtedness from Tenant to Landlord other than Rent, Pass Through
Expenses and Additional Rent due hereunder; second, to the payment of reasonable
costs and expenses of such reletting and including, but not limited to,
attorneys fees, advertising fees and brokerage fees, and to the costs of any
repairs, remodeling and changes in the Premises; third, to the payment of Rent,
Pass Through Expenses and Additional Rent due and to become due hereunder, and,
if after so applying said Rents there is any deficiency in the Rent, Pass
Through Expenses or Additional Rent to be paid by Tenant under this Lease,
Tenant shall pay any deficiency to Landlord monthly on the dates specified
herein and any payment made or suits brought to collect the amount of the
deficiency for any month shall not prejudice in any way the right of Landlord to
collect the deficiency for any subsequent month. Subject to any applicable duty
to mitigate damages, the failure of Landlord to relet the Premises or any part
or parts thereof shall not release or affect Tenant's liability hereunder, nor
shall Landlord be liable for failure to relet, or in the event of reletting, for
failure to collect the Rent thereof, and in no event shall Tenant be entitled to
receive any excess of net Rents collected over sums payable by Tenant to
Landlord hereunder. No such reentry or taking possession of the Premises shall
be construed as an election on Landlord's part to terminate this Lease unless a
written notice of such intention be given to Tenant. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter elect to
terminate this Lease for such previous breach and default. Should Landlord at
any time terminate this Lease by reason of any default, in addition to any other
remedy it may have, it may recover from Tenant the amount of Rent, Pass Through
Expenses and Additional Rent reserved in this Lease for the balance of the Term,
as it may have been extended, in excess of the then fair market rental value of
the Premises for the same period, plus all court costs and reasonable
18
<PAGE> 19
attorneys fees incurred by Landlord in the collection of the same.
(f) NONPAYMENT OF ADDITIONAL RENT. All costs and expenses which
Tenant assumes or agrees to pay to Landlord pursuant to this Lease other than
Rent or Pass Through Expenses shall be deemed "Additional Rent" and, in the
event of nonpayment of Pass Through Expenses or Additional Rent, Landlord shall
have all the rights and remedies herein provided for in case of nonpayment of
Rent.
21. PRIORITY: This Lease shall be subordinate to any first mortgage or
deed of trust now existing or hereafter placed upon the Land, the Building or
the Premises (and any other mortgage or deed of trust upon the written election
of Landlord), created by or at the instance of Landlord, and to any and all
advances to be made thereunder, and to interest thereon and all modifications,
renewals and replacements or extensions thereof ("Landlord's Mortgage"). Upon
request, Tenant shall attorn to the holder of any Landlord's Mortgage or any
person or persons purchasing or otherwise acquiring the Land, Building or
Premises at any sale or other proceeding under any Landlord's Mortgage. Tenant
shall properly execute, acknowledge and deliver documents which the holder of
any Landlord's Mortgage may require to effectuate the provisions of this Section
21.
22. SURRENDER OF POSSESSION: Subject to the terms of Section 13 relating
to damage and destruction, upon expiration or sooner termination of this Lease,
Tenant shall promptly and peacefully surrender the Premises to Landlord in as
good condition as when received by Tenant from Landlord or as thereafter
improved, reasonable use, wear and tear excepted.
23. REMOVAL OF PROPERTY: Tenant shall remove all of its movable personal
property and trade fixtures paid for by Tenant which can be removed without
damage to the Premises at the expiration or sooner termination of this Lease,
and shall pay Landlord any damages for injury to the Premises or Building
resulting from such removal; and all other improvements and additions to the
Premises shall thereupon become the property of Landlord.
24. NON-WAIVER: Waiver by Landlord or Tenant of any term, covenant or
condition herein contained or any breach thereof shall not be deemed to be a
waiver of such term, covenant, or condition or of any subsequent breach of the
same or any other term, covenant, or condition herein contained. The subsequent
acceptance of Rent, Pass Through Expenses or Additional Rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of Tenant
to pay the particular Rent, Pass Through Expenses or Additional Rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such Rent, Pass Through
19
<PAGE> 20
Expenses or Additional Rent.
25. HOLDOVER: If Tenant shall, with the written consent of Landlord,
hold over after the expiration of the term of this Lease, such tenancy shall be
deemed a month-to-month tenancy which may be terminated as provided by
applicable law. During such tenancy, Tenant shall be bound by all of the terms,
covenants and conditions herein so far as applicable, except rental which shall
be the greater of (a) the then quoted rates for similar space in the Building or
(b) the Rent, Pass Through Expenses and Additional Rent stated herein.
26. CONDEMNATION:
(a) ENTIRE TAKING. If all of the Premises or such portions of the
Building as may be required for the reasonable use of the Premises are taken by
eminent domain, this Lease shall automatically terminate as of the date title
vests in the condemning authority. In the event of a taking of a material part
of but less than all of the Building, where Landlord shall determine that the
remaining portions of the Building cannot be economically and effectively used
by it (whether on account of physical, economic, aesthetic or other reasons) or
where Landlord determines the Building should be restored in such a way as to
materially alter the Premises, Landlord shall forward a written notice to Tenant
of such determination not more than sixty (60) days after the date of taking.
The term of this Lease shall expire upon such date as Landlord shall specify in
such notice but not earlier than sixty (60) days after the date of such notice.
(b) PARTIAL TAKING. Subject to the provisions of the preceding
Section 26(a), in case of taking of a part of the Premises, or a portion of the
Building not required for the reasonable use of the Premises, then this Lease
shall continue in full force and effect and the Rent shall be equitably reduced
based on the proportion by which the floor area of the Premises is reduced, such
Rent reduction to be effective as of the date title to such portion vests in the
condemning authority. If a portion of the Premises shall be so taken which
renders the remainder of the Premises unsuitable for continued occupancy by
Tenant under this Lease, Tenant may terminate this Lease by written notice to
Landlord no later than sixty (60) days after the date of such taking and the
term of this Lease shall expire upon such date as Tenant shall specify in such
notice not later than sixty (60) days after the date of such notice.
(c) AWARDS AND DAMAGES. Landlord reserves all rights to damages
to the Premises for any partial, constructive, or entire taking by eminent
domain, and Tenant hereby assigns to Landlord any right Tenant may have to such
damages or award. Tenant shall make no claim against Landlord or the condemning
authority for damages for termination of the leasehold interest or interference
with Tenant's business. Tenant shall have the right, however, to claim and
recover from the condemning authority compensation for any loss to
20
<PAGE> 21
which Tenant may be put for Tenant's moving expenses, business interruption or
taking of Tenant's personal property and leasehold improvements paid for by
Tenant (not including Tenant's leasehold interest) provided that such damages
may be claimed only if they are awarded separately in the eminent domain
proceedings and not out of or as part of the damages recoverable by Landlord.
27. NOTICES: All notices under this Lease shall be in writing and
delivered in person or sent by registered or certified mail, postage prepaid, to
Landlord and to Tenant at the Notice Addresses provided in Section 1(j)
(provided that after the Commencement Date any such notice may be mailed or
delivered by hand to Tenant at the Premises and to Landlord's principal office
in the Building) and to the holder of any mortgage or deed of trust at such
place as such holder shall specify to Tenant in writing; or such other addresses
as may from time to time be designated by any such party in writing. Notices
mailed as aforesaid shall be deemed given on the date of such mailing.
28. COSTS AND ATTORNEYS FEES: If Tenant or Landlord shall bring any
action for any relief against the other, declaratory or otherwise, arising out
of this Lease, including any suit by Landlord for the recovery of Rent, Pass
Through Expenses, Additional Rent or other payments hereunder or possession of
the Premises, the losing party shall pay the prevailing party a reasonable sum
for attorneys fees in such suit, at trial and on appeal, and in any bankruptcy
proceeding, and such attorneys fees shall be deemed to have accrued on the
commencement of such action.
29. LANDLORD'S LIABILITY: Anything in this Lease to the contrary
notwithstanding, covenants, undertakings and agreements herein made on the part
of Landlord are made and intended not as personal covenants, undertakings and
agreements for the purpose of binding Landlord personally or the assets of
Landlord except Landlord's interest in the Premises and Building, but are made
and intended for the purpose of binding only the Landlord's interest in the
Premises and Building, as the same may from time to time be encumbered. No
personal liability or personal responsibility is assumed by, nor shall at any
time be asserted or enforceable against Landlord or its partners or their
respective heirs, legal representatives, successors or assigns on account of
this Lease or on account of any covenant, undertaking or agreement of Landlord
in this Lease contained.
30. ESTOPPEL CERTIFICATES: Tenant shall, from time to time, upon written
request of Landlord, execute, acknowledge and deliver to Landlord or its
designee a written statement stating: The date this Lease was executed and the
date it expires; the date the term commenced and the date Tenant accepted the
Premises; the amount of minimum monthly Rent and the date to which such Rent has
been paid; and certifying to the extent true: That this Lease is in full force
and effect; that all conditions under this Lease to be
21
<PAGE> 22
performed by the Landlord have been satisfied; that there are no claims,
defenses or off-sets which the Tenant has against the enforcement of this Lease;
that no Rent has been paid more than one month in advance; and such other
matters as Landlord may reasonably request. Any such statement delivered
pursuant to this paragraph may be relied upon by a prospective purchaser of
Landlord's interest or holder of any mortgage upon Landlord's interest in the
Building. If Tenant shall fail to respond within ten (10) days of receipt by
Tenant of a written request by Landlord as herein provided, Tenant shall be
deemed to have given such certificate as above provided without modification and
shall be deemed to have admitted the accuracy of any information supplied by
Landlord to a prospective purchaser or mortgagee and to have certified that this
Lease is in full force and effect, that there are no uncured defaults in
Landlord's performance, that the security deposit is as stated in the Lease, and
that not more than one month's Rent has been paid in advance.
31. TRANSFER OF LANDLORD'S INTEREST: In the event of any transfers of
Landlord's interest in the Premises or in the Building, other than a transfer
for security purposes only, the transferor shall be automatically relieved of
any and all obligations and liabilities on the part of Landlord accruing form
and after the date of such transfer and such transferee shall have no obligation
or liability with respect to any matter occurring or arising prior to the date
of such transfer. Tenant agrees to attorn to the transferee.
32. RIGHT TO PERFORM: If Tenant shall fail to pay any sum of money
required to be paid by it hereunder or shall fail to perform any other act on
its part to be performed hereunder, and such failure shall continue for ten (10)
days after notice thereof by Landlord, Landlord may, but shall not be obligated
so to do, and without waiving or releasing Tenant from any obligations of
Tenant, make such payment or perform any such other act on Tenant's part to be
made or performed as provided in this Lease, and any sums paid or incurred by
Landlord shall be immediately due and payable by Tenant to Landlord. Landlord
shall have (in addition to any other right or remedy of Landlord) the same
rights and remedies in the event of the nonpayment of sums due under this
Section 33 as in the case of default by Tenant in the payment of Rent.
33. QUIET ENJOYMENT: Tenant shall have the right to the peaceable and
quiet use and enjoyment of the Premises subject to the provisions of this Lease,
as long as Tenant is not in default hereunder.
34. GENERAL:
(a) HEADINGS. Titles to Sections of this Lease are not a part of
this Lease and shall have no effect upon the construction or interpretation of
any part hereof.
22
<PAGE> 23
(b) HEIRS AND ASSIGNS. Subject to the provisions of Section 17
hereof, all of the covenants, agreements, terms and conditions contained in this
Lease shall inure to and be binding upon the Landlord and Tenant and their
respective heirs, executors, administrators, successors and assigns.
(c) BROKERS.
1. Tenant hereby represents to Landlord that it has dealt
directly with and only with Parker Ferguson of Flinn Ferguson ("Broker") as a
broker in connection with this Lease. Tenant agrees to indemnify and hold
Landlord harmless from all claims of any brokers claiming to have represented
Tenant in connection with this Lease. Landlord agrees to indemnify and hold
Tenant harmless from all claims of any brokers claiming to have represented
Landlord in connection with this Lease. Landlord agrees to pay a brokerage
commission to Broker in accordance with the terms of a written commission
agreement between Landlord and Broker.
2. Agency Disclosure. At the signing of this Lease,
Tenant's agent, Parker Ferguson of Flinn Ferguson, represented (___) Landlord, (
X ) Tenant, or (__) both Landlord and Tenant. Each party signing this document
confirms that the prior oral and/or written disclosure of agency was provided to
such party in this transaction, as required by RCW 18.86.030(1)(g).
3. Landlord and Tenant, by their execution of this Lease,
each acknowledge and agree that they have timely received a pamphlet on the law
of real estate agency as required under RCW 18.86.030(1)(f).
(d) ENTIRE AGREEMENT. This Lease contains all covenants and
agreements between Landlord and Tenant relating in any manner to the leasing,
use and occupancy of the Premises, to Tenant's use of the Building and other
matters set forth in this Lease. No prior agreements or understanding pertaining
to the same shall be valid or of any force or effect and the covenants and
agreements of this Lease shall not be altered, modified or added to except in
writing signed by Landlord and Tenant.
(e) SEVERABILITY. Any provision of this Lease which shall prove
to be invalid, void or illegal shall in no way affect, impair or invalidate any
other provision hereof and the remaining provisions hereof shall nevertheless
remain in full force and effect.
(f) OVERDUE PAYMENTS. In the event any Rent, Pass Through
Expenses, Additional Rent or other sums payable by Tenant under this Lease are
not paid within five (5) days after the date due, Tenant shall pay to Landlord
the greater of (i) interest on the overdue amount at a rate equal to three
percentage points above the prime rate of interest published or announced from
23
<PAGE> 24
time to time by Seattle First National Bank, or its successor, or, in the
absence of an established prime rate, five percentage points over that bank's
rate for one year certificates of deposit, but not in excess of the highest
lawful rate permitted under applicable laws, calculated from the original due
date thereof to the date of payment; or (ii) a late payment fee equal to five
percent (5%) of the overdue amount to compensate Landlord for the administrative
and collection costs incident thereto.
(g) FORCE MAJEURE. Except for the payment of Rent, Pass Through
Expenses, Additional Rent or other sums payable by Tenant, time periods for
Tenant's or Landlord's performance under any provisions of this Lease shall be
extended for periods of time during which Tenant's or Landlord's performance is
prevented due to circumstances beyond Tenant's or Landlord's reasonable control.
(h) RIGHT TO CHANGE PUBLIC SPACES. Landlord shall have the right
at any time after the completion of the Building, without thereby creating an
actual or constructive eviction or incurring any liability to Tenant therefor,
to change the arrangement or location of such of the following as are not
contained within the Premises or any part thereof: entrances, passageways, doors
and doorways, corridors, stairs, toilets and other like public service portions
of the Building. Nevertheless, in no event shall Landlord diminish any service,
change the arrangement or location of the elevators serving the Premises, make
any change which shall diminish the area of the Premises, or make any change
which shall change the character of the Building from that of a first-class
office building.
(i) GOVERNING LAW. This Lease shall be governed by and construed
in accordance with the laws of the state of Washington.
(j) BUILDING DIRECTORY. Landlord shall maintain in the lobby of
the Building a directory which shall include the name of Tenant and any other
names reasonably requested by Tenant in proportion to the number of listings
given to comparable tenants of the Building.
(k) BUILDING NAME. The Building will be known by such name as
Landlord may designate from time to time.
24
<PAGE> 25
IN WITNESS WHEREOF this Lease has been executed as of the day and year
first above set forth.
LANDLORD: PINE STREET DEVELOPMENT L.L.C., a
Washington limited liability company
By: RGHK SEATTLE L.L.C., a Washington
limited liability company, Manager
By:________________________________
Its__________________________
TENANT: RIVALS.COM, INC., a Washington
corporation
By:________________________________
Its__________________________
25
<PAGE> 26
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this ___ day of ______________, 1999, before
me, the undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared ____________________, to me known to
be the _____________ of RGHK SEATTLE L.L.C., a Washington limited liability
company, Manager of Pine Street Development L.L.C., the Washington limited
liability company that executed the within and foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said limited liability company for the uses and purposes therein mentioned, and
on oath stated that _______________________ was authorized to execute said
instrument.
WITNESS my hand and official seal the day and year in this certificate
first above written.
Printed Name:_____________________________________
Notary public in and for the state of Washington,
residing at_______________________________________
My appointment expires:___________________________
TENANT CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this ___ day of ___________, 1999, before me,
the undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared _________________, to me known to be
the __________________ of RIVALS.COM, INC., the corporation that executed the
within and foregoing instrument, and acknowledged the said instrument to be the
free and voluntary act and deed of said corporation for the uses and purposes
therein mentioned, and on oath stated that they were authorized to execute said
instrument, and that the seal affixed, if any, is the corporate seal of said
corporation.
26
<PAGE> 27
WITNESS my hand and official seal the day and year in this certificate
first above written.
Printed Name:_______________________________________
Notary public in and for the state of Washington,
residing at_________________________________________
My appointment expires:_____________________________
EXHIBIT A
Floor Plan of Premises
[See attached]
Exhibit A-1
<PAGE> 28
EXHIBIT B
FIFTH AND PINE BUILDING
TENANT IMPROVEMENTS
RIVALS.COM
I. IMPROVEMENTS PROVIDED BY LANDLORD Landlord agrees to provide the
following existing improvements to the Premises:
A. Completed Public and/or Core Areas including:
(1) Plumbing: Men's restrooms, women's restrooms, and
drinking fountains installed in accordance with the plans and specifications for
the Building.
(2) Electrical: Total electrical service for each floor
shall include two (2) panels per floor with forty-two (42), single pull circuit
breakers, at twenty (20) ampere each, located in an electrical closet. Tenant's
total number of breakers for the Premises shall be determined by Tenant's
prorated share of total floor gross leasable area.
B. Tenant's Usable Area as outlined in Exhibit A shall be
completed as follows:
(1) Walls: Core walls (equipment rooms, elevator shafts,
restrooms, mechanical shafts, stairs) to be sheetrocked and fire taped.
Perimeter walls will be insulated and have studs ready for dry wall.
(2) Floor: Existing concrete slab. Floor loading
capacities: fifty (50) pounds per square foot live load; twenty (20) pounds per
square foot partition load.
(3) Mechanical: The Building Standard mechanical system is
designed to accommodate cooling loads generated by lights and equipment up to
6.2 VA per square foot. If Tenant's design or use of the Premises results in
concentrated loads in excess of 6.2 VA per square foot (e.g., data processing
areas, conference rooms, and machine rooms), then any additional engineering
design and installation of mechanical and/or electrical equipment and/or
controls required to accommodate such excess shall be provided at Tenant's cost
pursuant to Section II of this Exhibit B.
(4) Fire Sprinklers: Existing fire protection grid to
Tenant's Usable Area.
(5) Fire Alarm Systems: System connection point
Exhibit B-28
<PAGE> 29
provided on each floor.
(6) Columns: Columns will be the existing concrete columns
with existing plaster skimcoat, or GWB on metal stud enclosures patched to
receive Tenant's finish.
(7) Electrical: The building is designed for a total of
12.2 VA per square foot. It is broken down for the following: 1.2 VA /sf
lighting, 2.5 VA /sf for Non PC load, 2.5 VA /sf for PC load, and 6.0 VA /sf
heat load. If Tenant's design or use of the Premises results in power loads in
excess of 12.2 VA/sf capacity provided by Landlord, then any additional
engineering design and installation of electrical equipment and/or controls
required to accommodate such excess shall be provided at Tenant's cost pursuant
to Section II of this Exhibit B.
(8) Telephone: US West is providing one hundred,
sixty-five (165) pair.
(9) Ceiling: Providing existing ceiling grid hangers.
(10) Entry Access Card System: System connection point
provided on each floor.
(11) Signage: Building Standard directory signage at
building exterior and building lobby.
(12) Window Coverings: Building standard perimeter window
blinds will be installed on all windows.
II. IMPROVEMENTS BY LANDLORD AT TENANT'S EXPENSE
A. FREEZE PROTECTION MECHANICAL SYSTEM: Medium velocity
mechanical trunk duct and fan powered VAV boxes. VAV boxes installed one (1)
each per two thousand, five hundred (2,500) square feet. Electrical distribution
from electrical panels to VAV boxes.
B. VAV BOXES: 25 VAV boxes, electric heat coils and controls
pre-purchased by Landlord on behalf of Tenant.
III. IMPROVEMENTS BY TENANT Design and construction of all improvements
in the Premises beyond those listed in Section I of this Exhibit B shall be
provided at Tenant's expense. Landlord shall pay the cost of such additional
improvements up to an amount equal to thirty dollars ($30.00) per
Exhibit B-29
<PAGE> 30
square foot of "Tenant's Rentable Area" as outlined on the floor plan(s) in
Exhibit A, for a total payment by Landlord of one million, three hundred and
three thousand, nine hundred and eighty-seven dollars ($1,303,987.00) ("Tenant
Improvement Allowance"). The Tenant Improvement Allowance shall be applied to
the cost of design and construction of such improvements including, but not
limited to: architectural and engineering design, doors, door frames, hardware,
paint, wall coverings, base, ceilings, lights, mechanical distribution,
diffusers, thermostats, sprinkler distribution, sprinkler heads, , fire
extinguishers and cabinets, telephone DATA and electrical outlets, light
switches, floor coverings, contracting fees, emergency lighting, exit signs,
fire alarm devices and all applicable permit fees and sales tax.
The Tenant Improvement budget shall include construction management
services by Pine Street Development. Fee for such service shall be four percent
(4%) of total construction cost, including revisions (whether positive or
negative costs). Such construction manager shall obtain construction pricing
from Pine Street Development's General Contractor, obtain construction permits
and government approvals, and assume specific responsibility for delivery of the
Premises as defined in the Lease and the Exhibit B, provided Tenant shall have
met the drawing delivery dates herein.
Tenant Interior Signage shall be provided by Tenant at Tenant's expense.
Landlord has designed a standard interior signage package which Tenant may elect
to use. Consult Landlord for design details.
Fire Extinguishers: One (1) each fire extinguisher every three thousand
(3,000) square feet, maximum seventy-five (75) feet apart, strapped to columns.
IV. BUILDING STANDARD IMPROVEMENTS Tenant shall use the following
Building Standard items: exterior window blinds (required by Landlord); door and
frames; hardware; lighting fixtures; and heating, ventilating, and air
conditioning, VAV boxes, electric heat distribution and controls, ceiling tile
and grid.
V. DESIGN OF TENANT IMPROVEMENTS Tenant shall retain the services of a
qualified "Office Planner" licensed to practice architecture in the state of
Washington, approved by Landlord, to prepare the necessary drawings for
Schematic Plans and Final Construction Documents and timely supply the necessary
information to the Landlord's mechanical, electrical, and structural engineers
that allows them to complete their drawings. Landlord's engineers shall prepare
engineering Construction Drawings referred to in Section V(C) of this Exhibit B
for construction of the tenant improvements in Tenant's
Exhibit B-30
<PAGE> 31
Usable Area. All Tenant's Plans shall be subject to approval of Landlord in
accordance with this Exhibit B.
Tenant's Office Planner shall ensure that the work shown on Tenant's
Plans is compatible with the Building Shell & Core Plans, Building Code, laws
and that necessary Shell & Core Building modifications are included in Tenant's
Plans. Such modifications shall be subject to the Landlord's approval.
A. On or before the indicated date below, at Tenant's expense,
Tenant shall supply to Landlord for review and approval with two (2)
reproducible copies and three (3) black line prints of the following Tenant
Plans. Landlord will pay for the cost of any additional drawings sets
reproduced.
SCHEMATIC PLANS DELIVERY DATE: ____________________________ .
The Schematic Plans due on this date shall be approved and signed
by Tenant and comply with the following paragraph.
On this date, Tenant's Office Planner shall deliver to Landlord
for review fully dimensioned CAD architectural floor plans showing partition
layout, identifying each room with a number and each door with a number, for
construction estimating. The Schematic Plans must clearly identify and locate
(i) equipment requiring plumbing or other special or supplementary mechanical or
electrical systems, (ii) area(s) subject to above-normal floor loads, (iii)
special openings in the floor, (iv) and other major or special features. The
specific CAD system to be used shall be approved by Landlord for compatibility
with the other Building drawings.
The Tenant's Office Planner shall indicate on the drawings or in
a Workletter, the scope of work, description of non-Standard Building finishes,
quantity of telephone and power outlets, quantity of HVAC zones required, and
quantity and type of light fixtures.
B. On or before the indicated date below, at Tenant's expense,
Tenant shall supply Landlord with two (2) reproducible copies and three (3)
black line prints of the following Tenant Plans. Landlord will pay for the cost
of any additional drawings sets reproduced.
CONSTRUCTION DOCUMENT DELIVERY DATE: __________________________
On this date, Tenant's office planner shall deliver to Landlord
for
Exhibit B-31
<PAGE> 32
review and approval Tenant approved Construction Documents which will
incorporate the Schematic Plans referenced in Section V (A) above, plus the
following additional information:
(1) Electrical and Telephone Outlets: Locate all power and
telephone requirements. Dimension each outlet from a corner and give height
above concrete slab for all critically located outlets. Identify all dedicated
circuits and identify all power outlets greater than 120 volts. For the
equipment used in these outlets which require dedicated circuits and/or which
require greater than one hundred, twenty (120) volts, identify the type of
equipment, the manufacturer's name and the manufacturer's model number, and
submit product literature for each piece of equipment. Also identify the
manufacturer's name of the Tenant's phone system and the power requirements,
size, and location of its processing equipment. Provide cut sheet on any special
equipment requiring plumbing.
(2) Reflected Ceiling Plan: Lighting layout showing
location and type of all Building Standard and non-Building Standard lighting
fixtures.
(3) Furniture Layout: Layout showing furniture location so
that Landlord's electrical engineer can review the location of all light
fixtures and plan for furniture power/cabling connection points. Also provide
furniture cut sheets and produce information to describe electrical coordination
needs.
(4) Additional Engineering Information: Information for
Tenant's atypical engineered plumbing, structural, electrical, and mechanical
needs.
(5) Any Non-Standard Building Finishes: Provide cut sheets
and material samples for Landlord review and approval.
(6) Millwork Details: These drawings shall include, but
not be limited to, construction details of all cabinets, paneling, trim,
bookcases, and door and jamb details for non-Building Standard doors and jambs.
(7) Keying Schedules and Hardware Information: This
information shall be in final form and include, but not be limited to, a Keying
Schedule indicating which doors are locked and which key(s) open each lock, plus
an "X" on the side of the door where the key will be inserted if a keyed door.
Complete specifications for all non-Building Standard hardware will also be
provided.
Exhibit B-32
<PAGE> 33
(8) Room Finish and Color Schedule: This information shall
be in final form and include locations and specifications for all wall finishes,
floor covering and base for each room. If any revised finishes are determined,
then new specifications and samples shall be provided.
(9) Construction Notes and Specifications: Complete
specifications for every item included except those specified by the Landlord.
Construction Documents are to be approved and signed by Tenant
and delivered to Landlord by the Construction Documents Delivery Date. Landlord
shall return one (1) signed set to Tenant for Tenant's records. Prior to issuing
Construction Documents, Final Engineering drawings shall be forwarded to
Tenant's Office Planner for review and coordination verification with
Construction Documents. Tenant's Office Planner shall incorporate Engineering
Drawings with Tenant's Construction Documents for transmittal to the General
Contractor.
Tenant shall be responsible for delays and additional costs in
completion of the Tenant Improvements incurred as a result of changes made to
any of Tenant's Plans after the specified Plan Delivery Date, delays caused by
Tenant's failure to comply with the Plan Delivery Dates, delays caused by
Tenant's failure to provide adequate specifications or information for the
completion of Tenant's Plans, or by delays caused by Tenant's specification of
special materials.
VI. CONSTRUCTION OF TENANT IMPROVEMENTS
A. AUTHORIZATION TO PROCEED: Upon completion of Tenant's
Construction Documents and at the request of Tenant, Landlord shall provide to
Tenant written notice of the price for improvements beyond those listed in
Section I of this Exhibit B. Within five (5) business days of receipt of such
price, Tenant shall give Landlord written authorization to complete the Premises
in accordance with such Construction Documents. Tenant may in such authorization
delete any or all items of extra cost; however, if Landlord deems these changes
to be extensive, at its option, Landlord may refuse to accept the authorization
to proceed until all changes have been incorporated in the Construction
Documents signed by Tenant. Landlord will reprice the revised Construction
Documents and shall provide Tenant written notice of revised price. Tenant shall
provide Landlord with acceptance of the revised price within five (5) business
days of receipt of said price. In the absence of such written authorization to
proceed, Landlord shall not be obligated to commence work on the Premises, and
Tenant shall be responsible for any costs due to any resulting
Exhibit B-33
<PAGE> 34
delay in completion of the Premises and as provided in Section 3(b) of the
Lease.
The following step shall be followed by Tenant and Tenant's
Office Planner when requesting revisions or changes:
(1) Tenant and Tenant's Office Planner notify Landlord of
request for change.
(2) Tenant's Office Planner and Landlord discuss change
with contractors and engineers as appropriate, to determine most efficient
solution to revision.
(3) Upon agreement of the solution, Office Planner shall
prepare all plans and specifications necessary to show and explain the changes
from the approved Construction Documents, and shall deliver these documents to
the Landlord.
(4) Landlord shall obtain a written estimate for the cost
of engineering services and construction to incorporate the approved change.
(5) Landlord shall deliver the above engineering and
construction estimates along with an estimate of impact upon project schedule
(if any) in writing to the Tenant for approval within five (5) business days of
receipt of such estimate, Tenant shall give Landlord written authorization to
proceed. Tenant shall pay for the identified costs of the change within ten (10)
days of receipt of billing statement from Landlord.
B. PAYMENTS: Prior to commencement of Tenant Improvements, if
there are improvements to be constructed at Tenant's cost, Tenant shall deposit
in Construction Escrow one hundred percent (100%) of any additional cost (the
"Additional Cost Deposit"). The Construction Escrow shall be invested pursuant
to Tenant's instructions so long as there are sufficient liquid funds available
to pay for the improvements to be constructed at Tenant's cost as they become
payable. If at any time during construction there are not sufficient liquid
funds available in the Construction Escrow or if the cost of improvements to be
constructed at Tenant's cost increase, Tenant shall deposit additional funds
into the Construction Escrow so that the Additional Cost Deposit equals one
hundred percent (100%) of the additional costs to be paid by Tenant. Tenant
shall approve the disbursements of funds within ten (10) days of receipt of the
monthly statement from Landlord. Such approval shall not be unreasonably
withheld and shall be limited to Tenant's verification that the sums disbursed
relate to improvements properly completed pursuant to the Tenant
Exhibit B-34
<PAGE> 35
Improvement Plans and/or related documents.
Landlord's contractor under contract with the Landlord shall
complete Tenant's improvements in accordance with Tenant's approved Construction
Documents. Payments for all improvements beyond those listed in Section I of
this Exhibit B, shall be paid proportionately from the Tenant Improvement
Allowance and the Additional Cost Deposit. Any costs above these amounts shall
be paid by Tenant paying within ten (10) days after receipt of monthly progress
statements from Landlord, the full amount of any further progress billings.
Final billing shall be rendered and payable within ten (10) days after
acceptance of the Premises by Tenant in accordance with the terms of the Lease.
C. CONSTRUCTION DOCUMENT MODIFICATIONS: If Tenant approves any
revision price in writing, Landlord shall have such Construction Documents
changes made, and Tenant shall promptly pay Landlord for this cost. Promptly
upon completion of such changes in the Construction Documents, Landlord shall
notify Tenant in writing of the costs, if any, which shall be chargeable or
credited to Tenant for such change, addition or deletion. The cost for such
changes, whether chargeable or credited to Tenant, shall include a Construction
Management fee equal to fifteen percent (15%) of the amount of such change,
addition or deletion. In the absence of Tenant's approval, Landlord shall
proceed in accordance with the previously approved Construction Documents before
such change, addition or deletion was requested. In accordance with Section 3(b)
of the Lease, Tenant shall be responsible for any resulting delay in completion
of the Premises due to modification of Construction Documents. Tenant shall also
be responsible for any demolition work required as a result of the change.
D. WARRANTY: Landlord warranties and guarantees the work for a
one (1) year period, commencing upon occupancy, Tenant acceptance, or
substantial completion, whichever comes first.
E. TENANT'S ENTRY TO PREMISES: Tenant's entry to the Premises for
the purpose of Tenant planning for Construction by Tenant's agents, or any other
purpose, prior to the Commencement Date as specified in Section 3(a) of the
Lease shall be scheduled in advance with Landlord and shall be subject to all
the terms and conditions of the Lease, except the payment of Rent. Tenant's
entry shall mean entry by Tenant, its officers, contractors, Office Planner,
licensees, agents, servants, employees, guests, invitees, or visitors.
F. TENANT'S TELEPHONE AND COMPUTER/DATA SERVICE: Tenant is
responsible for Tenant's telephone service, computer and data
Exhibit B-35
<PAGE> 36
service, obtaining any applicable permits and related cabling. Tenant shall
select and coordinate installation of such communication and information
systems, and shall coordinate installation with the Landlord, pursuant to
Section 36 of the Lease.
VII. IMPROVEMENTS CONSTRUCTED BY TENANT The terms "Tenant's Work" or
"Work" shall mean any work performed by Tenant, whether Tenant's initial Work or
Work subsequent thereto. IF ANY WORK IS TO BE PERFORMED IN CONNECTION WITH
TENANT IMPROVEMENTS ON THE PREMISES BY TENANT OR TENANT'S CONTRACTOR:
(a) such Work shall proceed upon Landlord's written
approval of (i) Tenant's contractor, (ii) insurance and additional insureds
satisfactory to Landlord carried by Tenant's contractor, (iii) detailed plans
and specifications for such Work, and (iv) amount of general conditions to be
paid by Tenant to Landlord for the services if any to be provided by Landlord's
contractor for Tenant's contractor; and
(b) all Work performed by Tenant or Tenant's
contractor shall be scheduled with Landlord and Landlord's Shell & Core
contractor as needed for jobsite coordination of activities. Tenant shall supply
Landlord with a written schedule describing the timing of its work activities;
and
(c) Tenant or Tenant's contractor shall arrange for
necessary utility, hoisting, and elevator service with Landlord's contractor and
shall pay such reasonable charges for such services as may be charged by
Landlord's contractor; and
(d) Tenant shall promptly reimburse Landlord for
costs incurred by Tenant due to faulty Work done by Tenant or its contractors,
or by reason of any delays caused by such Work, or by reason of inadequate
clean-up; provided that Tenant shall first have an opportunity to cure such
faulty Work; and
(e) prior to commencement of any Work on the
Premises by Tenant or Tenant's contractor, Tenant or Tenant's contractor shall
enter into an indemnity agreement and a lien priority agreement satisfactory to
Landlord and Landlord's lender(s) indemnifying and holding harmless Landlord and
Landlord's contractors for any liability, losses or damages directly or
indirectly from lien claims affecting the land, the Building or the Premises
arising out of Tenant's or Tenant's contractor's Work or that of subcontractors
or suppliers, and subordinating any such liens to the liens of construction and
permanent financing for the Building; and
Exhibit B-36
<PAGE> 37
(f) Landlord shall have the right to post a notice
or notices in conspicuous places in or about the Premises announcing its
non-responsibility for the Work being performed therein; and
(g) Tenant to maintain good labor relations and all
Work by Tenant shall be done with union labor recognized by the AFL-CIO in
accordance with all union labor agreements applicable to the trades being
employed.
A. TENANT'S ENTRY TO PREMISES: Tenant's entry to the Premises for
purpose of Tenant planning for Construction by Tenant's agents, or other
purpose, prior to the Commencement Date as specified in Section 3(a) of the
Lease shall be scheduled in advance with Landlord and shall be subject to all
the terms and conditions of the Lease, except the payment of Rent. Tenant's
entry shall mean entry by Tenant, its officers, contractors, Office Planner,
licensees, agents, servants, employees, guests, invitees, or visitors.
B. COMMENCEMENT OF CONSTRUCTION: Tenant may not commence any Work
until this Lease has been fully executed, Landlord has approved Tenant's Working
Drawings, all required insurance certificates have been furnished to Landlord,
all building permits have been obtained, and Tenant has complied with all other
requirements herein and elsewhere in this Lease.
(1) A representative of Tenant and Tenant's contractor(s)
shall meet with Landlord at the Landlord's office prior to start of construction
to discuss construction-related items. Tenant's representative shall contact the
Landlord's Tenant Coordinator in advance to schedule said meeting at a mutually
satisfactory time.
(2) Without limitation to any provision of this Lease,
prior to commencement of any Work at the Premises Tenant shall furnish Landlord
the following:
(a) the names, addresses, representatives and
telephone numbers of the General Contractor and all subcontractors ("Tenant's
Contractors"); and
(b) Certificates of Insurance evidencing the
insurance required of Tenant and Tenant's General Contractor(s) as provided in
this Lease, including this Exhibit B; and
(c) a detailed construction schedule; and
Exhibit B-37
<PAGE> 38
(d) "Construction Deposit": Tenant shall pay
Landlord the sum of Ten Thousand Dollars ($10,000.00) in cash upon execution of
this Lease as security to Landlord for Landlord's construction costs incurred in
preparing the Premises for Tenant's occupancy. If Tenant defaults under this
Lease, Landlord may apply these funds to offset Landlord's construction costs.
The Construction Deposit shall be returned to Tenant upon
completion of all Tenant's Work in accordance with the approved Working
Drawings, provided Tenant owes no amounts to Landlord in connection with the
construction. If during construction, amounts are withdrawn from the
construction deposit for reasons described above, the Tenant shall promptly
replenish the deposit.
C. CONSTRUCTION REQUIREMENTS:
(1) A copy of the executed contract between Tenant and
Tenant's General Contractor covering all of Tenant's obligations under this
Exhibit B; such contract shall be in form satisfactory to Landlord.
(2) Tenant's General Contractor's acknowledgment of
receipt of the Landlord's Tenant Contractor Manual.
(3) Proof that Tenant's General Contractor is licensed to
work in the State of Washington.
(4) A specific job-site safety program, as required by the
State of Washington.
(5) All Tenant's Contractors shall be union, bondable,
licensed contractors, having good labor relations, capable of working in harmony
with Landlord's General Contractor and other contractors in the Building.
(6) Tenant shall coordinate Tenant's Work with other
construction work at the Building, if any. Landlord specifically reserves the
right to approve Tenant's Contractor(s). If Landlord does not give Tenant such
approval with respect to any Contractor(s), Tenant shall contract with another
General Contractor and/or subcontractor(s), as the case may be, for the
completion of Tenant's Work.
(7) In addition to the items in paragraph C of this
Exhibit B, Landlord requires the following:
Exhibit B-38
<PAGE> 39
(a) proof in form satisfactory to Landlord of
Tenant's financial ability to cause Tenant's Work to be completed and fully paid
for prior to opening for business; and
(b) Tenant's Work shall be subject to the
inspection of Landlord's representative when the Work is being performed; and
(c) Tenant's General Contractor shall maintain at
the Premises during construction a complete set of approved Working Drawings
bearing Landlord's approval stamp, a complete set of the City of Seattle's
approved permit drawings, original copies of necessary building permits,
Landlord's construction criteria, a copy of Landlord's Design Criteria, and an
updated project schedule.
(8) If any Work being performed by Tenant requires access
through the premises of any other Tenant (vacant or occupied) or otherwise will
affect any other premises or Common Area and Landlord has approved Tenant's
drawings illustrating such Work, Tenant shall be responsible for coordinating
such Work with such other Tenant and Landlord, restoring the Tenant's premises
to its original condition (or condition mutually agreed to between Landlord and
Tenant if adjacent Tenant premises is not yet occupied or adjacent premises is a
building Common Area) following the Work, and compensating said other Tenant or
Landlord for any costs incurred by them on account of such Work, including loss
of rent or income.
D. TEMPORARY FACILITIES: The cost of any work performed by
Landlord on behalf of Tenant under this Exhibit, including any temporary
facilities provided, shall become due and payable in full within ten (10) days
after Tenant has been invoiced for same by Landlord.
(1) If not already available in the Premises, Tenant shall
provide temporary heat, air-conditioning, humidity control and ventilation for
the Premises during construction if Tenant desires the same.
(2) Tenant shall make the necessary temporary electrical
connections at a source designated by Landlord prior to beginning its Work at
the Premises so that it shall have electricity during its construction period.
Tenant shall pay for said electricity as billed by the electrical company or by
Landlord (as Landlord reasonably determines), as is applicable. The charge to
Tenant for Landlord's provided service will be eight hundred dollars ($500.00)
per month for each month or a portion of a month.
(3) If Tenant requires water service during construction
Exhibit B-39
<PAGE> 40
and Landlord is able to provide it, Landlord shall do so at a designated
location and bill Tenant as Landlord reasonably determines.
(4) Tenant shall place all trash in trash containers at a
pick-up area or areas designated by Landlord. Tenant shall be responsible for
breaking down boxes as may be required. At Landlord's option, Tenant shall
contract with Landlord's contractor to furnish its own trash containers at
Tenant's cost or share a portion of the Landlord's Shell & Core dumpster
facilities at Tenant's cost or shall provide Tenant's own dumpsters.
(5) Tenant shall be solely responsible for removal from
Premises and legal disposal of any containers or material as part of Tenant's
Work considered as hazardous waste by the local sanitation authority, and Tenant
shall take all precautions to assure that such containers are not placed in
Landlord's disposal containers.
(6) Landlord may utilize a recycle bin refuse program and,
if made available to Tenant, Tenant shall take necessary precautions to sort
refuse and to prevent cross contamination of recycle containers.
(7) Tenant shall not permit trash to accumulate within the
Premises or in areas adjacent to the Premises, within Landlord's building, or
adjacent to Landlord's building. Should Landlord remove Tenant's trash from
these areas after providing twenty-four (24) hours advance notice to Tenant's
contractor, this work shall be performed at Tenant's expense.
(8) Tenant shall provide temporary sanitary facilities for
Tenant's use at Tenant's expense.
(9) Tenant shall take all necessary precautions to contain
construction "wash-up" liquids (such as grout wash, paint wash, etc.) and
prevent entry of such liquids into Landlord's sanitary or storm waste system.
Tenant's contractor shall prepare a construction "wash-up" program for approval
by Landlord. All construction wash-up shall be conducted at a location
designated by Landlord.
(10) In the event any of Tenant's direct hired utilize
Landlord provided conveyance systems, Tenant shall schedule usage of the
operated material hoist or elevators for conveyance of Tenant's materials and
pay for the cost thereof as determined by Landlord or Landlord's contractor.
Hours of usage shall be solely at the discretion of Landlord's General
Contractor, and all scheduling shall be conducted directly with Landlord's
General Contractor. Tenant shall coordinate all hoisting through Landlord's
designated
Exhibit B-40
<PAGE> 41
representative for such purpose.
(11) Tenant shall make prior written request to Landlord's
designated representative for any overtime scheduling for freight hoisting.
Provided Landlord determines, at its sole discretion, that same is available,
Tenant shall pay for all overtime incurred during such special hoisting
period(s) in addition to the charge determined as set forth above.
(12) Tenant shall not perform any Work at the Premises
without temporary construction barricades to isolate the Premises from adjacent
Premises without protecting common areas. The barricade shall be constructed in
such a manner so as not to interfere with Landlord's construction and shall be
installed in accordance with Landlord's requirements. No signs shall be allowed
on any barricades or areas exposed to view outside the building Premises except
those, if any, provided by Landlord. Landlord shall have the right to remove any
nonpermitted signs without liability or prior notice.
(13) Upon completion of Tenant's initial Work, Tenant
shall notify the Landlord's Tenant Coordinator. Upon said notification,
Landlord's designated representative shall inspect the Premises and, if the
Premises are constructed in accordance with the approved Drawings, said
representative shall issue a Letter of Acceptance for the Premises. If Landlord
believes the Premises have not been constructed in accordance with the approved
Drawing, Landlord shall so notify Tenant or Tenant's Contractor. Tenant shall
not occupy the space prior to Landlord's issuance of a Letter of Acceptance.
Tenant shall furnish Landlord a copy of a Certificate of Occupancy for the
Premises before Tenant opens for business.
(14) All Work performed by Tenant during its construction
period, or otherwise during the Term, shall be performed so as to cause the
least possible interference with other tenants, Landlord's Shell & Core
contractor, and the operation of the building or adjacent buildings, and
Landlord shall have the right to impose reasonable requirements with respect to
timing and performance of the Work in order to minimize such interference. When
adjacent Tenant's Premises have opened for business, work causing noise, odor or
vibration outside the Premises shall be performed only during hours the adjacent
tenants at the Building are not open. Tenant shall take all precautionary steps
to protect its facilities and the facilities of others affected by the Work
(including Landlord's finishes in Common Areas) and shall police same properly.
Construction equipment and materials are to be located in confined areas, and
truck traffic is to be routed to and from the site as directed by Landlord so as
not to burden the construction or operation of the building or surrounding
areas. All Work shall be confined to the Premises. Tenant's direct hire
Contractors (if any) shall
Exhibit B-41
<PAGE> 42
coordinate with Landlord's on-site representative for the delivery and removal
of its equipment and materials. Landlord shall have the right to order Tenant,
Tenant's General Contractor, or any of Tenant's subcontractor(s) who willfully
violate the above requirements to cease work and to remove its/their equipment
and employees from the building immediately.
(15) Tenant and/or Tenant's contractor shall take
precautions to protect adjacent tenants and tenants on common air distribution
systems from airborne dust, dirt and contaminants, VOC's (volatile organic
compounds such as paint thinner or varnish vapors) including, if necessary,
isolating or otherwise protecting Landlord's central air distribution and return
air systems (including return air plenum) from entry of these potential
contaminants.
(16) It is understood and agreed that Tenant's
contractor(s) shall perform said Work in a manner and at times that do not
impede or delay Landlord's Construction Manager/General Contractor in the
completion of the Premises as provided in the Lease, and that Tenant and its
contractor(s) shall not in the performance of Tenant's Work do anything that
tends to jeopardize the labor relations of others in the Building. Any delays in
the completion of the Premises or the commencement of the Lease term and any
damage to any work caused by Tenant's contractor shall be at the cost and
expense of Tenant.
E. CONTRACTOR INSURANCE: Tenant shall cause its General
Contractor and all subcontractors to maintain during the construction period the
following insurance:
(a) commercial general liability insurance, with
limits of not less than six million dollars ($6,000,000.00) per occurrence (the
portion of such coverage over two million dollars [$2,000,000.00] may be
provided under an umbrella or excess liability policy), for personal injury,
bodily injury or death or property damage or destruction, arising out of or
relating to the contractor's work at or in connection with the Premises and
completed operations for one (1) year following job completion and shall provide
for a waiver of subrogation by the insurance company; and
(b) workers' compensation insurance with respect to
each contractor's workers at the site or involved in the Tenant's Work, in the
amount required by statute; and
(c) employer's liability insurance in the amount of
at least one million dollars ($1,000,000.00) per accident and at least one
million dollars ($1,000,000.00) for disease for each employee; and
Exhibit B-42
<PAGE> 43
(d) comprehensive automobile liability insurance
covering all owned, hired or non-owned vehicles, including the loading and
unloading thereof, with limits of not less than two million dollars
($2,000,000.00) per occurrence (the portion of such coverage over one million
dollars [$1,000,000.00] may be provided under an umbrella or excess liability
policy); and
(e) builder's risk property insurance upon the
entire Tenant's Work to the full replacement cost value thereof.
(1) Landlord, Landlord's managing agent, and such other
parties as designated by Landlord, shall be additional insureds, naming
Owner/Landlord, Tenant, Landlord's General Contractor, and all subcontractors.
(2) All insurance required hereunder shall be provided by
responsible insurers rated at least A and X in the then current edition of
Best's Key Rating Insurance Guide and shall be licensed in the State of
Washington. Tenant shall provide, or cause its contractors to provide, such
certificates prior to any Tenant's Work being performed at the Premises. Such
certificates shall state that the coverage may not be changed or canceled
without at least thirty (30) day's prior written notice to Landlord.
Exhibit B-43
<PAGE> 44
EXHIBIT "C"
FIFTH AND PINE BUILDING
SEATTLE, WASHINGTON
BUILDING STANDARD CLEANING SPECIFICATIONS
SERVICE DESCRIPTION
A. OFFICE AREAS
Nightly
1. Sweep all resilient flooring using specially treated cloths to insure
dust free floor. Damp mop composition flooring. Vacuum and spot clean
carpeted areas and rugs. Rake shag carpeting, moving light furniture
other than desks, file cabinets, etc. Damp mop and touch up flooring in
traffic areas and pivot points.
2. Empty and damp clean wastepaper baskets, ashtrays, receptacles, etc.,
and insert protective plastic liners if provided or required.
3. Clean cigarette urns and replace sand.
4. Remove wastepaper and waste materials using special janitorial carriages
to designated containers.
5. Dust and wipe clean all furniture, fixtures, desks, filing cases,
bookshelves, equipment, displays, and window sills with specially
treated cloths; damp wipe telephones. Do not move tenant's materials.
6. Dust baseboards, chair rails, trim, louvres, pictures, charts, etc.,
within reach.
7. Wash and sanitize drinking fountain and coolers.
8. Wash sinks, toilets, and related plumbing fixtures.
9. Clean mirrors and metalwork.
10. Spot clean walls, switches, doors, ceilings, lights, etc.
11. Dust and clean all window heating and cooling units.
12. Check all doors and door frames for general cleanliness and remove
scuffs and fingermarks.
As Necessary
1. Clean interior glass partitions and doors.
2. Machine-scrub flooring.
3. Wash wastebaskets and ashtrays.
4. Buff traffic areas and pivot points.
5. Clean blinds, including tapes and cords.
Weekly
1. Dust wood paneling.
2. Sanitize telephones.
3. Remove dust and cobwebs from ceilings.
Quarterly
1. Damp wipe all ceiling grills and air intakes.
2. Wash and apply one coat of approved floor finish to composition
flooring.
3. Vacuum upholstered furniture and drapes.
Exhibit C-44
<PAGE> 45
4. High dust walls, partitions, pictures, wall hangings, lighting fixtures,
window frames, blinds and visible overhead pipes.
Annually
1. Clean blinds thoroughly.
2. Clean light fixtures thoroughly.
3. Clean walls and ceilings thoroughly.
4. Wash exterior windows with approved methods and materials.
B. ENTRANCE LOBBIES:
Nightly
1. Clean entryway glass and metalwork.
2. Sweep and wash all flooring, vacuum and spot clean carpeting.
3. Clean cigarette urns or cigarette disposal units and trash containers.
4. Clean walls.
5. Clean doorknobs, kick plates, directional signs and door saddles.
6. Clean telephones, telephone booth areas and mailbox areas.
7. Clean directory.
8. Vacuum foul weather carpet strips. Spot clean when necessary.
As Necessary
1. Steam clean foul weather carpet, carpet strips and other carpeting.
2. Machine scrub flooring; rinse with clear water.
3. Clean lights, globes and fixtures.
4. Dust down all metal.
5. Rub down all metal.
6. Add sand to cigarette disposal units.
C. LAVATORIES
Nightly
1. Sweep and wash flooring with approved germicidal detergent solution.
2. Wash and polish mirrors, powder shelves, dispensers, hand dryers,
brightwork, etc., including flushometers, piping, and toilet seat
hinges.
3. Wash both sides of toilet seats, wash basins, bowls and urinals with
approved germicidal detergent solution.
4. Hand dust and spot wash all partitions, including top ledges and tile
walls, dispensers, ceilings, light fixtures, switches and receptacles.
5. Empty, clean and sanitize wastepaper and sanitary disposal receptacles.
6. Clean and fill soap dispensers, sanitary napkins, toilet tissue, and
paper towel dispensers.
7. Remove wastepaper and refuse to designated trash area using special
janitorial carriages.
8. Insert plastic liners in waste receptacles.
Weekly
1. Machine scrub floors, hand brush corners, and hand brush toilet edges
with approved germicidal detergent solution.
Exhibit C-45
<PAGE> 46
Monthly
1. Wash partitions, tile walls, enamel surfaces with approved germicidal
detergent solution.
2. Dust light fixtures exteriors and all other surfaces not reached in
nightly cleaning.
3. Clean all ceiling vents and grills.
D. PUBLIC CORRIDORS, STAIRWELLS, SERVICE AREAS AND CONCOURSE
Nightly
1. Vacuum and spot clean carpeting.
2. Damp mop and spray buff terrazzo and tile floors.
3. Sweep and damp mop concrete floors.
4. Seep and damp mop stairwells and landings, washing walls when necessary.
5. Clean baseboards of marks and wax buildup.
6. Empty and clean ashtrays and sand urns; replace sand.
7. Clean directories.
8. Clean corridor glass and metalwork. Clean entryway glass and metalwork
in Concourse.
9. Spot clean walls, ceiling, lights, etc.
10. Remove trash and debris.
11. Clean and sanitize telephones and booth areas.
12. Keep slop sink and closets clean and orderly.
13. Keep electrical and telephone closets clean and free of storage.
14. Clean and sanitize drinking fountains.
15. Dust window ledges and blinds.
Weekly
1. Clean all door vents.
Quarterly
1. Seal terrazzo floors.
2. Damp wipe all ceiling grills and air intakes.
3. Wash light fixtures.
4. Wash walls and ceiling in stairwells.
Semi-Annually
1. Strip and wax stairs.
2. Polish all metal, kickplates, etc., on all office, lavatory and closet
doors.
Annually
1. Seal stairwell stairs.
E. ELEVATORS
Nightly
1. Clean floors.
2. Clean walls, rails, and buttons.
3. Clean and remove debris from ceiling.
4. Wash doors on both sides.
Monthly
Exhibit C-46
<PAGE> 47
1. Deep clean floors.
2. Wash ceiling.
F. STOREROOMS, TRASHROOMS AND DOCKS
1. Keep floors clean; wash and mop as necessary.
2. Place trash in designated containers.
3. Keep trash containers clean.
4. Keep doors and fixtures clean.
5. Keep janitorial supplies and equipment in designated areas.
Exhibit C-47
<PAGE> 1
EXHIBIT 10.5
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("Sublease"), dated as of June __, 1999, is made
between THINK NEW IDEAS, INC., a Delaware corporation ("Sublandlord"), and
RIVALNET, INC., a Washington corporation ("Subtenant").
RECITALS
A. Sublandlord is tenant under that certain lease dated September 21,
1998, between Benjamin H. and Lois E. Mayers, husband and wife, as landlord
("Landlord") and Sublandlord as tenant, as amended by First Amendment to Office
Lease dated February 19, 1999 (as amended, the "Lease"). A true, complete and
correct copy of the Lease is attached to this Sublease as EXHIBIT A.
B. Pursuant to the Lease, Sublandlord leases certain space in the
building known as the Polson Building (the "Building"), located at 71 Columbia
Street, in Seattle, Washington (the "Premises").
C. Sublandlord wishes to sublease to Subtenant a portion of the Premises
comprising all of Subtenant's space on Floor 5 (having approximately 6,268
rentable square feet) of the Building, as shown as cross-hatched on EXHIBIT B
attached to this Sublease (the "Subleased Premises").
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Sublease, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by the parties, Sublandlord and Subtenant
agree as follows:
AGREEMENT
1. SUBLEASE
Sublandlord subleases to Subtenant and Subtenant subleases from
Sublandlord, for the Term, at the rental, and upon all of the conditions set
forth in this Sublease, the Subleased Premises, together with the right to use,
in common with others entitled thereto, the hallways, stairways, elevators and
other Common Areas of the Building (as that term is defined in the Lease).
2. TERM AND POSSESSION
Page 1
<PAGE> 2
2.1 TERM
The term of this Sublease ("Term") shall commence on the date upon which
is the later of the date which all necessary documents have been executed to
provide for occupancy or, the date which a temporary certificate of occupancy is
issued with respect to or other evidence of final inspection of the Subleased
Premises, which the parties anticipate receiving on or about June 4, 1999
("Commencement Date"), provided that if the Commencement Date shall not have
occurred by July 15, 1999, Sublandlord and Subtenant may terminate this Sublease
on written notice to the other within thirty (30) days thereafter. The Term
shall expire on November 30, 2001 ("Expiration Date"). Sublandlord agrees to use
reasonable best efforts to obtain and then convert the temporary certificate of
occupancy to a certificate of occupancy and at no cost to Subtenant.
2.2 DELIVERY OF POSSESSION; CONDITION OF SUBLEASED PREMISES
Prior to the Commencement Date, Sublandlord shall complete construction
of the Subleased Premises in accordance with the floor attached hereto as
Exhibit B. Subject to the receipt of the temporary certificate of occupancy for
the Subleased Premises referenced in subsection 2.1 Sublandlord shall deliver
to Subtenant possession of the Subleased Premises "as-is, where-is" and broom
clean.
2.3 ALLOWANCE; ALTERATIONS
Sublandlord shall provide to Subtenant an allowance in an amount up to
Three Thousand Five Hundred Dollars ($3,500) for electrical work. At
Sublandlord's option, the allowance will be paid to Subtenant or may be paid
directly to Subtenant's electrical contractor, upon delivery of invoices for the
work and reasonable documentation that such work has been performed in the
Subleased Premises. If Subtenant does not use the entire allowance for
electrical work, the balance shall be retained by Sublandlord.
Subtenant shall not make any alterations, modifications or additions to
the Subleased Premises without the prior written consent of Sublandlord and
Landlord, and the consent of Sublandlord shall not be unreasonably delayed or
withheld. Sublandlord may, as a condition to granting such consent, require
Subtenant to remove all or part of any additional improvements added by
Subtenant, at Subtenant's sole cost and expense, at the expiration or earlier
termination of the Term of this Sublease.
2.4 EARLY TERMINATION OPTION
Page 2
<PAGE> 3
If Subtenant is not in default in any of its obligations under this
Sublease at the time of exercise of Subtenant's Early Termination Right (as
defined below), then Subtenant shall have a one time right ("Subtenant's Early
Termination Right") to terminate this Sublease effective May 31, 2001, subject
to the terms and conditions of this Section 2.4. Subtenant may exercise
Subtenant's Early Termination Right by delivering written notice to Sublandlord
of such exercise no later than October 31, 2000, time being of the essence.
Subtenant's Early Termination Right is personal to Rivalnet, Inc. and may not be
exercised by any other person or entity. Subtenant shall not be required to pay
a termination fee in order to exercise Subtenant's Early Termination Right.
3. BASE RENT AND OPERATING EXPENSES
3.1 BASE RENT
Commencing thirty (30) days following the Commencement Date as provided
for in Paragraph 2.1, but in no event earlier than July 1, 1999, Subtenant shall
pay to Sublandlord monthly base rent ("Base Rent") in the amount of Thirteen
Thousand Fifty-Eight and 33/100 Dollars ($13,058.33). Base Rent thereafter shall
be paid on or before the first day of each calendar month during the Term. The
monthly installment of Base Rent shall be prorated on a per diem basis for the
first month of the Term if the Commencement Date is not the first day of a
calendar month.
3.2 OPERATING EXPENSES
Commencing on January 1, 2000, Subtenant shall pay to Sublandlord, as
additional rent, its pro rata share (based on Subtenant's percentage of
occupancy of the Premises ) of increases in Operating Costs and Real Property
Taxes (as those terms are defined in the Lease) imposed on Sublandlord pursuant
to Sections 7 and 9 of the Lease (collectively, "Sublandlord's Building
Expenses") to the extent they exceed Sublandlord's Building Expenses for
calendar year 1999. Subtenant shall pay its pro rata share of such increases
with respect to each estimated and final payment due under the terms of Sections
7 and 9 of the Lease, and Sublandlord shall reimburse to Subtenant its pro rata
share of any refunds or reimbursements payable to Sublandlord with respect to
Sublandlord's Building Expenses during the Term. The obligations of Sublandlord
and Subtenant under this Section 3.2 shall survive the expiration or earlier
termination of the Term.
4. USE OF SUBLEASED PREMISES; PARKING
The Subleased Premises shall be used and occupied for general office
purposes and for no other purpose without Sublandlord's written consent.
Commencing on the
Page 3
<PAGE> 4
Commencement Date, Subtenant shall be entitled to lease three (3) monthly
parking stalls in the Building parking lot (which is located in and adjacent to
the Building). Rates for parking shall be the then-prevailing market parking
rate and shall, at Sublandlord's option, be paid directly to the parking lot
operator or be paid as reimbursement to Sublandlord.
5. INCORPORATION OF CERTAIN LEASE TERMS
5.1 SUBLEASE SUBJECT TO LEASE
This Sublease is subject to all of the terms and conditions of the Lease
and to Landlord's rights thereunder.
5.2 INCORPORATION OF LEASE
The terms, conditions and respective obligations of Sublandlord and
Subtenant to each other under this Sublease shall be the terms and conditions of
the Lease, except for those provisions of the Lease which are directly
contradicted by this Sublease, in which event the terms of this Sublease shall
control over the Lease. Therefore, for the purposes of this Sublease, wherever
in the Lease the word "Landlord" is used, it shall be deemed to mean the
Sublandlord herein, and wherever in the Lease the word "Tenant" is used, it
shall be deemed to mean the Subtenant herein. Any non-liability, release,
indemnity or hold harmless provision in the Lease for the benefit of Landlord
that is incorporated herein by reference shall be deemed to inure to the benefit
of Sublandlord, Landlord, and any other person intended to be benefited by said
provision, for the purpose of incorporation by reference in this Sublease. Any
non-liability, release, indemnity or hold harmless provision in the Lease for
the benefit of Sublandlord that is incorporated herein by reference, shall be
deemed to inure to the benefit of Subtenant and any other person intended to be
benefited by said provision, for the purpose of incorporation by reference in
this Sublease. Any right of Landlord under the Lease of access or inspection and
any right of Landlord under the Lease to do work in the Premises or in the
Building and any right of Landlord under the Lease in respect of rules and
regulations, which is incorporated herein by reference, shall be deemed to inure
to the benefit of Sublandlord, Landlord, and any other person intended to be
benefited by said provision, for the purpose of incorporation by reference in
this Sublease.
Notwithstanding the foregoing, Subtenant shall have no rights nor
obligations under the following Sections of the Lease: 38, 41, and 45-48.
6. CONDITION PRECEDENT
Page 4
<PAGE> 5
It is a condition precedent to this Sublease that Landlord shall have
executed and delivered to Sublandlord and Subtenant its consent in the form
attached to this Sublease as EXHIBIT C on or before June ___, 1999.
7. SUBLANDLORD'S REPRESENTATIONS AND WARRANTIES
Sublandlord represents and warrants to Subtenant as follows:
(a) EXHIBIT A is a true, complete copy of the Lease, and the Lease is in
full force and effect and has not been modified, supplemented or amended except
as set forth in Recital A of this Sublease.
(b) Sublandlord has the right to possess, and is in full and complete
possession of, the Premises.
(c) Sublandlord is not in default under the Lease.
8. COVENANTS REGARDING LEASE
Sublandlord shall use its reasonable efforts to cause Landlord to
perform its obligations under the Lease with respect to the Subleased Premises
for the benefit of Subtenant, and to give any required consents under the Lease
for the benefit of Subtenant. Sublandlord shall deliver to Subtenant a copy of
any notice received from Landlord relating to the Subleased Premises within two
(2) days of Sublandlord's receipt thereof.
9. ASSIGNMENT AND SUBLETTING
Subtenant shall not assign this Sublease or sublet the Subleased
Premises without the prior written consent of Sublandlord and Landlord. If
consent is so given, Subtenant shall pay to Sublandlord fifty percent (50%) of
all amounts received from the assignee or subtenant in excess of the amounts
otherwise payable by Subtenant to Sublandlord with respect to the Subleased
Premises.
10. SECURITY DEPOSIT
Concurrently with execution of this Sublease by Subtenant, Subtenant
shall deliver to Sublandlord as security for the faithful performance of all of
its obligations under this Sublease a security deposit in the amount of Thirteen
Thousand Fifty-Eight and 33/100 Dollars ($13,058.33) (the "Security Deposit").
The Security Deposit shall be held by Sublandlord as security for the
faithful performance by Subtenant of all of the provisions of this Sublease to
be performed or
Page 5
<PAGE> 6
observed by Subtenant. If Subtenant fails to pay rent or other charges due under
this Sublease or otherwise defaults with respect to any provision of this
Sublease, Sublandlord may at its sole option apply or retain all or any portion
of the Security Deposit for the payment of any rent or other charges so in
default or the payment of any other sum to which Sublandlord may become entitled
by such default, or to compensate Sublandlord for any loss or damage which
Sublandlord may suffer thereby. If Sublandlord so uses or applies all or any
portion of the Security Deposit, then within ten (10) business days after demand
therefor, Subtenant shall deposit cash with Sublandlord in an amount sufficient
to restore the amount thereof, and Subtenant's failure to do so shall be a
material breach of this Sublease. Sublandlord's application or retention of the
Security Deposit shall not constitute a waiver of such default to the extent
that the Security Deposit does not fully compensate Sublandlord for all losses
or damages incurred by Sublandlord in connection with such default and shall not
prejudice any other rights or remedies available to Sublandlord under this
Sublease or by law. Sublandlord shall not be required to keep the Security
Deposit separate from its general accounts. The Security Deposit shall not
accrue interest. If Subtenant performs all of Subtenant's obligations under this
Sublease, the Security Deposit, or so much thereof as has not theretofore been
applied by Sublandlord, shall be returned to Subtenant (or, at Sublandlord's
option, to the last assignee, if any, of Subtenant's interest under this
Sublease) within thirty (30) days after the earlier of (i) expiration of the
term of this Sublease, or (ii) vacation of the Subleased Premises by Subtenant
pursuant to the exercise of Subtenant's Early Termination Rights.
11. INDEMNIFICATION; RELEASE AND WAIVER OF SUBROGATION
11.1 SUBTENANT'S INDEMNIFICATION
Subtenant shall indemnify, defend and hold harmless Sublandlord from and
against all losses, costs, damages, expenses and liabilities, including, without
limitation, reasonable attorneys' fees and disbursements, that Sublandlord may
incur or pay out (including, without limitation, to Landlord) by reason of (a)
any accidents, damages or injuries to persons or property occurring in, on or
about the Subleased Premises during the Term or while Subtenant is otherwise
occupying the Subleased Premises (unless the same shall have been caused by
Sublandlord's negligence or wrongful act or the negligence or wrongful act of
Landlord), (b) any breach or default under this Sublease on Subtenant's part,
(c) the successful enforcement of Sublandlord's rights under this Section or any
other Section of this Sublease, (d) any work done during the Term of this
Sublease in or to the Subleased Premises except if done by Sublandlord or
Landlord, and (e) any accidents, damages or injuries to persons or property
occurring in, on or about the Building during the Term or while Subtenant is
otherwise occupying the Subleased Premises (other than the Subleased
Page 6
<PAGE> 7
Premises) to the extent resulting from any act, omission or negligence on the
part of Subtenant and/or its officers, partners, employees, agents, customers
and/or invitees.
11.2 SUBLANDLORD'S INDEMNIFICATION
Sublandlord shall indemnify, defend and hold harmless Subtenant from and
against all losses, costs, damages, expenses and liabilities, including, without
limitation, reasonable attorneys' fees and disbursements, that Subtenant may
incur or pay out (including, without limitation, to Landlord) by reason of (a)
any accidents, damages or injuries to persons or property occurring in, on or
about any portion of the Premises other than the Subleased Premises (unless the
same shall have been caused by Subtenant's negligence or wrongful act), (b) any
breach or default hereunder or under the Lease on Sublandlord's part, (c) the
successful enforcement of Subtenant's rights under this Section or any other
Section of this Sublease, or (d) any accidents, damages or injuries to persons
or property occurring in, on or about the Building (other than the Premises) to
the extent resulting from any act, omission or negligence on the part of
Sublandlord and/or its officers, partners, employees, agents, customers and/or
invitees.
11.3 WAIVER OF CONSEQUENTIAL DAMAGES
Sublandlord and Subtenant each waive any claim that it may have against
the other under this Sublease for consequential damages.
11.4 RELEASE AND WAIVER OF SUBROGATION
Neither Landlord, Sublandlord nor Subtenant shall be liable to the
other(s) or to any insurance company or companies (by way of subrogation or
otherwise) insuring the other party or parties for any loss or damage to any
building, structure or tangible personal property of the other party or parties
or of any third party occurring in or about the Premises or Building, even
though such loss or damage might have been occasioned by the negligence of such
party, its agents or employees, if such loss or damage would fall within the
scope of a fire and extended coverage (all risk) policy of insurance, whether or
not the party or parties suffering the loss actually maintained such insurance.
Each party shall obtain from its respective insurer under each insurance policy
it maintains a waiver of all rights of subrogation which the insurer of that
party may have against the other parties, and Landlord, Sublandlord and
Subtenant shall indemnify the others against any loss or expense, including
reasonable attorneys' fees, resulting from the failure to obtain such a waiver.
12. NOTICES
Page 7
<PAGE> 8
All notices and demands that are required or permitted under this
Sublease shall be in writing, and shall be personally delivered or sent by a
nationally recognized private carrier of overnight mail (e.g. FedEx) or by
United States Certified Mail, return receipt requested and postage prepaid, to
the parties at the addresses listed below or at such other addresses as the
parties may designate by notice from time to time. Notices shall be deemed to
have been given upon receipt or attempted delivery where delivery is not
accepted.
To Sublandlord: Think New Ideas, Inc.
71 Columbia Street, Suite 600
Seattle, WA 98104
Attn: Managing Director
To Subtenant: Rivalnet, Inc.
71 Columbia Street, Suite 500
Seattle, WA 98104
Attn: James Heckman
13. ATTORNEYS' FEES
If Sublandlord or Subtenant shall commence an action against the other
arising out of or in connection with this Sublease, the prevailing party shall
be entitled to recover its costs of suit and reasonable attorney's fees.
14. ENTIRE AGREEMENT
This Sublease, including all Exhibits attached to it, constitutes the
entire agreement between Sublandlord and Subtenant with respect to the Subleased
Premises and may not be amended or altered except by written agreement executed
by both parties. The captions and section numbers appearing in this Sublease are
inserted only as a matter of convenience and are not intended to define, limit,
construe, or describe the scope or intent of any section or paragraph.
15. NEGOTIATION AND CONSTRUCTION
This Sublease and each of the terms and provisions of it are deemed to
have been explicitly negotiated between the parties, and the language in all
parts of this Sublease shall, in all cases, be construed according to its fair
meaning and not strictly for or against either party.
Page 8
<PAGE> 9
16. BROKERS
Colliers International and Trammell Crow Company (together, the
"Brokers") represent Subtenant in connection with this Sublease. The entire
commissions payable to the Brokers as a result of this Sublease shall be paid by
Sublandlord pursuant to separate agreements and Subtenant shall not be obligated
to pay any such commission. Each party represents and warrants that it has dealt
with no brokers in connection with this Sublease other than the Brokers, and
each party shall indemnify, protect, defend and hold the other party harmless
from all costs and expenses (including reasonable attorneys' fees) arising from
or relating to any claims to the contrary.
17. PARTIAL INVALIDITY
If any term, covenant or condition of this Lease or the application
thereof to any person or circumstance is, to any extent, invalid or
unenforceable, the remainder of this Sublease, or the application of such term,
covenant or condition to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each
other term, covenant or condition of this Sublease shall be valid and be
enforced to the fullest extent permitted by law.
18. BINDING ON SUCCESSORS
This Sublease shall bind the parties' respective heirs, successors,
representatives and permitted assigns.
19. EXHIBITS
The following Exhibits are attached to and by this reference
incorporated into this Sublease as though fully set forth in it.
Exhibit A Lease
Exhibit B Plan of Subleased Premises
Exhibit C Landlord's Consent
IN WITNESS WHEREOF, the parties hereto execute this Sublease as of the
day and year first above written.
SUBLANDLORD:
THINK NEW IDEAS, INC.
Page 9
<PAGE> 10
By
Name:
Title:
SUBTENANT:
RIVALNET, INC.
By
Name:
Title:
Page 10
<PAGE> 11
STATE OF _______________)
) ss.
COUNTY OF ______________)
On this _____ day of _________________, 1999, before me, the
undersigned, a Notary Public in and for the State of Washington, duly
commissioned and sworn, personally appeared
______________________________________________, to me known to be the person who
signed as _______________________________ of THINK NEW IDEAS, INC., the
corporation that executed the within and foregoing instrument, and acknowledged
said instrument to be the free and voluntary act and deed of said corporation
for the uses and purposes therein mentioned, and on oath stated that _______ was
duly elected, qualified and acting as said officer of the corporation, that
_______ was authorized to execute said instrument and that the seal affixed, if
any, is the corporate seal of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.
(Signature of Notary)
(Print or stamp name of Notary)
NOTARY PUBLIC in and for the State
of Washington, residing at .
My appointment expires: .
Page 11
<PAGE> 12
STATE OF _______________)
) ss.
COUNTY OF ______________)
On this _____ day of _________________, 1999, before me, the
undersigned, a Notary Public in and for the State of Washington, duly
commissioned and sworn, personally appeared
______________________________________________, to me known to be the person who
signed as _______________________________ of RIVALNET, INC., the corporation
that executed the within and foregoing instrument, and acknowledged said
instrument to be the free and voluntary act and deed of said corporation for the
uses and purposes therein mentioned, and on oath stated that _______ was duly
elected, qualified and acting as said officer of the corporation, that _______
was authorized to execute said instrument and that the seal affixed, if any, is
the corporate seal of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.
(Signature of Notary)
(Print or stamp name of Notary)
NOTARY PUBLIC in and for the State
of Washington, residing at .
My appointment expires: .
Page 12
<PAGE> 13
EXHIBIT A
LEASE
Page 13
<PAGE> 14
EXHIBIT B
FLOOR PLAN OF SUBLEASED PREMISES
Page 14
<PAGE> 15
EXHIBIT C
LANDLORD'S CONSENT
[DATE]
Think New Ideas, Inc.
71 Columbia St., Suite 600
Seattle, WA 98104
Rivalnet, Inc.
71 Columbia Street, Suite 500
Seattle, WA 98104
RE: APPROVAL OF SUBLEASE AGREEMENT DATED MAY __, 1999 BETWEEN THINK
NEW IDEAS, INC. AND RIVALNET, INC.
Ladies and Gentlemen:
The undersigned Landlord consents to the Sublease described above with
respect to premises located on the 5th floor of the Polson Building, and agrees
to the following:
1. There are no defaults by Sublandlord under the Lease, and the Lease
is in full force and effect.
2. Landlord consents and agrees to the release and waiver of subrogation
set forth in Section 11.4 of the Sublease.
3. Landlord agrees to furnish to Subtenant a copy of each notice or
request given to Sublandlord at the time that notice is given to Sublandlord.
Page 15
<PAGE> 16
4. Landlord agrees to accept from Subtenant any cure it may tender with
respect to a default by Sublandlord under the Lease that is sufficient to cure
the default under the Lease, and to accept payments of Rent and Additional Rent
made under the Sublease from Subtenant.
Very truly yours,
Benjamin H. Mayers
Lois E. Mayers
Page 16
<PAGE> 1
EXHIBIT 10.6
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("Sublease"), dated as of May __, 1999, is made
between BOWNE INTERNET SOLUTIONS, INC., a Washington corporation
("Sublandlord"), and RIVALNET, INC., a Washington corporation ("Subtenant").
RECITALS
A Sublandlord is tenant under that certain lease dated October 20,
1998, between Benjamin H. and Lois E. Mayers, husband and wife,
as landlord ("Landlord") and Sublandlord as tenant. A true,
complete and correct copy of the direct Lease dated October 20,
1998 ("Lease") is attached to this Sublease as EXHIBIT A.
B Pursuant to the Lease, Sublandlord leases certain space in the
building located at 71 Columbia Street, Seattle, Washington,
known as the Polson Building (the "Building"), consisting of
approximately 30,060 rentable square feet on the 2nd and 3rd
floors of the Building (the "Premises").
C. Sublandlord wishes to sublease to Subtenant a portion of the
Premises on Floor 2 (having approximately 6,827 rentable square
feet) of the Building, as shown as cross-hatched on EXHIBIT B
attached to this Sublease (the "Subleased Premises"). The
Subleased Premises shall exclude the data room. NOW, THEREFORE,
in consideration of the mutual covenants contained in this
Sublease, and for other good and valuable consideration, the
receipt and sufficiency of which are acknowledged by the
parties, Sublandlord and Subtenant agree as follows:
AGREEMENT
1. SUBLEASE
Sublandlord subleases to Subtenant and Subtenant subleases from
Sublandlord, for the Term, at the rental, and upon all of the conditions set
forth in this Sublease, the Subleased Premises, together with the right to use,
in common with others entitled thereto, the hallways, stairways, elevators and
other Common Areas of the Building (as that term is defined in the Lease). The
three (3) doors required by the fire safety regulations of the City of Seattle
between the Subleased Premises and the Premises shall not be used by Subtenant
for ingress and egress to and from the Subleased Premises, or to gain access to
the Premises or for any other non-emergency purpose other than what might be
required for normal business use of Subtenant's space. Subtenant shall use only
the entrance to the Subleased Premises indicated on Exhibit B for ingress and
egress
PAGE 1
<PAGE> 2
to and from the Subleased Premises.
2. TERM AND POSSESSION
2.1 TERM
The term of this Sublease ("Term") shall commence on the later of the
date upon which Subtenant receives a temporary certificate of occupancy or other
evidence of final inspection of the Subleased Premises, which the Subtenant
anticipates receiving on or about June 4, 1999 or upon mutual execution of
sublease documents and any Landlord Consent to Sublease documents as may be
required under the terms and conditions of the Lease ("Commencement Date"). The
Term shall expire on November 30, 2001 ("Expiration Date") unless sooner
terminated in accordance with this Sublease. Sublandlord agrees to use
reasonable best efforts to obtain and then convert the temporary certificate of
occupancy to a certificate of occupancy and at no cost to Subtenant.
2.2 DELIVERY OF POSSESSION; CONDITION OF SUBLEASED PREMISES
Prior to the Commencement Date, Sublandlord shall complete construction
of the tenant improvements to the Subleased Premises in accordance with the
plans and specifications previously submitted by Sublandlord to the City of
Seattle, and consistent with the floor plan attached hereto as Exhibit B.
Subject to the receipt of the temporary certificate of occupancy for the
Subleased Premises referenced in subsection 2.1 above, Sublandlord shall deliver
to Subtenant possession of the Subleased Premises "as-is, where-is" and broom
clean.
2.3 ALTERATIONS
Subtenant shall not make any alterations, modifications or additions to
the Subleased Premises without the prior written consent of Sublandlord and
Landlord, and the consent of Sublandlord shall not be unreasonably delayed or
withheld. Sublandlord may, as a condition to granting such consent, require
Subtenant to remove all or part of any additional improvements added by
Subtenant, and to repair any damage caused by such removal, at Subtenant's sole
cost and expense, at the expiration or earlier termination of the Term of this
Sublease.
2.4 EARLY TERMINATION OPTION
On November 30, 2000 Sublandlord will deliver written notice to
Subtenant stating whether Sublandlord elects to terminate this Sublease. If
Sublandlord indicates its election to terminate in such notice, this Sublease
shall terminate and Subtenant shall surrender the Subleased Premises on or
before 180 days from the delivery of Sublandlord's written notice to Subtenant.
PAGE 2
<PAGE> 3
Provided Subtenant is not in default in any of its obligations under
this Sublease, Subtenant shall have the option to terminate this Sublease
effective June 30, 2001. Subtenant's one time option to terminate may only be
exercised by written notice delivered to Sublandlord on November 30, 2000; if
Subtenant fails to provide such notice, this option shall be void. Subtenant
shall not be required to pay a termination fee.
3. BASE RENT AND OPERATING EXPENSES
3.1 BASE RENT
Commencing thirty (30) days following the Commencement Date as provided
for in Paragraph 2.1, Subtenant shall pay to Sublandlord monthly base rent
("Base Rent") in the amount of Twelve Thousand Eight Hundred Dollars and sixty
two cents ($12,800.62). Base Rent shall thereafter be paid on or before the
first day of each calendar month during the Term. The monthly installment of
Base Rent shall be prorated on a per diem basis for the first month of the Term
if the Commencement Date is not the first day of a calendar month.
3.2 OPERATING EXPENSES
Commencing on January 1, 2000, Subtenant shall pay to Sublandlord, as
additional rent, its pro rata share (based on the ratio of the Subleased
Premises relative to the Premises) of increases in Operating Costs and Real
Property Taxes (as those terms are defined in the Lease) imposed on the Premises
pursuant to Sections 7 and 9 of the Lease (collectively, "Sublandlord's Building
Expenses") to the extent they exceed Sublandlord's Building Expenses for
calendar year 1999. Subtenant shall pay its pro rata share of such increases
with respect to each estimated and final payment due under the terms of Sections
7 and 9 of the Lease, and Sublandlord shall reimburse to Subtenant its pro rata
share of any refunds or reimbursements payable to Sublandlord with respect to
Sublandlord's Building Expenses during the Term. The obligations of Sublandlord
and Subtenant under this Section 3.2 shall survive the expiration or earlier
termination of the Term.
4. USE OF SUBLEASED PREMISES; PARKING
The Subleased Premises shall be used and occupied for general office
purposes and for no other purpose without Landlord's and Sublandlord's written
consent. Commencing on the Commencement Date, Subtenant shall be entitled to
lease one (1) tandem and two (2) normal monthly parking stalls in the Building
parking garage (which is located in the Building). Rates for parking shall be
the then-prevailing market parking rate and shall, at Sublandlord's option, be
paid directly to the parking lot operator or be paid as reimbursement to
Sublandlord.
PAGE 3
<PAGE> 4
5. INCORPORATION OF CERTAIN LEASE TERMS
5.1 SUBLEASE SUBJECT TO LEASE
This Sublease is subject to all of the terms and conditions of the Lease
and to Landlord's rights thereunder.
5.2 INCORPORATION OF LEASE
The terms, conditions and respective obligations of Sublandlord and
Subtenant to each other under this Sublease shall be the terms and conditions of
the Lease, except for those provisions of the Lease which are directly
contradicted by this Sublease, in which event the terms of this Sublease shall
control over the Lease. However, the rights and obligations of Landlord under
the Lease are not, and shall not be deemed to be, amended by this Sublease.
Therefore, for the purposes of this Sublease, wherever in the Lease the word
"Landlord" is used, it shall be deemed to mean the Sublandlord herein, and
wherever in the Lease the word "Tenant" is used, it shall be deemed to mean the
Subtenant herein. With respect to the Subleased Premises, Sublandlord shall be
obligated to Subtenant to the same extent, and under the same terms and
conditions, as Landlord is obligated to Tenant under the Lease and Subtenant,
with respect to the Subleased Premises, shall be obligated to each of Landlord
and Sublandlord to the same extent, and under the same terms and conditions, as
Tenant is obligated to Landlord under the Lease.
During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Subtenant does hereby expressly assume and agree to perform and comply with, for
the benefit of Sublandlord and Landlord, each and every obligation of
Sublandlord under the Lease with respect to the Subleased Premises except as the
same are expressly modified herein.
Notwithstanding the foregoing, Subtenant shall have no rights nor
obligations under the following Sections of the Lease: 38, 41, and 45-46.
6. CONDITION PRECEDENT
It is a condition precedent to this Sublease that Landlord shall have
executed and delivered to Sublandlord and Subtenant its consent in the form
attached to this Sublease as EXHIBIT C on or before June ___, 1999.
7. SUBLANDLORD'S REPRESENTATIONS AND WARRANTIES
Sublandlord represents and warrants to Subtenant as follows:
(a) EXHIBIT A is a true, complete copy of the Lease, and the Lease is in
full force and effect and has not been modified, supplemented or amended except
as set forth
PAGE 4
<PAGE> 5
in Recital A of this Sublease.
(b) Sublandlord is not in default under the Lease.
8. COVENANTS REGARDING LEASE
Sublandlord shall use its reasonable efforts to cause Landlord to
perform its obligations under the Lease with respect to the Subleased Premises
for the benefit of Subtenant, and to give any required consent under the Lease
for the benefit of Subtenant. Sublandlord shall deliver to Subtenant a copy of
any notice received from Landlord relating to the Subleased Premises within two
(2) business days of Sublandlord's receipt thereof.
9. ASSIGNMENT AND SUBLETTING
Subtenant shall not assign this Sublease or sublet the Subleased
Premises without Sublandlord's prior written consent which shall not be
unreasonably withheld or delayed.
10. SECURITY DEPOSIT
Concurrently with execution of this Sublease by Subtenant, Subtenant
shall deliver to Sublandlord as security for the faithful performance of all of
its obligations under this Sublease a security deposit in the amount of
Twenty-five Thousand Six Hundred Dollars ($25,600) (the "Security Deposit").
The Security Deposit shall be held by Sublandlord as security for the
faithful performance by Subtenant of all of the provisions of this Sublease to
be performed or observed by Subtenant. If Subtenant fails to pay rent or other
charges due under this Sublease or otherwise defaults with respect to any
provision of this Sublease, Sublandlord may at its sole option apply or retain
all or any portion of the Security Deposit for the payment of any rent or other
charges so in default or the payment of any other sum to which Sublandlord may
become entitled by such default, or to compensate Sublandlord for any loss or
damage which Sublandlord may suffer thereby. If Sublandlord so uses or applies
all or any portion of the Security Deposit, then within ten (10) business days
after demand therefor, Subtenant shall deposit cash with Sublandlord in an
amount sufficient to restore the amount thereof, and Subtenant's failure to do
so shall be a material breach of this Sublease. Sublandlord's application or
retention of the Security Deposit shall not constitute a waiver of such default
to the extent that the Security Deposit does not fully compensate Sublandlord
for all losses or damages incurred by Sublandlord in connection with such
default and shall not prejudice any other rights or remedies available to
Sublandlord under this Sublease or by law. Sublandlord shall not be required to
keep the Security Deposit separate from its general accounts. The Security
Deposit shall not accrue interest. If Subtenant performs all of Subtenant's
obligations under this Sublease,
PAGE 5
<PAGE> 6
the Security Deposit, or so much thereof as has not theretofore been applied by
Sublandlord, shall be returned to Subtenant within thirty (30) days after the
earlier of (i) expiration of the term of this Sublease, or (ii) vacation of the
Subleased Premises by Subtenant pursuant to the exercise of Subtenant's or
Sublandlord's Early Termination Rights.
11. INDEMNIFICATION; RELEASE AND WAIVER OF SUBROGATION
11.1 SUBTENANT'S INDEMNIFICATION
Subtenant shall indemnify, defend and hold harmless Sublandlord from and
against all losses, costs, damages, expenses and liabilities, including, without
limitation, reasonable attorneys' fees and disbursements, that Sublandlord may
incur or pay out (including, without limitation, to Landlord) by reason of any
breach or default under this Sublease on Subtenant's part, and any action of
Subtenant which causes a default of an obligation of Sublandlord to Landlord or
causes the termination or forfeiture of the Lease.
11.2 SUBLANDLORD'S INDEMNIFICATION
Sublandlord shall indemnify, defend and hold harmless Subtenant from and
against all losses, costs, damages, expenses and liabilities, including, without
limitation, reasonable attorneys' fees and disbursements, that Subtenant may
incur or pay out (including, without limitation, to Landlord) by reason of any
breach or default hereunder or under the Lease on Sublandlord's part.
11.3 WAIVER OF CONSEQUENTIAL DAMAGES
Sublandlord and Subtenant each waive any claim that it may have against
the other under this Sublease for consequential damages.
11.4 RELEASE AND WAIVER OF SUBROGATION
Neither Landlord, Sublandlord nor Subtenant shall be liable to the
other(s) or to any insurance company or companies (by way of subrogation or
otherwise) insuring the other party or parties for any loss or damage to any
building, structure or tangible personal property of the other party or parties
or of any third party occurring in or about the Premises or Building, even
though such loss or damage might have been occasioned by the negligence of such
party, its agents or employees, if such loss or damage would fall within the
scope of a fire and extended coverage (all risk) policy of insurance, whether or
not the party or parties suffering the loss actually maintained such insurance.
Each party shall obtain from its respective insurer under each insurance policy
it maintains a waiver of all rights of subrogation which the insurer of that
party may have against the other parties.
PAGE 6
<PAGE> 7
12. NOTICES
All notices and demands that are required or permitted under this
Sublease shall be in writing, and shall be personally delivered or sent by a
nationally recognized private carrier of overnight mail (e.g., FedEx) or by
United States Certified Mail, return receipt requested and postage prepaid, to
the parties at the addresses listed below or at such other addresses as the
parties may designate by notice from time to time. Notices shall be deemed to
have been given upon receipt or attempted delivery where delivery is not
accepted.
To Sublandlord: Bowne Internet Solutions.
71 Columbia Street, Suite 200
Seattle, WA 98104
Attn:
-----------------------
================================================================================
To Subtenant: Rivalnet, Inc.
71 Columbia Street, Suite 500
Seattle, WA 98104
Attn: James Heckman
13. ATTORNEYS' FEES
If Sublandlord or Subtenant shall commence an action against the other
arising out of or in connection with this Sublease, the substantially prevailing
party shall be entitled to recover its costs of suit and reasonable attorney's
fees.
14. ENTIRE AGREEMENT
This Sublease, including all Exhibits attached to it, constitutes the
entire agreement between Sublandlord and Subtenant with respect to the Subleased
Premises and may not be amended or altered except by written agreement executed
by both parties. The captions and section numbers appearing in this Sublease are
inserted only as a matter of convenience and are not intended to define, limit,
construe, or describe the scope or intent of any section or paragraph.
15. NEGOTIATION AND CONSTRUCTION
This Sublease and each of the terms and provisions of it are deemed to
have been explicitly negotiated between the parties, and the language in all
parts of this Sublease shall, in all cases, be construed according to its fair
meaning and not strictly for or against either party.
PAGE 7
<PAGE> 8
16. BROKERS
Colliers International has represented Subtenant and Steven C. Johnson &
Associates has represented Sublandlord (collectively, the "Brokers") in
connection with this Sublease. The entire commission payable to the Brokers as a
result of this Sublease shall be paid by Sublandlord pursuant to separate
agreements, and Subtenant shall not be obligated to pay any such commission.
Each party represents and warrants that it has dealt with no brokers in
connection with this Sublease other than the Brokers, and each party shall
indemnify, protect, defend and hold the other party harmless from all costs and
expenses (including reasonable attorneys' fees) arising from or relating to any
claims to the contrary.
17. PARTIAL INVALIDITY
If any term, covenant or condition of this Lease or the application
thereof to any person or circumstance is, to any extent, invalid or
unenforceable, the remainder of this Sublease, or the application of such term,
covenant or condition to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each
other term, covenant or condition of this Sublease shall be valid and be
enforced to the fullest extent permitted by law.
18. BINDING ON SUCCESSORS
This Sublease shall bind the parties' respective heirs, successors,
representatives and permitted assigns.
19. NON-SOLICITATION. Each party agrees that for the term of this agreement and
a period of one (1) year thereafter, neither party will induce, attempt to
induce or assist others to induce any employee, officer, director, agent,
independent contractor, consultant, customer, licenser, licensee, supplier, or
other service provider of the other party to terminate a relationship with or
cease providing services to that party. Notwithstanding the foregoing, both
parties understand that employees, officers, directors, agents, contractors,
customers, licensers, licensees, suppliers, and service providers may
independently elect to cease relations with one or the other party without
solicitation from either party and as such, neither party shall be precluded
from conducting normal business activities, including hiring or subcontracting,
without being liable to one another.
20. EXHIBITS
The following Exhibits are attached to and by this reference
incorporated into this Sublease as though fully set forth in it.
Exhibit A Lease
Exhibit B Plan of Subleased Premises
PAGE 8
<PAGE> 9
Exhibit C Landlord's Consent
IN WITNESS WHEREOF, the parties hereto execute this Sublease as of the
day and year first above written.
SUBLANDLORD: SUBTENANT:
BOWNE INTERNET SOLUTIONS, INC. RIVALNET, INC
By: By
------------------------------- -------------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
---------------------------- -----------------------------
PAGE 9
<PAGE> 10
STATE OF ___________ )
) ss.
COUNTY OF ______________ )
On this _____ day of _________________, 1999, before me, the
undersigned, a Notary Public in and for the State of Washington, duly
commissioned and sworn, personally appeared ___________________________________
___________, to me known to be the person who signed as________________________
_______ of BOWNE INTERNET SOLUTIONS INC.., the corporation that executed the
within and foregoing instrument, and acknowledged said instrument to be the free
and voluntary act and deed of said corporation for the uses and purposes therein
mentioned, and on oath stated that _______ was duly elected, qualified and
acting as said officer of the corporation, that _______ was authorized to
execute said instrument and that the seal affixed, if any, is the corporate seal
of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.
(Signature of Notary)
(Print or stamp name of Notary)
NOTARY PUBLIC in and for the State
of Washington, residing at .
My appointment expires: .
PAGE 10
<PAGE> 11
STATE OF ___________ )
) ss.
COUNTY OF ______________ )
On this _____ day of _________________, 1999, before me, the
undersigned, a Notary Public in and for the State of Washington, duly
commissioned and sworn, personally appeared ___________________________________
___________, to me known to be the person who signed as _______________________
________ of RIVALNET, INC., the corporation that executed the within and
foregoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of said corporation for the uses and purposes therein
mentioned, and on oath stated that _______ was duly elected, qualified and
acting as said officer of the corporation, that _______ was authorized to
execute said instrument and that the seal affixed, if any, is the corporate seal
of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.
(Signature of Notary)
(Print or stamp name of Notary)
NOTARY PUBLIC in and for the State
of Washington, residing at .
My appointment expires: .
PAGE 11
<PAGE> 12
EXHIBIT A
LEASE
================================================================================
PAGE 12
<PAGE> 13
EXHIBIT B
FLOOR PLAN OF SUBLEASED PREMISES
================================================================================
PAGE 13
<PAGE> 14
EXHIBIT C
LANDLORD'S CONSENT
================================================================================
[DATE]
Bowne Internet Solutions, Inc.
71 Columbia St., Suite 200
Seattle, WA 98104
Rivalnet, Inc.
71 Columbia Street, Suite 500
Seattle, WA 98104
RE: APPROVAL OF SUBLEASE AGREEMENT DATED MAY __, 1999
BETWEEN BOWNE INTERNET SOLUTIONS, INC. AND RIVALNET, INC.
Ladies and Gentlemen:
The undersigned Landlord consents to the Sublease described above with
respect to premises located on the 2nd floor of the Polson Building, and agrees
to the following:
1. There are no defaults by Sublandlord under the Lease, and the Lease
is in full force and effect.
2. Landlord consents and agrees to the release and waiver of subrogation
set forth in Section 11.4 of the Sublease.
3. Landlord agrees to furnish to Subtenant a copy of each notice or
request given to Sublandlord at the time that notice is given to Sublandlord.
PAGE 14
<PAGE> 15
4. Landlord agrees to accept from Subtenant any cure it may tender with
respect to a default by Sublandlord under the Lease that is sufficient to cure
the default under the Lease, and to accept payments of Rent and Additional Rent
made under the Sublease from Subtenant.
Very truly yours,
Benjamin H. Mayers
Lois E. Mayers
PAGE 15
<PAGE> 1
EXHIBIT 10.7
RIVALS.COM, INC.
AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
FEBRUARY 11, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights......................................................................1
1.1 Definitions...................................................................1
1.2 Request for Registration......................................................3
1.3 Company Registration..........................................................5
1.4 Form S-3 Registration.........................................................6
1.5 Obligations of the Company....................................................7
1.6 Furnish Information...........................................................8
1.7 Expenses of Registration......................................................8
1.8 Underwriting Requirements.....................................................9
1.9 Delay of Registration.........................................................9
1.10 Indemnification..............................................................10
1.11 Reports Under Securities Exchange Act of 1934................................12
1.12 Assignment of Registration Rights............................................12
1.13 Limitations on Subsequent Registration Rights................................13
1.14 Market-Standoff Agreement....................................................13
1.15 Termination of Registration Rights...........................................14
2. Covenants of the Company................................................................14
2.1 Delivery of Financial Statements.............................................14
2.2 Inspection...................................................................15
2.3 Right of First Offer.........................................................15
2.4 Option Vesting...............................................................16
2.5 Right of First Refusal.......................................................17
2.6 Capital Stock Change of Controls to Competitors of News America..............18
2.7 Right to Purchase Shares in Public Offering..................................18
2.8 Insurance....................................................................19
2.8 Insurance....................................................................19
2.9 Termination of Covenants.....................................................19
3. Covenants of News America...............................................................20
3.1 Limitation on Ownership......................................................20
3.2 Notice of Capital Stock Purchases............................................20
3.3 Acquisition by Pooling.......................................................21
3.4 Right to Require Sale of the Company.........................................21
3.5 NAI Voting Limitation........................................................21
4. Mutual Non-Solicitation Clause..........................................................22
5. Miscellaneous...........................................................................22
5.1 Successors and Assigns.......................................................22
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.2 Amendments and Waivers.......................................................22
5.3 Notices......................................................................23
5.4 Severability.................................................................23
5.5 Governing Law................................................................23
5.6 Counterparts.................................................................23
5.7 Titles and Subtitles.........................................................23
5.8 Aggregation of Stock.........................................................23
5.9 Termination of Prior Rights..................................................23
5.10 Confidentiality and Non-Disclosure...........................................24
5.11 Sale of the Company..........................................................25
5.12 Waiver.......................................................................25
</TABLE>
-3-
<PAGE> 4
RIVALS.COM, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This Amended and Restated Investor Rights Agreement (the "Agreement") is
made as of the 11th day of February, 2000, by and among Rivals.com, Inc., a
Washington corporation (formerly known as Rivalnet, Inc.) (the "Company"), the
holders of shares of Series A Preferred Stock of the Company listed on Exhibit A
attached hereto (the "Series A Investors"), the holders of shares of Series B
Preferred Stock of the Company listed on Exhibit B attached hereto (the "Series
B Investors"), the investors listed on Exhibit C attached hereto (the "Series C
Investors"), the investors listed on Exhibit D attached hereto (the "Series E
Investors" and, collectively with the Series A Investors, the Series B Investors
and the Series C Investors, the "Investors") and the holders of options to
purchase shares of Common Stock of the Company set forth on Exhibit E attached
hereto (the "Officers").
RECITALS
The Company, the Series A Investors, the Series B Investors and the
Series C Investors are parties to the Investor Rights Agreement dated as of
September 30, 1999 (the "Prior Agreement"). The Company and the Series E
Investors have entered into a Series E Preferred Stock Purchase Agreement (the
"Series E Purchase Agreement") dated as of December 21, 1999 pursuant to which
the Company desires to sell to the Series E Investors, and the Series E
Investors desire to purchase from the Company, shares of the Company's Series E
Preferred Stock, and the Company desires to issue to the Series E Investors the
Warrant (as defined in the Series E Purchase Agreement). A condition to the
Series E Investors' obligations under the Series E Purchase Agreement is that
the Company, the Investors and the Officers enter into this Agreement in order
to provide the Investors with (i) certain rights to register shares of the
Company's Common Stock issuable upon conversion of the Preferred Stock held by
the Investors, (ii) certain rights to receive or inspect information pertaining
to the Company and (iii) a right of first offer with respect to certain
issuances by the Company of its securities, as well as to provide certain
additional rights to NAI. The Company, the Series A Investors, the Series B
Investors, the Series C Investors and the Officers each desire to induce the
Series E Investors to purchase shares of Series E Preferred Stock pursuant to
the Series E Purchase Agreement by agreeing to the terms and conditions set
forth herein and to amend and restate the Prior Agreement in its entirety as set
forth herein.
AGREEMENT
The parties hereby agree as follows:
1. Registration Rights. The Company, the Investors and the Officers
covenant and agree as follows:
-4-
<PAGE> 5
1.1 Definitions. For purposes of this Section 1:
(a) The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities Act
of 1933, as amended (the "Securities Act"), and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i) the
shares of Common Stock issuable or issued upon conversion of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock or Series F Preferred Stock of the
Company; provided, however, that, for the purposes of Sections 1.2, 1.4 and
1.13, the shares of Common Stock issuable or issued upon conversion of shares of
Series A Preferred Stock of the Company shall not be deemed Registrable
Securities, and the Series A Investors will not be deemed Holders, (ii) the
shares of Common Stock of the Company issuable or issued upon exercise of
options to purchase shares of Common Stock of the Company granted to the
Officers; provided, however, that, for purposes of Sections 1.2, 1.4 and 1.13,
such shares shall not be deemed Registrable Securities, and the Officers will
not be deemed Holders, (iii) the shares of Common Stock of the Company issuable
or issued upon exercise of the NAI Common Warrant (as defined in the Series C
Preferred Stock Purchase Agreement, dated as of September __, 1999, between the
Company and the investors listed on Exhibit A attached thereto (the "Series C
Purchase Agreement")), (iv) any shares of Common Stock of the Company issued to
New America Incorporated ("NAI") in a private placement effected pursuant to
Section 3.2 ("Private Placement Shares"), and (v) any other shares of Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
shares listed in (i), (ii), (iii) and (iv); provided, however, that the
foregoing definition shall exclude in all cases any Registrable Securities sold
by a person in a transaction in which his or her rights under this Agreement are
not assigned. Notwithstanding the foregoing, Common Stock or other securities
shall only be treated as Registrable Securities if and so long as they have not
been (A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof so that all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.12 of this Agreement;
(e) The term "Form S-3" means such form under the
Securities Act as
-5-
<PAGE> 6
in effect on the date hereof or any successor form under the Securities Act;
(f) The term "SEC" means the Securities and Exchange
Commission; and
(g) The term "Qualified IPO" means a firm commitment
underwritten public offering by the Company of shares of its Common Stock
pursuant to a registration statement under the Securities Act, the public
offering price of which is not less than $8.85 per share (appropriately adjusted
for any stock split, dividend, combination or other recapitalization) and which
results in aggregate gross proceeds to the Company of at least $15,000,000
(prior to deduction of underwriting discounts and commissions and offering
expenses).
(h) The term "Affiliate" means, with respect to any
Person (the "Subject"), any other Person which, directly or indirectly, Controls
or is Controlled by or is under common Control with the Subject and, without
limiting the generality of the foregoing, shall in any event include (i) any
Person which beneficially owns or holds 5% or more of any class of voting
securities of the Subject or 5% or more of the legal or beneficial interest in
the Subject and (ii) any Person of which the Subject beneficially owns or holds
5% or more of any class of voting securities or 5% or more of the legal or
beneficial interest.
(i) The term "Control" (including with correlative
meanings, the terms "Controlled by" and "under common Control with"), as used
with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
(j) The term "Person" means any individual, partnership,
limited liability company, joint-stock company, firm, corporation, association,
unincorporated organization, joint venture, trust or other entity.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the
earlier of (i) March 5, 2004, or (ii) six (6) months after the effective date of
the first registration statement for a public offering of securities of the
Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or an SEC Rule 145 transaction), a written request from
the Holders of at least one-third (1/3) of the Registrable Securities then
outstanding that are issuable or issued upon conversion of shares of Series A
Preferred Stock and Series B Preferred Stock of the Company that the Company
file a registration statement under the Securities Act covering the registration
of Registrable Securities with an anticipated aggregate offering price, net of
underwriting discounts and commissions, of at least $5,000,000, then the Company
shall, within ten (10) days of the receipt thereof, give written notice of such
request to all Holders and shall, subject to the limitations of subsection
1.2(d), use its best efforts to effect as soon as practicable, and in any event
within 60 days of the receipt of such request, the registration under the
Securities Act of all Registrable Securities which the Holders request to be
registered within twenty (20) days of the
-6-
<PAGE> 7
mailing of such notice by the Company in accordance with Section 5.3.
(b) If the Company shall receive at any time after the
earlier of (i) March 5, 2004, or (ii) six (6) months after the effective date of
the first registration statement for a public offering of securities of the
Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or an SEC Rule 145 transaction), a written request from
the Holders of at least one-third (1/3) of the Registrable Securities then
outstanding that are issuable or issued upon conversion of shares of Series C
Preferred Stock of the Company that the Company file a registration statement
under the Securities Act covering the registration of Registrable Securities
with an anticipated aggregate offering price, net of underwriting discounts and
commissions, of at least $5,000,000, then the Company shall, within ten (10)
days of the receipt thereof, give written notice of such request to all Holders
and shall, subject to the limitations of subsection 1.2(d), use its best efforts
to effect as soon as practicable, and in any event within 60 days of the receipt
of such request, the registration under the Securities Act of all Registrable
Securities which the Holders request to be registered within twenty (20) days of
the mailing of such notice by the Company in accordance with Section 5.3.
(c) If the Company shall receive at any time after the
earlier of (i) March 5, 2004, or (ii) six (6) months after the effective date of
the first registration statement for a public offering of securities of the
Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or an SEC Rule 145 transaction), a written request from
the Holders of at least one-third (1/3) of the Registrable Securities then
outstanding that are issuable or issued upon conversion of shares of Series E
Preferred Stock and Series F Preferred Stock of the Company that the Company
file a registration statement under the Securities Act covering the registration
of Registrable Securities with an anticipated aggregate offering price, net of
underwriting discounts and commissions, of at least $5,000,000, then the Company
shall, within ten (10) days of the receipt thereof, give written notice of such
request to all Holders and shall, subject to the limitations of subsection
1.2(d), use its best efforts to effect as soon as practicable, and in any event
within 60 days of the receipt of such request, the registration under the
Securities Act of all Registrable Securities which the Holders request to be
registered within twenty (20) days of the mailing of such notice by the Company
in accordance with Section 5.3.
(d) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 1.2 and the
Company shall include such information in the written notice referred to in
subsection 1.2(a), subsection 1.2(b) or subsection 1.2(c), as the case may be.
The underwriter will be selected by a majority in interest of the Initiating
Holders and shall be reasonably acceptable to the Company. In such event, the
right of any Holder to include his Registrable Securities in such registration
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting
(unless otherwise mutually agreed by a majority in interest of the Initiating
Holders and such Holder) to the extent provided herein. All Holders proposing to
distribute their
-7-
<PAGE> 8
securities through such underwriting shall (together with the Company as
provided in subsection 1.5(e)) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting.
Notwithstanding any other provision of this Section 1.2, if the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Initiating
Holders shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated (i) first, among the Initiating Holders, in proportion (as nearly as
practicable) to the amount of Registrable Securities of the Company owned by
each Initiating Holder and (ii) second, among all other Holders thereof who are
not Initiating Holders, in proportion (as nearly as practicable) to the amount
of Registrable Securities of the Company owned by each such other Holder;
provided, however, that the number of shares of Registrable Securities to be
included in such underwriting shall not be reduced unless all other securities
are first entirely excluded from the underwriting.
(e) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2, a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 90 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve-month period.
(f) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) After the Company has effected two (2)
registrations pursuant to Section 1.2(a), Section 1.2(b) and Section 1.2(c) (a
total of six (6)), as the case may be, and such registrations have been declared
or ordered effective;
(ii) During the period starting with the date
sixty (60) days prior to the Company's good faith estimate of the date of filing
of, and ending on a date one hundred eighty (180) days after the effective date
of, a registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to
dispose of shares of Registrable Securities that may be immediately registered
on Form S-3 pursuant to a request made pursuant to Section 1.4 below.
1.3 Company Registration. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan or a transaction
covered by Rule
-8-
<PAGE> 9
145 under the Securities Act, a registration in which the only stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered, or any registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with Section 5.3,
the Company shall, subject to the provisions of Section 1.8, cause to be
registered under the Securities Act all of the Registrable Securities that each
such Holder has requested to be registered.
1.4 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders of not less than thirty percent (30%) of the
Registrable Securities then outstanding a written request or requests that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within 15 days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.4: (i) if
Form S-3 is not available for such offering by the Holders; (ii) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public of less than
$1,000,000; (iii) if the Company shall furnish to the Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such Form S-3 Registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not more than 90
days after receipt of the request of the Holder or Holders under this Section
1.4; provided, however, that the Company shall not utilize this right more than
once in any twelve month period; (iv) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected two
registrations on Form S-3 for the Holders pursuant to this Section 1.4; (v) in
any particular jurisdiction in which the Company would be required to qualify to
do business or to execute a general consent to service of process in effecting
such registration, qualification or compliance; or (vi) during the period ending
one hundred eighty (180) days after the effective date of a registration
statement subject to Section 1.3.
(c) Subject to the foregoing, the Company shall file a
registration
-9-
<PAGE> 10
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. Registrations effected pursuant to this Section 1.4 shall not be
counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively, and the Holders shall have the right to
request an unlimited number of such registrations (subject to the provisions of
Section 1.4).
(d) For each 500,000 Private Placement Shares (as
adjusted for stock splits, stock dividends, recapitalizations and the like)
purchased by NAI, NAI shall be entitled to request one (1) registration pursuant
to and in accordance with this Section 1.4 without regard to the thirty percent
(30%) limitation set forth in the first sentence of this Section 1.4.
1.5 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to 90 days. The
Company shall not be required to file, cause to become effective or maintain the
effectiveness of any registration statement that contemplates a distribution of
securities on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for up to one hundred twenty
(120) days.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered
by such
-10-
<PAGE> 11
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, such obligation to continue for one hundred twenty (120) days.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
(i) Use its best efforts to furnish, at the request of
any Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
1.6 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall reasonably be required to effect the registration of
such Holder's Registrable Securities. The Company shall have no obligation with
respect to any registration requested pursuant to Section 1.2 or Section 1.4 of
this Agreement if, as a result of the application of the preceding sentence, the
number of shares or the anticipated aggregate offering price of the Registrable
Securities to be included in the registration does not equal or exceed the
number of shares or the anticipated aggregate offering price required to
originally trigger the Company's obligation to initiate such registration as
specified in subsection 1.2(a), subsection 1.2(b), subsection 1.2(c) or
subsection 1.4(b)(2), whichever is applicable.
1.7 Expenses of Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, 1.3 and 1.4
including (without limitation) all registration, filing and
-11-
<PAGE> 12
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel for the selling Holders selected by them with the approval of the
Company, which approval shall not be unreasonably withheld, shall be borne by
the Company; provided, however, that the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 1.2 if
the registration request is subsequently withdrawn at the request of the Holders
of a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless (a) the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2 or (b) such withdrawal directly
results from the Initiating Holders becoming aware of material adverse
information about the Company not known to them prior to the request for
registration.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall (i) the amount of securities
of the selling Holders included in the offering be reduced below thirty percent
(30%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities, in which
case, the selling shareholders may be excluded if the underwriters make the
determination described above and no other shareholder's securities are included
or (ii) any Registrable Securities that are issued or issuable to an Officer
upon exercise of an option to purchase shares of Common Stock of the Company or
upon conversion of shares of Series A Preferred Stock of the Company and any
securities owned by an officer, director or employee of the Company be included
if any other Registrable Securities held by any other selling Holder are
excluded. For purposes of the preceding parenthetical concerning apportionment,
for any selling shareholder which is a holder of Registrable Securities and
which is a partnership or corporation, the partners, retired partners and
shareholders of such holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling shareholder," and any
pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder," as defined in
this sentence.
1.9 Delay of Registration. No Holder shall have any right to
obtain or seek an
-12-
<PAGE> 13
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law; and the Company will pay to
each such Holder, underwriter or controlling person, as incurred, any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable to any Holder, underwriter or controlling person for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
-13-
<PAGE> 14
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that in no event shall any indemnity under this subsection
1.10(b) exceed the net proceeds from the offering received by such Holder,
except in the case of willful fraud by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of liability to the indemnified party under this Section 1.10
to the extent of such prejudice, but the omission so to deliver written notice
to the indemnifying party will not relieve it of any liability that it may have
to any indemnified party otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section
1.10 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided, that in no event shall any contribution by a Holder
under this Subsection 1.10(d), when combined with any amounts legally required
to be paid under Section 1.10(c), exceed the net proceeds from the offering
received by such Holder, except in the case of willful fraud by such Holder. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on
-14-
<PAGE> 15
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
(f) The obligations of the Company and Holders under
this Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Securities Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public so long as the
Company remains subject to the periodic reporting requirements under Sections 13
or 15(d) of the Exchange Act;
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the Exchange Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.12 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by (i) a Holder to a transferee
or assignee of at least 250,000 shares of such securities or (ii) in the case of
a Holder of Registrable Securities issuable or issued upon conversion of Series
E Preferred Stock or Series F Preferred Stock, any Affiliate of such Holder or
of SOFTBANK Corp., a Japanese corporation, including, without limitation, any
other
-15-
<PAGE> 16
partnership or other entity of which any direct or indirect subsidiary of
SOFTBANK Corp. is a general partner or has investment discretion, or any
employees of any of the foregoing; provided the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and address
of such transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under Section 1.
1.13 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder to (a) include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included, (b) make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
1.2(a) or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 1.2 or (c) exercise rights of
registration that are otherwise in preference to those granted to the Investors
hereunder.
1.14 Market-Standoff Agreement.
(a) Market-Standoff Period; Agreement. In connection
with the initial public offering of the Company's securities and upon request of
the Company or the underwriters managing such offering of the Company's
securities, each Holder agrees not to sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise dispose of any securities of the
Company (other than those included in the registration) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed 180 days) from the effective date of such
registration as may be requested by the Company or such managing underwriters
and to execute an agreement reflecting the foregoing as may be requested by the
underwriters at the time of the Company's initial public offering.
(b) Limitations. The obligations described in Section
1.14(a) shall apply only if all officers, directors and holders of at least one
percent (1%) of the outstanding shares of capital stock of the Company enter
into similar agreements, and shall not apply to a registration relating solely
to employee benefit plans, or to a registration relating solely to a
-16-
<PAGE> 17
transaction pursuant to Rule 145 under the Securities Act.
(c) Stop-Transfer Instructions. In order to enforce the
foregoing covenants, the Company may impose stop-transfer instructions with
respect to the securities of each Holder (and the securities of every other
person subject to the restrictions in Section 1.14(a)).
(d) Transferees Bound. Each Holder agrees that prior to
the Company's initial public offering it will not transfer securities of the
Company unless each transferee agrees in writing to be bound by all of the
provisions of this Section 1.14.
1.15 Termination of Registration Rights. No Holders shall be
entitled to exercise any right provided for in this Section 1 after the earlier
of (i) seven (7) years following the consummation of a Qualified IPO, or (ii)
such time as Rule 144 or another similar exemption under the Securities Act is
available for the sale of all of such Holder's shares during a three (3)-month
period without registration.
2. Covenants of the Company.
2.1 Delivery of Financial Statements.
(a) The Company shall deliver to each Holder of at least
200,000 shares of Registrable Securities (as adjusted for stock splits, stock
dividends, recapitalizations and the like) who is an Investor (i) as soon as
practicable, but in any event within ninety (90) days after the end of each
fiscal year of the Company, an income statement for such fiscal year, a balance
sheet of the Company and statement of shareholder's equity as of the end of such
year, and a statement of cash flows for such year, such year-end financial
reports to be in reasonable detail, prepared in accordance with generally
accepted accounting principles ("GAAP"), and audited and certified by an
independent public accounting firm of nationally recognized standing selected by
the Company, and (ii) as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a budget and business plan for the next
fiscal year, prepared on a monthly basis, and, as soon as prepared, any other
budgets or revised budgets prepared by the Company.
(b) The Company shall deliver to each Holder of at least
500,000 shares of Registrable Securities (as adjusted for stock splits, stock
dividends, recapitalizations and the like) who is an Investor, within thirty
(30) days of the end of each month, an unaudited income statement and a
statement of cash flows and balance sheet for and as of the end of such month,
in reasonable detail, accompanied by an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment, provided that the foregoing shall not restrict the right of the
Company to change its accounting principles consistent with GAAP, if the Board
of Directors determines that it is in the best interest of the Company to do so.
-17-
<PAGE> 18
(c) The Company shall deliver to each Holder of at least
500,000 shares of Registrable Securities issuable or issued upon conversion of
Series E Preferred Stock or Series F Preferred Stock (as adjusted for stock
splits, stock dividends, recapitalizations and the like) who is an Investor (i)
within 15 days of the end of each month or other relevant period, management
reports explaining significant variances from management forecasts and all other
significant developments of the Company and (ii) as soon as practicable, any
other financial or other Company information as such Holders may reasonably
request.
2.2 Inspection. The Company shall permit each Holder of at least
500,000 shares of Registrable Securities (as adjusted for stock splits, stock
dividends, recapitalizations and the like) who is an Investor, at such Holder's
expense, to visit and inspect the Company's properties, to examine its books of
account and records and to discuss the Company's affairs, finances and accounts
with its officers, all at such reasonable times as may be requested by the
Investor; provided, however, that the Company shall not be obligated pursuant to
this Section 2.2 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information.
2.3 Right of First Offer. Subject to the terms and conditions
specified in this Section 2.3, the Company hereby grants to each Major Investor
(as hereinafter defined) a right of first offer with respect to future sales by
the Company of its Shares (as hereinafter defined). For purposes of this Section
2.3, a "Major Investor" shall mean any Investor who holds at least 750,000
shares of Common Stock (including Common Stock issuable upon the conversion of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock
of the Company), as adjusted for stock splits, stock dividends,
recapitalizations and the like. For purposes of this Section 2.3, a Major
Investor includes any general partners and affiliates of a Major Investor. A
Major Investor who chooses to exercise the right of first offer may designate as
purchasers under such right itself or its partners or affiliates in such
proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investors stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) Within fifteen (15) calendar days after delivery of
the Notice, the Major Investor may elect to purchase or obtain, at the price and
on the terms specified in the Notice, up to that portion of such Shares which
equals the proportion that the number of shares of Common Stock issued and held,
or issuable upon conversion and exercise of all convertible or
-18-
<PAGE> 19
exercisable securities then held, by such Major Investor bears to the total
number of shares of Common Stock then outstanding (assuming full conversion and
exercise of all convertible or exercisable securities). The Company shall
promptly, in writing, inform each Major Investor that purchases all the shares
available to it (each, a "Fully-Exercising Investor") of any other Major
Investor's failure to do likewise. During the ten (10)-day period commencing
after receipt of such information, each Fully-Exercising Investor shall be
entitled to obtain that portion of the Shares for which Major Investors were
entitled to subscribe but which were not subscribed for by the Major Investors
that is equal to the proportion that the number of shares of Common Stock issued
and held, or issuable upon conversion and exercise of all convertible or
exercisable securities then held, by such Fully-Exercising Investor bears to the
total number of shares of Common Stock held by all Fully-Exercising Investors
(assuming full conversion and exercise of all convertible or exercisable
securities).
(c) The Company may, during the 45-day period following
the expiration of the period provided in subsection 2.3(b) hereof, offer the
remaining unsubscribed portion of the Shares to any person or persons at a price
not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within 30 days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless first reoffered
to the Major Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.3 shall
not be applicable (i) to the issuance or sale of Common Stock (or options
therefor) to employees, consultants, officers and directors pursuant to a stock
option, stock purchase or other equity incentive plan or agreement approved by
the Board of Directors of the Company, (ii) to or after consummation of a
Qualified IPO, (iii) to the issuance of securities pursuant to the conversion or
exercise of convertible or exercisable securities outstanding on the date hereof
or that were subject to (or exempted from) such right of first offer upon the
initial issuance of such convertible or exercisable securities, (iv) to the
issuance of securities in connection with a bona fide business acquisition of or
by the Company approved by the Board of Directors of the Company, whether by
merger, consolidation, sale of assets, sale or exchange of stock or otherwise,
(v) to the issuance of securities to financial institutions or lessors in
connection with commercial credit arrangements, equipment financings, or similar
transactions approved by the Board of Directors of the Company in which the
Company's purpose is other than equity financing, (vi) to the issuance or sale
of any shares of Series E Preferred Stock or Series F Preferred Stock of the
Company, (vii) securities issued or issuable in connection with business
combinations or corporate partnering agreements approved by the Board of
Directors of the Company in which the Company's principal purpose is other than
equity financing, (viii) to the issuance of securities that, with unanimous
approval of the Board of Directors of the Company, are not offered to any
existing shareholder of the Company, or (ix) to the issuance of securities in
connection with the right of first refusal set forth in Section 2.5.
2.4 Option Vesting. Unless otherwise unanimously approved by the
Board of Directors of the Company, all options to purchase shares of the
Company's Common Stock granted to employees of the Company shall vest over a
four-year period, with 25% vesting on the first anniversary of the date of grant
or the commencement of service to the Company, as the
-19-
<PAGE> 20
case may be, and the remainder vesting in equal monthly installments thereafter.
2.5 Right of First Refusal.
(a) The provisions of this Section 2.5(a) shall remain
in effect for so long as either (i) NAI and/or its Affiliates hold at least ten
percent (10%) of the issued and outstanding shares of Common Stock of the
Company (assuming the conversion and exercise of all outstanding convertible or
exercisable securities) or (ii) NAI and/or its Affiliates at all times have held
an aggregate of at least 4,238,999 shares of Common Stock of the Company (on an
as-converted basis, and as adjusted for stock splits, stock dividends,
recapitalizations and the like); provided, however, that in any event this
Section 2.5(a) shall terminate on the fourth anniversary of the date of the
Prior Agreement. The Company agrees that if the Company's Board of Directors
(the "Board") proposes or is required to effect or recommend a Sale (as defined
in Section 2.9(a)) of the Company, or a transaction resulting in the transfer of
majority voting control of the Company (collectively, with a Sale, a "Change of
Control") to any of the entities set forth on Exhibit F attached hereto or any
of their respective Affiliates (the "Primary NAI Competitors"), or, prior to the
Standstill Termination Date (as defined in Section 3.1), to any of the entities
set forth on Exhibit G attached hereto or any of their respective Affiliates
(the "Secondary NAI Competitors") then, prior to engaging in any discussions
with any such Primary NAI Competitor or Secondary NAI Competitor, as the case
may be, for any purposes other than clarification of terms of such proposed
Change of Control, deliver to NAI a term sheet (the "Term Sheet") outlining all
material provisions of such proposed Change of Control, including, but not
limited to, price, payment terms and form of consideration. NAI shall have
fifteen (15)-days from the date of receipt of the Term Sheet to notify the
Company in writing as to whether NAI accepts or rejects the Term Sheet. If,
within such fifteen (15)-day period, NAI notifies the Company that it accepts
the Term Sheet, then the Company and NAI shall both use their reasonable efforts
to promptly complete such Change of Control of the Company to NAI upon the terms
set forth in the Term Sheet. If NAI notifies the Company within such fifteen
(15)-day period that it rejects the Term Sheet or if NAI fails to send written
notice to the Company accepting the Term Sheet within such fifteen (15)-day
period, the Board shall have ninety (90) days from the date of receipt of the
rejection notice or the lapse of such fifteen (15)-day period, as the case may
be, to enter into a definitive agreement or a binding letter of intent with
respect to such Change of Control on terms that are, in the opinion of the
Board, no more favorable in any material respect than those set forth in the
Term Sheet, and the Board shall have one hundred twenty (120) days from the date
of receipt of the rejection notice or the lapse of such fifteen (15)-day period,
as the case may be, to complete such Change of Control; provided, however, that
such one hundred twenty (120) day period shall be extended in the event that the
Change of Control involves registration of securities with the SEC and such
registration process requires a longer time period by the number of days
reasonably required to complete such registration process.
In the event that the Company (A) does not enter into a definitive
agreement or a binding letter of intent with respect to such proposed Change of
Control on terms that are, in the opinion of the Board, no more favorable in any
material respect than those set forth in the Term Sheet within such ninety
(90)-day period, (B) fails to complete the proposed Change of Control within
-20-
<PAGE> 21
such one hundred twenty (120)-day period or (C) fails to complete such Change of
Control on terms that are, in the opinion of the Board, more favorable in any
material respect than those set forth in the Term Sheet, then, prior to
effecting any Change of Control, the Company shall resubmit the original Term
Sheet or submit the new Term Sheet, as applicable, to NAI for its acceptance or
rejection in accordance with the procedures outlined in the first paragraph of
this Section 2.5(a).
(b) NAI may, by written notice to the Company, add to
the list of Primary NAI Competitors attached hereto as Exhibit F; provided,
however, that any such additional Primary NAI Competitor must be ranked in the
top five (5) Persons in terms of number of viewers in the United States of
televised sports video broadcasting during the preceding calendar quarter, as
determined by the Nielsen ratings (or, if such service no longer exists in its
current form, by a comparable service selected by NAI and reasonably acceptable
to the Company). In addition, the parties may remove entities from the list of
Primary NAI Competitors attached hereto as Exhibit F in the event that the
parties shall mutually agree that, due to a change in circumstances, such entity
no longer fits the profile to constitute a Primary NAI Competitor. In the event
that any Primary NAI Competitor shall acquire or be acquired by a Secondary NAI
Competitor, whether by merger, Change of Control of assets, acquisition of stock
or otherwise, such Secondary NAI Competitor shall be deemed a Primary NAI
Competitor.
2.6 Capital Stock Sales to Competitors of NAI. Unless in
connection with a Change of Control of the Company effected in compliance with
the terms and conditions of this Agreement, for so long as either (i) NAI and/or
its Affiliates hold at least ten percent (10%) of the issued and outstanding
shares of Common Stock of the Company (assuming the conversion and exercise of
all outstanding convertible or exercisable securities) or (ii) NAI and/or its
Affiliates at all times have held an aggregate of at least 4,238,999 shares of
Common Stock of the Company (on an as-converted basis, and as adjusted for stock
splits, stock dividends, recapitalizations and the like), the Company shall not,
without the prior written consent of NAI, issue additional equity securities
(including convertible or exercisable securities) totaling more than two percent
(2%) of the outstanding shares of capital stock of the Company to any Primary
NAI Competitor.
2.7 Right to Purchase Shares in Public Offering
(a) In the event that at any time following the
Qualified IPO but prior to the Standstill Termination Date, the Company in good
faith proposes to file a registration statement under the Securities Act (a
"Follow-On Registration Statement") with respect to an offering of shares of its
Common Stock to the public (other than a registration statement in connection
with a stock option, stock purchase or similar incentive plan of the Company or
in connection with an SEC Rule 145 transaction) (a "Follow-On Offering"), to the
extent permissible under the federal securities laws, the rules and regulations
of the National Association of Securities Dealers, Inc. (the "NASD"), and all
other applicable laws, rules and regulations, the Company shall use reasonable
efforts to cause the managing underwriter or underwriters (who were selected by
the Company's Board of Directors, in its sole discretion) for such Follow-On
Offering to offer to NAI the right to purchase up to such number of shares of
the
-21-
<PAGE> 22
Company's Common Stock to be sold in the Follow-On Offering (the "Follow-On
Offering Shares") sufficient to enable NAI to maintain its Percentage Ownership
in the Company, taking into account the issuance of the Follow-On Shares. To the
extent NAI's participation in the Follow-On Offering is not permissible, the
Company and NAI will negotiate in good faith to offer to NAI an alternative
transaction with similar economic effect. The Follow-On Shares shall be offered
to NAI on the same terms and conditions and at the same price at which they are
being offered to the public. If NAI wishes to purchase the Follow-On Shares, it
shall promptly respond to such offer within the time frame reasonably requested
by the managing underwriter(s). The foregoing provisions are not intended to be,
and shall not be construed as, an offer by the Company to sell the Follow-On
Shares. Any such offer will be made pursuant to applicable requirements of the
federal securities laws, the rules and regulations of the NASD, and all other
applicable laws, rules and regulations, as well as the provisions of this
Agreement.
(b) NAI's "Percentage Ownership" shall equal the
quotient of (i) the number of outstanding shares of Common Stock of the Company
held by NAI, divided by (ii) the number of outstanding shares of Common Stock on
a fully-diluted basis, assuming the conversion and exercise of all convertible
and exercisable securities and including all shares reserved for issuance under
the Company's stock option, stock purchase and similar equity incentive plans.
(c) NAI agrees that during the period of time commencing
on the date of the Election and terminating on the earlier of (i) ninety (90)
days following the effective date of the Follow-On Registration Statement and
(ii) the withdrawal of the Follow-On Registration Statement from registration,
it and its Affiliates shall not sell, offer to sell or otherwise transfer or
dispose of any securities of the Company. To enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the shares held by
NAI and its Affiliates during such period. NAI agrees to execute any similar
market stand-off agreement that may be requested by the underwriters of the
Follow-On Offering.
(d) Notwithstanding anything to the contrary in this
Section 2.7, in the event that the managing underwriter of the Follow-On
Offering determines in its sole discretion that NAI's purchase of the shares
equivalent to its Percentage Ownership hereunder is not compatible with the
success of the Follow-On Offering, NAI shall only purchase the number of shares
that such managing underwriter determines will not jeopardize the success of the
Follow-On Offering.
2.8 Insurance. Within ninety (90) days of the Effective Date,
the Company covenants and agrees that it shall have publishers' liability
insurance and errors and omissions insurance with coverage and policy limits in
reasonable amounts customary for similarly-situated companies in its industry.
2.9 Termination of Covenants.
(a) The covenants set forth in Sections 2.1 through
Section 2.4 shall terminate as to each Investor and be of no further force or
effect (i) immediately prior to the
-22-
<PAGE> 23
consummation of a Qualified IPO, or (ii) when the Company shall sell, convey, or
otherwise dispose of all or substantially all of its business or assets or merge
into or consolidate with any other corporation (other than a wholly-owned
subsidiary corporation) or effect any other transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is disposed of, provided that this subsection (ii) shall not apply to a
merger effected exclusively for the purpose of changing the domicile of the
Company (in each case, a "Sale").
(b) The covenants set forth in Sections 2.1 and 2.2
shall terminate as to each Holder and be of no further force or effect when the
Company first becomes subject to the periodic reporting requirements of Sections
13 or 15(d) of the Exchange Act, if this occurs earlier than the events
described in Section 2.5(a) above.
(c) the covenants set forth in Sections 2.5, 2.6, 2.7
and 2.8 shall terminate and be of no further force or effect upon the
consummation of any Sale of the Company.
3. Covenants of NAI. NAI hereby covenants and agrees as follows:
3.1 Limitation on Ownership
(a) Except with the prior written consent of a majority
of the Company's Board of Directors (excluding the vote of any director
designated by NAI or any of its Affiliates), NAI shall not, directly or
indirectly, acquire beneficial ownership of any capital stock of the Company,
any securities convertible into or exchangeable for capital stock of the Company
or any other right to acquire capital stock of the Company, including, but not
limited to, exercise of the NAI Warrants (except, in any case, by way of stock
dividends or other distributions or offerings made available to holders of any
capital stock generally), if the effect of such acquisition would be to increase
the number of shares of capital stock of the Company owned by NAI and its
Affiliates to a level exceeding 32.5% of the outstanding shares of Common Stock
of the Company (assuming the conversion and exercise of all convertible or
exercisable securities) (the "Threshold Amount"); provided, however, that the
foregoing limitation shall expire upon February 15, 2001 (the "Standstill
Termination Date").
(b) In the event that (i) the NAI Warrants shall not
have been exercised in full and (ii) the average of the closing prices of the
Company's Common Stock on the Nasdaq National Market or any securities exchange
over the twenty (20) trading days commencing on the one hundred twenty fifth
(125th) day following the closing of the Qualified IPO is greater than $14.15
per share (as adjusted for stock splits, stock dividends, recapitalizations and
the like), then, as of the termination of the NAI Common Warrant, the Threshold
Amount shall be reduced by the number of unexercised shares under the NAI
Warrants (appropriately adjusted for stock splits, stock dividends,
recapitalizations and the like).
3.2 Notice of Capital Stock Purchases; Option to Sell.
(a) NAI shall notify the Company as to any future
acquisition by it or
-23-
<PAGE> 24
its Affiliates of beneficial ownership of capital stock of the Company, or
rights thereto, at least ten (10) business days prior to taking such action, in
order for the Company to monitor compliance with the terms of this Agreement.
All purchases of capital stock of the Company by NAI or its Affiliates shall be
made in compliance with applicable laws and regulations.
(b) At all times prior to the Standstill Termination
Date, NAI shall not make any purchases of Common Stock of the Company at a price
per share of less than $14.15 per share (as adjusted for stock splits, stock
dividends, recapitalizations and the like) without first notifying the Company
of its intention to do so and the number of shares which NAI intends to
purchase. Following such notice, the Company shall have a period of ten (10)
days in which to notify NAI, if it so elects, of its desire to effect a private
placement of shares of Common Stock of the Company to NAI. In the event that the
Company so notifies NAI, NAI and the Company shall negotiate in good faith to
effect such a private placement at the then current market price of the Common
Stock of the Company within forty-five (45) days of such notification by the
Company, and during such forty-five (45)-day period, NAI agrees that it and its
Affiliates shall not otherwise acquire beneficial ownership of any shares of
capital stock of the Company, or any rights thereto.
Notwithstanding the foregoing, this Section 3.2(b) shall
not apply to purchases by NAI of shares of capital stock of the Company pursuant
to (i) the Amended and Restated Co-Sale Agreement dated as of the date hereof by
and among the Company, the Investors and certain holders of the Company's
securities, (ii) Section 2.3, 2.5 or 2.7 of this Agreement, (iii) the NAI
Warrants or (iv) any purchase of shares of capital stock of the Company, that,
following such purchase and assuming the exercise in full of the NAI Warrants
(even if earlier expired or terminated unless the NAI Warrants have not been
exercised and have expired or terminated) would result in the ownership of NAI
and its Affiliates of less than the Threshold Amount of the Company's capital
stock.
3.3 Acquisition by Pooling. If the Company enters into any
agreement providing for the acquisition of the Company by merger, sale of assets
or otherwise in a negotiated transaction approved by the Board of Directors of
the Company, then if such agreement provides, as a condition to closing, that
the transaction shall be treated as a pooling of interests under generally
accepted accounting principles, NAI shall (a) refrain from exercising any right
of appraisal and (b) not sell or otherwise reduce its risk relative to any
securities received in such combination until such time as financial results
covering at least thirty (30) days of post-transaction combined operations have
been published.
3.4 NAI Vote Regarding Sale of the Company. Prior to a Qualified
IPO, if more than 50%, or a greater percentage, if required for approval, of the
aggregate number of outstanding shares of Common and Preferred Stock of the
Company that are entitled to vote to approve a Sale of the Company are so voted,
then NAI and its Affiliates shall also vote all shares held by them in favor of
the Sale.
3.5 NAI Voting Limitations. In the event that at any time NAI
and its Affiliates shall hold greater than 32.5% of the outstanding voting
shares of capital stock of
-24-
<PAGE> 25
Company, NAI covenants and agrees that NAI and its Affiliates will not take any
shareholder action with respect to any such shares in excess of 32.5%, whether
by vote, written consent or otherwise, unless (a) pursuant to Section 3.4 or (b)
with the unanimous written consent of the Board of Directors of the Company;
provided, however, that the foregoing limitation shall expire upon the
Standstill Termination Date. Additionally, until such time as NAI, in its sole
discretion, provides notice to the Company to the contrary, NAI and its
Affiliates will not take any shareholder action with respect to any of the
outstanding shares of capital stock of the Company in excess of 19.9%, whether
by vote, written consent or otherwise.
4. Non-Solicitation. Until the earlier of (a) the date upon which NAI
owns less than ten percent (10%) of the outstanding shares of Common Stock of
the Company (assuming the conversion and exercise of all convertible or
exercisable securities) and (b) the date that is one (1) year following the
termination of expiration of the License Agreement, (i) the Company and its
majority-owned subsidiaries shall not solicit, employ or retain or arrange to
have any other person, firm or entity solicit, employ or retain or otherwise
participate in the employment or retention of, any employee of News America
Digital Publishing, Inc. or the Fox Sports Television Group (including Fox
Sports Network and Fox Sports International) (including any independent
contractor or agent who devotes at least fifty percent (50%) of his or her
business time to News America Digital Publishing, Inc. or the Fox Sports
Television Group (including Fox Sports Network and Fox Sports International))
without the prior written consent of NAI and (ii) NAI agrees that News America
Digital Publishing, Inc. and the Fox Sports Net Television Group (including Fox
Sports Network and Fox Sports International) shall not solicit, employ or
retain, or arrange to have any other person, firm or entity solicit, employ,
retain, or otherwise participate in the employment or retention of, any person
who is an employee of the Company or any of its majority-owned subsidiaries
(including any independent contractor or agent who devotes at least fifty
percent (50%) of his or her business time to the Company or any of its
majority-owned subsidiaries) without the prior written consent of the Company.
5. Miscellaneous.
5.1 Successors and Assigns. Except as otherwise provided in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties (including transferees of any of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock or Series F Preferred Stock of the Company or any Common Stock
issued upon conversion thereof). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
5.2 Amendments and Waivers. Any term of this Agreement may be
amended or waived only with the written consent of the Company and the holders
of a majority of the Registrable Securities then outstanding (not including
Registrable Securities held by the Officers); provided, however, that (i) if
such amendment affects the Officers in a manner different than the Investors and
adverse to the Officers, then such amendment shall also require
-25-
<PAGE> 26
the consent of the holders of a majority of the Registrable Securities then
outstanding held by the Officers; and (ii) if such amendment affects the holders
of the Registrable Securities then outstanding that are issued or issuable upon
conversion of Series E Preferred Stock or Series F Preferred Stock (the "Series
E/F Holders") in a manner different than the other holders of Registrable
Securities then outstanding and adverse to the Series E/F Holders, then such
amendment shall all require the consent of the holders of a majority of the
Registrable Securities then outstanding held by the Series E/F Holders. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities, and the Company; and, provided
further, that Sections 2.5, 2.6, 2.7, 3 and 4 may only be amended or waived with
the consent of the Company and NAI.
5.3 Notices. Unless otherwise provided, any notice required or
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or sent by
telegram or fax, or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address or fax number as set forth
below or on Exhibit A, Exhibit B, Exhibit C or Exhibit D hereto or as
subsequently modified by written notice.
5.4 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(a) such provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
5.5 Governing Law. This Agreement and all acts and transactions
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of Washington, without giving effect to principles of
conflicts of laws.
5.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.7 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.8 Aggregation of Stock. All shares of the Preferred Stock held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
5.9 Termination of Prior Rights. Effective and contingent upon
execution of this Agreement by the Company and the holders of a majority of the
outstanding Registrable Securities (as such term is defined in the Prior
Agreement) and upon the closing of the transactions contemplated by the Series E
Purchase Agreement, the Prior Agreement shall be null
-26-
<PAGE> 27
and void and amended and restated in its entirety to read as set forth in this
Agreement, and the Company and the Investors hereby shall be bound by the
provisions hereof as the sole agreement of the Company and the Investors with
respect to registration rights of the Company's securities and the other rights
set forth herein.
5.10 Confidentiality and Non-Disclosure. The terms and
conditions of this Agreement and the Agreements (as defined in the Series C
Purchase Agreement) (collectively, the "Financing Terms"), including their
existence, shall be considered confidential information and shall not be
disclosed by any party hereto to any third party except in accordance with the
provisions set forth below.
(a) Press Releases, Etc. Within sixty (60) days of the
Closing (as defined in the Series C Purchase Agreement), the Company may issue a
press release disclosing that the Investors have invested in the Company;
provided that the release does not disclose any of the Financing Terms and the
final form of the press release is approved in advance in writing by Intel
Corporation ("Intel") and a majority-in-interest of the Series C Investors.
Intel's name and the fact that Intel is an investor in the Company can be
included in a reusable press release boilerplate statement if such boilerplate
statement is reproduced in the form in which it was approved. No other
announcements regarding any Investor in any press release, conference,
advertisement, announcement, professional or trade publications, mass marketing
materials or otherwise to the general public may be made without such Investor's
prior written consent.
(b) Permitted Disclosures. Notwithstanding the
foregoing, (i) any party may disclose any of the Financing Terms to its current
or bona fide prospective investors, limited or general partners, employees,
investment bankers, lenders, accountants and attorneys, in each case only where
such persons or entities are under appropriate nondisclosure obligations, (ii)
any party may disclose (other than in a press release or other public
announcement described in subsection (a) solely the fact that the Investors are
investors in the Company to any third parties without the requirement for the
consent of any other party or nondisclosure obligations, and (iii) Intel may
disclose its investment in the Company and the Financing Terms to third parties
or to the public at its sole discretion and, if it does so, the other parties
hereto shall have the right to disclose to third parties any such information
disclosed in a press release or other public announcement made by Intel.
(c) Legally Compelled Disclosure. In the event that any
party is requested or becomes legally compelled (including without limitation,
pursuant to securities laws and regulations) to disclose the existence of any of
the Financing Terms hereof in contravention at this Section 5.10, such party
(the "Disclosing Party") shall act reasonably to provide the other parties (the
"Non-Disclosing Parties") with prompt written notice of that fact so that the
appropriate party may seek (with the cooperation and reasonable efforts of the
other parties) a protective order, confidential treatment or other appropriate
remedy. In such event, the Disclosing Party shall furnish only that portion of
the information which is legally required and shall exercise reasonable efforts
to obtain reliable assurance that confidential treatment will be accorded such
information to the extent reasonably requested by any Non-Disclosing Party.
-27-
<PAGE> 28
(d) Other Information. The provisions of this Section
5.10 shall be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by any of the parties hereto with
respect to the transactions contemplated by the Series C Purchase Agreement.
Additional disclosures and exchange of confidential information between the
Company and Intel (including without limitation, any exchanges of information
with any Intel board observer) shall be governed by the terms of the Corporate
Non-Disclosure Agreement No. 0272085, dated March 2, 1999, executed by the
Company and Intel, and any Confidential Information Transmittal Records provided
in connection therewith.
(e) All notices required under this Section 5.10 shall
be made pursuant to Section 5.3 of this Agreement.
(f) Notwithstanding anything to the contrary in this
Section 5.10, the provisions of this Section 5.10 shall not apply to entities
affiliated with Hummer Winblad Venture Partners, including, but not limited to,
its general or limited partners or employees.
5.11 Sale of the Company. In the event that a Sale of the
Company is approved by (a) the Board of Directors of the Company and (b) the
holders of a majority of the then-outstanding shares of Preferred Stock and
Common Stock of the Company (not including shares held by Intel Corporation),
voting together as a single class, not as separate classes or series, and on an
as-converted basis, Intel hereby agrees to:
(i) not exercise any dissenters' rights under applicable
law at any time for such Sale of the Company; and
(ii) refrain from transferring any securities of the
Company, the acquirer, or any other applicable company during any period
prohibited by then applicable "pooling of interests" accounting treatment rules,
whether before or after the Sale of the Company, provided that such period of
restriction prior to the closing of a Sale of the Company shall not exceed one
hundred twenty (120) days; and provided further that this Section 4.11 shall
only apply if the Company's independent accountants determine, in their sole
professional judgment, that such restrictions must apply to Intel in order to
obtain and preserve "pooling of interests" accounting treatment and Intel is
provided with written notice of such conclusion.
5.12 Waiver. By execution of this Agreement, each Major Investor
(as defined in the Prior Agreement) hereby waives its rights of first offer
pursuant to Section 2.3 of the Prior Agreement, and any applicable notice
provisions relating thereto, with respect to all outstanding shares of Series B
Preferred Stock of the Company, the shares of Series C Preferred Stock of the
Company issued pursuant to the Series C Purchase Agreement, the shares of Series
E Preferred Stock of the Company issued pursuant to the Series E Purchase
Agreement, the NAI Warrants, the Heckman Media Warrant (as defined in the Series
C Purchase Agreement), the shares of Common Stock and Series D Preferred Stock
of the Company issuable upon exercise of the NAI Warrants, the shares of Series
C Preferred Stock issuable upon exercise of the Heckman Media Warrant, the
shares of Series F Preferred Stock issuable upon exercise of the Warrant (as
defined in the Series E Purchase Agreement) and the shares of Common Stock of
the Company issuable upon conversion of such shares of Series B Preferred Stock,
Series C Preferred Stock, Series D
-28-
<PAGE> 29
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock.
-29-
<PAGE> 30
The parties have executed this Amended and Restated Investor Rights
Agreement as of the date first written above.
THE COMPANY:
RIVALS.COM, INC.
By:
James C. Heckman, Jr.
President
Address: 71 Columbia Street,
Suite 550
Seattle, Washington 98104
Fax: (206) 381-6999
INVESTORS:
NEWS AMERICA INCORPORATED
By:
Name:
(print)
Title:
SIGNATURE PAGE TO RIVALS.COM, INC. INVESTORS RIGHTS AGREEMENT
<PAGE> 31
HUMMER WINBLAD VENTURE PARTNERS III,
L.P.
By:
Name:
(print)
Title:
HUMMER WINBLAD TECHNOLOGY FUND III,
L.P.
By:
Name:
(print)
Title:
HUMMER WINBLAD VENTURE PARTNERS IV,
L.P.
By:
Name:
(print)
Title:
SIGNATURE PAGE TO RIVALS.COM, INC. INVESTORS RIGHTS AGREEMENT
<PAGE> 32
INTEL CORPORATION
By:
Name:
(print)
Title:
SIGNATURE PAGE TO RIVALS.COM, INC. INVESTORS RIGHTS AGREEMENT
<PAGE> 33
THE PHOENIX PARTNERS III B
LIMITED PARTNERSHIP
By: The Phoenix Management Partners
III, its General Partner
By:
---------------------------------
David B. Johnston,
General Partner
THE PHOENIX PARTNERS IV LIMITED
PARTNERSHIP
By: The Phoenix Management Partners
IV LLC, its General Partner
By:
---------------------------------
David B. Johnston,
Member
SIGNATURE PAGE TO RIVALS.COM, INC. INVESTORS RIGHTS AGREEMENT
<PAGE> 34
Saul Gamoran
HECKMAN MEDIA, INC.
By:
Name:
(print)
Title:
SIGNATURE PAGE TO RIVALS.COM, INC. INVESTORS RIGHTS AGREEMENT
<PAGE> 35
SOFTBANK CAPITAL PARTNERS LP
By: SOFTBANK Capital Partners LLC
Its General Partner
By:
------------------------------
Name:
Title:
SOFTBANK CAPITAL ADVISORS FUND LP
By: SOFTBANK Capital Partners LLC
Its General Partner
By:
------------------------------
Name:
Title:
SIGNATURE PAGE TO RIVALS.COM, INC. INVESTORS RIGHTS AGREEMENT
<PAGE> 36
OFFICERS:
------------------------------------
James C. Heckman, Jr.
------------------------------------
Jeffrey P. Rice
------------------------------------
Saul Gamoran
------------------------------------
Michael B. Slade
------------------------------------
John Uppendahl
------------------------------------
William Sornsin
------------------------------------
Peter Gruman
------------------------------------
David Eckoff
SIGNATURE PAGE TO RIVALS.COM, INC. INVESTORS RIGHTS AGREEMENT
<PAGE> 37
EXHIBIT A
SERIES A INVESTORS
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
George Baggen 300,000
132 Lincoln Street
Sitka, Alaska 99835-7540
Neal Dempsey III and Janet Rae Dempsey, 300,000
trustees of the Dempsey 96 Revocable
Trust dated November 13, 1996
c/o Bay Partners
10600 North De Anza Boulevard, Suite 100
Cupertino, California 95014-2031
Bradley D. Green 280,000
218 Main Street #272
Kirkland, Washington 98033-6018
James C. and Lea Heckman 140,000
604 South Ennis
Port Angeles, Washington 98362-6646
Heckman Media, Inc.
c/o Rivals.com, Inc. 1,240,000
71 Columbia Street, Suite 550
Seattle, Washington 98104
Attn: James C. Heckman, Jr.
Alan S. Humason and Pamela Eimers 200,000
620 South B Street
Grangeville, Idaho 93530-1412
David B. Johnston 260,000
c/o The Phoenix Partners
1000 Second Avenue, Suite 3600
Seattle, Washington 98104-1046
T. Dean Maher 200,000
3663 - 50th Avenue N.E.
Seattle, Washington 98105-5254
Craig Olson 300,000
c/o Rivals.com, Inc.
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
71 Columbia Street, Suite 550
Seattle, Washington 98104
Saffron, LLC 100,000
17865 Ballinger Way
Lake Forest Park, Washington 98155-4234
Attn: Laurel James
John E. Spurrier 200,000
P.O. Box 21513
Seattle, Washington 98111-3513
David R. Rice 80,000
6598 - 153rd Avenue S.E.
Bellevue, Washington 98006
Jeffrey Savage 40,000
4374 East Briles Road
Phoenix, Arizona 85024
Keith R. Haynes 80,000
P.O. Box 7403
Shoreline, Washington 98133-7403
Deborah Eimers 80,000
3183 Fox Spit Road
Langley, Washington 98260
Great Northern Ventures LLC 60,000
2325 E. Thomas Street
Seattle, Washington 98112
Jeffrey P. Rice 200,000
5017 47th Avenue North
Seattle, Washington 98121
</TABLE>
-38-
<PAGE> 39
EXHIBIT B
SERIES B INVESTORS
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
Hummer Winblad Venture Partners III, L.P. 3,620,656
2 South Park, 2nd Floor
San Francisco, California 94107
Attn: Ann Winblad
Fax: (415) 979-9601
Hummer Winblad Technology Fund III, L.P. 190,561
2 South Park, 2nd Floor
San Francisco, California 94107
Attn: Ann Winblad
Fax: (415) 979-9601
Intel Corporation 1,905,609
Attn: Merger & Acquisitions Portfolio Manager
RN6-46
2200 Mission College Boulevard
Santa Clara, California 95052
Fax: (408) 765-1399
The Phoenix Partners IV Limited Partnership 714,603
1000 Second Avenue, Suite 3600
Seattle, Washington 98104
Attn: David B. Johnston
Fax: (206) 624-1907
The Phoenix Partners III B Limited Partnership 238,201
1000 Second Avenue, Suite 3600
Seattle, Washington 98104
Attn: David B. Johnston
Fax: (206) 624-1907
Venture Law Group Investments 1999 15,238
2800 Sand Hill Road
Menlo Park, California 94025
Fax: (650) 233-8386
Craig E. Sherman 3,809
c/o Venture Law Group
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
4750 Carillon Point
Kirkland, Washington 98033
Fax: (425) 739-8750
Jeff Rice 48,871
5017 47th Avenue North
Seattle, Washington 98121
RIP General Partnership 97,743
Attn: Kris Olsen
18706 - 85th Place W.
Edmonds, Washington 98026
Rock Creek Partners 48,871
Attn: Rich Morgan
1300 Dexter Avenue N., Suite 110
Seattle, Washington 98109
Mike Hubbard 48,871
6802 - 96th Avenue SE
Mercer Island, Washington 98040
Overlake Orthopaedic & Fracture 48,819
Center Profit Sharing Trust
Attn: E.M. Vansandt
9432 Calla Da Valle
Scottsdale, Arizona 85255
Willamette Trust dated 10/25/95 48,151
Attn: Thomas Meadowcroft
400 Woodland Road
Kentfield, California 94904
Dakota Capital Partners, L.L.C. 19,201
Attn: Brian Boorstein
Two North Riverside Plaza
Chicago, Illinois 60606
Chris and Melissa Grathwohl 48,433
c/o MPC, Inc.
511 Walnut Avenue N.
Ketchum, Idaho 83340
Great Northern Ventures LLC 192,104
</TABLE>
-40-
<PAGE> 41
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
Attn: Bill Sornsin
2325 E. Thomas Street
Seattle, Washington 98112
Stephen Stroh 47,984
2910 - 213th Street SE
Bothell, Washington 98021
Joe Reynolds 12,032
5713 - 205th Avenue SE
Snohomish, Washington 98290
Scott Blumfield 12,024
20 Northview Court
Lake Oswego, Oregon 97035
Michael Doney 12,024
14514 - 26th Drive SE
Mill Creek, Washington 98012
Staenberg Private Capital, LLC 47,963
2000 First Avenue, Suite 1001
Seattle, Washington 98121
Gary Silverman 19,201
c/o Kirkland & Ellis
200 East Randolph Drive, Suite 5700
Chicago, Illinois 60601
Michael S. and Mary C. Moses 48,151
9716 North 71st Street
Paradise Valley, Arizona 85253
George Baggen 48,527
132 Lincoln Street
Sitka Alaska 99835-7540
Dennis Green 24,195
215 North 22nd Avenue
Yakima, Washington 98902
Andrew Rice 12,024
4209 Ashton Street
</TABLE>
-41-
<PAGE> 42
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
San Diego, California 92110
John Uppendahl 25,000
4917 - 122nd Avenue SE
Bellevue, Washington 98006
Michael B. Slade 47,619
3732 E. High Lane
Seattle, Washington 98112
</TABLE>
-42-
<PAGE> 43
EXHIBIT C
SERIES C INVESTORS
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
News America Incorporated 4,238,999
c/o News America Digital Publishing, Inc.
620 Avenue of the Americas, Sixth Floor
New York, New York 10011
Attn: Kathryn Fink, Senior Vice President,
Finance and Business Operations
Fax: (212) 462-6111
Hummer Winblad Venture Partners IV, L.P. 1,313,509
2 South Park, 2nd Floor
San Francisco, California 94107
Attn: Ann Winblad
Fax: (415) 979-9601
Intel Corporation 656,755
Attn: Mergers & Acquisitions Portfolio Manager
RN6-46
2200 Mission College Boulevard
Santa Clara, California 95052
Fax: (408) 765-1399
The Phoenix Partners IV Limited Partnership 328,377
1000 Second Avenue, Suite 3600
Seattle, Washington 98104
Attn: David B. Johnston
Fax: (206) 624-1907
Heckman Media, Inc. 0
c/o Rivals.com Inc.
71 Columbia Street, Suite 550
Seattle, Washington 98104
Fax: (206) 381-6999
Saul Gamoran 100,000
c/o Rivals.com Inc.
71 Columbia Street, Suite 550
Seattle, Washington 98104
Fax: (206) 381-6999
</TABLE>
<PAGE> 44
EXHIBIT C
SERIES C INVESTORS
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
</TABLE>
EXHIBIT D
SERIES E INVESTORS
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
SOFTBANK Capital Partners LP 2,957,100
10 Langley Road
Suite 403
Newton Center, MA 02159
Attention: Steve Murray
Fax: (617) 928-9301
SOFTBANK Capital Advisors Fund LP 42,900
10 Langley Road
Suite 403
Newton Center, MA 02159
Attention: Steve Murray
Fax: (617) 928-9301
</TABLE>
<PAGE> 45
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
</TABLE>
EXHIBIT E
OFFICERS
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX
<S> <C>
James C. Heckman Jr. 71 Columbia Street, Suite 550
c/o Rivals.com Inc. Seattle, Washington 98104
71 Columbia Street, Suite 550 Fax: (206) 381-6999
Seattle, Washington 98104
Fax: (206) 381-6999 Peter Gruman
c/o Rivals.com Inc.
Jeffrey P. Rice 71 Columbia Street, Suite 550
c/o Rivals.com Inc. Seattle, Washington 98104
71 Columbia Street, Suite 550 Fax: (206) 381-6999
Seattle, Washington 98104
Fax: (206) 381-6999 David Eckoff
c/o Rivals.com Inc.
Saul Gamoran 71 Columbia Street, Suite 550
c/o Rivals.com Inc. Seattle, Washington 98104
71 Columbia Street, Suite 550 Fax: (206) 381-6999
Seattle, Washington 98104
Fax: (206) 381-6999
Michael B. Slade
c/o Rivals.com Inc.
71 Columbia Street, Suite 550
Seattle, Washington 98104
Fax: (206) 381-6999
John Uppendahl
c/o Rivals.com Inc.
71 Columbia Street, Suite 550
Seattle, Washington 98104
Fax: (206) 381-6999
William Sornsin
c/o Rivals.com Inc.
</TABLE>
-45-
<PAGE> 46
EXHIBIT C
SERIES C INVESTORS
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
</TABLE>
EXHIBIT F
PRIMARY NAI COMPETITORS
CBS Worldwide Inc.
National Broadcasting Company (General Electric)
ABC/ESPN (Disney Corporation)
CNN/SI (Time Warner Corporation)
The Sporting News (Times Mirror)
Viacom, Inc. (effective only upon completion of its
proposed merger with CBS Worldwide, Inc.)
<PAGE> 47
EXHIBIT C
SERIES C INVESTORS
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
</TABLE>
EXHIBIT G
SECONDARY NAI COMPETITORS
America Online, Inc.
RealNetworks
Yahoo! Inc.
Vulcan Ventures
Microsoft Corporation
<PAGE> 1
EXHIBIT 10.8
RIVALS.COM, INC.
AMENDED AND RESTATED VOTING AGREEMENT
This Amended and Restated Voting Agreement (the "Agreement") is made as
of the 11th day of February, 2000, by and among Rivals.com, Inc., a Washington
corporation (formerly known as Rivalnet, Inc.) (the "Company"), the holders of
shares of Common Stock of the Company, options to purchase shares of Common
Stock of the Company and shares of Series A Preferred Stock of the Company
listed on Exhibit A attached hereto (the "Prior Holders"), the holders of shares
of Series B Preferred Stock of the Company listed on Exhibit B attached hereto
(the "Series B Investors"), the holders of shares of or warrants to purchase
shares of Series C Preferred Stock of the Company listed on Exhibit B attached
hereto (the "Series C Investors") and the holders of shares of Series E
Preferred Stock of the Company or warrants to purchase shares of Series F
Preferred Stock of the Company listed on Exhibit C attached hereto (the "Series
E Investors" and, collectively with the Prior Holders, the Series B Investors
and the Series C Investors, the "Investors").
RECITALS
The Company, the Prior Holders, the Series B Investors and the Series C
Investors are parties to the Voting Agreement dated as of September 30, 1999
(the "Prior Agreement"). The Company and the Series E Investors have entered
into a Series E Preferred Stock Purchase Agreement dated as of December 21, 1999
(the "Purchase Agreement"), pursuant to which the Company desires to sell to the
Series E Investors, and the Series E Investors desire to purchase from the
Company, shares of the Company's Series E Preferred Stock. In order to induce
the Series E Investors to purchase Series E Preferred Stock of the Company
pursuant to the Purchase Agreement, the Company, the Prior Holders, the Series B
Investors and the Series C Investors desire to enter into this Agreement upon
the terms and conditions set forth below, which amends, restates and supersedes
the Prior Agreement in its entirety.
AGREEMENT
The parties agree as follows:
1. ELECTION OF DIRECTORS.
1.1 BOARD REPRESENTATION. At each annual meeting of the shareholders
of the Company, or at any meeting of the shareholders of the Company at which
members of the Board of Directors of the Company (the "Board") are to be
elected, or whenever members of the Board are to be elected by written consent,
the Investors agree to take all such actions as shall be reasonably necessary to
affirmatively vote or act with respect to their shares so as to elect:
(a) one (1) member of the Board designated by the holders of a
majority of the shares of Series B Preferred Stock of the Company (the "Series B
Director"); provided that the Series B Director shall be designated by Hummer
Winblad Venture Partners or its affiliates ("Hummer Winblad"), so long as Hummer
Winblad owns at least 1,500,000 shares
<PAGE> 2
of the Company's Common Stock, on an as-converted basis (as adjusted for any
stock split, stock dividend, recapitalization and the like) and shall initially
be Ann Winblad;
(b) two (2) members of the Board (the "Prior Holders Directors")
designated by the holders of a majority of outstanding shares of Common Stock
and Series A Preferred Stock of the Company held by the Prior Holders, voting
together as a single class on an as-converted basis, which director shall
initially be James C. Heckman, Jr. and Saul Gamoran;
(c) one (1) member of the Board designated by mutual consent of
the Series B Director and the Prior Holders Directors and reasonably acceptable
to each of them; provided, however, that such member shall (i) have relevant
industry experience, (ii) not be otherwise affiliated with the Company or the
Investors and (iii) initially be Michael B. Slade; and
(d) one (1) member of the Board (the "Series E Director")
designated by SOFTBANK Capital Partners, LP ( "SOFTBANK") on behalf of the
Series E Investors; provided that such designee shall be mutually acceptable to
SOFTBANK and the Company.
1.2 APPOINTMENT OF DIRECTORS. In the event of the resignation, death,
removal or disqualification of the Series B Director, a Prior Holders Director
or the Series E Director, the Series B Investors, the Prior Holders or SOFTBANK
on behalf of the Series E Investors, as the case may be, shall promptly nominate
a new director as provided in Section 1.1, and each Investor and shall take all
such actions as shall be reasonably necessary to affirmatively vote its shares
of capital stock of the Company to elect such nominee to the Board.
1.3 REMOVAL. The Series B Investors, the Prior Holders or the Series
E Investors, as the case may be, may remove their designated director at any
time and from time to time, with or without cause (subject to the Bylaws of the
Company as in effect from time to time and any requirements under applicable
law), in their sole discretion, and after written notice to each of the parties
hereto of the new nominee to replace such director and after such nominee has
been approved by the Company's directors in accordance with Section 1.1 above,
each Investor shall promptly take all such actions as shall be reasonably
necessary to affirmatively vote its shares of capital stock of the Company to
elect such nominee to the Board.
1.4 NEWS AMERICA OBSERVER. So long as News America Incorporated
("NAI") holds at least 1,000,000 shares of Preferred Stock of the Company (as
adjusted for stock splits, stock dividends, recapitalizations and the like), the
Company will permit a representative of NAI (the "NAI Observer") to attend all
meetings of the Board and all committees thereof (whether in person, telephonic
or otherwise) in a nonvoting observer capacity and shall provide to NAI,
concurrently with the members of the Board, and in the same manner, notice of
any such meeting and a copy of all materials provided to such members. Exchanges
of confidential and proprietary information between the Company and the NAI
Observer shall be governed by the terms of the Mutual Non-Disclosure Agreement,
dated September 30, 1999, executed by the Company and NAI, and any confidential
information transmittal records provided in connection therewith. The Company
acknowledges that the NAI Observer will likely have, from time to time,
information that may be of interest to the Company ("Information") regarding a
wide variety of matters, including by way of example only, (a) NAI's
technologies, plans and services,
-2-
<PAGE> 3
and plans and strategies relating thereto, (b) current and future investments
NAI has made, may make, may consider or may become aware of with respect to
other companies and other technologies, products and services, including without
limitation, technologies, products and services that may be competitive with the
Company's, and (c) developments with respect to the technologies, products and
services, and plans and strategies relating thereto, of other companies,
including, without limitation, companies that may be competitive with the
Company. The Company recognizes that a portion of such Information may be of
interest to the Company. Such Information may or may not be known by the NAI
Observer. The Company, as a material part of the consideration for this
Agreement and the Purchase Agreement, agrees that NAI and the NAI Observer shall
have no duty to disclose any Information to the Company or permit the Company to
participate in any projects or investments based on any Information, or to
otherwise take advantage of any opportunity that may be of interest to the
Company if it were aware of such Information, and hereby waives, to the extent
permitted by law, any claim based on the corporate opportunity doctrine or
otherwise that could limit NAI's ability to pursue opportunities based on such
Information or that would require NAI or the NAI Observer to disclose any such
Information to the Company or offer any opportunity relating thereto to the
Company.
1.5 INTEL OBSERVER. So long as Intel Corporation ("Intel"), together
with its subsidiaries (defined as entities of which Intel beneficially owns,
directly or indirectly, at least 50% of the outstanding voting securities) holds
at least 1,000,000 shares of Preferred Stock of the Company (as adjusted for
stock splits, stock dividends, recapitalizations and the like), the Company will
permit a representative of Intel (the "Intel Observer") to attend all meetings
of the Board and all committees thereof (whether in person, telephonic or
otherwise) in a non-voting observer capacity and shall provide to Intel,
concurrently with the members of the Board, and in the same manner, notice of
any such meeting and a copy of all materials provided to such members. Exchanges
of confidential and proprietary information between the Company and the Intel
Observer shall be governed by the terms of the Corporate Non-Disclosure
Agreement No. 0272085, dated March 2, 1999 executed by the Company and Intel,
and any Confidential Information Transmittal Records provided in connection
therewith. The Company acknowledges that the Intel Observer will likely have,
from time to time, information that may be of interest to the Company
("Information") regarding a wide variety of matters, including by way of example
only, (a) Intel's technologies, plans and services, and plans and strategies
relating thereto, (b) current and future investments Intel has made, may make,
may consider or may become aware of with respect to other companies and other
technologies, products and services, including without limitation, technologies,
products and services that may be competitive with the Company's, and (c)
developments with respect to the technologies, products and services, and plans
and strategies relating thereto, of other companies, including, without
limitation, companies that may be competitive with the Company. The Company
recognizes that a portion of such Information may be of interest to the Company.
Such Information may or may not be known by the Intel Observer. The Company, as
a material part of the consideration for this Agreement and the Purchase
Agreement, agrees that Intel and the Intel Observer shall have no duty to
disclose any Information to the Company or permit the Company to participate in
any projects or investments based on any Information, or to otherwise take
advantage of any opportunity that may be of interest to the Company if it were
aware of such Information, and hereby waives, to the extent permitted by law,
any claim based on the corporate opportunity doctrine or otherwise that could
limit Intel's ability to pursue opportunities based on such Information or that
would require Intel
-3-
<PAGE> 4
or the Intel Observer to disclose any such Information to the Company or offer
any opportunity relating thereto to the Company.
2. ADDITIONAL REPRESENTATIONS AND COVENANTS.
2.1 NO REVOCATION. The voting agreements contained herein are coupled
with an interest and may not be revoked during the term of this Agreement.
2.2 CHANGE IN NUMBER OF DIRECTORS. Except as is otherwise
contemplated by this Agreement, the Investors will not vote for any amendment or
change to the Articles of Incorporation or Bylaws of the Company providing for
the election of more or less than four (4) directors, or any other amendment or
change to the Articles of Incorporation or Bylaws of the Company inconsistent
with the terms of this Agreement.
2.3 LEGENDS. Each certificate representing shares of the Company's
capital stock held by the Investors or any assignee of the Investors shall bear
the following legend:
"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT BY AND
AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY (A COPY OF
WHICH MAY BE OBTAINED FROM THE COMPANY), AND BY ACCEPTING ANY
INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE
DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF
SAID VOTING AGREEMENT."
2.4 EXPENSES OF DIRECTORS. The Company shall reimburse all members of
the Board for all reasonable out-of-pocket expenses incurred in connection with
attendance at meetings of the Board or committees thereof.
3. TERMINATION.
3.1 TERMINATION EVENTS. This Agreement, other than Section 4, which
shall survive any termination pursuant to Section 3.1(a) below but shall remain
subject to termination pursuant to Section 3.1(b), shall terminate upon the
earlier of:
(a) A firm commitment underwritten public offering by the Company
of shares of its Common Stock pursuant to a registration statement under the
Securities Act of 1933, as amended, the public offering price of which is not
less than $8.85 per share (appropriately adjusted for any stock split, dividend,
combination or other recapitalization) and which results in aggregate cash
proceeds to the Company of at least $15,000,000 (net of underwriting discounts
and commissions) (a "Qualified IPO"); or
(b) The sale, conveyance or disposal of all or substantially all
of the Company's property or business or the Company's merger into or
consolidation with any other corporation (other than a wholly-owned subsidiary
corporation) or if the Company effects any other transaction or series of
related transactions in which more than fifty percent (50%) of the
-4-
<PAGE> 5
voting power of the Company is disposed of that is effected in accordance with
the provisions of the Amended and Restated Investor Rights Agreement dated as of
the date hereof by and among the Company, the Investors and certain other
holders of the Company's securities; provided, however, that this Section 3.1(b)
shall not apply to a merger effected exclusively for the purpose of changing the
domicile of the Company.
3.2 REMOVAL OF LEGEND. At any time after the termination of this
Agreement in accordance with Section 3.1, any holder of a stock certificate
legended pursuant to Section 2.3 may surrender such certificate to the Company
for removal of the legend, and the Company will duly reissue a new certificate
without the legend.
4. POST-IPO DIRECTORS. For a period of two (2) years following a
Qualified IPO, NAI shall be entitled to designate a nominee to the Board, which
nominee shall be reasonably acceptable to the other members of the Board. Upon
the request of News America, the Company shall use its best efforts to cause the
election of such nominee to the Board. For a period of two (2) years following a
Qualified IPO, SOFTBANK shall be entitled to designate a nominee to the Board,
which nominee shall be reasonably acceptable to the other members of the Board.
Upon the request of SOFTBANK, the Company shall use its best efforts to cause
the election of such nominee to the Board.
5. MISCELLANEOUS.
5.1 SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
5.2 AMENDMENTS AND WAIVERS. Any term hereof may be amended or waived
only with the written consent of (a) the Company, (b) the holders of a majority
of the outstanding shares of Common Stock and Series A Preferred Stock of the
Company (on an as-converted basis) held by the Prior Holders (voting together as
a single class), (c) the holders of a majority of the outstanding shares of
Series B Preferred Stock and Series C Preferred Stock of the Company (voting
together as a single class) and (d) the holders of a majority of the outstanding
shares of Series E Preferred Stock. Any amendment or waiver effected in
accordance with this Section 5.2 shall be binding upon the Company and the
current and future holders of any shares of capital stock of the Company held by
the Investors and each of their respective successors and assigns.
Notwithstanding the foregoing, in the event that any employee or officer of the
Company shall hold at least two percent (2%) of the outstanding shares of
capital stock of the Company, such employee or officer shall become a party to
this Agreement by execution of a counterpart signature page hereto, without
further action by the parties. The Company covenants and agrees that any such
employee or officer will become a party to this Agreement.
5.3 NOTICES. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by
-5-
<PAGE> 6
overnight courier or sent by telegram or fax, or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address or
fax number as set forth on the signature page or on Exhibit A, Exhibit B or
Exhibit C hereto, or as subsequently modified by written notice.
5.4 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
5.5 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Washington, without giving effect to principles of conflicts of law.
5.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
5.7 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.8 TERMINATION OF PRIOR RIGHTS. Effective and contingent upon the
execution of this Agreement by the Company, the holders of a majority of the
outstanding shares of Common Stock and Series A Preferred Stock of the Company
(on an as-converted basis) held by the Prior Holders (voting together as a
single class) and the holders of a majority of the outstanding shares of Series
B Preferred Stock and Series C Preferred Stock of the Company (voting together
as a single class), and upon the closing of the transactions contemplated by the
Purchase Agreement, the Prior Agreement shall be null and void and amended and
restated in its entirety to read as set forth in this Agreement, and the
Company, the Prior Holders and the Investors agree to be bound by the provisions
hereof as the sole agreement with respect to the matters set forth herein.
[Signature Page Follows]
-6-
<PAGE> 7
The parties have executed this Amended and Restated Voting Agreement as
of the date first written above.
THE COMPANY:
RIVALS.COM, INC.
By:
-------------------------------------------
James C. Heckman, Jr.
President
Address: 71 Columbia Street, Suite 550
Seattle, Washington 98104
Fax: (206) 381-6999
INVESTORS:
NEWS AMERICA INCORPORATED
By:
-------------------------------------------
Name:
-----------------------------------------
(print)
Title:
----------------------------------------
SIGNATURE PAGE TO RIVALS.COM, INC.
AMENDED AND RESTATED VOTING AGREEMENT
<PAGE> 8
HUMMER WINBLAD VENTURE PARTNERS III, L.P.
By:
-------------------------------------------
Name:
-----------------------------------------
(print)
Title:
----------------------------------------
HUMMER WINBLAD TECHNOLOGY FUND III, L.P.
By:
-------------------------------------------
Name:
-----------------------------------------
(print)
Title:
----------------------------------------
HUMMER WINBLAD VENTURE PARTNERS IV, L.P.
By:
-------------------------------------------
Name:
-----------------------------------------
(print)
Title:
----------------------------------------
SIGNATURE PAGE TO RIVALS.COM, INC.
AMENDED AND RESTATED VOTING AGREEMENT
<PAGE> 9
INTEL CORPORATION
By:
-------------------------------------------
Name:
-----------------------------------------
(print)
Title:
----------------------------------------
SIGNATURE PAGE TO RIVALS.COM, INC.
AMENDED AND RESTATED VOTING AGREEMENT
<PAGE> 10
THE PHOENIX PARTNERS III B
LIMITED PARTNERSHIP
By: The Phoenix Management Partners III,
its General Partner
By:
-------------------------------------------
David B. Johnston,
General Partner
THE PHOENIX PARTNERS IV LIMITED PARTNERSHIP
By: The Phoenix Management Partners IV LLC,
its General Partner
By:
-------------------------------------------
David B. Johnston,
Member
SIGNATURE PAGE TO RIVALS.COM, INC.
AMENDED AND RESTATED VOTING AGREEMENT
<PAGE> 11
HECKMAN MEDIA, INC.
By:
-------------------------------------------
James C. Heckman, Jr.
President
----------------------------------------------
James C. Heckman, Jr.
----------------------------------------------
SAUL GAMORAN
----------------------------------------------
DAVID B. JOHNSTON
----------------------------------------------
JEFFREY P. RICE
----------------------------------------------
CRAIG OLSON
----------------------------------------------
DAVID R. RICE
SIGNATURE PAGE TO RIVALS.COM, INC.
AMENDED AND RESTATED VOTING AGREEMENT
<PAGE> 12
GREAT NORTHERN VENTURES LLC
By:
-------------------------------------------
Name:
-----------------------------------------
(print)
Title:
----------------------------------------
SIGNATURE PAGE TO RIVALS.COM, INC.
AMENDED AND RESTATED VOTING AGREEMENT
<PAGE> 13
NEAL DEMPSEY III AND JANET
RAE DEMPSEY, TRUSTEES OF THE
DEMPSEY 96 REVOCABLE TRUST
DATED NOVEMBER 13, 1996
By:
-------------------------------------------
Name:
-----------------------------------------
(print)
Title:
----------------------------------------
----------------------------------------------
BRADLEY D. GREEN
SIGNATURE PAGE TO RIVALS.COM, INC.
AMENDED AND RESTATED VOTING AGREEMENT
<PAGE> 14
SOFTBANK CAPITAL PARTNERS, L.P.
By: SOFTBANK Capital Partners LLC
Its General Partner
By:
-------------------------------------------
Name:
-----------------------------------------
(print)
Title:
----------------------------------------
SOFTBANK CAPITAL ADVISORS FUND LP
By: SOFTBANK Capital Partners LLC
Its General Partner
By:
-------------------------------------------
Name:
-----------------------------------------
(print)
Title:
----------------------------------------
SIGNATURE PAGE TO RIVALS.COM, INC.
AMENDED AND RESTATED VOTING AGREEMENT
<PAGE> 15
Exhibit A
PRIOR HOLDERS
<TABLE>
<CAPTION>
NAME AND ADDRESS NO. OF SHARES
- ---------------- -------------
<S> <C>
James C. Heckman, Jr. 0
c/o Rivals.com, Inc.
71 Columbia Street, Suite 550
Seattle, Washington 98104
George Baggen 300,000
132 Lincoln Street
Sitka, Alaska 99835-7540
Neal Dempsey III and Janet Rae Dempsey, 300,000
trustees of the Dempsey 96 Revocable
Trust dated November 13, 1996
c/o Bay Partners
10600 North De Anza Boulevard, Suite 100
Cupertino, California 95014-2031
Bradley D. Green 280,000
218 Main Street #272
Kirkland, Washington 98033-6018
James C. and Lea Heckman 140,000
604 South Ennis
Port Angeles, Washington 98362-6646
Heckman Media, Inc. 1,240,000
c/o Rivals.com, Inc.
71 Columbia Street, Suite 550
Seattle, Washington 98104
Attn: James C. Heckman, Jr.
Alan S. Humason and Pamela Eimers 224,688
620 South B Street
Grangeville, Idaho 93530-1412
David B. Johnston 298,888
c/o The Phoenix Partners
1000 Second Avenue, Suite 3600
Seattle, Washington 98104-1046
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
NAME AND ADDRESS NO. OF SHARES
- ---------------- -------------
<S> <C>
T. Dean Maher 200,000
3663 - 50th Avenue N.E.
Seattle, Washington 98105-5254
Craig Olson 300,000
P.O. Box 9312
Seattle, Washington 98109
Jeffrey P. Rice 200,000
5017 47th Avenue North
Seattle, Washington 98121
Saffron, LLC 100,000
17865 Ballinger Way
Lake Forest Park, Washington 98155-4234
Attn: Laurel James
John E. Spurrier 200,000
P.O. Box 21513
Seattle, Washington 98111-3513
David R. Rice 80,000
6598 - 153rd Avenue S.E.
Bellevue, Washington 98006
Jeffrey Savage 40,000
4374 East Briles Road
Phoenix, Arizona 85024
Keith R. Haynes 80,000
P.O. Box 7403
Shoreline, Washington 98133-7403
Deborah Eimers 80,000
3183 Fox Spit Road
Langley, Washington 98260
Great Northern Ventures LLC 60,000
2325 E. Thomas Street
Seattle, Washington 98112
Attn: Bill Sornsin
</TABLE>
-2-
<PAGE> 17
Exhibit B
SERIES B AND SERIES C INVESTORS
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
News America Incorporated 4,238,999
c/o News America Digital Publishing, Inc.
620 Avenue of the Americas, Sixth Floor
New York, New York 10011
Attn: Kathryn Fink, Senior Vice President,
Finance and Business Operations
Fax: (212) 462-6111
Hummer Winblad Venture Partners III, L.P. 3,620,656
2 South Park, 2nd Floor
San Francisco, California 94107
Attn: Ann Winblad
Fax: (415) 979-9601
Hummer Winblad Technology Fund III, L.P. 190,561
2 South Park, 2nd Floor
San Francisco, California 94107
Attn: Ann Winblad
Fax: (415) 979-9601
Hummer Winblad Technology Fund IV, L.P. 1,313,509
2 South Park, 2nd Floor
San Francisco, California 94107
Attn: Ann Winblad
Fax: (415) 979-9601
Intel Corporation 2,562,364
Attn: Mergers & Acquisitions Portfolio Manager
RN6-46
2200 Mission College Boulevard
Santa Clara, California 95052
Fax: (408) 765-1399
The Phoenix Partners IV Limited Partnership 1,042,980
1000 Second Avenue, Suite 3600
Seattle, Washington 98104
Attn: David B. Johnston
Fax: (206) 624-1907
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
The Phoenix Partners III B Limited Partnership 238,201
1000 Second Avenue, Suite 3600
Seattle, Washington 98104
Attn: David B. Johnston
Fax: (206) 624-1907
Heckman Media, Inc. 0
c/o Rivals.com, Inc.
71 Columbia Street, Suite 550
Seattle, Washington 98104
Fax: (206) 381-6999
Saul Gamoran 100,000
c/o Rivals.com, Inc.
71 Columbia Street, Suite 550
Seattle, Washington 98104
Fax: (206) 381-6999
Venture Law Group Investments 1999 15,238
2800 Sand Hill Road
Menlo Park, California 94025
Fax: (650) 233-8386
Craig E. Sherman 3,809
c/o Venture Law Group
4750 Carillon Point
Kirkland, Washington 98033
Fax: (425) 739-8750
Jeffrey P. Rice 48,871
5017 47th Avenue North
Seattle, Washington 98121
RIP General Partnership 97,743
Attn: Kris Olsen
18706 - 85th Place W.
Edmonds, Washington 98026
Rock Creek Partners 48,871
Attn: Rich Morgan
1300 Dexter Avenue N., Suite 110
Seattle, Washington 98109
</TABLE>
-2-
<PAGE> 19
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
Mike Hubbard 48,871
6802 - 96th Avenue SE
Mercer Island, Washington 98040
Overlake Orthopaedic & Fracture 48,819
Center Profit Sharing Trust
Attn: E.M. Vansandt
9432 Calla Da Valle
Scottsdale, Arizona 85255
Willamette Trust dated 10/25/95 48,151
Attn: Thomas Meadowcroft
400 Woodland Road
Kentfield, California 94904
Dakota Capital Partners, L.L.C. 19,201
Attn: Brian Boorstein
Two North Riverside Plaza
Chicago, Illinois 60606
Chris and Melissa Grathwohl 48,433
c/o MPC, Inc.
511 Walnut Avenue N.
Ketchum, Idaho 83340
Great Northern Ventures LLC 192,104
Attn: Bill Sornsin
2325 E. Thomas Street
Seattle, Washington 98112
Stephen Stroh 47,984
2910 - 213th Street SE
Bothell, Washington 98021
Joe Reynolds 12,032
5713 - 205th Avenue SE
Snohomish, Washington 98290
Scott Blumfield 12,024
20 Northview Court
Lake Oswego, Oregon 97035
</TABLE>
-3-
<PAGE> 20
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
Michael Doney 12,024
14514 - 26th Drive SE
Mill Creek, Washington 98012
Staenberg Private Capital, LLC 47,963
2000 First Avenue, Suite 1001
Seattle, Washington 98121
Gary Silverman 19,201
c/o Kirkland & Ellis
200 East Randolph Drive, Suite 5700
Chicago, Illinois 60601
Michael S. and Mary C. Moses 48,151
9716 North 71st Street
Paradise Valley, Arizona 85253
George Baggen 48,527
132 Lincoln Street
Sitka Alaska 99835-7540
Dennis Green 24,195
215 North 22nd Avenue
Yakima, Washington 98902
Andrew Rice 12,024
4209 Ashton Street
San Diego, California 92110
Michael B. Slade 47,619
3732 E. High Lane
Seattle, Washington 98112
John Uppendahl 25,000
4917 - 122nd Avenue S.E.
Bellevue, Washington 98006
</TABLE>
-4-
<PAGE> 21
Exhibit C
SERIES E INVESTORS
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. OF SHARES
- ---------------- -------------
<S> <C>
SOFTBANK Capital Partners LP 2,957,100
10 Langley Road
Suite 403
Newton Center, MA 02159
Attn: Steve Murray
Fax: (617) 928-9301
SOFTBANK Capital Advisors Fund LP 42,900
10 Langley Road
Suite 403
Newton Center, MA 02159
Attn: Steve Murray
Fax: (617) 928-9301
</TABLE>
<PAGE> 1
EXHIBIT 10.9
RIVALS.COM, INC.
AMENDED AND RESTATED 1998 STOCK OPTION PLAN(1)
1. Purposes of the Plan. The purposes of this 1998 Stock Option Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Rivals.com, Inc., a Washington corporation.
(g) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "Continuous Status as an Employee or Consultant" means the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than ninety (90) days, unless
re-employment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company, its Subsidiaries or their respective successors. For
purposes of this Plan, a change in status from an Employee to a Consultant or
- -------------
(1) Includes all amendments through June 21, 1999
<PAGE> 2
from a Consultant to an Employee will not constitute an interruption of
Continuous Status as an Employee or Consultant.
(i) "Employee" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company,
with the status of employment determined based upon such minimum number of hours
or periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment of a director's fee by the
Company to a director shall not be sufficient to constitute "employment" of such
director by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any date, the fair market
value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation System ("Nasdaq"), its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
(m) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(n) "Option" means a stock option granted pursuant to the Plan.
(o) "Optioned Stock" means the Common Stock subject to an Option.
(p) "Optionee" means an Employee or Consultant who receives an
Option.
-2-
<PAGE> 3
(q) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code, or any successor
provision.
(r) "Plan" means this 1998 Stock Option Plan.
(s) "Reporting Person" means an officer, director, or greater
than ten percent (10%) shareholder of the Company within the meaning of Rule
16a-2 under the Exchange Act, who is required to file reports pursuant to Rule
16a-3 under the Exchange Act.
(t) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act, as the same may be amended from time to time, or any successor provision.
(u) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(v) "Stock Exchange" means any stock exchange or consolidated
stock price reporting system on which prices for the Common Stock are quoted at
any given time.
(w) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 7,173,256* shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock. If an Option should expire
or become unexercisable for any reason without having been exercised in full,
the unpurchased Shares that were subject thereto shall, unless the Plan shall
have been terminated, become available for future grant under the Plan. In
addition, any shares of Common Stock which are retained by the Company upon
exercise of an Option in order to satisfy the exercise price for such Option or
any withholding taxes due with respect to such exercise shall be treated as not
issued and shall continue to be available under the Plan. Shares repurchased by
the Company pursuant to any repurchase right which the Company may have shall
not be available for future grant under the Plan.
4. Administration of the Plan
(a) Initial Plan Procedure. Prior to the date, if any, upon which
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a committee appointed by the Board.
(b) Plan Procedure After the Date, if any, Upon Which the Company
Becomes Subject to the Exchange Act.
- --------------
* This number reflects the Company's 4-for-1 forward stock split approved by the
Board of Directors on December 4, 1998.
-3-
<PAGE> 4
(i) Multiple Administrative Bodies. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees or Consultants who are not
Reporting Persons.
(ii) Administration With Respect to Reporting Persons.
With respect to grants of Options to Employees who are Reporting Persons, the
Plan shall be administered by (A) the Board if the Board may administer the Plan
in compliance with Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan, or (B) a committee designated by the Board
to administer the Plan, which committee shall be constituted in such a manner as
to permit the Plan to comply with Rule 16b-3 with respect to a plan intended to
qualify thereunder as a discretionary plan. Once appointed, such committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the committee and thereafter directly administer the
Plan, all to the extent permitted by Rule 16b-3 with respect to a plan intended
to qualify thereunder as a discretionary plan. No person serving as a member of
an Administrator that has authority with respect to grants to Reporting Persons
shall be eligible to receive any grant under the Plan which would cause such
member to cease to be "disinterested" within the meaning of Rule 16b-3.
(iii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options to Employees or Consultants who are
not Reporting Persons, the Plan shall be administered by (A) the Board or (B) a
committee designated by the Board, which committee shall be constituted in such
a manner as to satisfy the legal requirements relating to the administration of
incentive stock option plans, if any, of state corporate and securities laws, of
the Code and of any applicable Stock Exchange (the "Applicable Laws"). Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom
Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
-4-
<PAGE> 5
(iv) to determine the number of shares of Common Stock to
be covered by each such option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any option granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(ix) to construe and interpret the terms of the Plan and
Options granted under the Plan;
(x) to permit the early exercise of any Option in exchange
for restricted stock subject to a right of repurchase; and
(xi) in order to fulfill the purposes of the Plan and
without amending the Plan, to modify grants of Options to participants who are
foreign nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs.
(d) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. Eligibility
(a) Recipients of Grants. Nonstatutory Stock Options may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option may,
if he or she is otherwise eligible, be granted additional Options.
(b) Type of Option. Each Option shall be designated in the
written option agreement as either an Incentive Stock Option or a Nonstatutory
Stock Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under all plans of the Company or any Parent
or Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options.
(c) Options. For purposes of Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the
-5-
<PAGE> 6
Shares subject to an Incentive Stock Option shall be determined as of the date
of the grant of such Option.
(d) Employment Relationship. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with such
Optionee's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than one hundred ten percent (110%) of the Fair Market Value per Share on
the date of grant.
(B) granted to any Employee, the per Share exercise
price shall be no less than one hundred percent (100%) of the Fair Market Value
per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted to a person who, at the time of the
grant of such Option, owns stock representing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price
-6-
<PAGE> 7
shall be no less than one hundred ten percent (110%) of the Fair Market Value
per Share on the date of the grant.
(B) granted to any person, the per Share exercise
price shall be no less than eighty-five percent (85%) of the Fair Market Value
per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (i) cash, (ii)
check, (iii) at the discretion of the Board, promissory note, (iv) other Shares
that (x) in the case of Shares acquired upon exercise of an Option, have been
owned by the Optionee for more than six months on the date of surrender or such
other period as may be required to avoid a charge to the Company's earnings, and
(y) have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which such Option shall be exercised, (v)
authorization for the Company to retain from the total number of Shares as to
which the Option is exercised that number of Shares having a Fair Market Value
on the date of exercise equal to the exercise price for the total number of
Shares as to which the Option is exercised, (vi) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price and any applicable income or employment taxes, (vii) delivery of
an irrevocable subscription agreement for the Shares that irrevocably obligates
the option holder to take and pay for the Shares not more than twelve months
after the date of delivery of the subscription agreement, (8) any combination of
the foregoing methods of payment, or (9) such other consideration and method of
payment for the issuance of Shares to the extent permitted under Applicable
Laws. In making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. Exercise of Option
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and the
Company has received full payment for the Shares with respect to which the
Option is exercised. Full payment may, as authorized by the Board, consist of
any consideration and method of payment allowable under Section 8(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect
-7-
<PAGE> 8
to the Optioned Stock, not withstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Option. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares that thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship. Subject
to Section 9(c), in the event of termination of an Optionee's Continuous Status
as an Employee or Consultant with the Company, such Optionee may, but only
within three (3) months (or such other period of time not less than thirty (30)
days as is determined by the Administrator, with such determination in the case
of an Incentive Stock Option being made at the time of grant of the Option)
after the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
his or her Option to the extent that the Optionee was entitled to exercise it at
the date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of such termination, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate. No termination shall be deemed to occur and this
Section 9(b) shall not apply if (i) the Optionee is a Consultant who becomes an
Employee; or (ii) the Optionee is an Employee who becomes a Consultant.
(c) Disability of Optionee.
(i) Notwithstanding the provisions of Section 9(b) above,
in the event of termination of an Optionee's Continuous Status as an Employee or
Consultant as a result of his or her total and permanent disability (within the
meaning of Section 22(e)(3) of the Code), Optionee may, but only within twelve
(12) months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(ii) In the event of termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of a disability which
does not fall within the meaning of total and permanent disability (as set forth
in Section 22(e)(3) of the Code), Optionee may, but only within six (6) months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option (within the meaning of Section 422 of
the Code) within three (3) months of the date of such termination, the Option
will not qualify for Incentive Stock Option treatment under the Code. To the
extent that Optionee was not entitled to exercise the Option at the date of
termination, or if
-8-
<PAGE> 9
Optionee does not exercise such Option to the extent so entitled within six (6)
months from the date of termination, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee
during the period of Continuous Status as an Employee or Consultant, or within
thirty (30) days following the termination of the Optionee's Continuous Status
as an Employee or Consultant, the Option may be exercised, at any time within
six (6) months following the date of death (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent the
Optionee was entitled to exercise the Option at the date of death or, if
earlier, the date of termination of the Continuous Status as an Employee or
Consultant. To the extent that Optionee was not entitled to exercise the Option
at the date of death or termination, as the case may be, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons shall comply
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, or (b) out of Optionee's current
compensation, (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six (6)
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or less than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option, if any, that number of
Shares having a fair market value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date").
Any surrender by a Reporting Person of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
-9-
<PAGE> 10
All elections by an Optionee to have Shares withheld to satisfy
tax withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or disapproval
of the Administrator and;
(d) if the Optionee is a Reporting Person, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
11. Adjustments Upon Changes in Capitalization; Corporate Transactions
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or that have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination, recapitalization or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
-10-
<PAGE> 11
(c) Change in Control Transactions. The Administrator shall have
the authority, in the Administrator's sole discretion, to provide at the time of
grant of an Option that such Option shall be subject to automatic acceleration,
and shall become fully vested and exercisable, upon the occurrence of any of the
following events (each a "Change in Control"), but only to the extent that such
acceleration does not interfere with any "pooling of interests" accounting
treatment used in connection with such Change in Control:
(i) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal purpose of which is
to change the State of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company, or
(iii) any reverse merger in which the Company is the
surviving entity but in which all of the Company's outstanding voting stock is
transferred to the acquiring entity or its wholly-owned subsidiary.
(d) Certain Distributions. In the event of any distribution to
the Company's shareholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without receipt
of consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
12. Non-Transferability of Options. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised or purchased
during the lifetime of the Optionee, only by the Optionee.
13. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
14. Amendment and Termination of the Plan
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made that would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 or with Section 422
of the Code (or any other applicable law or regulation, including the
requirements of any Stock Exchange), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
-11-
<PAGE> 12
(b) Effect of Amendment or Termination. No amendment or
termination of the Plan shall adversely affect Options already granted, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any Stock Exchange.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
16. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
17. Agreements. Options shall be evidenced by written agreements in such
form as the Administrator shall approve from time to time.
18. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any Stock Exchange upon which the Common Stock is listed. All Options
issued under the Plan shall become void in the event such approval is not
obtained.
19. Information to Optionees. To the extent required by Applicable Laws,
the Company shall provide financial statements at least annually to each
Optionee during the period such Optionee has one or more Options outstanding.
The Company shall not be required to provide such information if the issuance of
Options under the Plan is limited to key employees whose duties in connection
with the Company assure their access to equivalent information. In addition, at
the time of issuance of any securities under the Plan, the Company shall provide
to the Optionee a copy of the Plan and a copy of any agreement(s) pursuant to
which securities granted under the Plan are issued.
-12-
<PAGE> 1
EXHIBIT 10.10
RIVALS.COM, INC.
1999 NETWORK AFFILIATE STOCK OPTION PLAN
1. Purposes of the Plan. The purpose of this 1999 Network Affiliate
Stock Option Plan is to provide an incentive to Consultants of the Company and
its Subsidiaries and to promote the success of the Company's business. All
options granted under the Plan shall be Nonstatutory Stock Options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Rivals.com, Inc., a Washington corporation.
(g) "Consultant" means any entity which is engaged by the Company
or any Parent or Subsidiary to render services and is compensated for such
services.
(h) "Continuous Status as a Consultant" means the absence of any
interruption or termination of service as a Consultant. Continuous Status as a
Consultant shall not be considered interrupted in the case of any leave of
absence approved by the Administrator, provided that such leave is for a period
of not more than ninety (90) days, or unless provided otherwise pursuant to
Company policy adopted from time to time.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" means, as of any date, the fair market
value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation System ("Nasdaq"), its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of
<PAGE> 2
trading in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(k) "Nonstatutory Stock Option" means an Option not intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(l) "Option" means a stock option granted pursuant to the Plan.
(m) "Optioned Stock" means the Common Stock subject to an Option.
(n) "Optionee" means a Consultant that receives an Option.
(o) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code, or any successor
provision.
(p) "Plan" means this 1999 Network Affiliate Stock Option Plan.
(q) "Reporting Person" means an officer, director, or greater
than ten percent (10%) shareholder of the Company within the meaning of Rule
16a-2 under the Exchange Act, who is required to file reports pursuant to Rule
16a-3 under the Exchange Act.
(r) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act, as the same may be amended from time to time, or any successor provision.
(s) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(t) "Stock Exchange" means any stock exchange or consolidated
stock price reporting system on which prices for the Common Stock are quoted at
any given time.
(u) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 200,000 shares of Common Stock. The shares may be authorized,
but unissued, or reacquired Common Stock. If an Option should expire or become
unexercisable for any reason without having been
-2-
<PAGE> 3
exercised in full, the
unpurchased Shares that were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan. In addition,
any shares of Common Stock which are retained by the Company upon exercise of an
Option in order to satisfy the exercise price for such Option or any withholding
taxes due with respect to such exercise shall be treated as not issued and shall
continue to be available under the Plan. Shares repurchased by the Company
pursuant to any repurchase right which the Company may have shall not be
available for future grant under the Plan.
4. Administration of the Plan
(a) Initial Plan Procedure. Prior to the date, if any, upon which
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a committee appointed by the Board.
(b) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(j) of the Plan;
(ii) to select the Consultants to whom Options may from
time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to
be covered by each such option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any option granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(ix) to construe and interpret the terms of the Plan and
Options granted under the Plan;
-3-
<PAGE> 4
(x) to permit the early exercise of any Option in exchange
for restricted stock subject to a right of repurchase; and
(xi) in order to fulfill the purposes of the Plan and
without amending the Plan, to modify grants of Options to participants who are
foreign nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. Eligibility
(a) Recipients of Grants. Nonstatutory Stock Options may be
granted to Consultants. A Consultant who has been granted an Option may, if it
is otherwise eligible, be granted additional Options.
(b) Type of Option. Each Option shall be a Nonstatutory Stock
Option.
(c) Consulting Relationship. The Plan shall not confer upon any
Optionee any right with respect to continuation of a consulting relationship
with the Company, nor shall it interfere in any way with such Optionee's right
or the Company's right to terminate its consulting relationship at any time,
with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
8. Option Exercise Price and Consideration
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, provided that any Option that is:
(i) granted to a person who, at the time of the
grant of such Option, owns stock representing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than one hundred
ten percent (110%) of the Fair Market Value per Share on the date of the grant.
(ii) granted to any person, the per Share exercise
price shall be no less than eighty-five percent (85%) of the Fair Market Value
per Share on the date of grant.
-4-
<PAGE> 5
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator and may consist entirely of (i) cash, (ii) check, (iii) at the
discretion of the Board, promissory note, (iv) other Shares that (x) in the case
of Shares acquired upon exercise of an Option, have been owned by the Optionee
for more than six months on the date of surrender or such other period as may be
required to avoid a charge to the Company's earnings, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which such Option shall be exercised, (v) authorization for the
Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised, (vi) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price and
any applicable income or employment taxes, (vii) delivery of an irrevocable
subscription agreement for the Shares that irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the date
of delivery of the subscription agreement, (8) any combination of the foregoing
methods of payment, or (9) such other consideration and method of payment for
the issuance of Shares to the extent permitted under any applicable laws. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. Exercise of Option
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and the
Company has received full payment for the Shares with respect to which the
Option is exercised. Full payment may, as authorized by the Board, consist of
any consideration and method of payment allowable under Section 8(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
-5-
<PAGE> 6
Exercise of an Option in any manner shall result in a
decrease in the number of Shares that thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Consulting Relationship. Subject to Section
9(c), in the event of termination of an Optionee's Continuous Status as a
Consultant with the Company, such Optionee may, but only within three (3) months
(or such other period of time not less than thirty (30) days as is determined by
the Administrator) after the date of such termination (but in no event later
than the expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Rule 16b-3. Options granted to Reporting Persons shall comply
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(d) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, or (b) out of Optionee's current
compensation, (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six (6)
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or less than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option, if any, that number of
Shares having a fair market value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date").
Any surrender by a Reporting Person of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
-6-
<PAGE> 7
All elections by an Optionee to have Shares withheld to satisfy
tax withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or disapproval
of the Administrator and;
(d) if the Optionee is a Reporting Person, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
11. Adjustments Upon Changes in Capitalization; Corporate Transactions
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or that have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination, recapitalization or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
-7-
<PAGE> 8
(c) Change in Control Transactions. The Administrator shall have
the authority, in the Administrator's sole discretion, to provide at the time of
grant of an Option that such Option shall be subject to automatic acceleration,
and shall become fully or partially vested and exercisable (at the
Administrator's discretion), upon the occurrence of any of the following events
(each a "Change in Control"), with any additional contingencies imposed by the
Administrator on such acceleration; provided, however, that any such
acceleration shall occur only if and to the extent that such acceleration does
not interfere with any "pooling of interests" accounting treatment used in
connection with such Change in Control:
(i) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal purpose of which is
to change the State of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company, or
(iii) any reverse merger in which the Company is the
surviving entity but in which all of the Company's outstanding voting stock is
transferred to the acquiring entity or its wholly-owned subsidiary.
(d) Certain Distributions. In the event of any distribution to
the Company's shareholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without receipt
of consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
12. Non-Transferability of Options. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised or purchased
only by the Optionee.
13. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Consultant to whom an Option is so
granted within a reasonable time after the date of such grant.
14. Amendment and Termination of the Plan
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made that would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 or with Section 422
of the Code (or any other applicable law or regulation, including the
requirements of any Stock Exchange), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
-8-
<PAGE> 9
(b) Effect of Amendment or Termination. No amendment or
termination of the Plan shall adversely affect Options already granted, unless
mutually agreed otherwise between the Optionee and the Company, which agreement
must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any Stock Exchange.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
16. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
17. Agreements. Options shall be evidenced by written agreements in such
form as the Administrator shall approve from time to time.
18. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any Stock Exchange upon which the Common Stock is listed. All Options
issued under the Plan shall become void in the event such approval is not
obtained.
19. Information to Optionees. To the extent required by any applicable
laws, the Company shall provide financial statements at least annually to each
Optionee during the period such Optionee has one or more Options outstanding. In
addition, at the time of issuance of any securities under the Plan, the Company
shall provide to the Optionee a copy of the Plan and a copy of any agreement(s)
pursuant to which securities granted under the Plan are issued.
-9-
<PAGE> 1
EXHIBIT 16.1
March 10, 2000
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the Change in Accountants' section of Form S-1 of Rivals.com, Inc.
and are in agreement with the statements contained in the third and fourth
sentences therein. We have no basis to agree or disagree with other statements
of the registrant contained in the document.
/s/ ERNST & YOUNG LLP
_____________________
Ernst & Young LLP
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Shareholders
Rivals.com, Inc.
Seattle, Washington
We consent to the use in this Registration Statement of Rivals.com, Inc. on Form
S-1 of our report dated March 9, 2000 appearing in the Prospectus, which is part
of this Registration Statement, and of our report dated March 9, 2000 relating
to the financial statement schedule (Schedule II) appearing elsewhere in this
Registration Statement. We also consent to the use in this Registration
Statement of our report dated March 9, 2000 on the financial statements of
Sports Washington.
We also consent to the reference to us under the headings "Selected Consolidated
Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
March 10, 2000
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE
To the Board of Directors and Shareholders
Rivals.com, Inc.
Seattle, Washington
Our audits were conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental schedule
(Schedule II) listed in the table of contents is presented for the purpose of
additional analysis and is not a required part of the basic consolidated
financial statements. This schedule is the responsibility of the Company's
management. Such schedule has been subjected to the auditing procedures applied
in our audits of the basic consolidated financial statements and, in our
opinion, is fairly stated in all material respects when considered in relation
to the basic consolidated financial statements taken as a whole.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
March 9, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,660,753
<SECURITIES> 0
<RECEIVABLES> 1,262,432
<ALLOWANCES> 79,088
<INVENTORY> 0
<CURRENT-ASSETS> 16,103,590
<PP&E> 3,521,797
<DEPRECIATION> (463,434)
<TOTAL-ASSETS> 26,505,405
<CURRENT-LIABILITIES> 4,949,736
<BONDS> 0
0
33,278,793
<COMMON> 20,358,613
<OTHER-SE> (33,063,438)
<TOTAL-LIABILITY-AND-EQUITY> 26,405,405
<SALES> 1,167,922
<TOTAL-REVENUES> 1,167,922
<CGS> (827,413)
<TOTAL-COSTS> (21,934,771)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (79,028)
<INTEREST-EXPENSE> (83,711)
<INCOME-PRETAX> (21,434,425)
<INCOME-TAX> 0
<INCOME-CONTINUING> (21,434,425)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,416,126)
<EPS-BASIC> (31.93)
<EPS-DILUTED> (31.93)
</TABLE>
