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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1995
Commission File Number 33-13789 LA
YOU BET INTERNATIONAL, INC.
(Exact name of registrant as specified in charter)
Delaware 87-0422246
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1950 Sawtelle Boulevard, Suite 180
Los Angeles, California 90025
(Address of principal executive office)
Registrant's telephone number, including area code
(310) 444-3300
Securities registered pursuant to Section 12(g) of the Act:
(Title of each class) (Name of each exchange
- --------------------- on which registered)
Common Stock, .001 par value ----------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES______NO X
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Issuer's revenue for the fiscal year ended December 31, 1995: $151,000
As of July 26, 1996, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $12,981,532.
As of July 26, 1996, the Registrant had 8,283,333 shares of its common stock
("Common Stock"), $.001 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into Parts I, II or III.
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PART I
ITEM 1: BUSINESS
GENERAL
You Bet International, Inc. (the "Registrant" and together with its
consolidated subsidiaries, the "Company"), is an on-line communications company
that is developing interactive software for consumer use to be provided over a
private network. The Company's initial focus will be on its interactive horse
racing product line (tentatively called You Bet!), which is expected to undergo
field testing in the fourth quarter of 1996. The software package will enable
users, via modem over regular telephone lines, the Internet or cellular
carriers, to connect to the Company's network, allowing personal computer (PC)
users to establish accounts, access sports and handicapping information, engage
in recreational games and contests for points and prizes and, where consistent
with the Company's "Business Guidelines" (as described in "Government
Regulations; Legality"), transmit actual cash wagers to licensed gaming
agencies. The Company's principal executive offices are located at 1950
Sawtelle Boulevard, Suite 180, Los Angeles, CA 90025, and its telephone number
at that address is 310-444-3300.
The Company's initial business objective is to develop and market an
on-line computer software application which addresses the growing consumer
demand for sophisticated, interactive computer-based programs. The Company
believes that the proliferation of multimedia PCs, the advancement of
technologies for data compression and the production of sophisticated
interactive software have spurred a demand in the market for interactive
entertainment products. The Company is currently developing and testing its
initial on-line, pari-mutuel software program having horse racing as its
subject matter. Management believes that a market opportunity exists to
develop this type of product for individuals who are either dedicated track
enthusiasts or dedicated PC users with a modest interest in horse racing. In
the United States, off-track betting on horse racing, which includes intertrack
wagering (normally featuring simulcasts from other tracks), wagering from off-
track betting (OTB) facilities and telephone betting, has grown at a 16% rate
from 1994 to reach $10 billion wagered in 1995. In 1995, off- track betting
accounted for 68% of the total legal wagering ($14.3 billion) on horse racing.
Total pari-mutuel wagering, which also includes dog racing and jai-alai, was
over $17 billion in 1995. To pursue its business plan and address this
perceived opportunity, beginning in mid-1995 the Company began to assemble a
team of employees and consultants with extensive experience in the horse racing
industry, information technology and on-line networks, with a view towards
bringing the "race track" to the desktop computer environment.
Management believes that the Company has the requisite technology and
experience to develop and implement an on-line pari-mutuel software product.
The Company's principal operating subsidiary, You Bet!, Inc., ("YBI") was
originally incorporated in Delaware under the name PC Totes, Inc. and has over
eight years of experience developing wagering systems. In 1987, YBI developed
a PC based computer "totalisator" system that is used to operate the
pari-mutuel wagering
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systems at horse and dog racing tracks. The system is called the "PC Tote" and
includes facilities for infield scoreboards, closed circuit television, and
numerous types of customer ticket issuing machines. The system is currently in
use at several race tracks in the Far East. Through the implementation of this
horse and dog racing pari-mutuel wagering system, YBI was one of the first
companies worldwide to employ PC based technology in a real-time, transaction
processing environment. The Company believes that this proprietary totalisator
technology is important to the successful implementation of an on-line
interactive program that permits the transmission of pari-mutuel wagering
information as (i) the network itself requires a totalisator for compiling
information prior to transmission and (ii) this knowledge should facilitate
the interface of the information so transmitted with the systems operated by
licensed gaming agencies. (FLS)(1)
__________________________________
(1) Forward Looking Statements. The symbols "FLS" and "FLP" refer to a
"forward looking statement" or "forward looking paragraph". The information
contained therein is subject to various risks, uncertainties and other factors
that could cause actual results to differ materially from the results
anticipated in such forward looking statements or paragraphs. Included among
the important risks, uncertainties and other factors are those hereinafter
discussed.
The business of the Company is dependent upon successful deployment of the
Company's initial product You Bet! Such deployment is subject to all of the
inherent risks in software development, including programming errors, and
conflicts with other software or computer equipment. Additionally, as the
Company is concurrently establishing an on-line network to implement its
product, the Company will be subject to other related risks, such as delays (or
failures) in transmission of data, under-capacity and the inability to access
the network, and general lack of support personnel. The Company's success will
be largely dependent on the ability of the software application and network to
perform as anticipated, as well as market acceptance of the product.
Secondly, the Company will be largely dependent upon negotiating agreements
with third parties, including various track and information providers. Those
third parties will have different business objectives than those of the Company.
Unless the Company and such third parties are able to compromise their
respective objectives in a manner that is mutually acceptable, agreements and
arrangements will not be consummated.
Assuming the Company's product can be developed as anticipated, the Company
will need additional capital to market the product. The Company's need for
additional capital will be dependent upon a number of factors, including the
rate at which the Company's products are utilized and the level of effort needed
to develop and commercialize additional applications. The unavailability of
additional funds when needed could have a material adverse affect on the
Company. The availability of debt and or equity financing, as well as financing
from joint venture sources, is affected by, among other things, world wide
economic conditions, interest rates, and the general competition for funds. No
assurance can be given that the Company will be successful in obtaining
additional financing.
Finally, the Company's software will be affected by the changing and
dynamic nature involving the gaming industry, which is subject to extensive
regulation by both state and federal governments, as well as the current
environment in which Internet and on-line services are offered to computer
users. The gaming industry is heavily regulated, and the policies of the
agencies and legislatures which regulate the gaming industry are subject to
changing political and economic concerns. No assurance can be given that the
Company will not be subject to additional legislation which could materially
impact the Company's planned operations. Moreover, the entire on-line,
Internet-based, communications and entertainment industry is newly emerging and
is rapidly developing, thus subjecting the Company to a variety of volatile
changes, any one of which could have a material adverse affect on the Company's
ability to effectively deploy its products and compete in the marketplace.
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The Company's business plan is to derive most of its revenues through
subscription and transaction fees, rather than through the sale of software
products. (FLS) The Company will explore distribution avenues which
management believes will provide significant and rapid market penetration; the
actual revenue derived from software distribution is less important to the
Company than the size of the subscriber population and the potential revenue
streams it represents.
RECENT DEVELOPMENTS
On December 6, 1995, the Company (which concurrently changed its name
to You Bet International, Inc.), completed the acquisition (the "Acquisition")
of YBI. At the time of the Acquisition, YBI had been offering (and after the
Acquisition, the Registrant, as successor, continued to offer) securities in
private transactions to accredited and offshore investors. Gross proceeds to
the Company from the combined offering were approximately $4.8 million
including $605,000 of indebtedness which was canceled in consideration of the
issuance of Company securities. The remaining proceeds have been, and will
continue to be, used for product development and other general corporate
purposes. (FLS)
BUSINESS PLAN IMPLEMENTATION
The Company is attempting to combine the programming skills and
technical knowledge of its computer industry personnel and network engineers
with the skills and knowledge of its horse racing and pari-mutuel wagering
staff, in order to develop its interactive horse racing software program. The
You Bet! application is intended to integrate computer and software technology
with a secure private network to address a perceived market interest in horse
racing. Elements of this business strategy include:
Use Industry Experts. The Company is using experts from three
disciplines- software development, network implementation and horse racing-- to
develop its on-line programming. For example, an internal product manager with
an intensive horse racing background has major product development
responsibilities to insure that the program, both in content and format, will
be useful to horse racing enthusiasts. One of horse racing's leading jockeys,
Chris McCarron, is working with the Company on the product.
Enhance Proprietary Technology and Production Techniques. The Company
is developing an integrated multimedia process using technologies such as
on-line metering and billing, multi-platform translation and communication, and
financial transaction processing and tracking for use in running the network.
The Company believes that these technologies provide a competitive advantage by
facilitating a real-time transactional environment that will permit the
development of sophisticated interactive programming. (FLS) The Company hopes
to enhance and improve its
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technologies through close collaboration among software programmers, network
engineers and creative talent. (FLS) The Company also plans to actively pursue
patent protection of certain aspects of its technology. (FLS) See "Intellectual
Property" below.
Develop a Broad Line of High-Quality Products. Subject to the
successful implementation of its initial product, the Company intends to
develop a broad product line, including, with respect to horse racing, an
on-line multimedia magazine, audio and video imaging, and chat rooms designed
to appeal to key segments of the horse racing market. (FLS) The Company also
will seek to apply this technology to other sports and gaming activities, in a
manner consistent with the Business Guidelines. (FLS) Although no assurance
can be given that these product enhancements can be developed or, if developed,
can be marketed in a manner which will enhance the Company's anticipated
revenue stream, the Company is devoting significant resources to these
activities and believes that their development has commercial potential.
Pursue Strategic Relationships. The Company is currently discussing
ventures or other strategic relationships in which it can pair its creative and
technical capabilities with companies that already enjoy mass market consumer
appeal. In addition, the Company plans to license its proprietary technology
and production process to international partners to create products and
services for foreign markets. (FLS) No assurance can be given that the Company
will be successful in implementing this plan, and no long term license
agreements have been entered into, although management has been exploring
forming joint ventures or other arrangements in certain areas. To date, the
Company has entered an arrangement with a leading supplier of horse racing data
for redistribution of the data over the Company's network. In addition, the
Company will test its initial product with three tracks managed by an East
Coast horse racing association. (FLS)
Focus on Platforms with the Greatest Market Potential. The Company's
strategy is to focus on developing products for those platforms that have the
greatest installed base among consumers and that offer the capabilities
necessary to produce high quality interactive content. The Company has
targeted PCs as its initial platform for product development. As additional
platforms which are suitable for the Company's products, such as interactive
television, gain commercial acceptance, the Company expects to develop products
for these platforms. (FLS) Certain key elements of the Company's software have
been developed to be portable to other hardware platforms, such as interactive
television (to the extent such services are provided over cable networks) and
hand held digital assistants.
THE WAGERING INDUSTRY
Wagering in the United States. In 1995, over $550 billion was legally
wagered in the United States, representing a 14% increase from 1993. Legal
wagering in the United States, which includes pari-mutuels (horse racing, dog
racing and jai-alai), casino gambling, sports betting, lottery and bingo, has
grown at a rate of 12% a year since 1982. Over the last ten years, 44 states
have passed legislation legalizing various types of wagering, including
lotteries. Management believes that
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during this period no state passed legislation revoking any type of legalized
wagering. The only states that do not currently have some form of legalized
wagering are Hawaii and Utah.
Pari-mutuel Wagering. Pari-mutuel wagering, which includes horse
racing, greyhound racing, and, to a small degree, jai-alai, accounted for over
$17 billion in wagers during 1995, representing an increase of over $900
million from 1994. Horse racing takes place virtually every day of the year in
the United States and the rest of the world. In the U.S. alone, there were
over 12,918 race days in 1995, and the annual attendance was over 40 million.
Aggregate pari-mutuel wagering (as well as other wagering) is much larger
outside of the United States than in the domestic market.
In many states, players can place wagers on races, including out-of
state races, at a track other than the one where the race is run (normally
featuring simulcasting), at OTB locations, or via telephone. Currently, seven
states allow telephone betting, and other states that offer pari-mutuel
wagering may in the future allow telephone betting. (FLS) The Company has been
advised that several states, including New York, Pennsylvania and Connecticut,
permit tracks or other licensed entities in such states to accept wagers placed
by telephone from outside such jurisdictions.
INITIAL PRODUCTS AND SERVICES
On-line wagering, often called "interactive" wagering, is the
placement of wagers from electronic devices such as personal computers,
interactive television sets or hand held personal digital assistants.
Initial Product: The Company anticipates marketing its first program
under the name You Bet!, which will deliver horse racing entertainment and
direct communications with participating licensed wagering facilities such as
the New York Racing Association. (FLS) Horse racing was selected because of
the Company's background in the sport, and because intrastate telephone betting
on these contests is currently permitted in seven states, as well as numerous
foreign countries. See "Business- Government Regulations"
The Company believes that a test (beta) version of You Bet! will be
available for testing by winter of 1996, with a market version available in
early 1997. You Bet! will first be available to customers with IBM compatible
personal computers. (FLP)
You Bet! is being designed to be played for points, prizes and cash
through participating licensed wagering facilities. All of the types of wagers
offered at racetracks will be available through You Bet!, including simple
wagers such as Win, Place, Show, Win-Place, and Win-Place-Show, as well as
exotic wagers such as Perfecta, Quinella, Trifecta, Daily Double, Pick-3,
Pick-6, and Pick-9. (FLP)
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For the novice or occasional handicapper, You Bet! will include
features that make complex handicapping information easier to understand and
manipulate. These features include on-line descriptions of the various pieces
of information available and their meaning, as well as intuitive graphical and
animated interfaces. For the advanced handicapper, You Bet! is expected to
include handicapping tools, including commonly used handicapping methods and
algorithms, as well as a flexible environment for handicappers to enter their
own formulas and generate their own customized, daily handicapping form. (FLP)
Subscribers should be able to track their wagering performance through
You Bet!, viewing their results from a variety of standpoints including: by
track, by type of wager, by amount of wager and by date range. It is
anticipated that the software will be designed to analyze a player's wagering
record, identify areas where the subscriber is successful. For example, You
Bet! can tell a player that Win-Place bets are that player's greatest money
earner, or that the player is having greater difficulty in selecting winning
horses at certain tracks (i.e., at Santa Anita as compared to Aqueduct). (FLP)
MARKETING AND SALES
The Company's business plan is to derive most of its revenues through
subscription and transaction fees, rather than through the sale of software
products. (FLS) Therefore, the Company will explore distribution avenues that
promise significant penetration. The actual revenue derived from software
distribution is less important to the Company than the size of the subscriber
population and the revenue streams it represents.
The Company anticipates that during its first two years of operation
after completion of testing of You Bet!, it will work with a software publisher
or distributor to package, market, and distribute You Bet! and other Company
software access products. (FLS)
The Company's sales and marketing efforts are designed to broaden
product distribution, increase the number of first time purchasers, promote
brand-name recognition, and properly position, package and merchandise the
Company's products. The Company will utilize various marketing techniques
designed to promote brand awareness and recognition, including selective
"bundling" arrangements, shareware, press tours, direct mail, advertising and
trade shows. Additionally, the Company intends to post messages in sports and
wagering discussion forums available on the Internet or other on-line networks.
(FLP)
You Bet! has two principal target markets: existing handicappers and
individuals with access to a personal computer and modem. The Company's
marketing to existing handicappers is expected to focus on You Bet! providing
convenient, current and more detailed information than that available from
traditional sources. The other target market is those individuals who
otherwise have access to PC/Modems but have not previously exhibited a
substantial interest in racing. The Company will attempt to interest PC users
on the basis of the intellectual and financial challenge of either simulated
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betting or actual betting. Both of these groups consists of large populations
of individuals with generally high levels of discretionary income, and the
former group has evidenced serious interest in wagering and gaming. (FLP)
Existing Handicappers: In 1995, racetracks in the United States
recorded over 40 million admissions. Frequent patrons, who go to the track at
least once a month, make up the target group of existing handicappers: people
who are experienced with horse and dog racing, understand the concepts and
rules behind pari-mutuel wagering, and have a demonstrated desire to play.
The Company anticipates that marketing to existing handicappers will
involve traditional methods, because there are a number of existing sources
that handicappers use to acquire information about the races in which they are
interested. The Company's marketing efforts to be directed to existing
handicappers are expected to focus on the several aspects of the You Bet!
service which are believed to be superior to existing formats, including You
Bet!'s ability to (i) provide more handicapping statistics than can be
typically accessed at a racetrack, accompanied by flexible handicapping
analysis tools; and (ii) permit handicappers to play and manage their accounts
from sites they select, regardless of inclement weather and other factors that
keep people from going to the racetrack.
PC Modem/ Commercial On-Line Users: PC modem users represent a
significant potential market of people who play computer games and have shown a
willingness to pay for on-line services. Currently there are over 22 million
households with computers and modems. This figure is expected to increase
dramatically over the next four years. (FLS) Among PC users are subscribers to
existing pay-per-use on-line services such as CompuServe, America On-line,
Prodigy, and Delphi. Over 10 million Americans pay for on-line usage with a
growth rate of 30% per year. These users are adept at using computers and
modems, and are accustomed to receiving entertainment and information through
their computers
Internet users are the largest users of interactive technology in the
world, estimated to number in excess of 25,000,000 people. The Internet users'
growth rate is expected to continue at 25-40% per year for the foreseeable
future. (FLS) A significant portion of the user base pays a monthly service
charge ranging from $5.95 to $19.95 for Internet access. Internet subscribers
represent a large group of individuals, many of whom already use personal
computers as an entertainment device and are accustomed to paying for on-line
service access.
Although this group can be reached through traditional print and
broadcast means, the Company plans to employ a strategy that leverages the low
cost and wide reach of on-line services and the Internet. The Company plans to
have on-line marketing representatives engage people in on-line discussions,
and put the shareware You Bet! access software on-line for people to download.
(FLS)
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Additionally, the Company intends to post messages in sports and wagering
discussion forums on commercial services and Usenet on the Internet, purchase
advertising space from on-line services and Internet providers; and provide
access to shareware You Bet! access software in appropriate forum libraries on
commercial services and via the Internet. The Company also intends to advertise
in specialty magazines such as On-Line Access, .net, Internet World, and
CompuServe magazine. (FLP)
INTELLECTUAL PROPERTY
The Company regards certain of its software and production techniques as
proprietary and will attempt to protect such software and techniques under
patent, copyright, trademark or trade secret laws as well as through contractual
restrictions on disclosure, copying and distribution. While the Company
considers it to be in its best interest to pursue patents and other protections
of its intellectual property rights, it currently does not intend to file for
such protection until You Bet! is launched. The Company does not believe,
however, that its ability to obtain patent protection is critical to the
Company's business of creating entertainment products. (FLS) No assurance can be
given that the Company will be able to adequately protect its intellectual
property.
MANUFACTURING AND SHIPPING
The production of the Company's software will include CD-ROM pressing and
diskette duplication, assembly of purchased product components, printing of
product packaging and user manuals and shipping of finished goods, which will be
performed by third-party vendors in accordance with the Company's specifications
and orders. The Company believes that there are multiple sources for these
services.
COMPETITION
Numerous Internet and other interactive gaming ventures have been announced over
the past several months. The Company expects to compete with these entities, as
well as other established gaming companies which may engage in computer-based
gaming activities. Competition on the Internet with companies providing
entertainment activities, as well as competition with interactive gaming, is and
is expected to continue to be intense. (FLS) The Company's competitors range
from small companies with limited resources to large companies with greater
financial, technical and marketing resources than those of the Company. The
Company considers its principal competitors in the interactive pari-mutuel
gaming market to be ODS and IWN, among others.
X ODS is a division of the company that provides the Prevue program viewing
channel on most cable systems. ODS is developing an in-home pari-mutuel
wagering system that requires an ODS television set-top box and interactive
technology. The system is currently being tested in Kentucky.
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X IWN is a division of NTN Communication, a publicly traded company that
provides interactive trivia entertainment in sports bars, hotels, and other
hospitality environments. IWN has announced that it will release an
in-home pari-mutuel wagering system based on PC's in 1996. Until recently,
YBI was the technology development partner of IWN, providing all technical
expertise and manpower. IWN and YBI signed a Separation and Settlement
agreement, providing IWN with what management believes is an early and
incomplete version of the PC client software. IWN has no rights or access
to YBI's interactive host technology. In addition, YBI retained all
personnel involved in the development of the interactive wagering products
and devices and has since gone on to develop the second generation client
software.
Because the market for interactive software products is still emerging
and the cost barriers to entry into this market are relatively low, the Company
expects the number of competitors to increase. Companies with greater
financial resources than the Company may be able to carry larger inventories,
undertake more extensive marketing campaigns, invest more in the development of
production technology and communication networks, adopt more aggressive pricing
policies and make higher offers or guarantees than the Company. In addition,
the Company believes that potential new competitors, including large software
companies, media companies, and gaming companies, are increasing their focus on
the interactive software market and network connectivity. Competition for the
Company's product is influenced by the timing of competitive product releases
and the similarity of such products to those of the Company, which may result
in significant price competition or reduced profit margins.
GOVERNMENT REGULATION; LEGALITY
The gaming industry, which is subject to extensive statutory and
regulatory control by both state and federal agencies, may be affected by
changes in the political climate and economic and regulatory policies, which
changes may impact the operations of the Company. To the extent that the
Company facilities are used by subscribers to place intrastate or interstate
wagers or the Company receives commissions in respect thereof, such statutes
and regulations could have a direct and material effect on the business and
indirectly could have a material effect on the public demand for the Company's
products and services.
Currently, all 50 states have statutes or regulations restricting
gambling activities, and two states have absolute prohibitions on gambling. In
most states it is illegal for anyone either to accept or make a wager with
certain statutory exceptions. The Federal Interstate Wire Act contains
provisions which may make it a crime for anyone in the business of gambling to
use an interstate or international telephone line to transmit information
assisting in the placing of bets, unless the betting is legal in the
jurisdictions from which and into which the transmission is made. Other
federal laws impacting gaming activities include the Interstate Wagering
Paraphernalia Act, the Travel Act and the Organized Crime Control Act. Various
regulatory and legislative agencies are conducting studies of interstate and
interactive wagering. No assurance can be given that new
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legislation will not be adopted which limits either (i) the intrastate or
interstate activities the Company proposes or hopes to engage in with respect
to actual wagering, or (ii) the type of activities (initially pari-mutuel horse
racing) associated therewith. Any change in either the substance or the
enforcement of the applicable rules and regulations in these areas could have a
material effect on the Company's business and prospects.
The Company has been advised by counsel that it can legally provide
the facilities through which subscribers communicate intrastate wagers in the
seven states that allow in-state telephone account wagering, subject to local
licensing requirements. These states, Connecticut, Kentucky, Maryland, Nevada,
New York, Ohio and Pennsylvania, accounted for approximately 34% of the
estimated $17 billion of pari-mutuel wagering in the United States in 1995.
The Company also believes that it can operate (or license technology) in
numerous countries that allow telephone and account wagering, including Canada,
Mexico, the United Kingdom, Australia, and Hong Kong.
In connection with its proposed activities, the Company might be
considered to be engaged in the gaming business. The Company will not actually
be placing or accepting any wagers. All wagers will be placed by subscribers,
and all actual betting accounts will be maintained by subscribers with licensed
entities such as the New York Racing Association with which the Company has
appropriate contractual relationships. Although the Company hopes to obtain
indemnification from each such entity, no assurance can be given that such
indemnification will be available or, if obtained, that such provisions will be
enforceable or adequate from a financial standpoint.
The Company has adopted a policy (referred to herein as its "Business
Guidelines") pursuant to which it will not engage in any proposed activity
unless (i) the Company has received an opinion of legal counsel (experienced in
gaming or other relevant matters) that it is such counsel's opinion that,
although not necessarily free from doubt, the proposed activity of the Company
is permitted under applicable law, or (ii) the Company's Board of Directors
including a majority of the independent directors, after reasonable inquiry
including consultation with independent legal counsel experienced in gaming or
other relevant matters, determines with a high degree of confidence that
although the matter is not necessarily free from doubt the Company will not be
found to have been violating applicable law by reason of engaging in the
proposed activity.
Since the Company's Business Guidelines permit the Company to engage
in activities as to which it has not received a legal opinion that the
activities are permitted under applicable law, the possibility of violation of
applicable law is enhanced. In addition, the uncertain application of existing
laws to interactive gaming and the lack of applicable precedents suggest that
legal opinions in this field may be qualified on the basis that the matters
expressed therein are not free from doubt. Even when the Company is operating
in accordance with the advice of counsel, a risk exists that the Company may be
found to have violated applicable law. A failure to comply with applicable
regulations could result in the initiation of civil or criminal proceedings
against the Company. The results of such proceedings could include substantial
litigation expense, fines, incarceration of
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Company executives, diversion of the attention of key Company employees,
disqualification of the Company from licensure, and injunctions or other
prohibitions preventing the Company from engaging in various anticipated
activities.
Distribution of the Company's products in countries other than the
United States may be subject to regulation in those countries. There can be no
assurance that the Company will obtain the approvals necessary to market in
such territories.
EMPLOYEES
As of July 8, 1996, the Company engaged twenty-four employees and two
consultants. Of the employees, six are administrative or support personnel.
The Company believes that its relationship with its employees is good.
Additional employees will be hired to help develop and run the host computer
site and to market You Bet!.
ITEM 2: PROPERTIES
In February, 1996, the Company entered into a lease for 7,779 square
feet of space in an office building located at 1950 Sawtelle Boulevard in Los
Angeles, California, which houses the Company's executive offices. The lease
is for a 26 month term, expiring March 31, 1998, with expenses per month of
$7,688. The Company prepaid the $193,220 aggregate lease payments. The
Company believes that this property is adequate for its present purposes.
ITEM 3: LEGAL PROCEEDINGS
The Company is not party to any legal proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
a. Stock: The Company's Common Stock has been traded on the electronic
bulletin board under the symbol UBET. The following table sets forth for the
periods shown, the high and low bid prices as reported by NASDAQ. The bid
prices reflect interdealer prices without retail mark- ups, mark-downs or
commissions and may not necessarily represent actual transactions. Prior to
the Acquisition, the Company's stock traded irregularly. Since the
Acquisition, the limited number of shares of free trading stock may have
impacted the market for the Company's share.
<TABLE>
<CAPTION>
Common Stock
- ------------
High Low
---- ---
<S> <C> <C> <C>
1996:
First Quarter . . . . . . . . . . . . . . . . 5.75 3.00
Second Quarter . . . . . . . . . . . . . . . . 5.00 1.00
Third Quarter (through July 26, 1996) . . . . 4.75 3.25
1995:
Fourth Quarter (From December 7, 1995) . . . . 7.00 5.00
</TABLE>
On July 26, 1996, the closing bid price for the Common Stock was $3.25 and the
closing asked price was $4.00 per share. The approximate number of holders of
record of Common Stock on that date was 255.
The Company has never paid a dividend on its Common Stock and
presently intends to retain all earnings for use in its business.
b. Warrants: Registrant issued and sold 970,000 Series A Warrants, and
517,188 Series B Warrants (collectively, the "Warrants") in connection with the
Acquisition and the concurrent and subsequent placement by the Company of its
securities to accredited and offshore investors. Each of the Series A and
Series B Warrants is exercisable for one share of Common Stock. There is
currently no public market for the Warrants. The Series A Warrants are
exercisable for shares of Common Stock at a price of $5.25 per share, and
expire on the earlier of (a) two years from the later of (i) the date of
issuance of the last Series A Warrant to be issued or (ii) the date of
effectiveness of a registration statement under the Securities Act covering the
issuance and sale of the shares of Common Stock upon issuable exercise of such
Warrants or resale of such shares by the holder,
13
<PAGE> 14
which period shall be extended day-for-day for any time that a prospectus
meeting the requirements of the Securities Act is not available, or (b) the
date specified in a notice of redemption from the Registrant (subject to the
prior right of the holder to exercise the Warrants for at least 30 trading days
following the date of such notice), which notice can only be given if the
closing price of the Common Stock for the twenty consecutive trading days
preceding such notice exceeds $7.50 per share and a current prospectus covering
the underlying shares is then available and the Company has a good faith belief
that it will remain available during said period of at least 30 trading days.
A Series A Warrant may not be exercised during the first year following
issuance, and the Company may not call the Series A Warrants for redemption
during the 15 months immediately following the initial issuance of Series A
Warrants or while any Series A Warrant may not be exercised. The Series B
Warrants are substantially similar to the Series A Warrants, except that (i)
the Series B Warrants are exercisable for shares of Common Stock at a price of
$3.125 per share; (ii) the Series B Warrants expire three years after they are
first issued, and (iii) the Company may not call the Series B Warrants for
redemption.
ITEM 6: SELECTED FINANCIAL DATA
Selected historical financial data presented below as of and for the
three years ended December 31, 1995 have been derived from the audited
consolidated financial statements of the Company. The following financial
information should be read in conjunction with Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations, and the
Consolidated Financial Statements of the Company and the notes thereto,
included in Item 8.
SUMMARY OF SELECTED FINANCIAL DATA
(in thousands except per share)
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA: 1995 1994 1993
- ----------------------------- ---- ---- ----
<S> <C> <C> <C>
REVENUES
Consulting Revenue $ 151 $ 186 $ 1
Royalty - 0 - - 0 - 80
----- ----- ----
Total 151 186 81
----- ----- ----
EXPENSES:
Research and development 318 2 20
General and administrative 235 107 203
----- ----- ----
Total Expenses: 553 109 223
----- ----- ----
(LOSS) INCOME FROM OPERATIONS (401) 77 (142)
INTEREST INCOME (EXPENSE) NET (20) (25) (16)
----- ----- ----
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES AND
EXTRAORDINARY ITEM
(421) 52 (158)
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
PROVISION FOR INCOME TAXES (2) (1) (2)
(Note 5) ----- ----- ------
(Loss) Income Before
Extraordinary Item (423) 51 (160)
Extraordinary Item 20 ----- ------
----- ----- ------
NET (LOSS) INCOME (403) $ 51 ($160)
===== ===== ======
WEIGHTED AVERAGE COMMON
STOCK AND COMMON
EQUIVALENT SHARES OUTSTANDING 678 343 343
PER SHARE AMOUNTS:
NET (LOSS) INCOME PER SHARE
BEFORE EXTRAORDINARY ITEM $(.62) $.15 $(.46)
EXTRAORDINARY ITEMS $ .03
NET (LOSS) INCOME $(.59) $.15 $(.46)
====== ==== ======
BALANCE SHEET DATA
WORKING CAPITAL $3,339 $ 85
TOTAL ASSETS $3,417 $ 85
LONG-TERM DEBT AND
OBLIGATIONS UNDER CAPITAL
LEASES (including current $ 0 $ 0
portions)
STOCKHOLDERS' EQUITY $3,105 $(258)
(Deficit)
</TABLE>
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Registrant, formerly Continental Embassy Acquisitions, Inc.
("CEA") acquired You Bet!, Inc. ("YBI") (formerly PC Totes, Inc.) on December
6, 1995. The Registrant was organized in 1987 to evaluate, structure and
complete a merger with, or acquisition of, any privately held business
enterprise seeking to obtain the perceived advantages of being a publicly-owned
company. Concurrently with such Acquisition, YBI acquired MiddleWare Telecom
Corporation ("MTC"). MTC is an interactive, multimedia, software development
company specializing in host based interactive systems, which was formerly
owned by affiliates of YBI. MTC's proprietary technologies consist of software
and architecture for on-line metering and billing, multi-platform translation
and communication, financial transaction processing and tracking, and other
critical know-how and technology for interactive wagering and on-line
transaction processing. At the time of the Acquisition, the shareholders of
MTC contributed all of the outstanding shares of common stock of MTC to YBI.
Since such date, MTC has been a wholly-owned subsidiary of the Company.
The Company's 1993 revenues were attributable to royalties YBI was
paid on sales of PC based computer "totalisator" application that is used to
operate the wagering system at horse and dog tracks, and its 1994 and 1995
revenue relates to Internet and software consulting services performed by MTC.
Operating expenses include costs associated with the start-up of the consulting
business in 1993 and 1994 and the development of the You Bet! on-line program
in 1995, including amounts paid to subcontractors for consulting and research
and development services.
Management believes that the historical financial information relating
to the Company is not indicative of the operations of the Company in the future
for the following reasons:
X YBI's totalisator operations have been largely dormant since 1993.
Other than $80,000 in royalty income received in 1993 with respect to
the totalisator program, YBI has not had any significant revenue since
1992. It is not anticipated that royalty revenue will be received in
connection with the "totalisator" software during the current year or
in subsequent periods, unless the Company were successfully to
re-market the system which it has no present plans to do.
X Since 1993, the Company has pursued most of its ongoing business
activity through MTC. MTC generated a modest amount of revenue through
consulting projects relating to on-line marketing and wagering. It is
not anticipated that consulting assignments will be sought or
significant consulting revenue will be received in the current year or
subsequent periods.
X Revenue and expenses for the foreseeable future are expected to be
related to the You Bet! on-line software product.
16
<PAGE> 17
Year Ended December 31, 1995 Compared to Year ended December 31, 1994.
Revenues declined $35,000 (18.8%) to $151,000 in 1995 from $186,000
for 1994 as a result of the cessation of consulting business in the fourth
quarter of 1995 in connection with the Company's decision to focus exclusively
on the research and development of the You Bet! product. During 1995, the
Company signed a termination agreement with its principal consulting customer.
Operating expenses increased $444,000 (407%) to $553,000 in 1995 from
$109,000 in 1994 because of costs incurred in developing the You Bet! product.
The components of the increase were payroll and consulting expense of $279,000
as more programmers and development personnel were added, other development
costs of $69,000, marketing costs of $68,000 to promote the product and the
Company, and increased general and administrative costs of $28,000 associated
with the increased number of employees.
Interest income of approximately $14,200 was earned in 1995, primarily
from the short term deployment of funds raised from the Company's private
placement in late 1995. The Company did not earn any interest income in 1994.
Interest expense increased approximately $9,000 (or 37%) to $33,533 in
1995 from $24,500 in 1994, primarily resulting from an increase in short-term
borrowings.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993.
Revenues increased $105,000 (128%) in 1994 from 1993 as the royalty
income from PC Totes was ended and the consulting segment of MTC began to
generate revenue.
Expenses declined $114,000 (or 51%) to $109,000 in 1994 from $223,000
in 1993 as PC Totes ceased active operations at the end of 1993. PC Totes
incurred $82,000 of operating expense in 1993 versus $300 in 1994. MTC
incurred $140,000 of expense in 1993 versus $104,000 in 1994, principally
associated with the development of its proprietary technologies.
Interest expense increased to approximately $9,000 to $24,500 in 1994
from $15,533 in 1993 as a result of additional short-term borrowings.
Liquidity and Capital Resources
Historically, the Company's primary sources of liquidity and capital
resources have been cash flow from operations and borrowing from related
parties. During the year ended December 31,
17
<PAGE> 18
1995, the Company's cash position increased to $3.3 million as of December 31,
1995, compared to $55,000 at December 31, 1994. In December 1995, the Company
closed a portion of a private offering, issuing 1,290,000 shares and warrants
to purchase an additional 645,000 shares of Common Stock at an exercise price
of $5.25 and receiving net proceeds of approximately $3.0 million after
payments of commissions and other offering expenses. The private placement
offering generated an additional $950,000 after commissions and expenses in
1996 from the issuance of 650,000 additional shares and warrants to purchase in
325,000 additional shares of Common Stock. Substantially all of the Company's
then existing indebtedness (aggregating $605,000) was converted to equity in
the Offering.
Net cash used by operating activities totaled $112,000 during 1995,
substantially all of which was incurred in the development of the You Bet!
product.
Cash flows used in investing activities totaled $81,000 for capital
expenditures. Capital expenditures were primarily for equipment utilized in
the development of the You Bet! product.
The Company has entered into a capital lease that provides for a
$100,000 sale and leaseback of equipment previously purchased by the Company
and a $150,000 line for new equipment purchases. The lease terms are 30 month,
20% security deposit of which 1/3 is returned after each year with an effective
interest rate of approximately 15% per annum.
The Company plans to begin a new private placement offering in the
summer of 1996. The Company plans to offer for sale, on a "best efforts" basis,
a maximum of 1,115,000 shares of the Company's .001 par value Common Stock. The
shares are expected to be offered only to persons other than U.S. Persons, as
defined in Regulation S ("Regulation S"), promulgated under the Securities Act
of 1933 as amended (the "Securities Act"), in offshore transactions, as defined
in Regulation S.
The Company expects that the cash on hand coupled with the cash to be
raised from the new private placement, assuming it will be successful, will be
sufficient for operating expenses and capital expenditures through at least
June 1997. No assurance can be given that the Company will be successful in
raising additional funds. If the Company is not successful in raising this
additional financing, management will be required to consider a variety of
other options including seeking joint venture partners, selling or licensing
all or a portion of its proprietary technology, curtailing product development
and delaying the roll-out of its first product, as well as other cost cutting
actions, including suspending all or a portion of its activities. (FLS)
18
<PAGE> 19
The Company's need for capital (beyond that contemplated in the
anticipated private placement) during the next year or more will vary based
upon a number of factors, including the rate at which demand for products
expands, the level of sales and marketing activities for its products, and the
level of effort needed to develop and commercialize additional applications.
In addition, the Company's business plans may change or unforeseen events may
occur which require the Company to raise additional funds. Additional funds
may not be available on terms acceptable to the Company when the Company needs
such funds. The unavailability of additional funds when needed could have a
material adverse effect on the Company. (FLP)
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Index to Financial Statements of the Company is included in Item 14.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
At a board meeting on January 15, 1996 the Board of Directors of the
Company (the "Board") authorized the Company's executive officers to engage new
auditors for the fiscal year ended December 31, 1995. As of February 28, 1996
the Company engaged the accounting firm of Deloitte & Touche LLP as independent
accountants for the Company for the fiscal year ended December 31, 1995. The
firm of Robinson, Hill & Co. (sometimes referred to herein as "Prior Firm")
was replaced because the Prior Firm was located in Salt Lake City and the
Company has moved its offices to Los Angeles, California after its December 6,
1995 Acquisition of YBI. The Board's decision to retain Deloitte & Touche LLP
was based primarily on its national reputation, partner availability and
familiarity with the Company's general business in the computer software
industry. During the two most recent fiscal years ended December 31, 1994 and
1993, and the interim period beginning January 1, 1995 through February 28,
1996 there were no disagreements with the Prior Firm on matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
19
<PAGE> 20
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
OF THE REGISTRANT; COMPLIANCE WITH 16(a) OF THE EXCHANGE ACT
<TABLE>
<CAPTION> First Became a
Name Age Director or Officer
- ----- --- -------------------
<S> <C> <C>
David Marshall, Chairman and 33 1989
CEO
Russell Fine, Executive Vice 32 1989
President, Chief Technology
Officer, Director
Ron Luniewski, Chief Operating 32 1996
Officer
Barry Peters, Chief Financial 37 1996
Officer
Steve Molnar, Executive Vice 52 1995
President, Racing
Jess Rifkind, Director 64 1995
</TABLE>
DAVID MARSHALL, CHAIRMAN AND CEO. Mr. Marshall has been a technology
entrepreneur and manager for over fifteen years. He has been the founder and
an officer or managing partner of numerous companies, including Sunward Video
Services, an off-line video tape editing and production company achieving
national recognition as the exclusive editing facility for the United Nations
Association. For the past seven years, Mr. Marshall was the CEO (and
co-founder) of both PC Totes, Inc. and MTC. In addition to its work in
interactive system development, MTC also provided consulting services on new
media. Mr. Marshall has led MTC's consulting projects for clients including
General Motors, NTN Communications, and Wanna-Be Interactive Media. Mr.
Marshall attended Babson College in Boston majoring in finance, investments,
communications and economics.
20
<PAGE> 21
RUSSELL FINE, EXECUTIVE VICE-PRESIDENT, CHIEF TECHNOLOGY OFFICER. Mr. Fine
began his professional career at the age of 17 by becoming the youngest
business systems analyst in the history of PennCorp Financial, which at the
time had one of the largest mainframe data centers in the United States. He
has consulted for numerous companies such as Maxwell Communications, Hit or
Miss (a division of Zayres) and the Lightguide Industries, has analyzed the
investment potential of advanced technologies and has managed software
development projects. He studied business at Babson College, majoring in
finance and investments. For over the past seven years, as Chief Technical
Officer and co-founder of MTC and as a founder of PC Totes, Mr. Fine designed
and oversaw the development of interactive wagering software, including
development of real-time billing and metering systems, data translation
software, and multimedia CD-ROM content developing.
RON LUNIEWSKI, CHIEF OPERATING OFFICER. Ron Luniewski was previously employed
at Electronic Data Systems ("EDS") where he acquired more than 11 years of
experience directing large software development efforts and managing key
business areas. Prior to joining the Company, Mr. Luniewski was Vice
President of EDS responsible for General Motors marketing and advertising where
he was responsible for providing information technology and consulting services
to General Motors. In this capacity, he was responsible for deployment of one
of the largest integrated Internet projects in the world and the development
of a large number of multimedia applications for GM dealerships and for other
GM marketing events. He was also responsible for reengineering existing GM
marketing applications to support the new brand management strategies. Mr.
Luniewski has a Bachelor of Arts degree from Robert Morris College in
Accounting and Computer Sciences.
BARRY PETERS, CHIEF FINANCIAL OFFICER. From April 1993 until February 1996,
Barry Peters was employed as Chief Financial Officer of Interactive Cable
Systems. ICS pioneered providing cable television, telephone and security
services to the residents of multi-family buildings. Besides being Chief
Financial Officer, Mr. Peters also held senior management positions in
Operations, Sales and Product Development. From January 1990 until April 1993,
Mr. Peters was Financial Director of Field Operations at Spectradyne, Inc. He
was responsible for the financial activities for more than 400 employees serving
more than 48 district offices. Previously Mr. Peters was an international
consultant/auditor for United Technologies Corporation and held financial
positions at Rheem Manufacturing and Transamerica Corporation. He has a
Bachelor of Arts degree from Northern Illinois University and is a Certified
Public Accountant and Certified Management Accountant.
STEVE MOLNAR, EXECUTIVE VICE PRESIDENT-RACING. Since June 1995, Mr. Molnar has
been engaged by the Company to represent the Company in its relationship with
the racing industry. Prior to that time, and for the preceding five years, Mr.
Molnar was a director of marketing, and then President and CEO of McKinney
Systems. At McKinney, he led that company to become the number one computer
software supplier to race tracks in North America. Mr. Molnar was a member of
the Thoroughbred Racing Associations' 1995 committee, and conceptualized,
coordinated and
21
<PAGE> 22
led the effort with the Association of Racing Commissioners International in
implementing a nationwide licensing system based on Smart Card technology.
JESS RIFKIND, DIRECTOR. For the past fourteen years, Mr. Rifkind has been an
independent management consultant providing advice to clients in the areas of
management, finance and high technology. Prior to establishing his current
practice in 1982, Mr. Rifkind held operating and research executive positions
with Xerox Corporation for 15 years. His technical work is focused in the
fields of computers and communications, while his management emphasis is in the
areas of product and competitive strategy. A 1954 engineering graduate of the
University of Southern California, Mr. Rifkind serves as a director of Gemstone
Corporation, a privately held supplier of client-server software; and Cloud
Nine Interactive, Inc., a privately held interactive multi-media developer and
publisher.
ITEM 11: EXECUTIVE COMPENSATION
The Summary Compensation Table below includes, for each of the fiscal years
ended December 31, 1995, 1994, and 1993, individual compensation for services to
the Company and its subsidiaries of the President and Executive Vice President
(the "Named Officers").
22
<PAGE> 23
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Awards Payouts
------------------- ----------------------------- -----------
Securities
Other Annual Restricted Stock Underlying LTIP All Other
Salary Bonus Compensation Award(s) Options/ Payouts Compensation
Name Year ($) ($) ($) ($) SARs (#) ($) ($)
---- --- --- --- ----- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Marshall 1995 72,800 --- --- --- --- --- ---
Russell Fine 1995 52,558 --- --- --- --- --- ---
Steve Molnar 1995 19,750 --- --- --- --- --- ---
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information on grants of stock options pursuant to the
1995 Stock Option Plan during the fiscal year ended December 31, 1995 to the
Officers which are listed in the Summary Compensation Table above.
Option/SAR Grants In Last Fiscal Year
Potential Realized Value at Assigned
Annual Rates of Stock Price
<TABLE>
<CAPTION>
Individual Grants in 1995
-----------------------------------
Number of
Securities Percentage of
Underlying Total Exercise
Options Options/ or Base
SARs granted to Price Per Stock Dollar Stock Dollar
Granted Employees in Share Expiration Price Gains Price Gains
Name (#) Fiscal Year ($) Date ($) ($) ($) ($)
- ---- ------- ------- ----- ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Marshall 0 --- --- --- --- --- --- ---
Russell Fine 0 --- --- --- --- --- --- ---
Steve Molnar 80,000 12.4% 2.50 7/05 --- --- --- ---
</TABLE>
23
<PAGE> 24
DIRECTOR COMPENSATION
Directors holding salaried positions with the Company do not receive
compensation for their services as directors. It is the intention of the
Company that each non-employee director will receive options to purchase 5,000
shares per year, retroactive to each year of service rendered by such director.
See "Item 13 - Certain Transactions" for a discussion of consulting fees paid
to Jess Rifkind, a director of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not currently have a compensation committee. The
Board of Directors has designated David Marshall and Russell Fine to serve as
the members of the Stock Option Committee for purposes of administering the
1995 Employee Stock Option Plan, including designating participants and the
amounts of the awards thereto. Messrs. Marshall and Fine are ineligible to
receive awards under this Plan. The compensation paid to Messrs. Marshall and
Fine was approved by Mr. Rifkind, the sole outside director.
EMPLOYMENT AGREEMENTS AND STOCK OPTIONS
Employment Agreements:
Messrs. Marshall and Fine are parties to employment agreements
providing for terms of four years commencing as of December 6, 1995. The
agreements provide for annual compensation of $130,000, and $120,000,
respectively; a car allowance of $500 per month; and other usual and customary
benefits. In addition, each is entitled to such bonuses as may be declared
from time to time by the Company's Board of Directors.
In the event of a "Change of Control" (as defined below) of the
Company, each of Mr. Marshall and Mr. Fine shall have the right, but not the
obligation, to consider such event to be a termination of his employment
agreement. In such event, neither Mr. Marshall nor Mr. Fine shall have a duty,
either express or implied, to mitigate any damages under his agreement, and the
Company shall remain liable for all compensation (whether salary, bonus or
other benefits) provided for under the terms of the agreements. Moreover, any
compensation earned by either Messrs. Marshall or Fine in any capacity after
the date of such termination will not reduce or mitigate the amounts payable by
the Company under the applicable agreement. For purposes of their employment
agreements, "Change of Control" shall mean (i) any sale of all or
substantially all of the assets of the Company; (ii) any stock sale, merger or
other business combination in which the members of the management of the
Company (a) no longer are affiliates of the surviving entity, (b) no longer
are in control of the surviving entity or (c) no longer own in excess of 20% of
the outstanding stock of such surviving entity.
24
<PAGE> 25
Option Plans
In November 1995, the Company's Board of Directors approved, and
recommended for adoption by the shareholders, the You Bet 1995 Stock Option
Plan (the "Employee Plan") and the 1995 Stock Option Plan for Non-Employee
Directors (the "Non-Employee Directors Plan" and together with the Employee
Plan, the "1995 Plans"). As of July 15, 1996, options to purchase 901,601
shares of Common Stock were outstanding under the 1995 Plans, of which 85,500
are vested. The options vest ratably over four years. Common Stock purchased
upon the exercise of such options are subject to restrictions which prohibit
the resale of such Shares for a 24 month period commencing from the issuance of
the options.
The following summary is qualified in its entirety by reference to the
full text of the 1995 Plans. Unless otherwise indicated, the summary is
applicable to each plan.
The 1995 Plans. The 1995 Plans provide for the granting of awards of
incentive stock options ("ISOs") within the meaning of Section 422 of the Code,
Nonqualified stock options ("NSOs"), and stock appreciation rights ("SARs")
(awards of ISOs, NSOs, and SARs sometimes hereinafter collectively referred to
herein as "Awards"). The aggregate number of shares of Common Stock available
for issuance under the 1995 Plans is 15% of the total number of shares of
Common Stock issued and outstanding from time to time.
Purpose. The purpose of the 1995 Plans is to provide key employees,
officers (other than Messrs. Marshall and Fine) and directors with an
additional incentive to promote the success of the Company's business and to
encourage employees to remain in the employ of the Company.
Administration -- Employee Plan. The Employee Plan is administered by
a committee (the Employee Plan Committee"), which consists of at least two
directors of the Company appointed by the Board. The members of the Employee
Plan Committee are not eligible to receive Options except pursuant to a formula
contained in the Non-Employee Directors Plan and must be "disinterested
persons" as defined in Rule 16b-3(d)(3) promulgated under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The aggregate number of
shares of Stock that may be granted to non-employee members of the Board
pursuant to the Plan may not exceed 12% of the aggregate amount of shares of
Common Stock of the Company then outstanding.
Administration -- Non-Employee Directors Plan. The Plan is
administered by a committee (the "Non-Employee Plan Committee") of not less
than two persons, appointed by the Board and serving at the pleasure of the
Board. However, the Non-Employee Plan Committee has no discretion as to the
issuance of Options under this Plan. Directors initially will receive options
to purchase 10,000 shares when first elected to the Board. On the day after
(i) the 1996 annual stockholders' meeting of the Company and on the day after
each annual stockholders' meeting of the Company thereafter during the term of
the Plan or (ii) if there shall be no annual meeting during the preceding
thirteen months, on June 30 of such year, each non-employee member of the Board
shall be granted
25
<PAGE> 26
a Non-Qualified Stock Option to purchase 5,000 shares of Common Stock. The
option price per share of Common Stock purchasable under such Stock Options
shall be 100% of the fair market value on the date of grant. Such options
shall be exercisable immediately on the date of grant by payment in full of the
purchase price in cash. The aggregate number of shares of Stock that may be
granted to non-employee members of the Board pursuant to the Plan may not
exceed 3% of the aggregate amount of shares of Common Stock of the Company then
outstanding.
INCENTIVE STOCK OPTIONS. The Employee Plan authorizes the Employee
Plan Committee to grant ISOs to any key employee of the Company or any
affiliate of the Company and to determine the terms and conditions of each
grant, including without limitation, the number of shares subject to each ISO.
The ISO exercise price would also be determined by the Committee and would not
be less than the fair market value of the Common Stock on the date of grant.
The exercise price would not be less than 110% of such fair market value and
the exercise period would not exceed five years if the recipient of such ISO
was the holder of more than 10% of the Company's outstanding voting securities.
NONQUALIFIED STOCK OPTIONS. The Employee Plan provides that the
Employee Plan Committee has the authority to grant NSOs to any key employee of
the Company or its affiliates. The Committee is authorized to grant NSOs to
any qualified participant and to determine the terms and conditions of each
such grant, including the number of shares subject to each NSO, the option
period and the option exercise price. The exercise price for NSOs would not be
less than the fair market value of the shares subject to the NSO on the date
of grant.
THE MANNER OF EXERCISE. The exercise price for options granted under
the 1995 Plans may be paid in cash or shares of Common Stock, including shares
of Common Stock which the Plan participants received upon the exercise of one
or more options provided that, with respect to the exercise of ISOs, such
shares, if acquired through the exercise of an option, have been held by such
participant for a period not shorter than the later of two years from the date
the option was granted and one year after the shares of Common Stock were
acquired by the participant through the exercise of options.
The option exercise price may also be paid by the participant's
delivery of an election directing the Company to withhold shares of Common
Stock from the Common Stock otherwise due upon exercise of the option.
VESTING. Unless the Employee Plan Committee establishes a different
vesting schedule at the time of grant, awards under the Employee Plan will vest
ratably over 4 years.
NONTRANSFERABILITY. Awards are not transferable other than by will or
the laws of descent and distribution. During a participant's lifetime, his
options may be exercised only by the participant.
26
<PAGE> 27
Discretionary Awards. It is not possible to state the amount of
discretionary awards that will be received by any of the participants under the
Employee Plan since the grant of awards are within the discretion of the
Committee.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common
Stock as of July 26, 1996. The table shows the beneficial ownership of each
person known to the Company who beneficially own more than 5% of the shares of
the Company's Common Stock, each current director, and all directors and
officers as a group. Except as otherwise indicated, the Company believes that
the beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Name and Address Shares Percent
of Beneficial Beneficially of
Owner* Owned Class(6)
------ ----- --------
<S> <C> <C>
David Marshall(1) 2,517,375 30.39%
Russell Fine(1) 2,490,575 30.07%
Trafina Privatbank 800,000 9.66%
Marshall Gift Trust(2) 428,500 5.17%
Sid Marshall(3) 40,000 .48%
Ron Luniewski(4) 0 0
Barry Peters(4) 0 0
Jess Rifkind(5) 30,000 **
All Directors and
Officers as a group
(5 persons)(1) (2) 5,037,950 60.75%
</TABLE>
27
<PAGE> 28
(1) Includes 1,156,250 Divestment Shares (as hereinafter defined) for each
of Messrs. D. Marshall and R. Fine. If the Divestment Shares are all
forfeited, Messrs. D. Marshall and Fine would own 16.42% and 16.22%
respectively.
(2) Includes 187,500 Divestment Shares for the Marshall Gift Trust. If the
Divestment Shares are all forfeited, Marshall Gift Trust would own
2.91%.
(3) Does not include Shares held by the Marshall Gift Trust, of which Mr.
Sid Marshall is co-trustee. See Note 2 and related information.
(4) The options held by Messrs. Luniewski and Peters are not exercisable
during 1996.
(5) Includes currently exercisable options to acquire 10,000 shares at
$2.50 a share, as well as 10,000 shares owned by his wife.
(6) Based upon 8,283,333 shares of Common Stock, which were outstanding as
of July 26, 1996.
* The address for Messrs. D. Marshall, R. Fine, Luniewski and Peters is
c/o the Company, 1950 Sawtelle Boulevard, Suite 180, Los Angeles,
California 90025. The address for Trafina Privatbank is Rennweg 50
CH-4020 Basel, Switzerland. The address for Sid Marshall and the
Marshall Gift Trust is 11770-M Pacific Coast Highway, Malibu, CA.
90265. The address for Jess Rifkind is 5227 Bianca Avenue, Encino,
California 91316.
** Less than 1%
DIVESTMENT SHARES
Upon completion of the Offerings, David Marshall and Russell Fine, who
are respectively the President and Executive Vice President of the Company,
own, in the aggregate 5,007,950 shares of the Company's common stock. Of this
amount, 2,312,500 shares of Company Common Stock owned by such shareholders,
plus 187,500 shares of Common Stock owned by Marshall Gift Trust
(collectively, the "Divestment Shares") are subject to forfeiture and
cancellation by the Company if certain conditions are not satisfied.
Forfeiture of the Divestment Shares will occur if either the Company does not
achieve the subscription levels indicated below or the market price of the
Company's Common Stock does not exceed $5.25 per share. The possibility of
forfeiture will terminate, regardless of the share price or the level of
subscriptions, upon a sale of substantially all of the assets of the Company,
or upon a merger or other business combination involving the Company, provided
either (i) such transaction has been approved by holders of a majority of the
outstanding shares of the Company which are not owned by beneficial holders of
Divestment Shares and their affiliates or (ii) the consideration to be received
by the holders of Company Common Stock shall be in the form of cash or
marketable securities (valued as of the date of the shareholder vote with
respect thereto) having a value of not less than $7.50 per share of Common
Stock.
28
<PAGE> 29
Divestment Shares will no longer be subject to the risk of forfeiture
according to the following schedule, assuming the market price condition is
satisfied:
29
<PAGE> 30
Forfeiture Schedule
2,500,000 shares subject to forfeiture
Based on subscribers
<TABLE>
<CAPTION>
Incremental Aggregate
Minimum Shares No Shares No
Number of Longer Subject Longer Subject
Subscribers To Forfeiture To Forfeiture Time Frame
----------- ------------- ------------- ----------
<S> <C> <C> <C>
12,500 500,000 500,000 December 5, 1998
25,000 500,000 1,000,000 December 5, 1998
37,500 500,000 1,500,000 December 5, 1998
50,000 500,000 2,000,000 December 5, 1998
100,000 500,000 2,500,000 December 5, 1999
</TABLE>
The termination of the possibility of forfeiture with respect to the
Divestment Shares will be deemed to be the payment of compensation to the
recipients and will result in a charge to the earnings of the Company in the
year or years the possibility of forfeiture terminates, in an amount equal to
the fair market value of the Divestment Shares at the time such possibility
terminates. This charge to earnings, if required, could have a substantial
negative impact on the earnings of the Company in the year or years in which
the compensation expense is recognized and could adversely affect the Company's
qualifications for listing on various securities exchanges. In no event,
however, may the possibility of forfeiture terminate unless the then current
trading price for the Company's common stock exceeds $5.25 per share, provided
that the market price condition may be satisfied within six months after the
expiration of the time frame indicated above with respect to the relevant
subscription level. The market price requirement for the Divestment Shares
will be satisfied when the closing price for Common Stock on the principal
national securities exchange on which it is then listed, or if not so listed,
the mean between the highest closing bid and lowest closing asked prices,
exceeds $5.25 for twenty consecutive trading days after the relevant subscriber
level is achieved and maintained.
The effect of the charge to earnings associated with the termination of
the possibility of forfeiture with respect to the Divestment Shares could place
the Company in a net loss position for the relevant year. Moreover, there is no
assurance that the operations of the Company will be
30
<PAGE> 31
profitable either in the year or years in which possibility of forfeiture of
the Divestment Shares terminates or in any prior or subsequent periods. The
management of the Company may have the discretion to accelerate or defer or
otherwise influence certain transactions that could affect the number of
subscribers. For purposes of the foregoing, a person utilizing the Company's
products will be considered a "subscriber" only if such person is paying for
such subscription at bona fide commercial rates approved by a majority of the
Company's independent directors.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jess Rifkind, who is a non-employee director, receives $2,400 per
month from the Company as consulting fees.
See "Item-12: Security Ownership of Certain Beneficial Owners and
Management" for a discussion of the Divestment Shares currently owed by Messrs.
Marshall and Fine.
31
<PAGE> 32
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) The following documents are filed as a part of this annual report:
1. Financial Statement Schedules:
None required.
2. Financial Statements:
The financial statements listed in the accompanying Index to Financial
Statements are filed as part of this annual report.
3. Exhibits:
The exhibits listed below are filed as a part of this annual report.
2.1 Acquisition Agreement, dated as of December 6, 1995
between the Company and CEA Acquisition Corp. (1)
3.1 Restated Articles of Incorporation. (1)
3.2 By-laws of the Company. (1)
4.1 Form of Series A Warrant Agreement dated as of
December 6, 1995 between the Company and U.S. Stock
of Transfer Corp. (2)
10.1 Employment Agreement, dated as of December 6, 1995,
between the Company and David Marshall. (2)
10.2 Employment Agreement between the Company and
Russell Fine, dated as of December 6, 1995. (2)
10.3 Lease between the Company and Storage Tek. (2)
10.4 1995 Employees Stock Option Plan (2)
10.5 1995 Non-Employee Directors Stock Option Plan (2)
32
<PAGE> 33
21.1 List of subsidiaries of Registrant (2)
(1) Filed as Exhibit 1 to form 8-K, filed as of December 15, 1995.
(2) Included herewith.
33
<PAGE> 34
INDEX TO FINANCIAL STATEMENTS
Auditor's Report Pg. 1
Consolidated Balance Sheets - December 31, 1995 and 1994 Pg. 2
Consolidated Statements of Operations - December 31, 1995 and 1994 Pg. 3
Consolidated Statements of Shareholders' Equity (Deficit) -
December 31, 1995 and 1994 Pg. 4
Consolidated Statements of Cash Flows December 31, 1995, 1994, 1993 Pg. 5
Notes to the Financial Statements Pgs. 6 - 10
34
<PAGE> 35
YOU BET INTERNATIONAL, INC.
AND SUBSIDIARY
(FORMERLY CONTINENTAL EMBASSY
ACQUISITION, INC.)
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
You Bet International, Inc.
Los Angeles, California:
We have audited the accompanying consolidated balance sheets of You Bet
International, Inc. (formerly Continental Embassy Acquisition, Inc.) and
subsidiary as of December 31, 1995 and 1994 and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of You Bet International, Inc. and
subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's recurring losses from
operations and current rate of cash expenditures raise substantial doubt about
its ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Los Angeles, California
July 9, 1996
<PAGE> 37
YOU BET INTERNATIONAL, INC. AND SUBSIDIARY
(FORMERLY CONTINENTAL EMBASSY ACQUISITION, INC.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2) $3,297,908 $ 55,477
Receivables 35,608 30,000
Prepaid and other current assets 5,364
--------- ---------
Total current assets 3,338,880 85,477
EQUIPMENT, Net of accumulated depreciation of
$2,856 (Note 2) 78,154
--------- ---------
TOTAL $3,417,034 $ 85,477
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 259,214
Accrued officers salaries 45,213
Due to officers/stockholders $ 13,406
Loans payable -- related parties (Note 3) 292,017
Loan payable (Note 6) 20,000
Accrued interest 17,079
Income taxes payable (Note 5) 2,400 800
Other current liabilities 5,410
--------- ---------
Total current liabilities 312,237 343,302
--------- ---------
COMMITMENTS (Notes 4 and 7)
SHAREHOLDERS' EQUITY (DEFICIT) (Note 3):
Common stock, $.001 par value; authorized 50,000,000
shares; issued and issuable and outstanding
8,071,333 (1995) and 343,333 (1994) 8,071 343
Additional paid-in capital 4,030,648 21,657
Accumulated deficit (682,822) (279,825)
Deferred compensation (251,100)
--------- ---------
Total shareholders' equity (deficit) 3,104,797 (257,825)
--------- ---------
TOTAL $3,417,034 $ 85,477
========= =========
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
-2-
<PAGE> 38
YOU BET INTERNATIONAL, INC. AND SUBSIDIARY
(FORMERLY CONTINENTAL EMBASSY ACQUISITION, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
REVENUES:
Consulting (Notes 2 and 6) $ 151,477 $185,531 $ 750
Royalties 80,000
--------- -------- ---------
Total revenues 151,477 185,531 80,750
--------- -------- ---------
EXPENSES:
Research and development 318,067 1,700 19,619
General and administrative 234,676 106,879 203,520
--------- -------- ---------
Total expenses 552,743 108,579 223,139
--------- -------- ---------
(LOSS) INCOME FROM OPERATIONS (401,266) 76,952 (142,389
INTEREST EXPENSE (33,533) (24,495) (15,553)
INTEREST INCOME 14,202
--------- -------- ---------
(LOSS) INCOME BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM (420,597) 52,457 (157,942)
PROVISION FOR INCOME TAXES (Note 5) (2,400) (1,600) (1,600)
--------- -------- ---------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM (422,797) 50,857 (159,542)
EXTRAORDINARY ITEM, Forgiveness of debt
(Note 6) 20,000
--------- -------- ---------
NET (LOSS) INCOME $(402,997) $ 50,857 $(159,542)
========= ======== =========
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 3) 677,899 343,333 343,333
========= ======== ========
PER SHARE AMOUNTS (Note 2):
(Loss) income before extraordinary item $ (0.62) $ 0.15 $ (0.46)
Extraordinary item 0.03
--------- -------- ---------
Net (loss) income $ (0.59) $ 0.15 $ (0.46)
========= ======== ========
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
-3-
<PAGE> 39
YOU BET INTERNATIONAL, INC. AND SUBSIDIARY
(FORMERLY CONTINENTAL EMBASSY ACQUISITION, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
--------------- PAID-IN ACCUMULATED DEFERRED
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
------ ------ ------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1,
1993 (Note 3) 343,333 $ 343 $ 21,657 $(171,140) $ (149,140)
Net loss (159,542) (159,542)
---------- ------ ---------- --------- ----------
BALANCE,
DECEMBER 31,
1993 343,333 343 21,657 (330,682) (308,682)
Net income 50,857 50,857
---------- ------ ---------- --------- ----------
BALANCE,
DECEMBER 31,
1994 343,333 343 21,657 (279,825) (257,825)
Issuance of
shares in reverse
merger (Note 1) 5,800,000 5,800 (522,796) (516,996)
Shares issued in
private placement
net of offering costs
(Note 3) 1,490,000 1,490 3,147,650 3,149,140
Shares and options
issued for services
(Note 3) 200,000 200 789,375 $(289,575) 500,000
Shares issued
in exchange for debt
(Note 3) 238,000 238 594,762 595,000
Amortization of
deferred
compensation
(Note 3) 38,475 38,475
Net loss (402,997) (402,997)
---------- ------ ---------- --------- --------- ----------
BALANCE,
DECEMBER 31,
1995 8,071,333 $8,071 $4,030,648 $(682,822) $(251,100) $3,104,797
========= ====== ========== ========= ========= ==========
</TABLE>
See independent auditors' report and notes to consolidated financial
statements.
-4-
<PAGE> 40
YOU BET INTERNATIONAL, INC. AND SUBSIDIARY
(FORMERLY CONTINENTAL EMBASSY ACQUISITION, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (402,997) $ 50,857 $(159,542)
Adjustments to reconcile net (loss)
income to net cash used in
operating activities:
Amortization of deferred compensation 38,475
Extraordinary item -- forgiveness of
debt (20,000)
Depreciation and amortization 2,856
Changes in operating assets and
liabilities:
Receivables (5,608) 50,000
Prepaid and other current assets (5,364) 200 400
Accounts payable 259,214 (82,858) 2,858
Accrued interest (17,079) 12,574 4,505
Accrued officers salaries 45,213
Due to officers/stockholders (13,406) (34,753) 48,159
Income taxes payable 1,600 800
Other current liabilities 5,410
---------- -------- ---------
Net cash used in operating
activities (111,686) (3,180) (103,620)
---------- -------- ---------
NET CASH USED IN INVESTING ACTIVITIES --
Acquisition of equipment (81,010)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 3,729,909 2,000
Offering costs (580,769)
Loan payable -- related parties 285,987 11,920 128,048
Loan payable 20,000
---------- -------- ---------
Net cash provided by financing
activities 3,435,127 31,920 130,048
---------- -------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 3,242,431 28,740 26,428
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 55,477 26,737 309
---------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $3,297,908 $ 55,477 $ 26,737
========== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION --
Cash paid for --
Income taxes $ 800 $ 800 $ 1,600
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
-5-
<PAGE> 41
YOU BET INTERNATIONAL, INC. AND SUBSIDIARY
(FORMERLY CONTINENTAL EMBASSY ACQUISITION, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(SEE INDEPENDENT AUDITORS' REPORT)
1. BUSINESS AND PRINCIPLES OF CONSOLIDATION
Principles of Consolidation - The consolidated financial statements include
the accounts of You Bet International, Inc. (formerly Continental Embassy
Acquisition, Inc. - "CEA") its wholly owned subsidiary, You Bet!, Inc.
(formerly P.C. Totes, Inc.) and Middleware Telecom, Inc., a wholly owned
subsidiary of You Bet!, Inc. (together the "Company" - see Note 3). All
significant intercompany transactions have been eliminated in
consolidation.
Business - The Company is an on-line communications company located in Los
Angeles, California that is developing interactive software and services
for consumer use to be provided over its secure private network.
Going Concern - The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going concern,
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has had recurring
losses and at its current rate of cash expenditures will need additional
financing and/or equity infusions to continue as a going concern.
Management intends to raise additional funds through a private placement of
approximately 1,115,000 shares. The Company expects that the cash on-hand
coupled with the cash to be raised in this offering will be sufficient to
fund operations and capital expenditures through the second quarter of
1997. If the Company is not successful in raising this additional
financing, management will be required to consider a variety of other
options, including seeking joint venture partners, selling or licensing all
or a portion of its proprietary technology, curtailing product development
and delaying the roll-out of its first product, as well as other cost
cutting activities, including suspending all or a portion of its
activities. The Company's need for capital (beyond that contemplated in the
anticipated private placement) during the next year or more will vary based
upon a number of factors, including the rate at which demand for products
expands, the level of sales and marketing activities for its products, and
the level of effort needed to develop and commercialize additional
applications. In addition, the Company's business plans may change, or
unforeseen events may occur, which require the Company to raise additional
funds. Additional funds may not be available on terms acceptable to the
Company when the Company needs such funds. The unavailability of additional
funds when needed could have a material adverse effect on the Company. The
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Acquisition - CEA was organized in the state of Utah in 1987 for the
purpose of raising capital and acquiring any suitable assets, properties
and businesses by means of completing a merger with, or acquisition of, any
privately held business enterprises seeking to obtain the perceived
advantages of being a publicly owned company. On December 6, 1995, CEA
reorganized in the state of Delaware, renamed itself You Bet International,
Inc. and completed the acquisition of the Delaware corporation, You Bet!,
Inc. (the "Acquisition"). The Acquisition was completed through the
issuance of 5,800,000 shares of CEA common stock in exchange for all of the
outstanding shares of You Bet!, Inc. Concurrent with the Acquisition, CEA
changed its name to You Bet International, Inc., and the management of You
Bet!, Inc. became the
-6-
<PAGE> 42
management of the consolidated Company. The Acquisition has been reflected
for accounting purposes as the acquisition of You Bet International, Inc.
by You Bet!, Inc. (a reverse acquisition). The operating results reflected
in the accompanying consolidated financial statements do not include CEA's
operating activities prior to the Acquisition, as the amounts are not
significant.
Concurrent with the Acquisition, the shareholders of Middleware Telecom,
Inc. ("Middleware") (which are substantially the same as the shareholders
of You Bet!, Inc.,) contributed their shares of Middleware to You Bet!,
Inc., for no consideration. The historical financial information presented
include the combined financial statements of You Bet!, Inc. and Middleware,
due to the common control, management and operations of the companies. All
intercompany transactions have been eliminated in the combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents - The Company considers all investments with
original purchased maturities of three months or less to be cash
equivalents.
Software Development Costs - The Company's initial software development
costs are charged to operations as research prior to the development of a
detailed program design or a working model. Costs incurred subsequent to
demonstrating technological feasibility of a working model will be
capitalized and amortized over the estimated product life.
Equipment - Equipment is stated at cost and consists primarily of computers
and office equipment. The assets are being depreciated using the
straight-line method over their estimated useful life of three to five
years.
Revenue Recognition - Revenue is primarily derived from various software
consulting agreements and is recognized upon rendering of services.
Net (Loss) Income Per Share - Net (loss) income per share is computed using
the weighted average common shares outstanding during the year and the
dilutive effect of common share equivalents (stock options and warrants).
For the year ended December 31, 1995 the effect of common share equivalents
was antidilutive. There were no common share equivalents in 1994 and 1993.
A total of 2,500,000 shares, which are subject to a divestiture of shares
agreement (see Note 3), have been excluded from the earnings per share
calculation in 1995 as the amounts are antidilutive.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Fair Value of Financial Instruments - The Company's financial instruments
consist primarily of cash equivalents, and accounts receivable and payable.
The book value of these financial instruments are representative of their
fair value due to their short-term maturity.
Recent Accounting Pronouncements - In 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of." The principles established in the
new
-7-
<PAGE> 43
statement must be applied by the Company in fiscal 1996. Among other
provisions, the statement changed current accounting practices for the
evaluation of impairment of long-lived assets. Management has not yet
completed its analysis of the effect of adopting the new statement.
In 1995, the FASB also issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company beginning January 1,
1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on fair value of the equity
instrument awarded. Companies are permitted, however, to continue to apply
APB Opinion No. 25, which requires compensation cost based on the intrinsic
value of the equity instrument awarded. The Company will continue to apply
APB Opinion No. 25 to its stock-based compensation awards to employees and
will disclose the required pro forma effect on net income and earnings per
share.
3. COMMON STOCK
Stock Split - Concurrent with the closing of the Acquisition (see Note 1),
the Company effected a 1 for 1.5 reverse stock split. All references to
share and per share amounts have been retroactively restated to reflect
this stock split.
Private Placement - Concurrent with the closing of the Acquisition, the
Company completed a private placement offering to new investors of 149
units for $25,000 per unit, each consisting of 10,000 shares of common
stock, and Series A Warrants to purchase 5,000 shares of the Company's
common stock. A total of 1,490,000 shares and 745,000 Series A Warrants
were issued with proceeds totaling $3,729,909. The Series A Warrants are
exercisable at $5.25 per share and expire on the later of the second
anniversary of the date of issuance, or two years from the date on which a
registration statement registering the warrants is declared effective.
Total costs of the offering of $580,769 have been charged against the
proceeds. Included in cash at December 31, 1995 is $504,909 held in escrow
pending the issuance of 200,000 of the total shares sold.
The Company issued 200,000 shares of its common stock and Series B Warrants
to purchase an additional 417,188 shares as commission to the underwriter
of the offering. The Series B Warrants are exercisable at $3.25 and expire
December 6, 1998.
Conversion of Debt - Concurrent with the closing of the Acquisition, bridge
financing in the amount of $250,000 was exchanged for 10 of the units
offered in the private placement, and additional loans in the amount of
$345,000 were exchanged for 138,000 shares of common stock.
Stock Options Plans - In November 1995, the Company's Board of Directors
approved the 1995 Stock Option Plan and the 1995 Stock Option Plan for
Non-Employee Directors (collectively the "1995 Plans"). The 1995 Plans
provide for the granting of awards of incentive stock options, nonqualified
stock options and stock appreciation rights. The aggregate number of shares
of common stock available for issuance under the 1995 Plans is 15% of the
total number of shares of common stock outstanding from time to time. A
total of 643,500 options were issued in 1995 that are exercisable at $2.50
per share through December 2005 and vest in four equal installments. A
total of 85,500 options have vested at December 31, 1995. Deferred
compensation totaling $289,575 was recorded upon the issuance of the
options and is being amortized over the vesting period of the options.
-8-
<PAGE> 44
Divestiture of Shares - A total of 2,500,000 of the issued shares of the
Company, which are owned by two officers of the Company and a third
shareholder, are subject to forfeiture by the shareholders and cancellation
by the Company if certain conditions are not satisfied. Forfeiture of such
divestment shares will occur if either the Company does not achieve certain
subscriber levels or the Company's stock does not exceed $5.25 by certain
target dates. These contingent shares are excluded from the calculation of
weighted average shares outstanding in the accompanying financial
statements and, upon termination of the forfeiture restrictions, will be
reflected as compensation expense and the issuance of capital in the period
the forfeiture restrictions are terminated.
4. COMMITMENTS
Employment Agreements - The Company has entered into employment agreements
with two of its officers providing for base compensation totaling $250,000
per year through December 1999.
Lease - Through December 31, 1995, the Company leased office space on a
month to month basis. In January 1996, the Company entered into a lease for
office space which provides for monthly payments of $7,687 through March
1998. Rent expense for the year ended December 31, 1995 totaled $5,472.
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current-state $ 2,400 $ 1,600 $ 1,600
Deferred income taxes 148,000 (11,000) 59,000
Change in deferred tax asset valuation
allowance (148,000) 11,000 (59,000)
--------- --------- --------
Provision for income taxes $ 2,400 $ 1,600 $ 1,600
========= ========= ========
</TABLE>
A reconciliation between the statutory federal income tax rate and the
effective income tax rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Federal statutory income tax rate (35.0)% 35.0 % (35.0)%
State taxes, net of federal benefit (6.0)% 6.0 % (6.0)%
Use of net operating loss carryforwards (38.0)%
Effects of losses without current year benefit 40.5 % 42.0 %
----- ----- -----
0.5 % 3.0 % 0.1 %
===== ===== =====
</TABLE>
Deferred income taxes are computed annually for differences between
financial statement and income tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future. Such deferred
income tax asset and liability computations are based on enacted laws and
rates applicable to periods in which the differences are expected to
reverse. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax
expense is the income tax payable or refundable for the period plus or
minus the change during the period in deferred income tax assets and
liabilities. Net deferred tax assets, consisting primarily of the
differences in the recognition of software development costs for income tax
purposes ($100,000) and net operating loss carryforwards ($96,000) have
been reduced to zero by valuation allowances due to the uncertainty of
their recoverability.
-9-
<PAGE> 45
6. EXTRAORDINARY ITEM
In May 1995, the Company entered into a settlement with IWN, Inc. ("IWN").
The Company had been performing consulting services for IWN in connection
with the joint development of certain interactive wagering software. In
connection with this arrangement, the Company was paid $119,000 by IWN in
1994, and was loaned $20,000 by IWN. On May 18, 1995 the Company and IWN
entered into a separation and settlement agreement whereby the loan was
forgiven.
7. SUBSEQUENT EVENT
In July 1996, the Company entered into a lease that provides for a $100,000
sale and leaseback of equipment previously purchased and a $150,000 line
for new equipment purchases.
* * * * * *
-10-
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Los
Angeles, State of California, on the _______ day of July, 1996.
YOU BET INTERNATIONAL, INC.
BY:______________________
DAVID MARSHALL
CHAIRMAN OF THE BOARD,
PRESIDENT, AND CHIEF
EXECUTIVE OFFICER
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
___________________ Chairman of the Board, July __, 1996
DAVID MARSHALL President, Chief Executive
Officer and Director
___________________ Executive Vice President, July __, 1996
RUSSELL FINE Director
___________________ Chief Financial Officer July __, 1996
BARRY PETERS
___________________ Director July __, 1996
JESS RIFKIND
</TABLE>
<PAGE> 1
EXHIBIT 4.1
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK ISSUABLE UPON
EXERCISE OF THE WARRANTS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY
BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO RELEVANT
PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION
FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE.
YOU BET INTERNATIONAL, INC.
Incorporated Under the Laws of the State of Delaware
No. 95-A____ _______ Common Stock
Purchase Warrants
CERTIFICATE FOR COMMON STOCK
PURCHASE WARRANTS
1. Warrant. This Warrant Certificate certifies that
___________________________________, or registered assigns (the "Registered
Holder"), is the registered owner of the above indicated number of Warrants
expiring on the Expiration Date, as hereinafter defined. One (1) Warrant
entitles the Registered Holder to purchase one (1) share of the no par value
common stock (a "Share") of You Bet International, Inc., a Delaware corporation
(the "Company"), from the Company at a purchase price of Five Dollars and
Twenty-Five Cents ($5.25) (the "Exercise Price") at any time during the
Exercise Period, as hereinafter defined, upon surrender at the principal office
of the Company of this Warrant Certificate with the exercise form appended
hereto duly completed and executed and accompanied by payment of the Exercise
Price.
Upon due presentment for transfer or exchange of this Warrant
Certificate at the principal office of the Company, a new Warrant Certificate
or Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued in exchange for this Warrant Certificate,
subject to the limitations provided herein, upon payment of any tax or
governmental charge imposed in connection with such transfer. Subject to the
terms hereof, the Company shall deliver Warrant Certificates in required whole
number denominations to Registered Holders in connection with any transfer or
exchange permitted hereunder.
<PAGE> 2
2. Restrictive Legend. Each Warrant Certificate and each
certificate representing Shares issued upon exercise of a Warrant, unless such
Shares are then registered under the Securities Act of 1933, as amended (the
"Act"), shall bear a legend in substantially the following form:
"THE [SECURITIES] REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY BE OFFERED AND SOLD
ONLY IF REGISTERED AND QUALIFIED PURSUANT TO RELEVANT PROVISIONS OF
FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION FROM
SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE."
3. Exercise. Subject to the terms hereof, the Warrants evidenced
by this Warrant Certificate may be exercised at the Exercise Price in whole or
in part at any time during the period (the "Exercise Period") commencing on the
first anniversary of the date hereof and terminating at the close of business
on that day (the "Expiration Date") which is the second anniversary of the
later of (i) the date on which a registration statement filed pursuant to the
Act and covering the Shares to be issued upon exercise of the Warrants
represented by this Warrant Certificate is declared effective and (ii) the last
date on which a warrant having terms (including without limitation Exercise
Price, Exercise Period, method of exercise and transferability) substantially
identical to the terms of the Warrants represented by this Warrant Certificate
(the "Series A Warrants") is issued, provided that the Exercise Period shall be
extended and the Expiration Date delayed by one business day for each business
day subsequent to the effectiveness of such registration statement on which a
prospectus meeting the prospectus delivery requirements of the Act and covering
the issuance of such Shares to and, if appropriate, the resale of such Shares
by the Registered Holder hereof or the successors in interest to such
Registered Holder is not available. The Exercise Period may also be extended
by the Company's Board of Directors. Upon the initial determination thereof
and each subsequent modification thereof, the Company shall promptly notify
each holder of Series A Warrants of the Expiration Date, as it may be
determined from time to time.
In the event the Shares issuable upon exercise of the Warrants
represented by this Warrant Certificate have not yet been
- 2 -
<PAGE> 3
registered under the Act or are not then covered by a current prospectus
meeting the requirements of the Act, the right of a holder of such Warrants to
exercise such Warrants shall be conditioned upon such holder providing the
Company with an opinion of counsel, in form and substance reasonably acceptable
to the Company, to be effect that the issuance of Shares upon exercise of such
Warrants is exempt from the registration requirements of the Act.
A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the date (the "Exercise Date") of the surrender to the
Company at its principal offices of this Warrant Certificate with the exercise
form attached hereto completed and executed by the Registered Holder and
accompanied by payment to the Company, in cash or by check (which shall be
accepted subject to collection), of an amount equal to the aggregate Exercise
Price, in lawful money of the United States of America.
The person entitled to receive the Shares issuable upon exercise of a
Warrant or Warrants ("Warrant Shares") shall be treated for all purposes as the
holder of such Warrant Shares as of the close of business on the Exercise Date.
The Company shall not be obligated to issue any fractional share interests in
Warrant Shares issuable or deliverable on the exercise of any Warrant or scrip
or cash with respect thereto, and such right to a fractional share shall be of
no value whatsoever. If more than one Warrant shall be exercised at one time
by the same Registered Holder, the number of full Shares which shall be
issuable on exercise thereof shall be computed on the basis of the aggregate
number of full shares issuable on such exercise.
Promptly, and in any event within ten business days after the Exercise
Date, the Company shall cause to be issued and delivered to the person or
persons entitled to receive the same, a certificate or certificates for the
number of Warrant Shares deliverable on such exercise.
The Company may deem and treat the Registered Holder of the Warrants
at any time as the absolute owner thereof for all purposes, and the Company
shall not be affected by any notice to the contrary. The Warrants shall not
entitle the Registered Holder thereof to any of the rights of shareholders or
to any dividend
- 3 -
<PAGE> 4
declared on the Shares unless the Registered Holder shall have exercised the
Warrants and thereby purchased the Warrant Shares prior to the record date for
the determination of holders of Shares entitled to such dividend or other
right.
4. Reservation of Shares and Payment of Taxes. The Company
covenants that it will at all times reserve and have available from its
authorized Common Stock such number of Shares as shall then be issuable on the
exercise of outstanding Series A Warrants. The Company covenants that all
Warrant Shares which shall be so issuable shall be duly and validly issued,
fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issue thereof.
The Registered Holder shall pay all documentary, stamp or similar
taxes and other government charges that may be imposed with respect to the
issuance, transfer or delivery of any Warrant Shares on exercise of the
Warrants. In the event the Warrant Shares are to be delivered in a name other
than the name of the Registered Holder of the Warrant Certificate, no such
delivery shall be made unless the person requesting the same has paid the
amount of any such taxes or charges incident thereto.
5. Registration of Transfer. The Warrant Certificates may be
transferred in whole or in part, provided any such transfer complies with all
applicable federal and state securities laws and, if requested by the Company,
the Registered Holder delivers to the Company an opinion of counsel to that
effect, in form and substance reasonably acceptable to the Company. Warrant
Certificates to be transferred shall be surrendered to the Company at its
principal office. The Company shall execute, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the transfer shall be entitled to receive.
The Company shall keep transfer books at its principal office which
shall register Warrant Certificates and the transfer thereof. On due
presentment of any Warrant Certificate for registration of transfer at such
office, the Company shall execute, issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants. All Warrant Certificates presented for
registration of transfer or exercise shall be duly endorsed or be accompanied
by a written instrument or instruments of transfer in form satisfactory to the
- 4 -
<PAGE> 5
Company. The Company may require payment of a sum sufficient to cover any tax
or other government charge that may be imposed in connection therewith.
All Warrant Certificates so surrendered, or surrendered for exercise,
or for exchange in case of mutilated Warrant Certificates, shall be promptly
canceled by the Company and thereafter retained by the Company until the
Expiration Date. Prior to due presentment for registration of transfer
thereof, the Company may treat the Registered Holder of any Warrant Certificate
as the absolute owner thereof (notwithstanding any notations of ownership or
writing thereon made by anyone other than the Company), and the Company shall
not be affected by any notice to the contrary.
6. Loss or Mutilation. On receipt by the Company of evidence
satisfactory as to the ownership of and the loss, theft, destruction or
mutilation of this Warrant Certificate, the Company shall execute and deliver,
in lieu thereof, a new Warrant Certificate representing an equal aggregate
number of Warrants. In the case of loss, theft or destruction of any Warrant
Certificate, the individual requesting issuance of a new Warrant Certificate
shall be required to indemnify the Company in a form and amount satisfactory to
the Company. In the event a Warrant Certificate is mutilated, such Certificate
shall be surrendered and canceled by the Company prior to delivery of a new
Warrant Certificate. Applicants for a new Warrant Certificate shall also
comply with such other regulations and pay such other reasonable charges as the
Company may prescribe.
7. Call Option. Provided (i) the closing bid price or last trade
in the principal market in which, or on the principal exchange on which, the
Shares then trade exceeds Seven Dollars and Fifty Cents ($7.50) for the twenty
(20) consecutive trading days preceding but not including the date of such
call, (ii) a prospectus meeting the requirements of the Act is then available
with respect to the issuance of Shares to the Registered Holder hereof or the
successors in interest to such Registered Holder, and (iii) the Company then
reasonably believes that such a prospectus will continue to be available
through the Redemption Date (as hereinafter defined), the Company shall on and
after March 6, 1997 have the right and option, upon no less than thirty (30)
trading days' written notice to the Registered Holder, to call, and
- 5 -
<PAGE> 6
thereafter to redeem and acquire all of the Warrants remaining outstanding and
unexercised at the date fixed for such redemption in such notice (the
"Redemption Date"), which Redemption Date shall be at least 30 trading days
after the date of such notice, for an amount equal to One-Tenth of One Cent
($.001) per Warrant; provided, however, that the Registered Holder shall have
the right during the period between the date of such notice and the Redemption
Date to exercise the Warrants in accordance with the provisions of Section 3
hereof. Said notice of redemption shall require the Registered Holder to
surrender to the Company, on the Redemption Date, at the principal executive
offices of the Company, his certificate or certificates representing the
Warrants to be redeemed. Notwithstanding the fact that any Warrants called for
redemption have not been surrendered for redemption and cancellation on the
Redemption Date, after the Redemption Date such Warrants shall be deemed to be
expired and all rights of the Registered Holder of such unsurrendered Warrants
shall cease and terminate, other than the right to receive the redemption price
of $.001 per Warrant for such Warrants, without interest.
In connection with any call hereunder, the Company shall be obliged to
call all other Series A Warrants, but shall have no obligation to call any
other stock purchase warrant or warrants. No call made pursuant to any stock
purchase warrant not having substantially similar terms shall obligate the
Company to exercise its right and option to make a call hereunder.
8. Adjustment of Shares. The number and kind of securities
issuable upon exercise of a Warrant shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) Stock Splits, Stock Combinations and Certain Stock
Dividends. If the Company shall at any time subdivide or combine its
outstanding Shares, or declare a dividend in Shares or other
securities of the Company convertible into or exchangeable for Shares,
a Warrant for the same Exercise Price shall, after such subdivision or
combination or after the record date for such dividend, be exercisable
for that number of Shares and other securities of the Company that the
Registered Holder would have owned immediately after such event with
respect to the Shares and other securities for which a Warrant may
have been exercised immediately before such event had the Warrant been
exercised immediately before
- 6 -
<PAGE> 7
such event. Any adjustment under this Section 8 (a) shall become
effective at the close of business on the date the subdivision,
combination or dividend becomes effective.
(b) Adjustment for Reorganization, Consolidation, Merger.
In case of any reorganization of the Company (or any other corporation
the stock or other securities of which are at the time receivable upon
exercise of a Warrant) or in case the Company (or any such other
corporation) shall merge into or with or consolidate with another
corporation or convey all or substantially all of its assets to
another corporation or enter into a business combination of any form
as a result of which the Shares or other securities receivable upon
exercise of a Warrant are converted into other stock or securities of
the same or another corporation, then and in each such case, the
Registered Holder of a Warrant, upon exercise of the purchase right at
any time after the consummation of such reorganization, consolidation,
merger, conveyance or combination, shall for the same Exercise Price
be entitled to receive, in lieu of the Shares or other securities to
which such Registered Holder would have been entitled had he exercised
the purchase right immediately prior thereto, such stock and
securities which such Registered Holder would have owned immediately
after such event with respect to the Shares and other securities for
which a Warrant may have been exercised immediately before such event
had the Warrant been exercised immediately prior to such event.
In each case of an adjustment in the Shares or other securities
receivable upon the exercise of a Warrant, the Company shall promptly notify
the Registered Holder of such adjustment. Such notice shall set forth the
facts upon which such adjustment is based.
9. Reduction in Exercise Price at Company's Option. The
Company's Board of Directors may, at its sole discretion, reduce the Exercise
Price of the Warrants in effect at any time either for the remaining life of
the Warrants or any shorter period of time determined by the Company's Board of
Directors. The Company shall promptly notify the Registered Holders of any
such reduction in the Exercise Price.
10. Registration Rights.
- 7 -
<PAGE> 8
(a) Certain Definitions. As used in this Section 10, the following
definitions shall apply:
"Commission" means the Securities and Exchange Commission or
any other federal agency at the time administering the Act.
"Holder" means any holder of a Warrant or outstanding
Registerable Securities.
"Registerable Securities" means the Warrant Shares issued or
issuable upon the exercise of a Warrant, provided, however, that
Registerable Securities shall not include any Shares and other
securities which have previously been registered and sold to the
public.
"Registration Expenses" means all expenses incurred by the
Company in complying with Section 10(b) hereof including, without
limitation, all registration, qualification and filing fees, printing
expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, and the expense of any special audits incident to or
required in connection with any such registration. Registration
Expenses shall not include selling commissions, discounts or other
compensation paid to underwriters or other agents or brokers to effect
the sale of any Registerable Securities.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration
statement in compliance with the Act (and any post-effective amendments
filed in connection therewith), and the declaration of the
effectiveness of such registration statement.
(b) Registration. The Company shall:
(i) Within ten (10) months of the initial issuance of
Series A Warrants, file with the Commission a registration statement on
an appropriate form, including the Registrable Securities among the
securities being registered pursuant to such registration statement.
The Company shall thereafter diligently prosecute such registration
statement to effectiveness. Such registration statement shall cover
the issuance of Warrant Shares upon exercise of this Warrant and,
- 8 -
<PAGE> 9
to the extent appropriate, the resale of such Warrant Shares by the
Holder. The Company will promptly notify the Holder regarding (i) the
filing of such registration statement and all amendments thereto, (ii)
the effectiveness of such registration statement and any
post-effective amendments thereto, (iii) the occurrence of any event
or condition that causes the prospectus that is part of such
registration statement no longer to comply with the requirements of
the Act, and (iv) any request by the Commission for any amendment or
supplement to such registration statement or any prospectus relating
thereto;
(ii) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective and current and to comply with the provisions of
the Act with respect to the issuance, sale or resale of the
Registerable Securities, including such amendments and supplements as
may be necessary to reflect the intended method of disposition of the
Holder, but for no longer than (i) if the Registerable Securities were
registered only for issuance and sale, the earlier of the Expiration
Date and the Redemption Date, or (ii) if the Registerable Securities
were registered for resale, then one hundred eighty (180) days
subsequent to the earlier of the Expiration Date and the Redemption
Date;
(iii) Furnish to each Holder such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as such Holder may
reasonably request in order to facilitate the public sale or other
disposition of the Registerable Securities by such Holder;
(iv) Use its best efforts to register or qualify the
Registrable Securities under such securities or blue sky laws of
any state as a Holder may reasonably request, and do any and all other
acts which may be reasonably necessary or advisable to enable such
Holder to dispose of Registrable Securities in such jurisdictions;
(v) Use its best efforts to comply with all applicable rules
and regulations of the Commission, including without
- 9 -
<PAGE> 10
limitation the rules and regulations relating to the periodic
reporting requirements under the Securities Exchange Act of 1934, as
amended; and
(vi) Make available for inspection by the Holder or by any
underwriter, attorney, accountant or other agent acting for such
Holder in connection with the disposition of Registrable Securities,
in each case upon receipt of an appropriate confidentiality agreement,
all corporate records, documents and properties as may be reasonably
requested.
(c) Expenses of Registration. All Registration Expenses incurred
in connection with the registration, qualification or compliance pursuant to
Section 10(b) hereof shall be borne by the Company.
(d) Indemnification. In the event any of the Registerable
Securities are included in a registration statement under this Section 10:
(i) The Company will indemnify each Holder, each of its
officers and directors and partners and each person controlling such
Holder within the meaning of Section 15 of the Act, and each
underwriter, if any, and each person who controls any underwriter
within the meaning of Section 15 of the Act, against all expenses,
claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading, or any
violation by the Company of any rule or regulation promulgated under
the Act applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will
reimburse the Holder, each of its officers and directors and partners
and each person controlling such Holder, each
- 10 -
<PAGE> 11
such underwriter and each person who controls any such underwriter,
for any legal and any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement
or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the
Company by such Holder or underwriter for use therein.
(ii) In order to include Registerable Securities in a
registration statement under this Section 10, a Holder, upon the
written request of the Company, will be required to agree to indemnify
the Company, each of its directors and officers, its legal counsel and
independent accountants, each underwriter, if any, of the Company's
securities covered by such registration statement, each person who
controls the Company or such underwriter within the meaning of Section
15 of the Act, and each other selling shareholder, each of its
officers and directors and partners and each person controlling such
selling shareholder within the meaning of Section 15 of the Act,
against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other
document, or any 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 to reimburse the Company, such
holders, such directors, officers, counsel, accountants, persons,
underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information
furnished to the Company by the Holder for use therein. Such
agreement shall be in such form, conforming to the terms of this
Section 10 (d)(ii), as the Company may reasonably request.
- 11 -
<PAGE> 12
(iii) Each party entitled to indemnification under this
Section or the agreement referred to in the preceding paragraph (ii)
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by
the Indemnified Party (which approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense
at such Indemnified Party's expense. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such
claim or litigation.
(iv) If the indemnification provided for in this Section 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 herein, then the Indemnifying Party, in lieu of
indemnifying the Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party with respect to such loss,
liability, claim, damage or expense in the proportion that is
appropriate to reflect the relative fault of the Indemnifying Party
and the Indemnified Party 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. The
relative fault of the Indemnifying Party and the Indemnified Party
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of 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.
- 12 -
<PAGE> 13
(e) Information by Holder. Each Holder of Registerable Securities
included in any registration shall furnish to the Company such information
regarding such Holder, such securities and the distribution proposed by such
Holder as the Company may request in writing.
11. Notices. All notices, demands, elections, or requests
(however characterized or described) required or authorized hereunder shall be
deemed given sufficiently if in writing and sent by registered or certified
mail, return receipt requested and postage prepaid, or by facsimile or telegram
to the Company, at its principal executive office, and to the Registered
Holder, at the address of such holder as set forth on the books maintained by
the Company.
12. General Provisions. This Warrant Certificate shall be
construed and enforced in accordance with, and governed by, the laws of the
State of Delaware. Except as otherwise expressly stated herein, time is of the
essence in performing hereunder. The headings of this Warrant Certificate are
for convenience in reference only and shall not limit or otherwise affect the
meaning hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed as of the __ day of _______, 1995.
You Bet International, Inc.
By_________________________
Title______________________
- 13 -
<PAGE> 14
YOU BET INTERNATIONAL, INC.
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
JR TEN - as joint tenants with right ____________________
of survivorship and not as (Cust) (Minor)
tenants in common under Uniform Gifts
to Minors Act ______
(State)
Additional abbreviations may also be used though not in the above list.
FORM OF ASSIGNMENT
(To be Executed by the Registered Holder if He
Desires to Assign Warrants Evidenced by the
Within Warrant Certificate)
FOR VALUE RECEIVED _____________________________________
hereby sells, assigns and transfers unto _________________________
______________________________ (_______) Warrants, evidenced by the within
Warrant Certificate, and does hereby irrevocably constitute and appoint
_________________________________ Attorney to transfer the said Warrants
evidenced by the within Warrant Certificates on the books of the Company, with
full power of substitution.
Dated:____________________ _____________________________
Signature
Notice: The above signature must correspond with the name as written upon the
face of the Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
Signature Guaranteed: __________________________________________
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<PAGE> 15
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE
FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK
EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE.
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<PAGE> 16
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder if he Desires to Exercise
Warrants Evidenced by the Warrant Certificate)
To You Bet International, Inc.
The undersigned hereby irrevocably elects to exercise _________
_______________________ (_______)Warrants, evidenced by the within Warrant
Certificate for, and to purchase thereunder, ___________________________
(______) full shares of Common Stock issuable upon exercise of said Warrants
and delivery of $_________ and any applicable taxes.
The undersigned requests that certificates for such shares be issued
in the name of:
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
________________________________ ________________________________
(Please print name and address
________________________________________________________________________
________________________________________________________________________
If said number of Warrants shall not be all the Warrants evidenced by
the within Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so exercised by issued in the name of
and delivered to:
________________________________________________________________________
(Please print name and address)
________________________________________________________________________
________________________________________________________________________
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<PAGE> 17
Dated: _____________________ Signature:__________________________
NOTICE: The above signature must correspond with the name as written upon the
face of the within Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever, or if signed by
any other person the Form of Assignment hereon must be duly executed
and if the certificate representing the shares or any Warrant
Certificate representing Warrants not exercised is to be registered in
a name other than that in which the within Warrant Certificate is
registered, the signature of the holder hereof must be guaranteed.
Signature Guaranteed: ___________________________________________
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE
FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK
EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE.
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<PAGE> 18
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK ISSUABLE UPON
EXERCISE OF THE WARRANTS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY
BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO RELEVANT
PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION
FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE.
YOU BET INTERNATIONAL, INC.
Incorporated Under the Laws of the State of Delaware
No. 95-B____ ________ Common Stock
Purchase Warrants
CERTIFICATE FOR COMMON STOCK
PURCHASE WARRANTS
1. Warrant. This Warrant Certificate certifies that
___________________________________, or registered assigns (the "Registered
Holder"), is the registered owner of the above indicated number of Warrants
expiring on the Expiration Date, as hereinafter defined. One (1) Warrant
entitles the Registered Holder to purchase one (1) share of the no par value
common stock (a "Share") of You Bet International, Inc., a Delaware corporation
(the "Company"), from the Company at a purchase price of Three Dollars and
Twelve and One-Half Cents ($3.125) (the "Exercise Price") at any time during
the Exercise Period, as hereinafter defined, upon surrender at the principal
office of the Company of this Warrant Certificate with the exercise form
appended hereto duly completed and executed and accompanied by payment of the
Exercise Price.
Upon due presentment for transfer or exchange of this Warrant
Certificate at the principal office of the Company, a new Warrant Certificate
or Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued in exchange for this Warrant Certificate,
subject to the limitations provided herein, upon payment of any tax or
governmental charge imposed in connection with such transfer. Subject to the
terms hereof, the Company shall deliver Warrant Certificates in required whole
number
<PAGE> 19
denominations to Registered Holders in connection with any transfer or exchange
permitted hereunder.
2. Restrictive Legend. Each Warrant Certificate and each
certificate representing Shares issued upon exercise of a Warrant, unless such
Shares are then registered under the Securities Act of 1933, as amended (the
"Act"), shall bear a legend in substantially the following form:
"THE [SECURITIES] REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY BE OFFERED AND SOLD
ONLY IF REGISTERED AND QUALIFIED PURSUANT TO RELEVANT PROVISIONS OF
FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION FROM
SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE."
3. Exercise. Subject to the terms hereof, the Warrants evidenced
by this Warrant Certificate may be exercised at the Exercise Price in whole or
in part at any time during the period (the "Exercise Period") commencing on the
first anniversary of the date hereof and terminating at the close of business
on December 6, 1998. The Exercise Period may also be extended by the Company's
Board of Directors.
In the event the Shares issuable upon exercise of the Warrants
represented by this Warrant Certificate have not yet been registered under the
Act or are not then covered by a current prospectus meeting the requirements of
the Act, the right of a holder of such Warrants to exercise such Warrants shall
be conditioned upon such holder providing the Company with an opinion of
counsel, in form and substance reasonably acceptable to the Company, to be
effect that the issuance of Shares upon exercise of such Warrants is exempt
from the registration requirements of the Act.
A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the date (the "Exercise Date") of the surrender to the
Company at its principal offices of this Warrant Certificate with the exercise
form attached hereto completed and executed by the Registered Holder and
accompanied by payment to the Company, in cash or by check (which shall be
accepted subject to collection), of an amount equal to the
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<PAGE> 20
aggregate Exercise Price, in lawful money of the United States of America.
The person entitled to receive the Shares issuable upon exercise of a
Warrant or Warrants ("Warrant Shares") shall be treated for all purposes as the
holder of such Warrant Shares as of the close of business on the Exercise Date.
The Company shall not be obligated to issue any fractional share interests in
Warrant Shares issuable or deliverable on the exercise of any Warrant or scrip
or cash with respect thereto, and such right to a fractional share shall be of
no value whatsoever. If more than one Warrant shall be exercised at one time
by the same Registered Holder, the number of full Shares which shall be
issuable on exercise thereof shall be computed on the basis of the aggregate
number of full shares issuable on such exercise.
Promptly, and in any event within ten business days after the Exercise
Date, the Company shall cause to be issued and delivered to the person or
persons entitled to receive the same, a certificate or certificates for the
number of Warrant Shares deliverable on such exercise.
The Company may deem and treat the Registered Holder of the Warrants
at any time as the absolute owner thereof for all purposes, and the Company
shall not be affected by any notice to the contrary. The Warrants shall not
entitle the Registered Holder thereof to any of the rights of shareholders or
to any dividend declared on the Shares unless the Registered Holder shall have
exercised the Warrants and thereby purchased the Warrant Shares prior to the
record date for the determination of holders of Shares entitled to such
dividend or other right.
4. Reservation of Shares and Payment of Taxes. The Company
covenants that it will at all times reserve and have available from its
authorized Common Stock such number of Shares as shall then be issuable on the
exercise of outstanding Series B Warrants. The Company covenants that all
Warrant Shares which shall be so issuable shall be duly and validly issued,
fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issue thereof.
The Registered Holder shall pay all documentary, stamp or similar
taxes and other government charges that may be imposed with
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<PAGE> 21
respect to the issuance, transfer or delivery of any Warrant Shares on exercise
of the Warrants. In the event the Warrant Shares are to be delivered in a name
other than the name of the Registered Holder of the Warrant Certificate, no
such delivery shall be made unless the person requesting the same has paid the
amount of any such taxes or charges incident thereto.
5. Registration of Transfer. The Warrant Certificates may be
transferred in whole or in part, provided any such transfer complies with all
applicable federal and state securities laws and, if requested by the Company,
the Registered Holder delivers to the Company an opinion of counsel to that
effect, in form and substance reasonably acceptable to the Company. Warrant
Certificates to be transferred shall be surrendered to the Company at its
principal office. The Company shall execute, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the transfer shall be entitled to receive.
The Company shall keep transfer books at its principal office which
shall register Warrant Certificates and the transfer thereof. On due
presentment of any Warrant Certificate for registration of transfer at such
office, the Company shall execute, issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants. All Warrant Certificates presented for
registration of transfer or exercise shall be duly endorsed or be accompanied
by a written instrument or instruments of transfer in form satisfactory to the
Company. The Company may require payment of a sum sufficient to cover any tax
or other government charge that may be imposed in connection therewith.
All Warrant Certificates so surrendered, or surrendered for exercise,
or for exchange in case of mutilated Warrant Certificates, shall be promptly
canceled by the Company and thereafter retained by the Company until the
Expiration Date. Prior to due presentment for registration of transfer
thereof, the Company may treat the Registered Holder of any Warrant Certificate
as the absolute owner thereof (notwithstanding any notations of ownership or
writing thereon made by anyone other than the Company), and the Company shall
not be affected by any notice to the contrary.
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<PAGE> 22
6. Loss or Mutilation. On receipt by the Company of evidence
satisfactory as to the ownership of and the loss, theft, destruction or
mutilation of this Warrant Certificate, the Company shall execute and deliver,
in lieu thereof, a new Warrant Certificate representing an equal aggregate
number of Warrants. In the case of loss, theft or destruction of any Warrant
Certificate, the individual requesting issuance of a new Warrant Certificate
shall be required to indemnify the Company in a form and amount satisfactory to
the Company. In the event a Warrant Certificate is mutilated, such Certificate
shall be surrendered and canceled by the Company prior to delivery of a new
Warrant Certificate. Applicants for a new Warrant Certificate shall also
comply with such other regulations and pay such other reasonable charges as the
Company may prescribe.
7. Adjustment of Shares. The number and kind of securities
issuable upon exercise of a Warrant shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) Stock Splits, Stock Combinations and Certain Stock
Dividends. If the Company shall at any time subdivide or combine its
outstanding Shares, or declare a dividend in Shares or other
securities of the Company convertible into or exchangeable for Shares,
a Warrant for the same Exercise Price shall, after such subdivision or
combination or after the record date for such dividend, be exercisable
for that number of Shares and other securities of the Company that the
Registered Holder would have owned immediately after such event with
respect to the Shares and other securities for which a Warrant may
have been exercised immediately before such event had the Warrant been
exercised immediately before such event. Any adjustment under this
Section 7 (a) shall become effective at the close of business on the
date the subdivision, combination or dividend becomes effective.
(b) Adjustment for Reorganization, Consolidation, Merger.
In case of any reorganization of the Company (or any other corporation
the stock or other securities of which are at the time receivable upon
exercise of a Warrant) or in case the Company (or any such other
corporation) shall merge into or with or consolidate with another
corporation or convey all or substantially all of its assets to
another corporation or enter into a business combination of any form
as a result of
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<PAGE> 23
which the Shares or other securities receivable upon exercise of a
Warrant are converted into other stock or securities of the same or
another corporation, then and in each such case, the Registered Holder
of a Warrant, upon exercise of the purchase right at any time after
the consummation of such reorganization, consolidation, merger,
conveyance or combination, shall for the same Exercise Price be
entitled to receive, in lieu of the Shares or other securities to
which such Registered Holder would have been entitled had he exercised
the purchase right immediately prior thereto, such stock and
securities which such Registered Holder would have owned immediately
after such event with respect to the Shares and other securities for
which a Warrant may have been exercised immediately before such event
had the Warrant been exercised immediately prior to such event.
In each case of an adjustment in the Shares or other securities
receivable upon the exercise of a Warrant, the Company shall promptly notify
the Registered Holder of such adjustment. Such notice shall set forth the
facts upon which such adjustment is based.
8. Reduction in Exercise Price at Company's Option. The
Company's Board of Directors may, at its sole discretion, reduce the Exercise
Price of the Warrants in effect at any time either for the remaining life of
the Warrants or any shorter period of time determined by the Company's Board of
Directors. The Company shall promptly notify the Registered Holders of any
such reduction in the Exercise Price.
9. Registration Rights.
(a) Certain Definitions. As used in this Section 9, the following
definitions shall apply:
"Commission" means the Securities and Exchange Commission or
any other federal agency at the time administering the Act.
"Holder" means any holder of a Warrant or outstanding
Registerable Securities.
"Registerable Securities" means the Warrant Shares issued or
issuable upon the exercise of a Warrant, provided, however,
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<PAGE> 24
that Registerable Securities shall not include any Shares and other
securities which have previously been registered and sold to the
public.
"Registration Expenses" means all expenses incurred by the
Company in complying with Section 9(b) hereof including, without
limitation, all registration, qualification and filing fees, printing
expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, and the expense of any special audits incident to
or required in connection with any such registration. Registration
Expenses shall not include selling commissions, discounts or other
compensation paid to underwriters or other agents or brokers to effect
the sale of any Registerable Securities.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration
statement in compliance with the Act (and any post-effective
amendments filed in connection therewith), and the declaration of the
effectiveness of such registration statement.
(b) Registration. The Company shall:
(i) Within ten (10) months of the initial issuance of
Series B Warrants, file with the Commission a registration statement
on an appropriate form, including the Registrable Securities among the
securities being registered pursuant to such registration statement.
The Company shall thereafter diligently prosecute such registration
statement to effectiveness. Such registration statement shall cover
the issuance of Warrant Shares upon exercise of this Warrant and, to
the extent appropriate, the resale of such Warrant Shares by the
Holder. The Company will promptly notify the Holder regarding (i) the
filing of such registration statement and all amendments thereto, (ii)
the effectiveness of such registration statement and any
post-effective amendments thereto, (iii) the occurrence of any event
or condition that causes the prospectus that is part of such
registration statement no longer to comply with the requirements of
the Act, and (iv) any request by the Commission for any amendment or
supplement to such registration statement or any prospectus relating
thereto;
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<PAGE> 25
(ii) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective and current and to comply with the provisions of
the Act with respect to the issuance, sale or resale of the
Registerable Securities, including such amendments and supplements as
may be necessary to reflect the intended method of disposition of the
Holder, but for no longer than (i) if the Registerable Securities were
registered only for issuance and sale, the earlier of the Expiration
Date and the Redemption Date, or (ii) if the Registerable Securities
were registered for resale, then one hundred eighty (180) days
subsequent to the earlier of the Expiration Date and the Redemption
Date;
(iii) Furnish to each Holder such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as such Holder may
reasonably request in order to facilitate the public sale or other
disposition of the Registerable Securities by such Holder;
(iv) Use its best efforts to register or qualify the
Registerable Securities under such securities or blue sky laws of any
state as a Holder may reasonably request, and do any and all other
acts which may be reasonably necessary or advisable to enable such
Holder to dispose of Registerable Securities in such jurisdictions;
(v) Use its best efforts to comply with all applicable rules
and regulations of the Commission, including without limitation the
rules and regulations relating to the periodic reporting requirements
under the Securities Exchange Act of 1934, as amended; and
(vi) Make available for inspection by the Holder or by any
underwriter, attorney, accountant or other agent acting for such
Holder in connection with the disposition of Registerable Securities,
in each case upon receipt of an appropriate confidentiality agreement,
all corporate records, documents and properties as may be reasonably
requested.
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<PAGE> 26
(c) Expenses of Registration. All Registration Expenses incurred
in connection with the registration, qualification or compliance pursuant to
Section 9(b) hereof shall be borne by the Company.
(d) Indemnification. In the event any of the Registerable
Securities are included in a registration statement under this Section 9:
(i) The Company will indemnify each Holder, each of its
officers and directors and partners and each person controlling such
Holder within the meaning of Section 15 of the Act, and each
underwriter, if any, and each person who controls any underwriter
within the meaning of Section 15 of the Act, against all expenses,
claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading, or any
violation by the Company of any rule or regulation promulgated under
the Act applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will
reimburse the Holder, each of its officers and directors and partners
and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, provided
that the Company will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of
or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with
written information furnished to the Company by such Holder or
underwriter for use therein.
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<PAGE> 27
(ii) In order to include Registerable Securities in a
registration statement under this Section 9, a Holder, upon the
written request of the Company, will be required to agree to indemnify
the Company, each of its directors and officers, its legal counsel and
independent accountants, each underwriter, if any, of the Company's
securities covered by such registration statement, each person who
controls the Company or such underwriter within the meaning of Section
15 of the Act, and each other selling shareholder, each of its
officers and directors and partners and each person controlling such
selling shareholder within the meaning of Section 15 of the Act,
against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other
document, or any 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 to reimburse the Company, such
holders, such directors, officers, counsel, accountants, persons,
underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information
furnished to the Company by the Holder for use therein. Such
agreement shall be in such form, conforming to the terms of this
Section 9 (d)(ii), as the Company may reasonably request.
(iii) Each party entitled to indemnification under this
Section or the agreement referred to in the preceding paragraph (ii)
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation,
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<PAGE> 28
shall be approved by the Indemnified Party (which approval shall not
unreasonably be withheld), and the Indemnified Party may participate
in such defense at such Indemnified Party's expense. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except
with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release from all liability in respect to
such claim or litigation.
(iv) If the indemnification provided for in this Section 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 herein, then the Indemnifying Party, in lieu of
indemnifying the Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party with respect to such loss,
liability, claim, damage or expense in the proportion that is
appropriate to reflect the relative fault of the Indemnifying Party
and the Indemnified Party 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. The
relative fault of the Indemnifying Party and the Indemnified Party
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of 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) Information by Holder. Each Holder of Registerable Securities
included in any registration shall furnish to the Company such information
regarding such Holder, such securities and the distribution proposed by such
Holder as the Company may request in writing.
10. Notices. All notices, demands, elections, or requests
(however characterized or described) required or authorized hereunder shall be
deemed given sufficiently if in writing and sent by registered or certified
mail, return receipt requested and postage prepaid, or by facsimile or telegram
to the Company, at its
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<PAGE> 29
principal executive office, and to the Registered Holder, at the address of
such holder as set forth on the books maintained by the Company.
11. General Provisions. This Warrant Certificate shall be
construed and enforced in accordance with, and governed by, the laws of the
State of Delaware. Except as otherwise expressly stated herein, time is of the
essence in performing hereunder. The headings of this Warrant Certificate are
for convenience in reference only and shall not limit or otherwise affect the
meaning hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed as of the __ day of _______, 1995.
You Bet International, Inc.
By_________________________
Title______________________
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<PAGE> 30
YOU BET INTERNATIONAL, INC.
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
JR TEN - as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts
tenants in common to Minors Act _____
(State)
Additional abbreviations may also be used though not in the above list.
FORM OF ASSIGNMENT
(To be Executed by the Registered Holder if He
Desires to Assign Warrants Evidenced by the
Within Warrant Certificate)
FOR VALUE RECEIVED _____________________________________
hereby sells, assigns and transfers unto _________________________
______________________________ (_______) Warrants, evidenced by the within
Warrant Certificate, and does hereby irrevocably constitute and appoint
_________________________________ Attorney to transfer the said Warrants
evidenced by the within Warrant Certificates on the books of the Company, with
full power of substitution.
Dated:____________________ _____________________________
Signature
Notice: The above signature must correspond with the name as written upon the
face of the Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
Signature Guaranteed: __________________________________________
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<PAGE> 31
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE
FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK
EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE.
- 2 -
<PAGE> 32
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder if he Desires to Exercise
Warrants Evidenced by the Warrant Certificate)
To You Bet International, Inc.
The undersigned hereby irrevocably elects to exercise ___________
_______________________ (_______)Warrants, evidenced by the within Warrant
Certificate for, and to purchase thereunder, _____________________________
(______) full shares of Common Stock issuable upon exercise of said Warrants
and delivery of $_________ and any applicable taxes.
The undersigned requests that certificates for such shares be issued
in the name of:
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
________________________________ __________________________________
(Please print name and address
__________________________________________________________________________
__________________________________________________________________________
If said number of Warrants shall not be all the Warrants evidenced by
the within Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so exercised by issued in the name of
and delivered to:
__________________________________________________________________________
(Please print name and address)
__________________________________________________________________________
__________________________________________________________________________
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<PAGE> 33
(SIGNATURES CONTINUED ON FOLLOWING PAGE)
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<PAGE> 34
Dated: _____________________ Signature:__________________________
NOTICE: The above signature must correspond with the name as written upon the
face of the within Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever, or if signed by
any other person the Form of Assignment hereon must be duly executed
and if the certificate representing the shares or any Warrant
Certificate representing Warrants not exercised is to be registered in
a name other than that in which the within Warrant Certificate is
registered, the signature of the holder hereof must be guaranteed.
Signature Guaranteed: ___________________________________________
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE
FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK
EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE.
- 5 -
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of this 6th
day of December, 1995 by and between You Bet!, Inc., a Delaware corporation
("Company") and David Marshall ("Executive"), in connection with Company's
engagement of Executive's personal services as President.
1. EMPLOYMENT; DUTIES AND ACCEPTANCE:
(a) Employment by Company.
Company hereby engages Executive, and Executive
hereby agrees to provide to Company the services of Executive, as President and
Chief Executive Officer of the Company on the terms and conditions of this
Agreement. In such capacity Executive will report to, and serve under the
direction and subject to the control of Company's Board of Directors.
Throughout the Term of this Agreement Executive shall, subject to the
provisions contained herein, devote substantially all of his work time to the
employment described hereunder.
(b) Location of Employment:
Executive shall render his services at Company's
offices at 12121 Wilshire Boulevard, 14th Floor, Los Angeles, California 90025;
provided, however, that Executive agrees to render his services at such other
locations from time-to-time as the proper performance of Executive's duties may
reasonably require. Notwithstanding the foregoing, Company's principal offices
shall remain in Southern California, and Executive need not relocate to render
his duties hereunder.
2. TERM:
The term of Executive's employment hereunder shall be
for a period of four (4) years commencing as of December 6, 1995 and ending on
November 30, 1999 (the "Term") unless sooner terminated pursuant to Section 7
hereof ("Termination Sections").
3. COMPENSATION AND BENEFITS:
(a) Salary.
During the first year of the Term, Executive shall
receive a salary (the "Annual Salary") at the rate of $130,000 per annum. The
parties hereto shall in good faith, renegotiate the compensation payable to
Executive for each successive one year period commencing upon the initial rate
of the Term through the end of the Term, after having given due consideration
to the performance of the Company and cost of living increases, provided that
1
<PAGE> 2
in no event shall the Annual Salary exclusive of the Bonus (as defined below)
payable to Executive be less than the Annual Salary paid during the prior year
of the Term hereof. Executive's Annual Salary shall be payable in accordance
with the Company's normal payment policies. Such salary shall be less such
deductions as shall be required to be withheld by applicable law and
regulations and shall be pro-rated for any period that does not constitute a
full twelve (12) month period.
(b) Bonus.
There will be no fixed bonuses. Bonuses may be
offered from time to time at the discretion of the Board of Directors of the
Company.
4. PARTICIPATION IN EXECUTIVE BENEFIT PLANS;
AUTOMOBILE ALLOWANCE:
(a) Fringe Benefits.
Executive shall be permitted during the Term to
participate in any group life, medical, hospitalization, dental, and disability
plans, including, but not limited to proposed life insurance policies, and
any other plans and benefits, if any, generally maintained by Company for
executives of the stature and rank of Executive during the Term hereof, each in
accordance with the terms and conditions of such plans (collectively referred
to herein as "Fringe Benefits"); provided, however, that Company shall not be
required to establish or maintain any such Fringe Benefits.
(b) Automobile Allowance.
(i) Company shall continue to provide Executive
with an automobile allowance of $500 per month. Alternatively, at Executive's
option, Executive shall require Company to lease Employee a vehicle of
Employee's choice of an aggregate expense, including interest and taxes, of not
more than $500 per month. The reasonable cost of any down payment on such
lease shall not be considered in connection with such calculation.
(ii) Company shall pay all business related
operating expenses of the automobile including registration, gas, oil and
repairs.
(iii) Company shall procure and maintain an
automobile liability insurance policy on the automobile, with coverage
including Executive in the minimum amounts of Five Hundred Thousand Dollars
($500,000.00) combined single limit.
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(c) Vacation.
Executive shall accrue, in addition to sick days and
days on which Company is closed, paid vacation days at the rate of one and
one-quarter (1 1/4) days per month up to a maximum of fifteen (15) work days
(three [3] work weeks). Under no circumstances can Executive accrue more
vacation than twenty (20) work days (the "Ceiling"). Thus, once the maximum
amount of paid vacation time is accrued or earned, no further vacation time is
accrued or earned until after vacation is taken and the amount of Executive's
accrued vacation time goes below the Ceiling as stated above. At that point,
Executive will start to accrue vacation time again until Executive reaches the
Ceiling. Subject to the requirements of Executive's office, Executive shall be
entitled to annual vacation in accordance with the vacation policy of Company.
(d) Expenses.
Company will reimburse Executive for actual and
necessary travel and accommodation costs, entertainment and other business
expenses incurred as a necessary part of discharging the Executive's duties
hereunder, subject to receipt of reasonable and appropriate documentation by
Company.
5. CERTAIN COVENANTS OF EXECUTIVE:
Without in any way limiting or waiving any right or remedy
accorded to Company or any limitation placed upon Executive by law, Executive
agrees as follows:
(a) Non-Compete.
Company and Executive acknowledge that this
Employment Agreement is being entered into in furtherance of that certain sale
of stock from Executive and others to Continental Embassy Acquisition Inc., (as
contemplated by that certain Agreement and Plan of Reorganization between the
Company and Continental Embassy Acquisition, Inc. dated November 30, 1995), and
that the Company's and Executive's agreement as further set forth in this
paragraph 5(a) is in furtherance and is related to such sale of stock
transaction. Provided that Company is (other than in furtherance of a plan of
liquidation) at all times relevant hereto activity carrying on the Business of
the Company (as defined below), Executive agrees that during the Term of this
Agreement, and for an additional period of Three (3) years after the Term
hereof, but not beyond November 30, 2000, Executive shall not within any county
or similar political subdivision of the United States or any other county in
which the Company or any other Protected Company (as hereafter defined) has
during the past two years or does during the term hereof directly or
indirectly, in any form, capacity or manner, participate in activities which
are competitive with the Business of the Company (as defined below), or of
those divisions,
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subsidiaries and affiliated companies of Company (each of which, including
Company, is referred to as a "Protected Company") or have a direct monetary
interest in or invest capital in any competitor of Company,, whether such
interest be by way of (i) ownership, (ii) stock interest, (iii) financing, (iv)
lending arrangements, or (v) in any other form or of any other nature. Upon
the execution of this Agreement and during the Term hereof, Executive shall
disclose to Company any stock owned by him and his family in any company
competitive with a Protected Company; provided, however, (i) Executive shall
not be prohibited from investing in any competitive company, as aforesaid, the
stock of which is publicly traded so long as his and his family's ownership
collectively is nominal and for investment purposes only and (ii) this covenant
not to compete shall apply for only a one year period following the date of
termination of Executive's employment relationship with the Company if
Executive is terminated for any reason other than as provided hereunder. For
purposes hereof, the term "Business of the Company" shall mean the development
and sale of proprietary, interactive software which will provide individual
personal computer users with both race handicapping and other sports oddsmaking
information and, in certain instances, the ability to place bets on horse
racing and other sports contests, as well as recreational games and contests
related to such information. Executive hereby agrees to indemnify and hold
Company harmless from any and all damages, liabilities, costs, losses and
expenses (including legal costs and reasonable attorneys' fees) arising out of
or connected with any claim, demand or action which is based upon a breach by
Executive of the foregoing restriction.
(b) Confidential Information.
Executive agrees that, neither during the Term nor at
any time thereafter shall the Executive (i) disclose to any person, firm, or
corporation not employed by any Protected Company or not engaged to render
services to any Protected Company or (ii) use for the benefit of himself, or
others, any confidential information of any Protected Company obtained by the
Executive prior to the execution of this Agreement, during the Term or any time
thereafter, including, without limitation, "know-how" trade secrets, details of
supplier's, manufacturer's, distributor's contracts, pricing policies,
financial data, operational methods, marketing and sales information or
strategies, product development techniques or plans or any strategies relating
thereto, technical processes, designs and design projects, and other
proprietary information of any Protected Company; provided, however, that this
provision shall not preclude the Executive from (x) upon advice of counsel,
making any disclosure required by any applicable law or (y) using or disclosing
information known generally to the public (other than information known
generally to the public as a result of any violation of this Section 5.b. by or
on behalf of the Executive.
(c) Property of Company.
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Any interest in trademarks, servicemarks, copyrights,
copyright applications, patents, patent applications, slogans, developments and
processes which the Executive, during the Term, may develop relating to the
Business of the Company in which the Company may then be engaged and any
memoranda, notes, lists, records and other documents (and all copies thereof)
made or compiled by the Executive or made available to the Executive concerning
the business of any Protected Company shall belong and remain in the possession
of any Protected Company, and shall be delivered to the Company promptly upon
the termination of the Executive's employment with Company or at any other time
on request.
(d) Executive will not, during the Term hereof, and for a
period of one (1) year after the Term hereof induce any person who is an
executive, officer or agent of the Company, to terminate relationship with the
Company.
6. OTHER PROVISIONS;
(a) Rights and Remedies Upon Breach.
If the Executive breaches, or threatens to commit a
breach of, any of the provisions of Section 5 hereof (the "Restrictive
Covenants"), the Company shall have the following rights and remedies, each of
which rights and remedies shall be independent of the other and severally
enforceable, and all of which rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company at law
or in equity.
(b) Accounting.
The right and remedy to require the Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits (collectively "Benefits") derived or
received by the Executive as a result of any transactions constituting a breach
of any of the Restrictive Covenants, and the Executive shall account for and
pay over such Benefits to the Company.
(c) Severability of Covenants.
If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the remainder of
the Restrictive Covenants shall not thereby be affected and shall be given full
effect, without regard to the invalid portions.
(d) Blue-Pencilling.
If any court construes any of the Restrictive
Covenants, or any part thereof, to be unenforceable because of the duration or
geographic scope of such provision, such
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court shall have the power to reduce the duration or scope of such provision
and, in its reduced form, such provision shall then be enforceable.
(e) Enforceability in Jurisdictions.
The parties intend to and hereby confer jurisdiction
to enforce the Restrictive Covenants upon the courts of any jurisdiction within
the geographical scope of such Restrictive Covenants. If the courts of any one
or more of such jurisdictions hold the Restrictive Covenants unenforceable by
reason of the breadth of such scope or otherwise, it is the intention of the
parties that such determination not bar or in any way affect Company's right to
the relief provided in this Section 6 in the courts of any other jurisdiction
within the geographical scope of such Restrictive Covenants, as to breaches of
such Restrictive Covenants in such other respective jurisdictions, such
Restrictive Covenants as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants.
(f) Injunctive Relief.
Executive agrees and understands that the remedy at
law for any breach by Executive of the provisions of Paragraph 5 hereof may be
inadequate and that damages resulting from such breach may not be susceptible
to being measured in monetary terms. Accordingly, it is acknowledged that upon
Executive's breach of any provision of Paragraph 5 hereof, the Company shall be
entitled to seek to obtain from any court of competent jurisdiction injunctive
relief to prevent the continuation of such breach. Nothing contained herein
shall be deemed to limit the Company's remedies at law or in equity for any
breach of the provisions of Paragraph 5 hereof which may be available to the
Company.
7. TERMINATION:
(a) Termination Upon Death or Disability.
If during the Term, Executive should (i) die or (ii)
Executive becomes so physically or mentally disabled whether totally or
partially, that Executive is unable to perform the duties, functions and
responsibilities required hereunder for (aa) a period of three (3) consecutive
months or (bb) shorter periods aggregating to four (4) months within any period
of twelve (12) months ("Disability"), then in such event, Company may, at any
time thereafter, by written notice to Executive, terminate Executive's
employment hereunder. Executive agrees to submit to reasonable medical
examinations upon the request of Company. The existence of Executive's
disability for the purposes of this Agreement shall be determined by a
reputable physician selected by Company who is experienced in the relevant
field of medicine. If
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Executive's services are terminated, as aforesaid, Executive or the designated
beneficiary of Executive, shall be entitled to receive Executive's base salary,
accrued share of the Bonus for that Fiscal Year and accrued automobile
allowance and unused vacation (hereinafter collectively referred to as "Fringe
Benefits"), if any, earned through the date of Executive's termination and
continuing thereafter for an additional period of six (6) months.
(b) No Duty to Mitigate.
In the event that Executive's services to Company are
terminated for any reason prior to the completion of the Term hereof, or in the
event that Executive terminates this Agreement based upon the Company's
material failure to perform its obligations hereunder, Executive shall have no
duty, either express or implied, to mitigate any damages hereunder and the
Company shall remain liable for all compensation (whether salary, bonus or
other benefits) provided for under the terms of this Agreement. Any
compensation earned by Executive in any capacity after the date of such
termination shall not reduce or mitigate the amounts payable by the Company
hereunder. Nothing herein shall be deemed to imply that the Company has the
right to terminate Executive's services.
(c) Designation of Beneficiary.
The parties hereto agree that the Executive shall
designate, by written notice to the Company, a beneficiary to receive the
payments described in Section 7 in the event of his death and the designation
of any such beneficiary may be changed by the Executive from time to time by
written notice to the Company. In the event the Executive fails to designate a
beneficiary as herein provided, any payments which are to be made to the
Executive's designated beneficiary under Section 7 shall be made to the
Executive's widow, if any, during her lifetime. If the Executive has no
designees or widow, such payments shall be paid to the Executive's estate.
8. CHANGE OF CONTROL
(a) In the event there has been a "Change of Control" (as
defined below) of the Company, Executive shall have the right, but not the
obligation, to consider such event to be a termination of this agreement, in
which event Executive shall be entitled to rely on the rights afforded to him
under Section 7(b) above.
(b) For purposes of this Agreement, "Change of Control"
shall mean
(i) any sale of all or substantially all of the
assets of the Company
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(ii) any stock sale, merger or other business
combination in which the members of the management of the Company (i) no
longer are affiliates of the surviving entity, (ii) no longer are in contol of
the surviving entitiy or (iii) no longer own in excess of 20% of the
outstanding stock of such surviving entity.
9. EXECUTIVE'S REPRESENTATIONS AND WARRANTIES:
(a) Right to Enter Into Agreement.
Executive has the unfettered right to enter into this
entire Agreement on all of the terms, covenants and conditions hereof; and
Executive has not done or permitted to be done anything which may curtail or
impair any of the rights granted to Company herein.
(b) Breach Under Other Agreement or Arrangement.
Neither the execution and delivery of this Agreement
nor the performance by Executive of any of his obligations hereunder will
constitute a violation or breach of, or a default under, any agreement,
arrangement or understanding, or any other restriction of any kind, to which
Executive is a party or by which Executive is bound.
(c) Services Rendered Deemed Special, Etc.
Executive acknowledges and agrees that the services
to be rendered by him hereunder are of a special, unique, extraordinary and
intellectual character which gives them peculiar value, the loss of which
cannot be adequately compensated for in an action at law and that a breach of
any term, condition or covenant hereof will cause irreparable harm and injury
to Company and in addition to any other available remedy Company will be
entitled to seek injunctive relief.
10. USE OF NAME:
Company shall have the right during the Term hereof to use
Executive's name, biography and approved likenesses in connection with Company's
business, including advertising their products and services; and Company may
grant such rights to others, but not for use as a direct endorsement.
11. ARBITRATION:
Any dispute whatsoever arising out of or referable to this
Agreement, including, without limitation, any dispute as to the rights and
entitlements and performance of the parties under this Agreement or concerning
the termination of Executive's employment or of this Agreement or its
construction or its validity or enforcement, or as to the arbitrator's
jurisdiction,
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or as to the arbitrability of any such dispute, shall be submitted to final and
binding arbitration in Los Angeles, California by and pursuant to the Labor
Arbitration Rules of the American Arbitration Association with discovery
proceedings pursuant to Section 1283.05 of the California Code of Civil
Procedure. The arbitrator shall be entitled to award any relief which might be
available at law or in equity, including that of a provisional, permanent or
injunctive nature. The prevailing party in such arbitration as determined by
the arbitrator, or in any proceedings in respect thereof as determined by the
person presiding, shall be entitled to receive its or his reasonable attorneys'
fees incurred in connection therewith.
12. NOTICES:
(a) Delivery.
Any notice, consent or other communication under this
Agreement shall be in writing and shall be delivered personally, telexed, sent
by facsimile transmission or overnight courier (regularly providing proof of
delivery) or sent by registered, certified, or express mail and shall be deemed
given when so delivered personally, telexed, sent by facsimile transmission or
overnight courier, or if mailed two (2) days after the date of deposit in the
United States mail as follows: to the parties at the following addresses (or at
such other address as a party may specify by notice in accordance with the
provisions hereof to the other):
(i) If to Marshall, to his address at:
22660 Pacific Coast Highway
Unit 106
Malibu, Californa 90265
(ii)If to Company, to its address at:
You Bet!, Inc.
12121 Wilshire Boulevard, 14th Floor
Los Angeles, California 90025
Meyer & Vann
1999 Avenue of the Stars, 27th Floor
Los Angeles, CA 90067
(b) Change of Address.
Either party may change its address for notice
hereunder by notice to the other party in accordance with this Section 12.
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13. RETENTION OF SHARES:
During the first year of the Term, Executive shall retain all
shares (the "Shares") of the Company and each other Protected Company
beneficially owned by Executive on the initial date of the Term, as well as all
shares of all issuers into which such Shares are converted or for which such
Shares are exchanged. During the second year of the Term, Executive shall
retain all such Shares and any other shares so received on conversion of or
exchange for the Shares, other than 50,000 Shares or the equivalent thereof
received on conversion or exchange which Executive shall be free to sell or
otherwise dispose of in his discretion.
14. COMPLETE AGREEMENT; MODIFICATION AND TERMINATION:
This Agreement contains a complete statement of all the
arrangements between the parties with respect to the matters covered hereby
and, supersedes all existing agreement between the parties concerning such
matters. This Agreement may be amended, modified, superseded or canceled, and
the terms and conditions hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right or
remedy hereunder shall operate as a waiver thereof, nor shall any waiver on the
part of any party of any such right or remedy, nor any single or partial
exercise of any such right or remedy preclude any other or further exercise
thereof or the exercise of any other right or remedy.
15. GOVERNING LAW:
This Agreement shall be governed by and construed in
accordance with the law of the State of California applicable to agreements
entered into and performed entirely within such State.
16. HEADINGS:
The headings in this Agreement are solely for the convenience
of reference and shall not affect its interpretation.
WHEREFORE, the parties hereto have executed this Agreement as of the
day and year first above written.
By: __________________________
David Marshall
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Agreed to and Accepted:
You Bet!, Inc.,
a Delaware Corporation
By:________________________
Its: ________________________
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Exhibit 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of this 6th
day of December, 1995 by and between You Bet!, Inc., a Delaware corporation
("Company") and Russell Fine ("Executive"), in connection with Company's
engagement of Executive's personal services as Executive Vice President.
1. EMPLOYMENT; DUTIES AND ACCEPTANCE:
(a) Employment by Company.
Company hereby engages Executive, and Executive
hereby agrees to provide to Company the services of Executive, as Executive
Vice President of the Company on the terms and conditions of this Agreement.
In such capacity Executive will report to, and serve under the direction and
subject to the control of Company's Board of Directors and President.
Throughout the Term of this Agreement Executive shall, subject to the
provisions contained herein, devote substantially all of his work time to the
employment described hereunder.
(b) Location of Employment:
Executive shall render his services at Company's offices at
12121 Wilshire Boulevard, 14th Floor, Los Angeles, California 90025; provided,
however, that Executive agrees to render his services at such other locations
from time-to-time as the proper performance of Executive's duties may
reasonably require. Notwithstanding the foregoing, Company's principal offices
shall remain in Southern California, and Executive need not relocate to render
his duties hereunder.
2. TERM:
The term of Executive's employment hereunder shall be
for a period of four (4) years commencing as of December 6, 1995 and ending on
November 30, 1999 (the "Term") unless sooner terminated pursuant to Section 7
hereof ("Termination Sections").
3. COMPENSATION AND BENEFITS:
(a) Salary.
During the first year of the Term, Executive shall
receive a salary (the "Annual Salary") at the rate of $120,000 per annum. The
parties hereto shall in good faith, renegotiate the compensation payable to
Executive for each successive one year period commencing upon the initial rate
of the Term through the end of the Term and for the Option Period, after having
given due consideration to the performance of the Company and cost of
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living increases, provided that in no event shall the Annual Salary exclusive
of the Bonus (as defined below) payable to Executive be less than the Annual
Salary paid during the prior year of the Term hereof. Executive's Annual
Salary shall be payable in accordance with the Company's normal payment
policies. Such salary shall be less such deductions as shall be required to be
withheld by applicable law and regulations and shall be pro-rated for any
period that does not constitute a full twelve (12) month period.
(b) Bonus.
There will be no fixed bonuses. Bonuses may be
offered from time to time at the discretion of the Board of Directors of the
Company.
4. PARTICIPATION IN EXECUTIVE BENEFIT PLANS;
AUTOMOBILE ALLOWANCE:
(a) Fringe Benefits.
Executive shall be permitted during the Term to
participate in any group life, medical, hospitalization, dental, and disability
plans, including, but not limited to proposed life insurance policies, and
any other plans and benefits, if any, generally maintained by Company for
executives of the stature and rank of Executive during the Term hereof, each in
accordance with the terms and conditions of such plans (collectively referred
to herein as "Fringe Benefits"); provided, however, that Company shall not be
required to establish or maintain any such Fringe Benefits.
(b) Automobile Allowance.
(i) Company shall continue to provide Executive
with an automobile allowance of $500 per month. Alternatively, at Executive's
option, Executive shall require Company to lease Employee a vehicle of
Employee's choice of an aggregate expense, including interest and taxes, of not
more than $500 per month. The reasonable cost of any down payment on such
lease shall not be considered in connection with such calculation.
(ii) Company shall pay all business related
operating expenses of the automobile including registration, gas, oil and
repairs.
(iii) Company shall procure and maintain an
automobile liability insurance policy on the automobile, with coverage
including Executive in the minimum amounts of Five Hundred Thousand Dollars
($500,000.00) combined single limit.
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(c) Vacation.
Executive shall accrue, in addition to sick days and
days on which Company is closed, paid vacation days at the rate of one and
one-quarter (1 1/4) days per month up to a maximum of fifteen (15) work days
(three (3) work weeks). Under no circumstances can Executive accrue more
vacation than twenty (20) work days (the "Ceiling"). Thus, once the maximum
amount of paid vacation time is accrued or earned, no further vacation time is
accrued or earned until after vacation is taken and the amount of Executive's
accrued vacation time goes below the Ceiling as stated above. At that point,
Executive will start to accrue vacation time again until Executive reaches the
Ceiling. Subject to the requirements of Executive's office, Executive shall be
entitled to annual vacation in accordance with the vacation policy of Company.
(d) Expenses.
Company will reimburse Executive for actual and
necessary travel and accommodation costs, entertainment and other business
expenses incurred as a necessary part of discharging the Executive's duties
hereunder, subject to receipt of reasonable and appropriate documentation by
Company.
5. CERTAIN COVENANTS OF EXECUTIVE:
Without in any way limiting or waiving any right or remedy
accorded to Company or any limitation placed upon Executive by law, Executive
agrees as follows:
(a) Non-Compete.
Company and Executive acknowledge that this
Employment Agreement is being entered into in furtherance of that certain sale
of stock from Executive and others to Continental Embassy Acquisition Inc., (as
contemplated by that certain Agreement and Plan of Reorganization between the
Company and Continental Embassy Acquisitions, Inc. dated November 30, 1995),
and that the Company's and Executive's agreement as further set forth in this
paragraph 5(a) is in furtherance and is related to such sale of stock
transaction. Provided that Company is (other than in furtherance of a plan of
liquidation) at all times relevant hereto actively carrying on the Business of
the Company (as defined below), Executive agrees that during the Term of this
Agreement, and, for an additional period of Three (3) years after the Term
hereof, but not beyond November 30, 2000, Executive shall not within any county
or similar political subdivision of the United States or any other county in
which the Company or any other Protected Company (as hereafter defined) has
during the past two years or does during the term hereof directly or
indirectly, in any form, capacity or manner, participate in activities which
are competitive with the Business of the Company (as defined below), or of
those
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divisions, subsidiaries and affiliated companies of Company (each of which,
including Company, is referred to as a "Protected Company") or have a direct
monetary interest in or invest capital in any competitor company of Company,
whether such interest be by way of (i) ownership, (ii) stock interest, (iii)
financing, (iv) lending arrangements, or (v) in any other form or of any other
nature. Upon the execution of this Agreement and during the Term hereof,
Executive shall disclose to Company any stock owned by him and his family in
any company competitive with a Protected Company; provided, however, (i)
Executive shall not be prohibited from investing in any competitive company, as
aforesaid, the stock of which is publicly traded so long as his and his
family's ownership collectively is nominal and for investment purposes only and
(ii) this covenant not to compete shall apply for only a one year period
following the date of termination of Executive's employment relationship with
the Company if Executive is terminated for any reason other than provided
hereunder. For purposes hereof, the term "Business of the Company" shall mean
the development and sale of proprietary, interactive software which will
provide individual personal computer users with both race handicapping and
other sports oddsmaking information and, in certain instances, the ability to
place bets on horse racing and other sports contests, as well as recreational
games and contests related to such information. Executive hereby agrees to
indemnify and hold Company harmless from any and all damages, liabilities,
costs, losses and expenses (including legal costs and reasonable attorneys'
fees) arising out of or connected with any claim, demand or action which is
based upon a breach by Executive of the foregoing restriction.
(b) Confidential Information.
Executive agrees that, neither during the Term nor at
any time thereafter shall the Executive (i) disclose to any person, firm, or
corporation not employed by any Protected Company or not engaged to render
services to any Protected Company or (ii) use for the benefit of himself, or
others, any confidential information of any Protected Company obtained by the
Executive prior to the execution of this Agreement, during the Term or any time
thereafter, including, without limitation, "know-how" trade secrets, details of
supplier's, manufacturer's, distributor's contracts, pricing policies,
financial data, operational methods, marketing and sales information or
strategies, product development techniques or plans or any strategies relating
thereto, technical processes, designs and design projects, and other
proprietary information of any Protected Company; provided, however, that this
provision shall not preclude the Executive from (x) upon advice of counsel,
making any disclosure required by any applicable law or (y) using or disclosing
information known generally to the public (other than information known
generally to the public as a result of any violation of this Section 5.b. by or
on behalf of the Executive.
(c) Property of Company.
Any interest in trademarks, servicemarks, copyrights,
copyright applications, patents, patent applications, slogans, developments and
processes which the
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Executive, during the Term, may develop relating to the Business of the Company
in which the Company may then be engaged and any memoranda, notes, lists,
records and other documents (and all copies thereof) made or compiled by the
Executive or made available to the Executive concerning the business of any
Protected Company shall belong and remain in the possession of any Protected
Company, and shall be delivered to the Company promptly upon the termination of
the Executive's employment with Company or at any other time on request.
(d) Executive will not, during the Term hereof and for a
period of one (1) year after the Term hereof induce any person who is an
executive, officer or agent of the Company, to terminate relationship with the
Company.
6. OTHER PROVISIONS;
(a) Rights and Remedies Upon Breach.
If the Executive breaches, or threatens to commit a
breach of, any of the provisions of Section 5 hereof (the "Restrictive
Covenants"), the Company shall have the following rights and remedies, each of
which rights and remedies shall be independent of the other and severally
enforceable, and all of which rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company at law
or in equity.
(b) Accounting.
The right and remedy to require the Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits (collectively "Benefits") derived or
received by the Executive as a result of any transactions constituting a breach
of any of the Restrictive Covenants, and the Executive shall account for and
pay over such Benefits to the Company.
(c) Severability of Covenants.
If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the remainder of
the Restrictive Covenants shall not thereby be affected and shall be given full
effect, without regard to the invalid portions.
(d) Blue-Pencilling.
If any court construes any of the Restrictive
Covenants, or any part thereof, to be unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision and, in its reduced form, such
provision shall then be enforceable.
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(e) Enforceability in Jurisdictions.
The parties intend to and hereby confer jurisdiction
to enforce the Restrictive Covenants upon the courts of any jurisdiction within
the geographical scope of such Restrictive Covenants. If the courts of any one
or more of such jurisdictions hold the Restrictive Covenants unenforceable by
reason of the breadth of such scope or otherwise, it is the intention of the
parties that such determination not bar or in any way affect Company's right to
the relief provided in this Section 6 in the courts of any other jurisdiction
within the geographical scope of such Restrictive Covenants, as to breaches of
such Restrictive Covenants in such other respective jurisdictions, such
Restrictive Covenants as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants.
(f) Injunctive Relief.
Executive agrees and understands that the remedy at
law for any breach by Executive of the provisions of Paragraph 5 hereof may be
inadequate and that damages resulting from such breach may not be susceptible
to being measured in monetary terms. Accordingly, it is acknowledged that upon
Executive's breach of any provision of Paragraph 5 hereof, the Company shall be
entitled to seek to obtain from any court of competent jurisdiction injunctive
relief to prevent the continuation of such breach. Nothing contained herein
shall be deemed to limit the Company's remedies at law or in equity for any
breach of the provisions of Paragraph 5 hereof which may be available to the
Company.
7. TERMINATION:
(a) Termination Upon Death or Disability.
If during the Term, Executive should (i) die or (ii)
Executive becomes so physically or mentally disabled whether totally or
partially, that Executive is unable to perform the duties, functions and
responsibilities required hereunder for (aa) a period of three (3) consecutive
months or (bb) shorter periods aggregating to four (4) months within any period
of twelve (12) months ("Disability"), then in such event, Company may, at any
time thereafter, by written notice to Executive, terminate Executive's
employment hereunder. Executive agrees to submit to reasonable medical
examinations upon the request of Company. The existence of Executive's
disability for the purposes of this Agreement shall be determined by a
reputable physician selected by Company who is experienced in the relevant
field of medicine. If Executive's services are terminated, as aforesaid,
Executive or the designated beneficiary of Executive, shall be entitled to
receive Executive's base salary, accrued share of the Bonus for that Fiscal
Year and accrued automobile allowance and unused vacation (hereinafter
collectively referred to as "Fringe Benefits"), if any, earned through the date
of Executive's termination and continuing thereafter for an additional period
of six (6) months.
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(b) No Duty to Mitigate.
In the event that Executive's services to Company are
terminated for any reason prior to the completion of the Term hereof, or in the
event that Executive terminates this Agreement based upon the Company's
material failure to perform its obligations hereunder, Executive shall have no
duty, either express or implied, to mitigate any damages hereunder and the
Company shall remain liable for all compensation (whether salary, bonus or
other benefits) provided for under the terms of this Agreement. Any
compensation earned by Executive in any capacity after the date of such
termination shall not reduce or mitigate the amounts payable by the Company
hereunder. Nothing herein shall be deemed to imply that the Company has the
right to terminate Executive's services.
(c) Designation of Beneficiary.
The parties hereto agree that the Executive shall
designate, by written notice to the Company, a beneficiary to receive the
payments described in Section 7 in the event of his death and the designation
of any such beneficiary may be changed by the Executive from time to time by
written notice to the Company. In the event the Executive fails to designate a
beneficiary as herein provided, any payments which are to be made to the
Executive's designated beneficiary under Section 7 shall be made to the
Executive's widow, if any, during her lifetime. If the Executive has no
designees or widow, such payments shall be paid to the Executive's estate.
8. CHANGE OF CONTROL
(a) In the event there has been a "Change of Control" (as
defined below) of the Company, Executive shall have the right, but not the
obligation, to consider such event to be a termination of this agreement, in
which event Executive shall be entitled to rely on the rights afforded to him
under Section 7(b) above.
(b) For purposes of this Agreement, "Change of Control"
shall mean
(i) any sale of all or substantially all of the
assets of the Company; or
(ii) any stock sale, merger or other business
combination in which the members of the management of the Company are either
(i) no longer affiliates of the surviving entity, (ii) no longer in control of
the surviving entity or (iii) no longer own in excess of 20% of the
outstanding stock of such surviving entity.
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9. EXECUTIVE'S REPRESENTATIONS AND WARRANTIES:
(a) Right to Enter Into Agreement.
Executive has the unfettered right to enter into this
entire Agreement on all of the terms, covenants and conditions hereof; and
Executive has not done or permitted to be done anything which may curtail or
impair any of the rights granted to Company herein.
(b) Breach Under Other Agreement or Arrangement.
Neither the execution and delivery of this Agreement
nor the performance by Executive of any of his obligations hereunder will
constitute a violation or breach of, or a default under, any agreement,
arrangement or understanding, or any other restriction of any kind, to which
Executive is a party or by which Executive is bound.
(c) Services Rendered Deemed Special, Etc.
Executive acknowledges and agrees that the services
to be rendered by him hereunder are of a special, unique, extraordinary and
intellectual character which gives them peculiar value, the loss of which
cannot be adequately compensated for in an action at law and that a breach of
any term, condition or covenant hereof will cause irreparable harm and injury
to Company and in addition to any other available remedy Company will be
entitled to seek injunctive relief.
10. USE OF NAME:
Company shall have the right during the Term hereof to use
Executive's name, biography and approved likenesses in connection with
Company's business, including advertising their products and services; and
Company may grant such rights to others, but not for use as a direct
endorsement.
11. ARBITRATION:
Any dispute whatsoever arising out of or referable to this
Agreement, including, without limitation, any dispute as to the rights and
entitlements and performance of the parties under this Agreement or concerning
the termination of Executive's employment or of this Agreement or its
construction or its validity or enforcement, or as to the arbitrator's
jurisdiction, or as to the arbitrability of any such dispute, shall be
submitted to final and binding arbitration in Los Angeles, California by and
pursuant to the Labor Arbitration Rules of the American Arbitration Association
with discovery proceedings pursuant to Section 1283.05 of the California Code
of Civil Procedure. The arbitrator shall be entitled to award any relief which
might be available at law or in equity, including that of a provisional,
permanent or injunctive nature. The
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prevailing party in such arbitration as determined by the arbitrator, or in any
proceedings in respect thereof as determined by the person presiding, shall be
entitled to receive its or his reasonable attorneys' fees incurred in
connection therewith.
12. NOTICES:
(a) Delivery.
Any notice, consent or other communication under this
Agreement shall be in writing and shall be delivered personally, telexed, sent
by facsimile transmission or overnight courier (regularly providing proof of
delivery) or sent by registered, certified, or express mail and shall be deemed
given when so delivered personally, telexed, sent by facsimile transmission or
overnight courier, or if mailed two (2) days after the date of deposit in the
United States mail as follows: to the parties at the following addresses (or at
such other address as a party may specify by notice in accordance with the
provisions hereof to the other):
(i) If to Fine, to his address at:
17607 Tramanto Drive
Pacific Palisades, Californai 90272
(ii)If to Company, to its address at:
You Bet!, Inc.
12121 Wilshire Boulevard, 14th Floor
Los Angeles, California 90025
Meyer & Vann
1999 Avenue of the Stars, 27th Floor
Los Angeles, CA 90067
(b) Change of Address.
Either party may change its address for notice
hereunder by notice to the other party in accordance with this Section 12.
13. RETENTION OF SHARES:
During the first year of the Term, Executive shall retain all
shares (the "Shares") of the Company and each other Protected Company
beneficially owned by Executive on the initial date of the Term, as well as all
shares of all issuers into which such Shares are converted or for which such
Shares are exchanged. During the second year of the Term, Executive shall
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retain all such Shares and any other shares so received on conversion of or
exchange for the Shares, other than 50,000 Shares or the equivalent thereof
received on conversion or exchange which Executive shall be free to sell or
otherwise dispose of in his discretion.
14. COMPLETE AGREEMENT; MODIFICATION AND TERMINATION:
This Agreement contains a complete statement of all the
arrangements between the parties with respect to the matters covered hereby
and, supersedes all existing agreement between the parties concerning such
matters. This Agreement may be amended, modified, superseded or canceled, and
the terms and conditions hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right or
remedy hereunder shall operate as a waiver thereof, nor shall any waiver on the
part of any party of any such right or remedy, nor any single or partial
exercise of any such right or remedy preclude any other or further exercise
thereof or the exercise of any other right or remedy.
15. GOVERNING LAW:
This Agreement shall be governed by and construed in
accordance with the law of the State of California applicable to agreements
entered into and performed entirely within such State.
16. HEADINGS:
The headings in this Agreement are solely for the convenience
of reference and shall not affect its interpretation.
WHEREFORE, the parties hereto have executed this Agreement as of the
day and year first above written.
By: __________________________
Russell Fine
Agreed to and Accepted:
You Bet!, Inc.,
a Delaware Corporation
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By:________________________
Its: ________________________
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Exhibit 10.3
AGREEMENT OF SUBLEASE ("Sublease") made as of the _____ day of
January, 1996, by and between Storage Technology Company, a Delaware
Corporation ("Sublessor") and You Bet!, a Delaware Corporation ("Sublessee").
W I T N E S S E T H
WHEREAS, Sublessor is the Tenant under a certain Agreement of Lease
dated January 14, 1992 as later amended pursuant to a certain First Amendment
to Lease Agreement April 15, 1993 and amended pursuant to a certain Second
Amendment to Lease Agreement dated May 12, 1993 (together the "Agreement of
Lease")by and between 1950 Sawtelle Associates, L.P. as successor in interest
to MDFC Loan Corporation, as Landlord, and Storage Technology Corporation as
successor in interest to XL Datacomp, Inc., as Tenant (the Agreement of Lease
as so amended is referred to herein as the "Master Lease");
WHEREAS, Sublessee desires to occupy the Lease Premises covered by the
Master Lease, as hereinafter set forth;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. SUBLEASED PREMISES. Sublessor hereby sublets to Sublessee,
and Sublessee hereby hires and takes from Sublessor, the premises shown on
Exhibit "A" attached hereto and made a part hereof (the "Subleased Premises"),
which Subleased Premises are known as Suite 180 consisting of seven thousand,
seven hundred seventy-nine (7,779) square feet in the building known as 1950
Sawtelle Boulevard, Los Angeles, California 90025 (the "Building").
2. TERM OF SUBLEASE. The initial term of this Sublease shall
commence on the date of Master Landlord's Consent to Sublease (the
"Commencement Date") and shall end on March 31, 1998 (the "Termination Date"),
unless terminated sooner as hereinafter provided. Notwithstanding the
foregoing, this Sublease shall be cancellable at Sublessee's sole option if
Master Landlord's Consent to Sublease is not obtained by January 26, 1996.
3. THE MASTER LEASE. Sublessee acknowledges that it has reviewed
and is familiar with all of the terms, covenants and conditions of the Master
Lease, a copy of which is attached hereto as Exhibit "B" and made part hereof.
This Sublease is subject and subordinate to all of the terms and conditions of
the Master Lease. All of the terms, covenants and conditions of the Master
Lease are incorporated herein by reference, to the extent they are applicable
to the Subleased Premises, so that except to the extent that they are
inapplicable, each and every term, covenant and condition of the Master Lease
binding or inuring to the benefit of the "Landlord" thereunder (sometimes
referred to herein as "Landlord") shall, in respect of this Sublease, bind or
inure to the benefit of and be enforceable by Sublessor, and each and every
term, covenant and conditions of the Master Lease binding or inuring to the
benefit of "Tenant" thereunder shall, in respect of this Sublease, bind or
inure to the benefit of and be enforceable by Sublessee, with the same force
and effect as if such terms, covenants and conditions were completely set forth
in this
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Sublease and as if the words "Landlord" and "Tenant", or words of similar
import, wherever the same appear in the Master Lease, were construed to mean,
respectively, "Sublessor" and "Sublessee" in this Sublease, and as if the words
"Demised Premises", or words of similar import, wherever the same appear in the
Master Lease, were construed to mean the "Subleased Premises." Notwithstanding
the foregoing, in case of irreconcilable conflict between the provisions of the
Master Lease and the provisions of this Sublease, the provisions of this
Sublease shall prevail as between Sublessor and Sublessee. Sublessee assumes
and agrees, except as otherwise provided herein, to perform, observe, and
comply with all of the terms, covenants and conditions on the "Tenant's" part
to be performed, observed and complied with under the Master Lease as the same
may or shall relate to the occupancy of the Subleased Premises.
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4. OCCUPANCY.
(a) Sublessee shall use and occupy the Subleased Premises
solely for general office purposes.
(b) Sublessee covenants that it will occupy the Subleased
Premises in accordance with the terms of the Master Lease and will not suffer
to be done or omit to do any act which may result in a violation of or a
default under any of the terms and conditions of the Master Lease, or render
Sublessor liable for any charge or expense, except as provided for herein.
(c) If any event described in Master Lease shall occur in
respect of Sublessee or Sublessee's property or if Sublessee shall default in
the payment of rent or additional rent hereunder or in the performance or
observance of any of the terms, covenants and conditions of this Sublease or of
the Master Lease on the part of Sublessee to be performed or observed, (all of
the foregoing defaults beyond applicable notice and cure periods), Sublessor
shall be entitled to the rights and remedies herein provided or reserved by
Landlord in the Master Lease.
5. RENT AND ADDITIONAL RENT.
(a) Sublessee shall pay to Sublessor base rent for the
Sublease Term totaling one hundred ninety-six thousand thirty-nine and no/100
dollars ($196,039) (the "Sublease Rent"). Upon Master Landlord's consent to
this Sublease Document, Sublessee shall deposit into an escrow account with
First Interstate Bank of Denver (the "Escrow Agent") using an escrow agreement
in a form reasonably accceptable to both Sublessor and Sublessor and at
Sublessor's expense therefor (the "Escrow Account") one-half of the Sublease
Rent, by certified check or wire transfer, which is the sum of ninety-eight
thousand nineteen and 50/100 dollars ($98,019.50). On or before March 31, 1996,
Sublessee shall deposit into the Escrow Account an amount equal to the second
half of the Sublease Rent by certified check or wire transfer, which is the sum
of ninety-eight thousand nineteen and 50/100 dollars ($98,019.50). Except as
provided in paragraph 5(c) below, these payments shall constitute the total
obligation of Sublessee to Sublessor for rent under the Sublease.
(b) On the first day of May, 1996, and on the first day of
each August, November, February, and May thereafter ("Quarterly Payment Date"),
the Escrow Agent shall release the sum of twenty-three thousand sixty-three and
41/100 dollars ($23,063.41) ("Quarterly Payment") to Sublessor.
(i) If Sublessee's President or Chief Technology Officer (together
"Sublessee's Authorized Representative") presents a notarized document to
Escrow Agent stating that Sublessor has not remitted monthly rent due under the
Master Lease to Master Landlord, Escrow Agent will send a copy of same notice
by FedEx to StorageTek's Manager of Corporate Real Estate. If StorageTek's
Chief Financial Officer, Director of Corporate Services, or Manager of
Corporate Real Estate (together "Sublessor's Authorized Representative")
informs Escrow Agent within ten (10) business days that said notice is false,
Escrow Agent will stop further disbursements until resolution according to
provision 5(b)(vii) below. If Sublessor's Authorized
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Representative does not provide such notice within this ten (10) business day
period, Escrow Agent shall deduct that month's rent in the amount of seven
thousand six hundred eighty-seven and 80/100 dollars ($7,687.80) ("Monthly
Rent") from the next Quarterly Payment to Sublessor. Payments to Sublessor
will resume accruing the next month, unless a notarized document is again
received by Escrow Agent from Sublessee that Sublessor has not remited monthly
rent due under the Master Lease to Master Landlord, in which case Escrow Agent
will follow the process as outlined in paragraph 5(b)(i) hereinabove.
(ii) Escrow Agent will continue to hold any monies deducted from
Quarterly Payments to Sublessor until receiving instructions directing release
of said funds signed and notarized by both Sublessee's Authorized
Representative and Sublessor's Authorized Representative.
(iii) If Sublessee's Authorized Representative presents a notarized
document to Escrow Agent stating that Sublessee is making Monthly Rent payments
directly to the Master Landlord due to Sublessor's failure to make said
payments, Escrow Agent will send a copy of same notice by FedEx to StorageTek's
Manager of Corporate Real Estate. If Sublessor's Authorized Representative
informs Escrow Agent within ten (10) business days that said notice is false,
Escrow Agent will stop further disbursements until resolution according to
provision 5(b)(vii) below. If Sublessor's Authorized Representative does not
provide such notice within this ten (10) business day period, Escrow Agent
shall deduct that month's rent in the amount of seven thousand six hundred
eighty-seven and 80/100 dollars ($7,687.80) ("Monthly Rent") from the next
Quarterly Payment to Sublessor. Furthermore, Escrow Agent will release said
Monthly Rent to Sublessee within ten (10) business days after the deadline for
Sublessor to refute said notice. Payments to Sublessor will resume accruing the
next month, unless a notarized document is again received by Escrow Agent from
Sublessee that Sublessee is making Monthly Rent payments directly to the Master
Landlord due to Sublessor's failure to make said payments, in which case Escrow
Agent will follow the process as outlined in paragraph 5(b)(iii) hereinabove.
(iv) If Sublessee's Authorized Representative or Sublessor's
Authorized Representative presents a notarized document to Escrow Agent stating
that the Sublease has been terminated pursuant to the terms and conditions of
the Sublease and/or the Master Lease for a reason other than Sublessee default,
Escrow Agent will send a copy of same notice by FedEx to the other Authorized
Representative . If that Authorized Representative informs Escrow Agent within
twenty (20) business days that said notice is false, Escrow Agent will stop
further disbursements until resolution according to provision 5(b)(vii) below.
If the Authorized Representative does not provide such notice within this
twenty (20) business day period, Escrow Agent shall release the remaining
monies in the Escrow Account to Sublessee without further delay.
(v) If Sublessee's Authorized Representative or Sublessor's Authorized
Representative presents a notarized document to Escrow Agent stating that the
Sublease has been terminated for reason of Sublessee default, Escrow Agent will
send a copy of same notice by FedEx to the other Authorized Representative .
If that Authorized Representative informs Escrow Agent within twenty (20)
business days that said notice is false, Escrow Agent will stop further
disbursements until resolution according to provision 5(b)(vii) below. If the
Authorized Representative does not provide such notice within this twenty (20)
business day period, Escrow Agent shall release the remaining monies in the
Escrow Account to Sublessor without further delay.
(v) If Sublessee's Authorized Representative or Sublessor's Authorized
Representative presents a notarized document to Escrow Agent stating that the
Sublessee is entitled to an
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abatement of rent under the Sublease and further illustrating the proportion of
monthly rent to be abated, Escrow Agent will send a copy of same notice by
FedEx to the other Authorized Representative. If that Authorized
Representative informs Escrow Agent within ten (10)) business days that said
notice is false, Escrow Agent will stop further disbursements until resolution
according to provision 5(b)(vii) below. If the Authorized Representative does
not provide such notice within this ten (10) business day period, Escrow Agent
shall withhold the sum representing the proportionate abatement of monthly rent
("Monthly Abatement") from the next Quarterly Payment to Sublessor.
Furthermore, Escrow Agent will release said Monthly Abatement to Sublessee
within ten (10) business days after the deadline for Sublessor to refute said
notice. Payments to Sublessor will resume accruing the next month, unless a
notarized document is again received by Escrow Agent from Sublessee's
Authorized Representative or Sublessor's Authorized Representative stating that
Sublessee is entitled to an abatement of rent under the Sublease and further
illustrating the proportion of monthly rent to be abated, in which case Escrow
Agent will follow the process as outlined in paragraph 5(b)(v) hereinabove.
(vi) Notwithstanding any of the foregoing clauses herein, Sublessor
shall be exclusively entitled to retain all interest accruing on the
outstanding balance in the Escrow Account.
(vii) In the event of a dispute between Sublessor and Sublessee
regarding Sublessor's or Sublessee's rights to the escrowed funds, then such
dispute shall be settled by arbitration, whether by use of a private
arbitration firm or otherwise, in accordance with the rules of the American
Arbitration Association within thirty (30) days of such dispute. Sublessor and
Sublessee shall each select one arbitrator and a third arbitrator will be
selected unanimously by the two arbitrators, or, if they are so unable, then
Sublessor and Sublessee shall consent to the selection of the third arbitrator
by the Denver, Colorado office of the American Arbitration Association.
Arbitration shall take place in Denver, Colorado, unless otherwise mutually
agreed in writing. The decision of such arbitrators shall be binding upon
Sublessor and Sublessee.
(c) Within ten (10) days of presentation of invoice,
Sublessee shall pay to Sublessor, as additional rent, any and all charges for
services beyond those included under the Master Lease incurred by Sublessor
(e.g., after hours heating or air conditioning) as a result of Sublessee's
tenancy of the Premises (the "Additional Services Reimbursement"). The
Additional Services Reimbursement shall be reserved for reimbursement by
Sublessee to Sublessor for those additional services requested by Sublessee of
Master Landlord which are outside of the basic scope of the Master Lease.
(d) Sublessee and Sublessor acknowledge that the amount
set forth in paragraph 5(a) above is intended to be Sublessor's full
compensation for Sublessee's occupancy of the Subleased Premises. Specifically
and without limitation, Sublessee shall not be obligated to pay for any
increases in Operating Expenses that Sublessor may be obligated to pay to the
Master Landlord under the Master Lease.
6. SUBLESSOR'S IMPROVEMENTS. The Premises are hereby accepted in
"as is" condition.
7. SECURITY DEPOSIT. This section is intentionally deleted.
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8. EMINENT DOMAIN. If the whole or any part of the Subleased
Premises shall be taken or condemned in any manner by any competent authority
for any public or quasi-public use, or if the Landlord under the Master Lease
or Sublessor as "Tenant" thereunder, shall terminate the Master Lease as
provided in the Master Lease, in any such event, the term of this Sublease
shall cease and terminate as of the date of vesting of title or such
termination as the case may be.
9. NO ASSIGNMENT OR SUBLETTING. Sublessee, for itself, its
successors and assigns, expressly covenants that it shall not assign, mortgage
or encumber this Sublease, nor sublet, nor suffer or permit the Subleased
Premises or any part thereof to be used by others without the prior written
consent in each instance of Landlord. Landlord's consent shall be governed by
the terms of the Master Lease. If this Sublease shall be assigned, or if the
Subleased Premises or any part thereof shall be sublet or occupied by any
person, firm or corporation other than Sublessee, Sublessor may, after default
by Sublessee, collect rent from the assignee, sub-tenant or occupant and apply
the net amount collected to the rent and additional rent, but no such
assignment, subletting, occupancy or collection shall be deemed a waiver of
this covenant or the acceptance of the assignee, subtenant or occupant as
tenant, or a release of Sublessee from the future performance by it of the
covenants on the part of it herein contained.
10. QUIET ENJOYMENT. Sublessor covenants and agrees with
Sublessee that upon Sublessee's paying the rent and additional rent and
observing and performing all of the terms, covenants and conditions on
Sublessee's part to be observed and performed, Sublessee may peaceably and
quietly enjoy the Subleased Premises, subject to the terms and conditions of
this Sublease and to the Master Lease.
11. INDEMNITY.
(a) Each party hereto does hereby indemnify the other,
and agrees to hold the other harmless, of and from any claim, damage, loss,
liability, cost or expense, including reasonable attorney's fees, which either
may suffer or incur by reason of the failure of the other to perform, observe
and comply with any of the terms, covenants and conditions of this Sublease or
the Master Lease, as same may affect the Subleased Premises. Any other
provision in this Sublease to the contrary notwithstanding, Sublessee shall
pay to Sublessor as additional rent any and all sums which Sublessor may be
required to pay to Landlord arising out of, by reason of, or resulting from
Sublessee's failure to perform or observe one or more of the terms and
conditions of the Master Lease pertaining to the Subleased Premises.
(b) Sublessee agrees to indemnify, defend, and hold
harmless Sublessor, and its respective agents and employees, from and against
any and all liabilities, claims, demands, costs, and expenses of every kind and
nature, including reasonable attorneys' fees, arising from any injury,
including death to any person or damage to any property occurring in, on, or
about the Subleased Premises, when such injury or damage shall be caused in
whole or in part by the act, neglect, fault of, or omission of any duty with
respect to the same by Sublessee, its agents, servants, employees, or invitees,
except to the extent that such injury or damage shall be caused
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by the act, neglect, fault of, or omission of any duty by Sublessor or the
Master Landlord and their respective agents, servants, employees or invitees.
Sublessee further agrees to indemnify and save harmless Sublessor against and
from any and all claims by or on behalf of any person, firm, or corporation,
arising from the conduct or management of any work or thing whatsoever done by
Sublessee in or about or from transactions of the Sublessee, concerning the
Subleased Premises or Building, and will further indemnify and save Sublessor
harmless against and from any and all claims arising from any act or negligence
of Sublessee, or any of its agents, contractors, servants, employees or
licensees, and from and against all costs, counsel fees, expenses, and
liabilities incurred in connection with any such claim or action proceeding
brought thereon, except to the extent that such injury or damage shall be
caused by the act, neglect, fault of, or omission of any duty by Sublessor, its
agents, servants, employees or invitees.
(c) The provisions of this Indemnity paragraph shall
survive the expiration or termination of this Sublease with respect to any
claims or liability occurring prior to such expiration or termination.
12. BROKER'S COMMISSION. Sublessor and Sublessee represent to
each other that the real estate brokers involved in this transaction are CB
Commercial and Metrospace Corporation (collectively "Broker") and that neither
has dealt with any other real estate broker aside from Broker in this
transaction. Sublessor and Sublessee hereby each agree to indemnify the other
and hold the other harmless from and against any and all claims of any other
broker for any commission or fee if the same shall arise by, through, or on
account of any act of the indemnifying party or its representatives.
13. NOTICES. Any notice, election, demand, request, direction or
other documents or communication (each, a "Notice") required or permitted to be
given under this shall be in writing and shall be deemed sufficiently given
only if delivered in person or sent by certified or registered mail, postage
prepaid, return receipt requested or by Federal Express or other reputable
overnight mail or delivery service to Sublessor or Sublessee, as the case may
be, at the address set forth below;
(a) If to Sublessor:
Department of Corporate Real Estate
Storage Technology Corporation
2270 South 88th Street
Louisville, CO 80028-6204
(b) If to Sublessee:
You Bet!
Attn:
1950 Sawtelle Boulevard, Suite 180
Los Angeles, CA 90025
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or to such other address as Sublessor or Sublessee, as the case may be, may
have specified in a Notice given no less than five (5) days in advance of the
effective date of such change. Notices shall be deemed given on the date
delivered, if hand delivered, or three (3) days after mailed or forwarded, if
otherwise sent.
14. BINDING EFFECT. The covenants, conditions and agreements
contained herein shall be binding upon and inure to the benefit of Sublessor
and Sublessee and their respective heirs, distributees, executors,
administrators, successors and assigns, as permitted hereby.
15. GOVERNING LAW. This Sublease and its validity and
interpretation shall be construed in accordance with the laws of the State of
California.
page 8
<PAGE> 9
16. AMENDMENTS TO MASTER LEASE.
(a) In addition to those provisions already noted herein
that are contrary to the Master Lease, those provisions of the Master Lease
that do not apply hereto are: Master Lease Paragraphs 6, 7, 54, 55, 56, 57;
First Amendment to Lease Paragraphs 2, 3, 4, 5, 6, 7, 8, 9, 10, 13, 14, 17, 18;
Work Letter Agreement to First Amendment to Lease; Second Amendment to Lease
Paragraphs 2, 3, 4, 5, 6, 8; Work Letter Agreement to Second Amendment to
Lease.
17. DUTY TO MITIGATE DAMAGES. In the event that Sublessee is in
default hereunder beyond applicable notice and cure periods, Sublessor shall be
under a duty to mitigate its damages caused by such default. In the event that
Sublessor is in default hereunder, beyond applicable notice and cure periods,
Sublessee shall be under a duty to mitigate its damages caused by such default.
18. CONDITION OF PREMISES. Except as otherwise provided in
Paragraph 6 (a) hereinabove, Sublessor shall deliver the Subleased Premises in
"as is" condition with all existing carpeting and wall coverings in their
current condition and location.
19. ATTORNMENT TO LANDLORD. In the event of cancellation or
termination of the Master Lease for any reason whatsoever or of the surrender
of the Master Lease whether voluntary, involuntary or by operation of law,
prior to the expiration date of this Sublease, including any extensions or
renewals granted hereunder, Sublessee, at Landlord's option, shall make full
and complete attornment to Landlord for the balance of the term of the
Sublease, provided Landlord agrees in writing not to disturb Sublessee's
possession of the Subleased Premises if Sublessee pays the rent payable under
this Sublease and otherwise complies with the terms of this Sublease. Such
attornment shall be evidenced by an agreement in form and substance
satisfactory to Landlord which Sublessee shall execute and deliver at any time
within five (5) days after request by Landlord, its successors and assignees.
20. TERMINATION OF MASTER LEASE. Sublessor covenants and agrees
for itself, its successors and assigns, that no attempt shall be made to enter
into a voluntary early termination of the Master Lease (a "Voluntary
Termination Agreement") with respect to the Subleased Premises unless any such
Voluntary Termination Agreement contains a provision whereby Master Landlord
agrees to recognize Sublessee as a primary tenant upon the terms and conditions
of this Sublease, its Exhibits, and the Master Lease to the extent applicable.
21. NO VIOLATIONS OF REQUIREMENTS. Sublessor has received no
notice of any violation of any Federal, State, County, Municipal or
quasi-governmental ordinance, statute, law, rule, regulation or requirement
(all of such ordinances, statutes, laws, rules, regulations or requirements are
collectively referred to herein as "Requirements") affecting the Subleased
Premises or any portion thereof. To the best of Sublessor's knowledge, the
Subleased premises were in compliance with all Requirements at the commencement
of Sublessor's occupancy. The term quasi-governmental authority as used herein
shall be deemed to include, without limitation, any fire rating organization
having jurisdiction over the Subleased Premises.
page 9
<PAGE> 10
22. PERFORMANCE BY SUBLESSOR. Sublessor shall duly pay each
installment of rent and additional rent under the terms of Master Lease and
will duly observe and perform every term and condition that is not provided in
this Sublease to be observed and performed by Sublessee, except to the extent
that any failure to so pay or any failure in such observance or performance
shall have resulted, directly or indirectly, from any failure to observe a
terms or condition required under this Sublease by Sublessee hereunder
(including, without limitation, the failure of Sublessee to pay any amount of
rent or additional rent hereunder). Sublessor will not do or permit any act,
condition, or thing to occur which would or may constitute a default under the
Master Lease, except to the extent that such occurrence shall have resulted,
directly or indirectly, from a default by Sublessee hereunder (including
without limitation, the failure of Sublessee to pay any amount of rent or
additional rent hereunder). Sublessee agrees that Sublessor shall not be
required to perform any of the covenants and obligations of Landlord under the
Master Lease and , insofar as any of the covenants and obligations of Sublessor
hereunder are required to be performed under the Master Lease by Landlord
thereunder, Sublessee acknowledges that Sublessor shall be entitled to look to
Landlord for such performance. Sublessor shall take such action as may
reasonable be indicated, under the circumstances, to secure such performance
upon Sublessee's written request therefor.
23. PAYMENT/ACTION BY SUBLESSEE. Sublessee shall have the right,
at any time and from time to time, but shall not be obligated, to make any
payment or take any action necessary to prevent a default under the terms of
the Master Lease and the amount of any such payment or the cost of any such
action shall be treated as a sum of money advanced by Sublessee to Sublessor
and shall be repayable by Sublessor to Sublessee on demand.
24. SUBLESSEE'S ENFORCEMENT RIGHT. Except as otherwise provided
herein, whenever Sublessor shall have the right to enforce any rights against
Landlord because of the default or breach of request and Sublessor fails to
enforce such rights, then Sublessee shall have the right to enforce any such
rights of Sublessor. Such enforcement shall be the sole expense of Sublessee.
In the event Landlord raises as a defense to any action brought by Sublessee
that Sublessee has no legal ability to assert claims against Landlord,
Sublessor agrees to join such action, provided that all costs incurred in
joining such action shall be borne by Sublessee. Any amount of recovery
obtained by Sublessee shall be the property of Sublessee.
25. NO MODIFICATION OF MASTER LEASE. Sublessor shall not modify
or surrender the Master Lease without the prior written consent of Sublessee,
and any modification or surrender made without such consent shall be null and
void and shall have no effect on the rights of Sublessee under this Sublease.
Notwithstanding the foregoing, Sublessor shall have the right to surrender the
Master Lease without Sublessee's consent if such surrender contains a provision
whereby Landlord agrees to recognize Sublessee as a primary tenant upon the
terms and conditions of this Sublease, its Exhibits and the Master Lease to the
extent applicable.
26. LANDLORD'S CONSENT. The Commencement Date of this Sublease
shall not occur unless and until the written consent of Landlord to this
Sublease has been obtained. Sublessor
page 10
<PAGE> 11
shall use its best efforts to promptly obtain such consent.
27. LANDLORD'S NOTICES. Sublessor shall promptly transmit any
reasonable notice which Sublessee wishes to direct to Landlord.
28. BUILDING LISTING. Subject to any rights of Landlord under the
Master Lease, Sublessor consents to the listing of Sublessee on the door of the
Subleased Premises and on the Building directory associates and certain
personnel employed by Sublessee. Any costs associated with changing such
Building Listing shall be borne exclusively by Sublessee.
29. ENTIRE AGREEMENT. This Sublease and the Exhibits annexed
hereto set forth the entire Sublease between the parities covering everything
agreed upon or understood in connection with this transaction. There are no
oral promises, conditions, representations, understandings, interpretations or
terms of any kind as conditions or inducements to the execution hereof or in
effect between the parties. No change, alteration, modification or waiver of
any of the terms or provisions hereof shall be valid unless the same shall be
in writing and signed by the parties hereto.
30. CAPTIONS. Paragraph titles or captions contained in this
Sublease are inserted only as a matter of convenience and as a reference and in
no way define, limit or extend or describe the scope of this Sublease or the
intent of any of the provisions hereof.
31. PRONOUNS AND GENDER. Words in the plural shall include the
singular and words in the singular shall include the plural as the context of
such words indicate. All pronouns and defined terms and any variations thereof
shall be deemed to refer to masculine, feminine, singular or plural as the
identity of the person or persons may require.
32. FURTHER ASSURANCES. Each of the parties shall cooperate and
take such action, give such assurances and execute and deliver such documents
as may be reasonable requested by the other in order to carry out the purpose
and provisions of this Sublease.
33. COUNTERPARTS. This Sublease may be executed in one or more
counterparts, each of which shall be deemed to be an original; but all such
counterparts, when taken together, shall constitute one and the same
instrument.
34. ILLEGAL PROVISION. If any provision of this Sublease is held
to be illegal, invalid or unenforceable (collectively "Illegal") under present
or future laws, such provision shall be fully severable as if such Illegal
provision had never comprised a part of the Sublease; and the remaining
provisions of this Sublease shall remain in full force and effect and shall not
be affected by the Illegal provision or by its severance from this Sublease.
Furthermore, in lieu of such Illegal provision, there shall be added
automatically as a part of this Sublease, a provision as similar in terms to
such Illegal provision as may be possible and same shall be legal, valid or
enforceable, as applicable.
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<PAGE> 12
IN WITNESS WHEREOF, Sublessor and Sublessee have each caused this
Sublease to be executed by their duly authorized representative as of the day
and year first written above.
<TABLE>
<CAPTION>
Witness Sublessor:
<S> <C>
STORAGE TECHNOLOGY CORPORATION
a Delaware Corporation
_______________________ By: __________________________________
Axel B. Russell, Manager of
Corporate Real Estate
_______________________ Date: __________________________________
Sublessee:
YOU BET!
a Delaware Corporation
_______________________ By: __________________________________
_______________________ Date: __________________________________
</TABLE>
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<PAGE> 13
STATE OF COLORADO )
) SS.
COUNTY OF BOULDER )
The foregoing instrument was acknowledged before me this _______ day of
_____________, 19___ by _____________________________________, the
_____________________________________________________ of STORAGE TECHNOLOGY
CORPORATION, a Delaware Corporation.
____________________________ My Commission Expires ____________
Notary Public
STATE OF _______________________ )
) SS.
COUNTY OF ________________________ )
The foregoing instrument was acknowledged before me this _______ day of
______________,19___ by ______________________________________, the
_____________________________________ of You Bet!, a ___________________
Corporation.
____________________________ My Commission Expires ____________
Notary Public
page 13
<PAGE> 14
EXHIBIT A
SUBLEASED PREMISES
page 14
<PAGE> 15
EXHIBIT B
MASTER LEASE
page 15
<PAGE> 1
Exhibit 10.4
YOU BET!, INC.
1995 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the You Bet!, Inc. 1995 Stock Option
Plan for Non-Employee Directors (the "Plan"). The purpose of the Plan is to
enable You Bet!, Inc. (the "Company") to compensate non-employee members of the
Board of Directors of the Company and to provide incentives to such members,
which incentives are linked directly to increases in stockholder value and will
therefore inure to the benefit of all stockholders of the Company.
For purposes of the Plan, the following terms shall be defined
as set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended from time to time, or any successor thereto.
(c) "Committee" means the Non-Employee Directors Stock Option
Plan Committee of the Board, or any other committee the Board may subsequently
appoint to administer the Plan. The Committee shall be composed entirely of
directors who meet the qualifications referred to in Section 2 of the Plan. If
at any time no Committee shall be in office, then the functions of the
committee specified in the Plan shall be exercised by the Board.
(d) "Company" means You Bet!, Inc., a corporation organized
under the laws of the State of Delaware, (or any successor corporation).
(e) "Fair Market Value" with respect to the Common Stock as
of any date shall mean (i) in the event the Common Stock is listed on a
national securities exchange, the closing price as reported for composite
transactions on that date, or, if no sales occurred on that date, then the
closing price on the next preceding date on which such sales of Common Stock
occurred; (ii) in the event the Common Stock is not listed on a national
securities exchange, the mean between the high bid and low asked prices
reported for shares of Common Stock traded over-the-counter on that date, or,
if no bid and asked prices were reported on that date, then the mean between
the high bid and low asked prices on the next preceding date on which such
prices were reported; or (iii) in the event there are no over-the-counter
prices for the Common Stock and it is not listed on a national securities
exchange, the fair market value as determined by the Committee in its
discretion.
<PAGE> 2
(f) "Nonqualified Stock Option" means any Stock Option that
is not an "incentive stock option" within the meaning of Section 422A of the
Code.
(g) "Stock" means the common stock, no par value, of the
Company.
(h) "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 5.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by a Committee of not less than
two persons, who shall be appointed by the Board and who shall serve at the
pleasure of the Board.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for
issuance under the Plan shall be 3% of the then outstanding shares of Stock.
In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, stock split or other change in corporate
structure affecting the Stock, a substitution or adjustment shall be made in
(i) the aggregate number of shares reserved for issuance under the Plan and
(ii) the number and option price of shares subject to outstanding Stock Options
granted under the Plan as may be determined by the Committee; provided that the
number of shares subject to any award shall always be a whole number.
SECTION 4. ELIGIBILITY.
Each non-employee member of the Board shall receive
Non-Qualified Stock Options in accordance with the provisions of Section 5.
SECTION 5. STOCK OPTIONS.
Recipients of Stock Options shall enter into a stock option
agreement with the Company, which agreement shall set forth, among other
things, the exercise price of the option, the term of the option and provisions
regarding exercisability of the option granted thereunder.
The Stock Options granted under the Plan are Non-Qualified
Stock Options.
Stock Options granted under the Plan shall be subject to the
following terms and conditions:
(a) Subject to shareholder approval of this Plan, and the
effectiveness of a Registration Statement with respect thereto, each of
__________ and __________, the non-
2
<PAGE> 3
Employee Directors of the Company at the inception of the Plan, will receive
options in the following amounts and at the exercise price set forth below.
______________ 10,000
______________ 10,000
(b) On the first business day after (i) the 1996 annual
stockholders' meeting of the Company, and on the first business day after each
subsequent annual stockholders' meeting of the Company thereafter during the
term of the Plan or (ii) if there shall be no annual meeting during a year, on
January 30 of succeeding year, each non-employee member of the Board shall be
granted a Non-Qualified Stock Option to purchase 5,000 shares of Stock. The
option price per share of Stock purchasable under such Stock Options shall be
100% of the fair market value on the date of grant. Such options shall be
exercisable immediately grant by payment in full of the purchase price in cash.
(c) Non-transferability of Options. No Stock Options shall
be transferable by the optionee otherwise than by will or by the laws of
descent and distribution, and all Stock Options shall be exercisable, during
the optionee's lifetime, only by the optionee.
SECTION 6. AMENDMENT AND TERMINATION.
The Board may not amend, alter, or discontinue the Plan
without the approval of the stockholders.
SECTION 7. GENERAL PROVISIONS.
(a) Each person purchasing shares pursuant to a Stock Option
must represent to and agree with the Company in writing that such person is
acquiring the shares without a view to distribution thereof. The certificates
for such shares shall include such legends that are appropriate to reflect any
restrictions on transfer.
All certificates for shares of Stock delivered under the Plan
shall be subject to such stop-transfer orders and other restrictions under the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Stock is then listed, and any
applicable Federal or state securities law, and a legend or legends shall be
put on any such certificates to make appropriate reference to such
restrictions.
(b) Nothing contained in the Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any member of the Board any right to
continued membership on such Board.
3
<PAGE> 4
(c) Each Participant shall, no later than the date as of
which the value of an award first becomes includible in the gross income of the
Participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of, any Federal,
state, or local taxes of any kind required by law to be withheld with respect
to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant.
(d) No member of the Board or the Committee, nor any officer
or employee of the Company acting on behalf of the Board or the Committee,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Board or the Committee and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.
SECTION 8. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on the date it is adopted by the
Board, subject to the approval by the Company's stockholders.
SECTION 9. TERM OF PLAN.
No Stock Option shall be granted pursuant to the Plan on or
after the tenth anniversary of the Effective Date, but awards theretofore
granted may extend beyond that date.
4
<PAGE> 5
YOU BET!, INC.
1995 STOCK OPTION PLAN
Section 1. Purpose
The purpose of the Plan is to promote the interests of You
Bet!, Inc. (the "Company") and its shareholders by providing a means for
selected Employees and Consultants to acquire a proprietary interest in the
Company, thereby strengthening the Company's ability to attract capable
management personnel and providing an inducement for Key Employees to remain in
the employ of the Company or its Subsidiaries and to perform at their maximum
levels. It is intended that Options granted pursuant to this Plan may
constitute Incentive Stock Options or Nonqualified Stock Options, as
hereinafter set forth.
Section 2. Definitions
Unless the context clearly indicates otherwise, the following
terms, when used in this Plan, shall have the meanings set forth below:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
it may be amended from time to time.
(c) "Committee" shall mean the Stock Option Committee of the
Board, appointed by the Board to administer the Plan and perform the
functions set forth in Section 3 of this Plan.
(d) "Common Stock" shall mean the Company's Common Stock, no
par value and any other stock or securities resulting from the
adjustment thereof or substitution therefor as described in Section 14
of this Plan.
(e) "Company" shall mean You Bet!, Inc. a Delaware
corporation.
(f) "Fair Market Value" with respect to the Common Stock as
of any date shall mean (i) in the event the Common Stock is listed on
a national securities exchange, the closing price as reported for
composite transactions on that date, or, if no sales occurred on that
date, then the closing price on the
<PAGE> 6
next preceding date on which such sales of Common Stock occurred; (ii)
in the event the Common Stock is not listed on a national securities
exchange, the mean between the high bid and low asked prices reported
for shares of Common Stock traded over-the-counter on that date, or,
if no bid and asked prices were reported on that date, then the mean
between the high bid and low asked prices on the next preceding date
on which such prices were reported; or (iii) in the event there are no
over-the-counter prices for the Common Stock and it is not listed on a
national securities exchange, the fair market value as determined by
the Committee in its discretion.
(g) "Incentive Stock Option" shall mean an Option granted
under the Plan and designated as such by the Committee which meets the
requirements of Section 422 of the Code.
(h) "Key Employee" shall mean (i) a regular employee, whether
or not a director, of the Company or a Subsidiary who is an officer or
holds a managerial or other key position and/or (ii) a consultant,
including a business or financial advisor, all as determined by the
Committee, and who, in the judgment of the Committee, has demonstrated
a capacity for making a substantial contribution to the success of the
business of the Company or a Subsidiary. All employee members of the
Board of Directors shall automatically be deemed Key Employees, other
than Marshall and Fine.
(i) "Marshall" shall mean David Marshall, the President and
Chief Executive Officer of the Company.
(j) "Fine" shall mean Russell Fine, the Executive Vice
President of the Company.
(k) "Nonqualified Stock Option" shall mean an Option granted
under the Plan other than an Incentive Stock Option.
(l) "Option" shall mean, unless otherwise specifically
limited under any provision of this Plan, both an Incentive Stock
Option and a Nonqualified Stock Option granted pursuant to this Plan.
(m) "Option Price" shall mean the price at which Common Stock
may be purchased under an Option, as provided in Section 7(d) of this
Plan.
2
<PAGE> 7
(n) "Optionee" shall mean a Key Employee granted an Option
under the Plan.
(o) "Parent" shall mean any corporation which qualifies as a
parent corporation of the Company within the meaning of Section 425(e)
of the Code.
(p) "Plan" shall mean the You Bet!, Inc. 1995 Stock Option
Plan.
(q) "Stock Option Agreement" shall mean the written
agreement between an Optionee and the Company evidencing the grant of
an Option and setting forth the terms and conditions of the grant.
(r) "Subsidiary" shall mean any corporation which qualifies
as a subsidiary corporation of the Company within the meaning of
Section 425(f) of the Code.
(s) "Surrender Right" shall mean a right to surrender to the
Company for cancellation all or a portion of an Option granted under
the Plan and to receive in exchange therefor shares of the Company's
Common Stock, as hereinafter provided in Section 9 of this Plan.
(t) "Ten Percent Shareholder" shall mean an Optionee who, at
the time an Incentive Stock Option is to be granted to him, owns stock
possessing more than ten percent (l0%) of the total combined voting
power of all classes of stock of the Company or of its Parent (if any)
or Subsidiaries (as such ownership is defined in Section 425(d) of the
Code).
Section 3. Administration of the Plan
(a) Committee. The Plan shall be administered by the
Committee, which shall consist of at least two directors(1) of the
Company appointed by the Board. The members of the Committee shall
not be eligible to receive Options and shall be "disinterested
persons" as defined in Rule 16b-3(d)(3) promulgated under the
Securities Exchange Act of 1934, as amended (the "l934 Act"). The
members of the Committee shall serve at the pleasure of the Board,
which shall have the power, at any time and from time to time, to
____________________
(1) This will be David Marshall and Russell Fine.
3
<PAGE> 8
remove members from the Committee or to add members thereto. Vacancies
on the Committee shall be filled by action of the Board.
(b) Duties and Powers of the Committee. The Committee shall
have the full power and authority, in it sole and absolute discretion,
but subject to and not inconsistent with the express provisions of the
Plan, to administer the Plan and to exercise all the powers and
authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including,
without limitation, the authority (i) to grant Options which have
received any requisite approval of the Board and to determine which
Options shall constitute Incentive Stock Options and which Options
shall constitute Nonqualified Stock Options; (ii) to determine the
employees to whom, and the time or times at which, Options shall be
granted; (iii) to determine the number of shares of Common Stock to be
covered by each Option; (iv) to determine which Options (if any) shall
be accompanied by Surrender Rights; (v) determine the Option Price of
Common Stock subject to an Option; (vi) to determine the duration of
the exercise period of Options and the time or times at which Options
may be exercised and the extent of exercisability of Options; (vii) to
determine the terms and provisions of Stock Option Agreements (which
need not be identical) entered into in connection with Options granted
under the Plan, including such terms and provisions as shall in the
judgment of the Committee be necessary or advisable in order to
conform to any applicable laws or regulations, as the same may be
amended from time to time; and (viii) to make all other determinations
necessary or advisable for the administration of the Plan. Subject to
the express provisions of the Plan, the committee may correct any
defect or supply any omission or reconcile any inconsistency in the
Plan or in any Stock Option Agreement in such manner and to the extent
it shall determine in order to carry out the purposes of the Plan.
The committee shall have full power and authority to construe
and interpret the Plan and the respective Stock Option Agreements and
to establish, amend or rescind such rules, regulations and procedures
as the Committee deems necessary or appropriate for the proper
administration of the Plan.
The determinations of the Committee on the foregoing matters
and any other matters arising in connection with the construction,
administration, interpretation and effect of the Plan and of the
Committee's rules and
4
<PAGE> 9
regulations thereunder shall (except as otherwise specifically
provided in the Plan) be final, binding and conclusive.
(c) Committee Meetings and Actions. The Committee may select
one of its members as Chairman. The Committee shall hold its meetings
at such times and places as it shall determine. All decisions and
determinations of the Committee shall be made by not less than the
affirmative vote of a majority of its members. Actions may be taken
by the Committee at a duly convened meeting (including a meeting by
telephone conference call) or by unanimous written consent.
Section 4. Eligibility
Options under the Plan may be granted only to Key Employees of
the Company and its Subsidiaries other than Messrs. David Marshall and
Russell Fine. More than one Option may be granted to the same Optionee and
be outstanding concurrently hereunder.
Section 5. Shares Subject to the Plan
(a) Aggregate Number of Shares Available. Subject to the
adjustments provided for in Section 14 of this Plan, the aggregate
number of shares of Common Stock for which Options may be granted
under the Plan shall be 12% of the shares of the Company's Common
Stock then outstanding. Shares delivered by the Company pursuant to
exercises of Options or Surrender Rights may be authorized but
unissued shares of Common Stock, issued shares of Common Stock which
have been reacquired by the Company, or a combination thereof, as the
Board or the Committee shall from time to time determine.
(b) Effect of Expiration of Options. In the event that any
outstanding Option under the Plan for any reason expires or is
terminated without having been exercised in full or surrendered in
full in connection with the exercise of a related Surrender Right, the
shares of Common stock subject to but not issued under such Option
shall again be available for the granting of Options under the Plan.
(c) Effect of Exercises. If all or any portion of an Option
is exercised or is surrendered pursuant to the exercise of a Surrender
Right, the shares
5
<PAGE> 10
with respect to which such Option or such Surrender Right is exercised
shall not thereafter be available for the granting of other Options
under the Plan. Shares of Common Stock delivered by the Company upon
the exercise of a Surrender Right shall not be charged against the
number of shares of Common Stock available for the grant of Options.
Section 6. Stock Option Agreements
Each Option shall be evidenced by a written Stock Option
Agreement which shall be executed by the Company and the Optionee, containing
such terms and conditions, not inconsistent with the Plan, as shall be
determined by the Committee. Stock Option Agreements evidencing Incentive Stock
Options shall contain such terms and conditions, among others, as may be
necessary in the opinion of the Committee to qualify them as incentive stock
options under the Code.
Section 7. Terms and Conditions of Options
Each Option granted under the Plan shall comply with and be
subject to the following terms and conditions, as well as such other terms and
conditions as may be determined by the Committee and specified in the related
Stock Option Agreement:
(a) Number of Shares. The number of shares of Common Stock
to which an Option relates shall be determined by the Committee and
specified in the related Stock Option Agreement.
(b) Type of Option. Each Stock Option Agreement shall
specify the type of Option granted and evidenced thereby, i.e.,
whether the Option is an Incentive Stock Option or a Nonqualified
Stock Option.
(c) Date of Grant; Exercise Period. The date of grant of any
Option shall be the date on which the Committee shall award the Option
(or the earlier date, if applicable, that the Board specifically
approves such grant) if an immediate grant of such Option is
contemplated, or the date contemplated as the date of grant if the
Committee imposes a condition on the granting of such Option. Options
granted under the Plan shall be for such periods as may be determined
by the Committee and set forth in the related Stock Option Agreements,
subject to the provisions of Section 10 hereof regarding early
6
<PAGE> 11
termination upon the occurrence of certain events and subject to the
further provisions of this paragraph (c). The exercise period of an
Incentive Stock Option shall not exceed ten (10) years from the date
of grant of such Option; provided, however, that in the case of an
Incentive Stock Option granted to a Ten Percent Shareholder, such
period shall not exceed five (5) years from the date of grant.
Subject to the further provisions of this paragraph (c)
regarding Incentive Stock Options, the Committee shall have authority
to prescribe any Stock Option Agreement that the Option evidenced
thereby may be exercised in full or in part as to any number of shares
subject thereto at any time or from time to time during the term of
the Option, or in such installments at such times during said term as
the Committee may prescribe. The aggregate Fair Market Value
(determined at the time an Incentive Stock Option is granted) of the
Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by an Optionee during any calendar year
(under the Plan and all other plans of the Company and its Parent (if
any) and Subsidiaries) shall not exceed $100,000.
Except as otherwise provided in Section 10 of this Plan, an
Option may not be exercised in whole or in part unless the Optionee
is, at the time or such exercise, an employee of the Company or a
Subsidiary.
(d) Option Price. The Option Price per share of the Common
Stock subject to an Option granted under the Plan shall be determined
by the Committee at the time the Option is granted, and shall be
subject to the following conditions:
(i) Nonqualified Stock Option Price - The Option
Price per share of Common Stock subject to a Nonqualified
Stock Option may be less than the Fair Market Value per share
of the Common Stock on the date of grant, but shall not be
less than the par value per share of Common Stock.
(ii) Incentive Stock Options - The Option Price per
share of Common Stock subject to an Incentive Stock Option
shall not be less than the greater of (a) 100% of the Fair
Market Value per share of the Common Stock on the date of
grant, or (b) the par value per share of the Common Stock;
provided, however, that in the case of an
7
<PAGE> 12
Incentive Stock Option granted to a Ten Percent Shareholder,
the Option Price per share shall not be less than the greater
of (x) 110% of the Fair Market Value per share of Common Stock
on the date of grant, or (y) the par value per share of the
Common Stock.
(e) Vesting Provisions. Unless otherwise specified
by the Committee, all Nonqualified Options shall:
(i) vest ratably over a four year period, and
(ii) require that shares of Common Stock received
upon the exercise of options, which vest after the first year,
regardless of whether such Options are registered with the
Securities and Exchange Commission, be held by such holder for
a period equal to the vesting date with respect to the second
set of options; provided however, such shares may be pledged
to a bank or held in a margin account by the Holder.
Section 8. Method of Exercise: Payment of Option Price
(a) Method of Exercise. An Option may be exercised as to any
or all full shares of Common Stock as to which the Option has become
exercisable in accordance with the terms of the related Stock Option
Agreement and the provisions of this Plan by delivering to the Company
written notice of such exercise in the manner hereinafter specified in
Section 19; provided, however, that an Option may not be exercised at
any one time as to less than 1,000 shares (or such number of shares as
to which the Option is then exercisable if such number of shares is
less than 1,000 shares). Such written notice shall specify the number
of shares of Common Stock with respect to which the Option is being
exercised and shall be accompanied by payment in full of the Option
Price for such shares. The date of exercise of an Option or portion
thereof shall be the date of receipt by the Company of such written
notice as determined in accordance with the provisions of Section 19
of the Plan.
(b) Payment of Option Price. Payment for shares purchased
upon exercise of an Option may be made
8
<PAGE> 13
(i) in cash (including a certified check, bank draft
or money order), or
(ii) with the approval of the Committee, by
delivering to the Company shares of Common Stock already owned
by the Optionee ("Previously Held Shares") having a Fair
Market Value (determined as of the day preceding the date on
which the option is exercised) equal to the cash Option Price
of the shares of Common Stock as to which the Option is being
exercised, or
(iii) with the approval of the Committee, by a
combination of the methods described in (i) and (ii) above, or
(iv) with the approval of the Committee, by any
other method or in any other form authorized by the Committee
and reflected in the related Stock Option Agreement or in any
written notice relative thereto as may be from time to time
delivered by the Committee to the Optionee.
Section 9. Surrender Rights
(a) Grant of Surrender Rights. The Committee shall have the
authority to grant Surrender Rights to Optionees with respect to all
or any portion of an Option (hereinafter a "Related Option"). If the
Related Option is a Nonqualified Stock Option, a Surrender Right may
be granted either at the time the Related Option is granted or at any
time thereafter prior to the exercise, termination or cancellation of
such Related Option. If the Related Option is an Incentive Stock
Option, a Surrender Right may be granted only at the time the Related
Option is granted. Surrender Rights shall be evidenced either by the
Stock Option Agreement entered into in connection with the grant of
the Related Option or by a separate agreement between the Company and
an Optionee.
(b) Exercises of Surrender Rights. A Surrender Right shall
entitle the Optionee to surrender to the Company for cancellation all
or a portion of the Related Option and to receive in payment therefor
that number of shares of Common Stock (rounded to the nearest whole
number) having an aggregate
9
<PAGE> 14
Fair Market Value equal to the excess, if any, of that Fair Market
Value of the shares of Common Stock subject to the Related Option or
portion thereof surrendered over the aggregate Option Price of the
shares of Common Stock subject to the Related Option or portion
thereof surrendered. The Fair Market Value of the shares covered by
the surrendered portion of a Related Option shall be determined as of
the day preceding the date of the exercise of the Surrender Right, and
any shares of Common Stock delivered by the Company in payment
pursuant to this Section 9 shall be valued at their Fair Market Value
on the day preceding the date of such exercise.
A Surrender Right shall be exercisable only at the same time
or times and to the same extent and subject to the same conditions as
the Related Option, except that the Committee may prescribe additional
conditions and limitations on the exercise of a Surrender Right. In
addition, in the case of a Surrender Right granted in respect of an
Incentive Stock Option, such Surrender Right shall be exercisable only
when the Fair Market Value per share of Common Stock exceeds the
Option Price per share. A Surrender Right shall be exercisable only
by delivering written notice to the Company of such exercise in the
manner hereinafter specified in Section 19. The date of exercise of a
Surrender Right or portion thereof shall be the date of receipt by the
Company of such notice as determined in accordance with the provisions
of Section 19 of the Plan.
(c) Effect of Exercise of Surrender Right or Related Option.
Upon the exercise of a Surrender Right, the Related Option shall cease
to be exercisable to the extent of the shares of Common Stock with
respect to which such Surrender Right is exercised, but shall be
considered to have been exercised to that extent for purposes of
determining the number of shares of Common Stock available for the
grant of further Options pursuant to the Plan. Upon the exercise or
termination of a Related Option, the Surrender Right with respect to
such Related Option shall terminate to the extent of the shares of
Common Stock with respect to which the Related Option was exercised or
terminated.
Section 10. Death, Disability or Other Termination of Employment
(a) Death. In the event an Optionee dies (i) while in the
employ of the Company or a Subsidiary or (ii) within three (3) months
of the
10
<PAGE> 15
termination of such employment (other than termination for cause or
voluntary termination without the consent of the Company or the
Subsidiary, as the case may be), his Option may be exercised, solely
to the extent that the Optionee was entitled to exercise the Option at
the date of his death or, if earlier, the date of his termination, by
the person or persons to whom Optionee's rights under the Option shall
pass by will or the laws of descent and distribution, at any time or
from time to time within one (l) year after the date of Optionee's
death or prior to the expiration of the period for which the Option
was granted, whichever is the shorter period.
(b) Disability. In the event an Optionee's employment by the
Company or a Subsidiary is terminated because of the Optionee's
permanent disability, the Optionee may exercise his Option, solely to
the extent that he was entitled to do so at the date of termination of
his employment, at any time or from time to time within one (l) year
after the date of such termination of employment or prior to the
expiration of the period for which the Option was granted, whichever
is the shorter period.
(c) Other Termination of Employment. In the event the
Optionee's employment by the Company or a Subsidiary is terminated
other than by death or permanent disability as provided by paragraphs
(a) and (b), respectively, of this Section 10 and other than for cause
or by the voluntary action of the Optionee without the consent of the
Company or Subsidiary employing the Optionee, the Optionee may
exercise his Option, solely to the extent that he was entitled to do
so at the date of termination of his employment, at any time or from
time to time within ninety (90) days after the date of such
termination of employment or prior to the expiration of the period for
which the Option was granted, whichever is the shorter period. In the
event the Optionee's employment by the Company or a Subsidiary is
terminated for cause or by the voluntary action of the Optionee
without the consent of the Company or Subsidiary employing the
Optionee, his Option shall terminate at the date of termination of his
employment. Notwithstanding the foregoing, the Committee may, in its
sole discretion, provide for a later exercise after the employment
relationship is concluded.
(d) Committee Discretion. Notwithstanding the provisions of
paragraphs (a), (b) or (c) of this Section 10, the Committee, in its
sole and absolute discretion, may establish different terms and
conditions pertaining to
11
<PAGE> 16
the effect of death, disability or other termination of employment to
the extent permitted by applicable federal and state law.
(e) Failure to Exercise. To the extent an Option or any
portion thereof is not exercised within the limited period provided in
paragraphs (a), (b) Optionee who is an officer of the Company or is
otherwise subject to Section 16 of the 1934 Act, the Committee may, in
its absolute discretion at the time of the granting of an Option or
Surrender Right or the exercise thereof, make such provisions as may
be necessary to assure compliance with Rule 16b-3 under the 1934 Act.
Section 11. Notices
Whenever any notice is required or permitted to be given under the
Plan or any Stock Option Agreement, such notice must be in writing and
personally delivered or sent by courier or by mail. Any such notice shall be
deemed effectively given or delivered upon personal delivery or twenty-four
hours after delivery to a courier service which guarantees overnight delivery
or five (5) days after deposit with the U.S. Post Office, by registered or
certified mail, return receipt requested, postage prepaid, addressed to the
person who is to receive such notice at the address which such person has
theretofore specified by written notice delivered in accordance here with. The
Company or an Optionee may change, at any time and from time to time, by
written notice to the other, the address which it or he had theretofore
specified for receiving notices. Until changed in accordance herewith, the
Company and each Optionee shall specify as its or his address for receiving
notices the address set forth in the Stock Option Agreement pertaining to the
shares of Common Stock to which such notice relates.
Section 12. Amendment, Suspension of Termination of the Plan
The Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the Board
or the Committee; provided, however, that the Board or the Committee shall not,
without the approval of the holders of a majority of the outstanding shares of
the Company's stock entitled to vote thereon, effect any change to the Plan
(other than through adjustment for changes in capitalization as herein before
provided by Section 14) which would
12
<PAGE> 17
(i) materially increase the aggregate number of
shares as to which Options may be granted under the Plan;
(ii) materially increase the benefits accruing to
Optionee under the Plan;
(iii) materially modify the requirements as to
eligibility for participation in the Plan.
Further, no such amendment, suspension or termination, other than adjustments
for changes in capitalization as provided in Section 14 hereof, shall adversely
affect or impair any outstanding Option without the written consent of the
Optionee affected thereby.
Section 13. Effective Date: Duration
(a) Effective Date. The Plan shall become effective upon the
date of its adoption by the Board provided that, within twelve months
after the date the Plan is adopted by the Board, the Plan is approved
and adopted by the holders of a majority of the outstanding shares of
stock of the Company entitled to vote thereon. If the Plan shall not
be subsequently approved and adopted by the shareholders of the
Company as specified herein, the Plan and all Options granted
hereunder shall be null and void and any obligation pursuant to the
subsequent exercise (or surrender pursuant to Section 9 hereof) of any
Option previously granted shall not be binding upon the Company. To
the extent an Optionee has ready purchased and paid for any shares
received under the Plan, the Optionee may retain the ownership of said
shares; however, the prior exercise of said Option shall not
constitute the exercise of an Incentive Stock Option.
(b) Duration. Unless earlier terminated by the Board or the
Committee pursuant to the provisions of the Plan, the Plan shall
terminate on the tenth anniversary of its effective date as
hereinbefore specified. No Options shall be granted under the Plan
after such termination date.
Section 14. Governing Law
13
<PAGE> 18
This Plan and all rights hereunder shall be construed and
interpreted in accordance with the laws of the State of California, to the
extent not superseded by the laws of the United States.
14
<PAGE> 1
Exhibit 10.5
YOU BET!, INC.
1995 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the You Bet!, Inc. 1995 Stock Option
Plan for Non-Employee Directors (the "Plan"). The purpose of the Plan is to
enable You Bet!, Inc. (the "Company") to compensate non-employee members of the
Board of Directors of the Company and to provide incentives to such members,
which incentives are linked directly to increases in stockholder value and will
therefore inure to the benefit of all stockholders of the Company.
For purposes of the Plan, the following terms shall be defined
as set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended from time to time, or any successor thereto.
(c) "Committee" means the Non-Employee Directors Stock Option
Plan Committee of the Board, or any other committee the Board may subsequently
appoint to administer the Plan. The Committee shall be composed entirely of
directors who meet the qualifications referred to in Section 2 of the Plan. If
at any time no Committee shall be in office, then the functions of the
committee specified in the Plan shall be exercised by the Board.
(d) "Company" means You Bet!, Inc., a corporation organized
under the laws of the State of Delaware, (or any successor corporation).
(e) "Fair Market Value" with respect to the Common Stock as
of any date shall mean (i) in the event the Common Stock is listed on a
national securities exchange, the closing price as reported for composite
transactions on that date, or, if no sales occurred on that date, then the
closing price on the next preceding date on which such sales of Common Stock
occurred; (ii) in the event the Common Stock is not listed on a national
securities exchange, the mean between the high bid and low asked prices
reported for shares of Common Stock traded over-the-counter on that date, or,
if no bid and asked prices were reported on that date, then the mean between
the high bid and low asked prices on the next preceding date on which such
prices were reported; or (iii) in the event there are no over-the-counter
prices for the Common Stock and it is not listed on a national securities
exchange, the fair market value as determined by the Committee in its
discretion.
<PAGE> 2
(f) "Nonqualified Stock Option" means any Stock Option that
is not an "incentive stock option" within the meaning of Section 422A of the
Code.
(g) "Stock" means the common stock, no par value, of the
Company.
(h) "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 5.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by a Committee of not less than
two persons, who shall be appointed by the Board and who shall serve at the
pleasure of the Board.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for
issuance under the Plan shall be 3% of the then outstanding shares of Stock.
In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, stock split or other change in corporate
structure affecting the Stock, a substitution or adjustment shall be made in
(i) the aggregate number of shares reserved for issuance under the Plan and
(ii) the number and option price of shares subject to outstanding Stock Options
granted under the Plan as may be determined by the Committee; provided that the
number of shares subject to any award shall always be a whole number.
SECTION 4. ELIGIBILITY.
Each non-employee member of the Board shall receive
Non-Qualified Stock Options in accordance with the provisions of Section 5.
SECTION 5. STOCK OPTIONS.
Recipients of Stock Options shall enter into a stock option
agreement with the Company, which agreement shall set forth, among other
things, the exercise price of the option, the term of the option and provisions
regarding exercisability of the option granted thereunder.
The Stock Options granted under the Plan are Non-Qualified
Stock Options.
Stock Options granted under the Plan shall be subject to the
following terms and conditions:
(a) Subject to shareholder approval of this Plan, and the
effectiveness of a Registration Statement with respect thereto, each of
__________ and __________, the non-
2
<PAGE> 3
Employee Directors of the Company at the inception of the Plan, will receive
options in the following amounts and at the exercise price set forth below.
______________ 10,000
______________ 10,000
(b) On the first business day after (i) the 1996 annual
stockholders' meeting of the Company, and on the first business day after each
subsequent annual stockholders' meeting of the Company thereafter during the
term of the Plan or (ii) if there shall be no annual meeting during a year, on
January 30 of succeeding year, each non-employee member of the Board shall be
granted a Non-Qualified Stock Option to purchase 5,000 shares of Stock. The
option price per share of Stock purchasable under such Stock Options shall be
100% of the fair market value on the date of grant. Such options shall be
exercisable immediately grant by payment in full of the purchase price in cash.
(c) Non-transferability of Options. No Stock Options shall
be transferable by the optionee otherwise than by will or by the laws of
descent and distribution, and all Stock Options shall be exercisable, during
the optionee's lifetime, only by the optionee.
SECTION 6. AMENDMENT AND TERMINATION.
The Board may not amend, alter, or discontinue the Plan
without the approval of the stockholders.
SECTION 7. GENERAL PROVISIONS.
(a) Each person purchasing shares pursuant to a Stock Option
must represent to and agree with the Company in writing that such person is
acquiring the shares without a view to distribution thereof. The certificates
for such shares shall include such legends that are appropriate to reflect any
restrictions on transfer.
All certificates for shares of Stock delivered under the Plan
shall be subject to such stop-transfer orders and other restrictions under the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Stock is then listed, and any
applicable Federal or state securities law, and a legend or legends shall be
put on any such certificates to make appropriate reference to such
restrictions.
(b) Nothing contained in the Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any member of the Board any right to
continued membership on such Board.
3
<PAGE> 4
(c) Each Participant shall, no later than the date as of
which the value of an award first becomes includible in the gross income of the
Participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of, any Federal,
state, or local taxes of any kind required by law to be withheld with respect
to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant.
(d) No member of the Board or the Committee, nor any officer
or employee of the Company acting on behalf of the Board or the Committee,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Board or the Committee and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.
SECTION 8. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on the date it is adopted by the
Board, subject to the approval by the Company's stockholders.
SECTION 9. TERM OF PLAN.
No Stock Option shall be granted pursuant to the Plan on or
after the tenth anniversary of the Effective Date, but awards theretofore
granted may extend beyond that date.
4
<PAGE> 1
EXHIBIT 21.1
You Bet!, Inc.
MiddleWare Telecom Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 3,297,908
<SECURITIES> 0
<RECEIVABLES> 40,972
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,338,880
<PP&E> 81,080
<DEPRECIATION> 2,856
<TOTAL-ASSETS> 3,417,034
<CURRENT-LIABILITIES> 312,237
<BONDS> 0
0
0
<COMMON> 8,071
<OTHER-SE> 3,408,963
<TOTAL-LIABILITY-AND-EQUITY> 3,417,034
<SALES> 151,477
<TOTAL-REVENUES> 151,477
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 552,743
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (420,597)
<INCOME-TAX> (2,400)
<INCOME-CONTINUING> (422,797)
<DISCONTINUED> 0
<EXTRAORDINARY> 20,000
<CHANGES> 0
<NET-INCOME> (402,797)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> (.59)
</TABLE>
