<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-23337
SPORTSLINE USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 65-0470894
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
6340 N.W. 5TH WAY
FORT LAUDERDALE, FLORIDA 33309
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(954) 351-2120
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
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, and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Number of shares of common stock outstanding as of September 30, 1998:
19,121,282
Page 1 of 15 Pages
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997....................................................3
Consolidated Statements of Operations
for the three and nine months ended September 30, 1998 and 1997...........4
Consolidated Statements of Changes in Shareholders' Equity
for the nine months ended September 30, 1998..............................5
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1998 and 1997.....................6
Notes to Consolidated Financial Statements....................................7
2
<PAGE> 3
SPORTSLINE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 95,235,104 $ 32,482,039
Marketable securities 9,670,046 1,505,909
Deferred advertising and content costs....................................... 3,413,114 517,084
Accounts receivable.......................................................... 4,675,397 2,214,150
Prepaid expenses and other current assets.................................... 2,884,095 2,847,561
------------ ------------
Total current assets..................................................... 115,877,756 39,566,743
PROPERTY AND EQUIPMENT, net..................................................... 4,820,073 4,169,688
OTHER ASSETS.................................................................... 4,573,127 1,989,206
------------ ------------
$125,270,956 $45,725,637
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................. $ 1,188,591 $ 2,001,900
Accrued liabilities.......................................................... 6,950,810 3,257,708
Current portion of capital lease obligations................................. 376,069 501,193
Current portion of long-term borrowings...................................... --- 682,159
Deferred revenue............................................................. 2,084,976 1,839,962
------------ ------------
Total current liabilities............................................... 10,600,446 8,282,922
CAPITAL LEASE OBLIGATIONS, net of current portion............................... 275,783 457,700
------------ ------------
Total liabilities....................................................... 10,876,229 8,740,622
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none
issued and outstanding as of September 30, 1998 and December 31, 1997 -- --
Common stock, $0.01 par value, 50,000,000 shares authorized,
19,121,282 and 15,019,220 issued and outstanding as of
September 30, 1998 and December 31, 1997, respectively.................. 191,213 150,192
Additional paid-in capital................................................... 196,327,610 93,627,062
Accumulated deficit.......................................................... (82,124,096) (56,792,239)
------------ ------------
Total shareholders' equity............................................... 114,394,727 36,985,015
------------ ------------
$125,270,956 $45,725,637
============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
3
<PAGE> 4
SPORTSLINE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE ....................................................... $ 7,430,802 $ 3,590,644 $ 21,232,901 $ 7,097,965
COST OF REVENUE ............................................... 4,080,793 2,849,505 12,465,229 7,001,504
------------ ------------ ------------ ------------
GROSS MARGIN .................................................. 3,350,009 741,139 8,767,672 96,461
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Product development ......................................... 304,637 624,686 1,017,868 1,982,056
Sales and marketing ......................................... 4,777,278 4,315,266 13,770,967 9,285,143
General and administrative .................................. 3,459,919 2,189,746 9,598,934 5,587,480
Depreciation and amortization ............................... 3,977,166 3,372,096 11,651,476 7,826,361
Other non-recurring charge for settlement of litigation ..... 1,100,000 -- 1,100,000 --
------------ ------------ ------------ ------------
Total operating expenses .......................... 13,619,000 10,501,794 37,139,245 24,681,040
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS .......................................... (10,268,991) (9,760,655) (28,371,573) (24,584,579)
INTEREST EXPENSE .............................................. (28,041) (35,426) (81,659) (109,276)
INTEREST AND OTHER INCOME, net ................................ 1,476,435 188,259 3,121,375 621,661
------------ ------------ ------------ ------------
NET LOSS ...................................................... $ (8,820,597) $ (9,607,822) $(25,331,857) $(24,072,194)
============ ============ ============ ============
NET LOSS PER SHARE - BASIC AND DILUTED ........................ $ (0.46) $ (0.87) $ (1.42) $ (2.30)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING -
BASIC AND DILUTED ........................................... 19,062,532 11,077,445 17,801,064 10,454,074
============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
4
<PAGE> 5
SPORTSLINE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------------- PAID-IN ACCUMLATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1997 15,019,220 $ 150,192 $ 93,627,062 $ (56,792,239) $ 36,985,015
------------- ------------- ------------- ------------- -------------
Noncash issuance of common stock
and warrants pursuant to CBS agreement 735,802 7,358 11,890,096 -- 11,897,454
Net proceeds from exercise of CBS warrants 380,000 3,800 3,796,200 -- 3,800,000
Net proceeds from exercise of warrants 47,916 479 297,770 -- 298,249
Issuance of common stock from exercise
of employee options 47,303 473 89,667 -- 90,140
Net loss -- -- -- (9,006,398) (9,006,398)
------------- ------------- ------------- ------------- -------------
Balances at March 31, 1998 16,230,241 162,302 109,700,795 (65,798,637) 44,064,460
------------- ------------- ------------- ------------- -------------
Net proceeds from secondary offering 2,288,430 22,884 80,817,801 -- 80,840,685
Net proceeds from exercise of warrants 50,000 500 299,500 -- 300,000
Issuance of common stock pursuant to the 199,060 1,991 1,351,617 -- 1,353,608
Employee Stock Purchase Plan
Issuance of common stock pursuant to the
purchase of International Golf Outlet, Inc. 46,924 469 1,646,901 -- 1,647,370
Issuance of common stock from exercise
of employee options 117,671 1,177 272,544 -- 273,721
Net loss -- -- -- (7,504,862) (7,504,862)
------------- ------------- ------------- ------------- -------------
Balances at June 30, 1998 18,932,326 189,323 194,089,158 (73,303,499) 120,974,982
------------- ------------- ------------- ------------- -------------
Noncash issuance of common stock, warrants
and options pursuant to consulting agreements 7,882 79 1,063,454 -- 1,063,533
Noncash issuance of common stock pursuant to
purchase of service mark 10,050 101 278,787 -- 278,888
Net proceeds from exercise of warrants 123,273 1,233 719,207 -- 720,440
Issuance of common stock from exercise
of employee options 47,751 477 177,004 -- 177,481
Net loss -- -- -- (8,820,597) (8,820,597)
------------- ------------- ------------- ------------- -------------
Balances at September 30, 1998 19,121,282 $ 191,213 $ 196,327,610 $ (82,124,096) $ 114,394,727
============= ============= ============= ============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
5
<PAGE> 6
SPORTSLINE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................................. $(25,331,857) $(24,072,194)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .................................................... 11,651,476 7,826,361
Provision for doubtful accounts .................................................. 97,401 50,513
Loss on disposal of assets ....................................................... 83,124 --
Changes in operating assets and liabilities:
Accounts receivable .............................................................. (2,558,648) (1,083,524)
Prepaid expenses and other current assets ........................................ 116,311 (1,100,121)
Accounts payable ................................................................. (813,309) 663,118
Accrued liabilities .............................................................. 3,693,102 843,059
Deferred revenue ................................................................. 245,014 635,806
------------ ------------
Net cash used in operating activities ......................................... (12,817,386) (16,236,982)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities, net .............................................. (8,164,137) --
Purchases of property and equipment, net ............................................. (2,498,399) (1,940,901)
Acquisition of business .............................................................. (374,031) --
Purchase of service mark ............................................................. (100,000) --
Net purchase of restricted certificates of deposit ................................... (53,800) --
------------ ------------
Net cash used in investing activities ......................................... (11,190,367) (1,940,901)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and exercise of
common stock warrants and options .................................................. 87,854,324 12,941,678
Repayment of long-term borrowings .................................................... (682,159) (168,391)
Repayment of capital lease obligations ............................................... (411,347) (309,419)
------------ ------------
Net cash provided by financing activities ..................................... 86,760,818 12,463,868
------------ ------------
Net increase (decrease) in cash and cash equivalents ..................................... 62,753,065 (5,714,015)
CASH AND CASH EQUIVALENTS, beginning of period ........................................... 32,482,039 15,249,542
------------ ------------
CASH AND CASH EQUIVALENTS, end of period ................................................. $ 95,235,104 $ 9,535,527
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock and common stock warrants pursuant to CBS agreement ......... $ 11,897,454 $ 8,352,001
============ ============
Issuance of common stock, warrants and options pursuant to consulting agreements ..... $ 1,063,533 $ 3,706,915
============ ============
Issuance of common stock pursuant to purchase of service mark ........................ $ 278,888 --
============ ============
Issuance of common stock in purchase of International Golf Outlet, Inc. .............. $ 1,650,000 --
============ ============
Equipment acquired under capital leases .............................................. $ 104,306 $ 445,550
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................................................... $ 81,659 $ 109,276
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
6
<PAGE> 7
SPORTSLINE USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS:
SportsLine USA, Inc. ("SportsLine") was incorporated on February 23,
1994 and began recognizing revenue from its operations in September 1995. The
Company is a leading Internet-based sports media company that provides branded,
interactive information and programming as well as merchandise to sports
enthusiasts worldwide. The Company's flagship site on the World Wide Web (the
"Web"), cbs.sportsline.com, delivers real-time, in-depth and compelling sports
content and programming that capitalizes on the Web's unique graphical and
interactive capabilities. The Company's other Web sites include those devoted
to sports superstars, specific sports such as golf, cricket and soccer,
international sports coverage and electronic odds and analysis on major sports
events.
The Company distributes a broad range of up-to-date news, scores,
player and team statistics and standings, photos and audio and video clips
obtained from CBS and other leading sports news organizations and the Company's
superstar athletes; offers instant odds and picks; produces and distributes
entertaining, interactive and original programming such as editorials and
analyses from its in-house staff and freelance journalists; produces and offers
contests, games, and fantasy league products and fan clubs; and sells
sports-related merchandise and memorabilia. The Company also owns and operates
a state-of-the-art radio studio from which it produces the only all-sports
radio programming that is broadcast via the Internet and syndicated to
traditional radio stations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of SportsLine USA, Inc. and its subsidiaries (the "Company"). The
consolidated financial statements include the financial position and results of
operations of GolfWeb, which the Company acquired in January 1998. GolfWeb was
a privately-held Internet company that provides golf-related content,
interactive entertainment, membership services and merchandise through its
golfweb.com site, and its international Web sites targeted to golf enthusiasts
in Japan, the United Kingdom, Canada and Australia. The Company accounted for
this transaction using the pooling-of-interests method of accounting, therefore
the accompanying 1997 consolidated financial statements have been restated to
include the accounts of GolfWeb as if the companies had operated as one entity
since inception. The consolidated financial statements also include the
financial position and results of operations of International Golf Outlet, Inc.
("IGO"), acquired in June 1998. The Company accounted for this transaction
using the purchase method of accounting. The purchase resulted in goodwill of
$1,960,000 which is included in other assets in the Company's consolidated
balance sheet. Such goodwill is being amortized over an estimated life of ten
years.
In the opinion of management, the unaudited consolidated interim
financial statements contain all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of
the Company at September 30, 1998, and the results of operations and cash flows
for the three months and the nine months ended September 30, 1998 and 1997. The
consolidated balance sheet at December 31, 1997 has been derived from the
audited financial statements as of that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission's rules and regulations.
These financial statements should be read in conjunction with the
Company's audited financial statements included in the Company's Annual Report
on Form 10-K, as filed with the Securities and Exchange Commission. The results
of operations for the three and the nine months ended September 30, 1998 are
not necessarily indicative of the results to be expected for any subsequent
quarter or for the entire fiscal year ending December 31, 1998.
7
<PAGE> 8
SPORTSLINE USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
PER SHARE AMOUNTS
In February 1997, Statement of Financial Accounting Standards ("SFAS")
No. 128, EARNINGS PER SHARE, was issued. SFAS No. 128 simplifies the
methodology of computing earnings per share and requires the presentation of
basic and diluted earnings per share. The Company's basic and diluted earnings
per share are the same, since inclusion of the Company's common stock
equivalents would be antidilutive. The Company's previously outstanding
convertible preferred stock was converted upon completion of the Company's
initial public offering ("IPO") in November 1997. Accordingly, such shares have
been reflected as common stock for all periods prior to the IPO.
SFAS No. 128 was adopted as of December 31, 1997.
Net loss per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Common equivalent shares consist of the incremental common shares issuable upon
conversion of all convertible preferred stock (using the if-converted method)
and shares issuable upon exercise of stock options and warrants (using the
treasury stock method). There were 4,258,371 options and warrants outstanding
at September 30, 1998 that could potentially dilute earnings per share in the
future. Such options and warrants were not included in the computation of
diluted earnings per share because to do so would have been antidilutive for
all periods presented.
REVENUE BY TYPE
Revenue by type for the three and the nine months ended September 30,
1997 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Advertising .................................... $ 4,199,500 $ 1,725,814 $12,752,557 $ 3,692,605
E-commerce ..................................... 1,141,287 262,265 2,182,745 671,077
Membership and premium services ................ 1,300,802 672,562 3,412,906 1,730,126
Content licensing and other .................... 789,213 930,003 2,884,693 1,004,157
----------- ----------- ----------- -----------
$ 7,430,802 $ 3,590,644 $21,232,901 $ 7,097,965
=========== =========== =========== ===========
</TABLE>
Barter transactions, in which the Company received advertising or
other services or goods in exchange for content or advertising on its Web
sites, accounted for approximately 16% and 26% of total revenue for the three
months ended September 30, 1998 and 1997, respectively. Barter transactions
accounted for 17% and 14% of total revenue for the nine months ended September
30, 1998 and 1997 respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, REPORTING COMPREHENSIVE INCOME, was issued
which was adopted by the Company as of January 1, 1998. This statement
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. This
statement requires that an enterprise (a) classify items of other comprehensive
income by their nature in financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of statements of financial
position. Comprehensive income is defined as the change in equity during the
financial reporting period of a business enterprise resulting from non-owner
sources. Comprehensive income equals the net loss for all periods presented.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards
for the way public business enterprises report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to stockholders. SFAS No. 131 is effective for financial
statements for periods beginning after December 31, 1997. Currently, the
Company does not believe it has any separately reportable business segments.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative
8
<PAGE> 9
SPORTSLINE USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS No. 133 requires
that changes in the derivative's fair value be recognized currently in the
statement of operations unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the statement of operations,
and requires that a company formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after September 15, 1999. A company may
also implement the provision of SFAS No. 133 as of the beginning of any fiscal
quarter after issuance. SFAS No. 133 cannot be applied retroactively, and must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997. The Company has not yet adopted SFAS No. 133
and presently does not have any derivative instruments.
(3) COMMITMENTS AND CONTINGENCIES:
On March 25, 1997, Weatherline, Inc. ("Weatherline"), a company that
provides pre-recorded weather and sports information by telephone, filed a
complaint against the Company in the United States District Court for the
Eastern District of Missouri. Weatherline owned a United States trademark
registration for the mark "Sportsline" for use in promoting the goods and
services of others by making sports information available to customers of
participating businesses through the telephone, and claimed to have used the
mark for this purpose since 1968. The complaint alleged that the Company's use
of the mark "SportsLine USA" and other marks utilizing the term "SportsLine"
infringed upon and otherwise violated Weatherline's rights under its registered
trademark and damaged Weatherline's reputation. In October 1998, the Company
and Weatherline settled this action. In connection with the settlement,
Weatherline assigned to the Company its United States trademark registration
for the mark "Sportsline". The Company has recorded a non-recurring charge of
approximately $1.1 million associated with such settlement in the third quarter
of 1998. The Company believes that it will collect insurance proceeds to offset
a portion of the settlement expenses, including certain legal fees; however,
there can be no assurance that the Company will be able to collect such
proceeds. Accordingly, no benefit from any proceeds will be recorded until
receipt is assured.
From time to time, the Company may be involved in other litigation
relating to claims arising out of its operations in the normal course of
business. The Company is not currently a party to any other legal proceedings,
the adverse outcome of which, individually or in the aggregate, would have a
material adverse effect on the Company's consolidated financial position or
results of operations.
Effective as of October 1, 1998, the Company and America Online, Inc.
("AOL") entered into an agreement ("the AOL Agreement"), which has an initial
term of three years, subject to extension for up to two additional three-year
terms at the option of AOL under certain circumstances. Under the AOL
Agreement, the Company became the premier provider of special features and
major event coverage to the Sports Channel on the AOL service, as well as an
anchor tenant in the Sports Web Center on aol.com, AOL's Web site.
cbs.sportsline.com will also be the premier national sports partner with a
presence on all Digital City local services, currently serving 50 cities, and
an anchor tenant in the Sports Channel on CompuServe. In addition, SportsLine
WorldWide will become the premier global provider of country-specific sports
content to all of AOL's international services, and the Company will become the
premier provider of licensed sports equipment and apparel as well as golf
products within the Sports Channel on the AOL service. The Company will (i) pay
AOL cash in the amount of $8 million, (ii) issue AOL 550,000 shares of Common
Stock and (iii) grant AOL warrants to purchase an additional 900,000 shares of
Common Stock at exercise prices ranging from $20 to $40 per share, 450,000 of
which are subject to vesting based on the Company's achievement of specified
revenue thresholds. Furthermore, the Company has agreed to make a deficiency
payment to AOL if AOL is not able to realize at least $15 million from the sale
of the 550,000 shares of Common Stock issued to it, provided, that AOL holds
and does not sell any of such shares for a period of two years. The Company
will accrue a liability for the deficiency payment that may be required based
on the value of the Company's stock at inception of the AOL Agreement and will
place in escrow a certain amount of cash and marketable securities to be
restricted until the stock is sold. In addition, AOL will be eligible to share
in direct revenues attributable to AOL promotion of Company offerings on AOL
brands once certain thresholds specified in the agreement have been met. Over
the three-year agreement, the Company will receive a number of guaranteed
impressions on AOL's commercial online services and Web sites.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS
THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, AMONG OTHERS,
COMPETITIVE PRESSURES, THE GROWTH RATE OF THE INTERNET, CONSTANTLY CHANGING
TECHNOLOGY AND MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS AND SERVICES.
INVESTORS ARE ALSO DIRECTED TO CONSIDER THE OTHER RISKS AND UNCERTAINTIES
DISCUSSED IN THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS,
INCLUDING THOSE DISCUSSED UNDER THE CAPTION "RISK FACTORS THAT MAY AFFECT
FUTURE RESULTS" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE
RESULT OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS, WHICH MAY BE MADE
TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS. THE FOLLOWING DISCUSSION ALSO SHOULD BE
READ IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
RECENT DEVELOPMENTS
Effective as of October 1, 1998, the Company and America Online, Inc.
("AOL") entered into an agreement ("the AOL Agreement"), which has an initial
term of three years, subject to extension for up to two additional three-year
terms at the option of AOL under certain circumstances. Under the AOL
Agreement, the Company became the premier provider of special features and
major event coverage to the Sports Channel on the AOL service, as well as an
anchor tenant in the Sports Web Center on aol.com, AOL's Web site.
cbs.sportsline.com will also be the premier national sports partner with a
presence on all Digital City local services, currently serving 50 cities, and
an anchor tenant in the Sports Channel on CompuServe. In addition, SportsLine
WorldWide will become the premier global provider of country-specific sports
content to all of AOL's international services, and the Company will become the
premier provider of licensed sports equipment and apparel as well as golf
products within the Sports Channel on the AOL service. The Company will (i) pay
AOL cash in the amount of $8 million, (ii) issue AOL 550,000 shares of Common
Stock and (iii) grant AOL warrants to purchase an additional 900,000 shares of
Common Stock at exercise prices ranging from $20 to $40 per share, 450,000 of
which are subject to vesting based on the Company's achievement of specified
revenue thresholds. Furthermore, the Company has agreed to make a deficiency
payment to AOL if AOL is not able to realize at least $15 million from the sale
of the 550,000 shares of Common Stock issued to it, provided, that AOL holds
and does not sell any of such shares for a period of two years. The Company
will accrue a liability for the deficiency payment that may be required based
on the value of the Company's stock at inception of the AOL Agreement and will
place in escrow a certain amount in cash and marketable securities to be
restricted until the stock is sold. In addition, AOL will be eligible to share
in direct revenues attributable to AOL promotion of Company offerings on AOL
brands once certain thresholds specified in the agreement have been met. Over
the three-year agreement, the Company will receive a number of guaranteed
impressions on AOL's commercial online services and Web sites.
On October 14, 1998, the Company settled a lawsuit alleging various trademark
infringement claims. In connection with the settlement, the Company has
recorded a non-recurring charge of approximately $1.1 million in the third
quarter of 1998. The Company believes that it will collect insurance proceeds
to offset a portion of the settlement expenses, including certain legal fees;
however, there can be no assurance that the Company will be able to collect
such proceeds. Accordingly, no benefit from any proceeds will be recorded until
receipt is assured. See Note 3 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
REVENUE
Total revenue for the quarter ended September 30, 1998 and 1997 was
$7,431,000 and $3,591,000, respectively. Total revenue for the nine months
ended September 30, 1998 and 1997 was $21,233,000 and $7,098,000, respectively.
The increase in revenue was primarily due to increased advertising sales, as
well as increased revenue from the sale of merchandise, memberships and premium
service fees and content licensing. Advertising revenue for the three months
ended September 30, 1998 and 1997 represented 57% and 48%, respectively, of
total revenue. Advertising revenue for the nine months ended September 30, 1998
and 1997 accounted for 60% and 52%, respectively, of total revenue. Advertising
revenue increased primarily as a result of a higher number of impressions sold
and additional sponsors advertising on the Company's Web sites. During 1997 and
the nine months ended September 30, 1998, the Company increased its sales
efforts, including expanding its sales force and opening sales offices in New
York City, San Francisco, Chicago and Los Angeles. In addition to increased
sales efforts, the number of impressions available on the Company's Web sites
increased as more content was produced. Membership and premium services revenue
increased $628,000 in the three months ended September 30, 1998 compared to the
same period in 1997 and $1,683,000 in the nine months ended September 30, 1998
compared to the same period in 1997. Basic membership revenue increased in each
period as a result of additional member signups and retention. Premium service
revenue increased due to increased participation in the Company's fantasy
sports contests as well as an increased number of premium products, including
the Company's vegasinsider.com Web site, which was launched in March 1997.
Additionally, in August 1998, the Company increased prices charged for
membership and certain products for the vegasinsider.com web site. E-commerce
revenue increased 335% to $1,141,000 in the three months ended September 30,
1998 from $262,000 for the
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<PAGE> 11
three months ended September 30, 1997. E-commerce revenue increased 225% to
$2,183,000 for the nine months ended September 30, 1998 from $671,000 for the
nine months ended September 30, 1997. During the fourth quarter of 1997, the
Company launched The Sports Store (thesportstore.com), which offers a variety
of branded sports merchandise, books, videos and unique collectible
memorabilia. Both advertising and e-commerce revenue increased in part due to
special events in 1998, such as the Winter Olympics and World Cup Soccer, and
due to agreements with the PGA and Major League Baseball ("MLB") to produce and
host the official sites for the 1998 PGA Championship, the 1998 MLB All-Star
Game, and the 1998 MLB post-season. Additionally, e-commerce revenue increased
due to the acquisition of International Golf Outlet, Inc. ("IGO") during June
1998. Content licensing and other revenue decreased $141,000 in the three
months ended September 30, 1998 compared to the same period in 1997 and
increased $1,881,000 in the nine months ended September 30, 1998 compared to
the same period in 1997 primarily due to an agreement entered into in July 1997
between the Company and AOL. As of September 30, 1998, the Company had deferred
revenue of $2,085,000 relating to cash or receivables for which services had
not yet been provided.
Barter transactions, in which the Company received advertising or
other services or goods in exchange for content or advertising on its Web
sites, accounted for approximately 16% and 26% of total revenue for the three
months ended September 30, 1998 and 1997, respectively. Barter transactions
accounted for 17% and 14% of total revenue for the nine months ended September
30, 1998 and 1997, respectively. In future periods, management intends to
maximize cash advertising and content licensing revenue, although the Company
will continue to enter into barter relationships when deemed appropriate.
COST OF REVENUE
Cost of revenue for the three months ended September 30, 1998 and 1997
was $4,081,000 and $2,850,000, respectively. Cost of revenue for the nine
months ended September 30, 1998 and 1997 was $12,465,000 and $7,002,000,
respectively. The increase in cost of revenue was primarily the result of
increased revenue sharing, content fees and athlete/personality fees incurred,
as well as increases in editorial and operations staff necessary for the
production of sports-related information and programming on the Company's Web
sites. In addition, telecommunications cost increased as the Company increased
its capacity to provide support and delivery of its services to the increased
traffic on its Web sites. The Company anticipates that total cost of revenue
will continue to grow as it increases staffing to expand its services,
increases its merchandising efforts and incurs higher content and royalty fees,
and as the Company requires more bandwidth from its Internet service providers.
Additionally, the Company anticipates a higher total cost of revenue as
editorial staff is added to provide additional content requirements for its
servicing of the AOL Agreement. As a percentage of revenue, cost of revenue
decreased to 55% for the three months ended September 30, 1998 from 79% for the
three months ended September 30, 1997. For the nine months ended September 30,
1998 and 1997 cost of revenue decreased to 59% from 99%.
OPERATING EXPENSES
PRODUCT DEVELOPMENT. For the three months ended September 30, 1998 and
1997, product development costs were $305,000 and $625,000, respectively. For
the nine months ended September 30, 1998 and 1997, product development costs
were $1,018,000 and $1,982,000, respectively. The decrease in product
development expense is primarily the result of the reduction of product
development personnel and consultants at GolfWeb. The Company believes that
significant investments in product development are required to remain
competitive. Consequently, the Company intends to continue to invest
significant resources in product development. As a percentage of revenue,
product development expense decreased to 4% for the three months ended
September 30, 1998 from 17% for the three months ended September 30, 1997. For
the nine months ended September 30, 1998 and 1997 product development expense
decreased to 5% from 28%.
SALES AND MARKETING. For the three months ended September 30, 1998 and
1997, sales and marketing expense was $4,777,000 and $4,315,000, respectively.
Sales and marketing expense was $13,771,000 for the nine months ended September
30, 1998 compared to $9,285,000 for the nine months ended September 30, 1997.
The increase in sales and marketing expense was primarily the result of the
growth in the number of personnel and related costs and increased advertising
on other Web sites. Expenses relating to the Company's new television show,
Football Playbook, beginning in September were recorded as marketing expenses,
causing a slight increase. Barter transactions accounted for approximately 24%
and 21% of sales and marketing expense for the three months ended September 30,
1998 and 1997, respectively, and 25% and 10% of sales and marketing expense for
the nine months ended September 30, 1998 and 1997, respectively. The increase
in the proportionate amount of barter expense was due to the barter of content
licensing for advertising during 1998. As a percentage of revenue, sales and
marketing expense decreased to 64% for the three months ended September 30,
1998 from 120% for the three months ended September 30, 1997. For the nine
months ended September 30, 1998 and 1997, sales and marketing expense decreased
to 65% from 131%. In future periods, the Company anticipates total sales and
marketing expense to increase reflecting additional expenses related to the AOL
Agreement.
GENERAL AND ADMINISTRATIVE. General and administrative expense for the
three months ended September 30, 1998 and 1997, was $3,460,000 and $2,190,000,
respectively. For the nine months ended September 30, 1998 general and
administrative expense was $9,599,000 compared to $5,587,000 for the nine
months ended September 30, 1997. The increase in general and administrative
expense in each period was primarily attributable to salary and related
expenses for additional personnel and an increase in professional fees. As a
percentage of revenue, general and administrative expense decreased to 47% for
the three months ended
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<PAGE> 12
September 30, 1998 from 61% for the three months ended September 30, 1997, and
to 45% for the nine months ended September 30, 1998 from 79% for the nine
months ended September 30, 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
was $3,977,000 and $3,372,000 for the three months ended September 30, 1998 and
1997, respectively. For the nine months ended September 30, 1998 depreciation
and amortization expense was $11,651,000 compared to $7,826,000 for the nine
months ended September 30, 1997. The increase in depreciation and amortization
expense was primarily due to the amortization of amounts related to the
Company's March 1997 agreement with CBS Inc. ("CBS"). The Company also acquired
additional property and equipment during the first nine months of 1998 which
resulted in an increase in depreciation and amortization for the period. In
future periods, the Company anticipates total amortization expense to increase
as a result of additional amortization expense related to the shares and
warrants issued under the new AOL Agreement.
Under the Company's agreement with CBS, the Company will issue at the
beginning of each contract year shares of common stock and warrants to purchase
common stock in consideration of CBS's advertising and promotional efforts and
its license to the Company of the right to use certain CBS logos and
television-related sports content. The value of the advertising and content
will be recorded annually in the balance sheet as deferred advertising and
content costs and amortized to depreciation and amortization expense over each
related contract year. Total expense under the CBS agreement was $9,000,000 for
the nine months ended September 30, 1998, and will be $3,000,000 for the
remainder of 1998.
INTEREST EXPENSE. Interest expense was $28,000 for the three months
ended September 30, 1998 compared to $35,000 for the three months ended
September 30, 1997. For the nine months ended September 30, 1998 and 1997,
interest expense was $82,000 and $109,000 respectively. In February 1998, the
Company fully paid the balance of two of its equipment credit facilities.
INTEREST AND OTHER INCOME, NET. Interest and other income, net for the
three months ended September 30, 1998 was $1,476,000 compared to $188,000 for
the three months ended September 30, 1997. For the nine months ended September
30, 1998 and 1997, interest and other income was $3,121,000 and $622,000,
respectively. The increase was primarily attributable to the higher average
balance of cash and cash equivalents and marketable securities resulting from
the investment of the proceeds from the Company's November 1997 initial public
offering and its April 1998 public offering.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company's primary source of liquidity
consisted of $104,905,000 in cash and marketable securities, an increase of
$70,917,000 from December 31, 1997. In January 1998, CBS exercised warrants to
purchase 380,000 shares of common stock, resulting in the net proceeds of
$3,800,000. In April 1998 the Company completed a public offering of 2,288,430
shares of Common Stock resulting in the net proceeds to the Company of
$80,841,000. The Company invests its excess cash predominantly in instruments
that are highly liquid, of high-quality investment grade, and predominantly
have maturities of less than one year with the intent to make such funds
readily available for operating and investing purposes.
As of December 31, 1997, the Company owed $281,000 under its equipment
line of credit which was paid in full in February 1998.
The Company has obtained revolving credit facilities that provide for
the lease financing of computers and other equipment purchases. Outstanding
amounts under the facilities bear interest at variable rates of approximately
9%. As of September 30, 1998, the Company owed $652,000 under these facilities.
As of September 30, 1998, deferred advertising and content costs
totaled $3,413,000, which represented costs related to the CBS agreement to be
amortized to depreciation and amortization expense primarily during the balance
of the year ended December 31, 1998. Accrued liabilities totaled $6,951,000 as
of September 30, 1998, an increase of $3,693,000 from December 31, 1997,
primarily due to increases in accruals for revenue sharing, professional fees,
and the settlement of litigation.
Net cash used in operating activities was $12,817,000 and $16,237,000
for the nine months ended September 30, 1998 and 1997, respectively. The
principal uses of cash in operating activities were to fund the Company's net
losses from operations, partially offset by depreciation and amortization.
Net cash used in investing activities was $11,190,000 and $1,941,000
for the nine months ended September 30, 1998 and 1997, respectively. The
principal use of cash in investing activities was for the net purchase of
marketable securities for $8,164,000 in 1998. Additionally, the Company
purchased $2,498,000 of property and equipment in 1998 consisting primarily of
computer hardware and software.
Net cash provided by financing activities was $86,761,000 and
$12,464,000 for the nine months ended September 30, 1998 and 1997,
respectively. Financing activities consisted principally of the issuance of
equity securities in connection with the Company's April 1998 public offering
and the exercise of warrants by CBS.
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<PAGE> 13
The Company has entered into various licensing, royalty and consulting
agreements with content providers, vendors, athletes and sports organizations,
which agreements provide for consideration in various forms, including issuance
of warrants to purchase common stock and payment of royalties, bounties and
certain other guaranteed amounts on a per member and/or a minimum dollar amount
basis over terms ranging from one to ten years. Additionally, some of these
agreements provide for a specified percentage of advertising and merchandising
revenue to be paid to the athlete or organization from whose Web site the
revenue is derived. As of December 31, 1997, the minimum guaranteed payments
required to be made by the Company under such agreements were $15,151,000. The
Company's minimum guaranteed payments are subject to reduction in the case of
certain agreements based upon the appreciation of warrants issued, the value of
the Company's stock received on exercise of such warrants and the amount of
profit sharing earned under the related agreements. During June 1998, as a
result of the market price of the Company's common stock exceeding a certain
level, the Company's guaranteed minimum payments were reduced by $10 million.
Although the Company has no material commitments for capital
expenditures, it anticipates purchasing approximately $1 million of property
and equipment during the remainder of 1998, primarily computer equipment and
furniture and fixtures. The Company intends to continue to pursue acquisitions
of or investments in businesses, services and technologies that are
complementary to those of the Company.
In October 1998, the Company entered into a three year agreement with
AOL. Under the terms of the agreement, the Company agreed to make a deficiency
payment to AOL if AOL is not able to realize at least $15 million from the sale
of the 550,000 shares of Common Stock issued to it, provided, that AOL holds
and does not sell any of such shares for a period of two years. The Company
will accrue a liability for the deficiency payment that may be required based
on the value of the Company's stock at inception of the AOL Agreement and will
place in escrow a certain amount of cash and marketable securities to be
restricted until the stock is sold.
The Company believes that its current cash and marketable securities
will be sufficient to fund its working capital and capital expenditure
requirements for at least the next 12 to 18 months. However, the Company
expects to continue to incur significant operating losses for at least the next
24 to 36 months. To the extent the Company requires additional funds to support
its operations or the expansion of its business, the Company may sell
additional equity, issue debt or convertible securities or obtain credit
facilities through financial institutions. There can be no assurance that
additional financing, if required, will be available to the Company in amounts
or on terms acceptable to the Company.
YEAR 2000 COMPLIANCE
The Company utilizes a significant number of computer software
programs and operating systems across its entire organization, including
applications used in operating the Company's various Web sites, member
services, e-commerce, and various administrative and billing functions. To the
extent that the Company's software applications contain source codes that are
unable to appropriately interpret the upcoming calendar year 2000, some level
of modification, or even possible replacement of such applications may be
necessary.
The Company has retained a consulting firm to help assess the
Company's Year 2000 compliance. The assessment is currently being conducted in
three phases, the first two of which have been completed. During Phase One the
Company analyzed facilities, applications, network, distributed computing,
infrastructure, and data in order to determine the size, scope, and complexity
of the Company's exposure to Year 2000. During Phase Two specific strategies
required to bring exposure areas into compliance were formulated. Additionally,
during Phase Two, the Company began interviewing hardware, software, market
feed, and firmware vendors for Year 2000 compliance plans. The results of the
first and second phases were used to develop a compliance/renovation approach,
budget, and project plan which includes an analysis of compliance strategies,
cost parameters and timelines. During Phase Three, the Company will complete
the renovations of software and applications, implement hardware patches,
develop project contingencies and complete final testing. The Company expects
to be substantially Year 2000 compliant before the end of April 1999 with
respect to its mission critical computing infrastructure, associated
applications, and strategic vendors/suppliers.
The costs incurred by the Company during 1998 to address the Year 2000
compliance are not expected to exceed $100,000. The Company estimates it will
incur a maximum of $500,000 in direct costs during 1999 to support its
compliance initiatives. Although the Company expects to be Year 2000 compliant
on or before December 31, 1999, there can be no assurances that the Company
will not experience serious unanticipated negative consequences and/or material
costs caused by undetected errors or defects in the technology used in its
internal systems.
SEASONALITY
The Company expects that its revenue will be higher leading up to and
during major U.S. sports seasons and lower at other times of the year,
particularly during the summer months. In addition, the effect of such seasonal
fluctuations in revenue could be enhanced or offset by revenue associated with
major sports events, such as the Olympics, the Ryder Cup and the World Cup,
although such events do not occur every year. The Company believes that
advertising sales in traditional media, such as television, generally are lower
in the first and third calendar quarters of each year, and that advertising
expenditures fluctuate significantly with economic cycles. Depending on the
extent to which the Internet is accepted as an advertising medium, seasonality
and cyclicality in the level of
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<PAGE> 14
Internet advertising expenditures could become more pronounced. The foregoing
factors could have a material adverse affect on the Company's business, results
of operations and financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, REPORTING COMPREHENSIVE INCOME, was issued
which was adopted by the Company as of January 1, 1998. This statement
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. This
statement requires that an enterprise (a) classify items of other comprehensive
income by their nature in financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of statements of financial
position. Comprehensive income is defined as the change in equity during the
financial reporting period of a business enterprise resulting from non-owner
sources. Comprehensive income equals the net loss for all periods presented.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards
for the way public business enterprises report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to stockholders. SFAS No. 131 is effective for financial
statements for periods beginning after December 31, 1997. Currently, the
Company does not believe it has any separately reportable business segments.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in the statement of operations unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the statement of operations, and requires that a company formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. SFAS No. 133 is effective for fiscal years beginning after
September 15, 1999. A company may also implement the provision of SFAS No. 133
as of the beginning of any fiscal quarter after issuance. SFAS No. 133 cannot
be applied retroactively, and must be applied to (a) derivative instruments and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31, 1997. The
Company has not yet adopted SFAS No. 133 and presently does not have any
derivative instruments.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 14, 1998, the Company settled a lawsuit alleging various trademark
infringement claims. In connection with the settlement, the Company has
recorded a non-recurring charge of approximately $1.1 million in the third
quarter of 1998. The Company believes that it will collect insurance proceeds
to offset a portion of the settlement expenses, including certain legal fees;
however, there can be no assurance that the Company will be able to collect
such proceeds. Accordingly, no benefit from any proceeds will be recorded until
receipt is assured. See Note 3 to the Consolidated Financial Statements.
During the three months ended September 30, 1998, there were no other
material developments in previously reported litigation involving the Company.
ITEM 2. CHANGE IN SECURITIES
SALES OF UNREGISTERED SECURITIES DURING THE THREE MONTHS ENDED SEPTEMBER 30,
1998
During the three months ended September 30, 1998, the Company issued
and sold the following securities without registration under the Securities
Act:
In August 1998, the Company issued to Greg McLemore 10,050 shares of
common stock in consideration of the Company's acquisition of an Internet
domain name and service mark.
In August 1998, the Company issued to PGA Interactive LLC 7,882 shares
of common stock and options to purchase 45,320 shares of common stock. The
consideration for such shares and warrants consisted of the right to host the
official PGA Championship Web site.
In August 1998, the Company issued to Lisa Leslie and Management Plus
warrants to purchase 17,000 and 3,000 common shares respectively in exchange
for consulting services.
During the three months ended September 30, 1998, upon exercise of
warrants, the Company issued a total of 109,157 shares
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of common stock for aggregate cash of $699,218 including: (i) 39,157 shares of
common stock to IMG for cash consideration of $274,218; (ii) 40,000 shares of
common stock to Michael Schulhof for cash consideration of $200,000; (iii)
20,000 shares of common stock to ETW for cash consideration of $150,000 and
(iv) 10,000 shares of common stock to Emerson Fittipaldi for cash consideration
of $75,000.
No underwriter was involved in any of the above sales of securities.
All of the above securities were issued in reliance upon the exemption set
forth in Section 4(2) of the Securities Act of 1933, as amended, on the basis
that they were issued under circumstances not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 10.1 Premier Sports Information and Commerce Agreement, effective as of
October 1, 1998, by and between the Company and America Online, Inc. +
Exhibit 27 Financial Data Schedule
+ Certain portions of this exhibit have been omitted and separately filed with
the Securities and Exchange Commission pursuant to a request for confidential
treatment thereof.
(b) Reports on Form 8-K
A current report on Form 8-K was filed with the Securities and Exchange
Commission by the Company on July 9, 1998, to report the Company's acquisition
of International Golf Outlet, Inc. on June 29, 1998.
SIGNATURES
Pursuant to the requirements 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.
Date: November 13, 1998 SPORTSLINE USA, INC.
(Registrant)
/s/ MICHAEL LEVY
-------------------------------------
Michael Levy
President and Chief Executive Officer
/s/ KENNETH W. SANDERS
-------------------------------------
Kenneth W. Sanders
Chief Financial Officer
15
<PAGE> 1
EXHIBIT 10.1
CONFIDENTIAL
PREMIER SPORTS INFORMATION AND COMMERCE AGREEMENT
This Premier Sports Information and Commerce Agreement (this
"AGREEMENT"), effective as of October 1,1998 (the "EFFECTIVE DATE"), is made
and entered into by and between America Online, Inc. ("AOL"), a Delaware
corporation, with its principal offices at 22000 AOL Way, Dulles, Virginia
20166, and SportsLine USA, Inc. ("ICP"), a Delaware corporation, with its
principal offices at 6340 N.W. 5th Way, Fort Lauderdale, Florida 33309 (each a
"PARTY", and collectively the "PARTIES").
INTRODUCTION
AOL and ICP each desires that, subject to the terms and conditions set
forth in this Agreement, (i) AOL provide access to the ICP Internet Site(s) as
defined in EXHIBIT B through the AOL Network, (ii) ICP to be the premier and
only provider of AOL Programming (as defined in EXHIBIT E) for the AOL Service
as fully set forth in EXHIBIT E, and (iii) the parties perform other services
and obligations as more fully set forth herein. Defined terms used but not
defined in the body of this Agreement or in EXHIBIT C attached hereto shall be
as defined on EXHIBIT B attached hereto.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:
TERMS
1. DISTRIBUTION; PROGRAMMING
1.1 CARRIAGE; PLACEMENTS; PROMOTIONS. During the Term, AOL shall
provide to ICP the following carriage, placements and
promotions (collectively with any comparable promotions
provided in accordance with this Agreement, if any, the
"PROMOTIONS"), which Promotions shall link to an ICP Internet
Site(s), the Private Store (as defined in Section 1.2.4) or a
Welcome Mat (as defined in Section 5.2.1) as more
specifically set forth below:
1.1.1 ANCHOR TENANCY. Beginning on the launch date of each
Anchor Tenant Button (AOL shall use commercially
reasonable efforts to meet the launch dates set
forth in EXHIBIT M), AOL shall provide ICP with
Anchor Tenant distribution (the "ANCHOR TENANCY") as
follows:
(a) prominently place, on a Continuous basis, an
agreed-upon ICP logo, banner, branded link, listing
or other placement as set forth in EXHIBIT H (each,
an "ANCHOR TENANT BUTTON") and provide Banner
Advertisements and other temporary Promotions set
forth on EXHIBIT H on the screens set forth in
Paragraph 1 (AOL Service), Paragraph 2 (AOL Country
Services), Paragraph 3 (AOL.com), Paragraph 4
(Digital City Service) and Paragraph 6 (CompuServe)
of EXHIBIT H (or any specific successor thereto)
which Anchor Tenant Buttons shall link to the ICP
Internet Site(s); or, if requested by AOL pursuant
to Section 5.2.1, to a Welcome Mat;
(b) subject to the terms of this Agreement, provide
ICP with, at a minimum, the following Keywords (as
well as any mutually agreed upon Keywords related to
any new products or services developed by ICP during
the Term): "SportsLine", "CBS SportsLine", "CBS
Sports", "GolfWeb", "IGO Golf", "TheSportsStore.com"
"Commissioner.com", "Football Playbook",
"SoccerNet", and "Cricinfo" which Keywords shall
link to an applicable page within the applicable ICP
Internet Site, subject to AOL's approval, which
approval shall not be unreasonably withheld nor
delayed, and
(c) list the ICP Internet Site(s) in AOL's "Find"
feature.
<PAGE> 2
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
Except to the extent expressly described herein,
the exact form, placement and nature of the Anchor
Tenant Buttons shall be determined by AOL in its
sole editorial discretion subject to *** AOL
regarding such matters.
1.1.2 ROS ADVERTISEMENTS. AOL shall provide ***
Impressions to ICP from run of service Banner
Advertisements ("ROS ADVERTISEMENTS") for each year
of the Term (subject to Section 1.1.4.4) on the AOL
Service to promote the ICP Internet Site(s), the
Private Store and individual Products sold in the
Private Store; provided that, ICP shall not use more
than *** of the ROS Advertisements (as measured by
Impressions) to promote Other Products (as defined
in EXHIBIT A, Section 2(b)); provided, further, that
AOL shall use commercially reasonable efforts to
provide *** of the ROS Advertisements in the AOL
Service Sports Channel on a run of channel basis.
The ROS Advertisements shall be in accordance with a
quarterly plan as described on EXHIBIT L and subject
to the terms and conditions of this Agreement
(including without limitation, the restrictions
placed on Commerce Promotions, as defined in EXHIBIT
B, but only to the extent ROS Advertisements are
used to promote Products), and AOL's standard
insertion order for advertisements on the AOL
Network, including all terms contained and
incorporated therein, provided such standard
insertion order is disclosed to ICP. Any ROS
Advertisements for the Private Store or Products
sold in the Private Store shall link only to the
Private Store.
1.1.3 AOL PROMOTION OF ICP COMMERCE. In addition to any
ROS Advertisements promoting, or Links in the AOL
Programming linking to, the Private Store or
Products sold in the Private Store, AOL shall
provide the placements for the Private Store and/or
Products sold in the Private Store as set forth in
Paragraph 5 of EXHIBIT H; provided that, ICP shall
not use more than *** of the Commerce Promotions (as
measured by the number of Impressions) for the
promotion and sale of Other Products.
1.1.4 IMPRESSIONS GUARANTEE.
1.1.4.1 GUARANTEE. AOL shall provide ICP with at
least *** Impressions from ICP's presence on the
AOL Network as set forth in EXHIBIT H and in
Section 1.1.2 (i.e., ROS Advertisements) of this
Agreement (collectively, the "AGGREGATE IMPRESSIONS
GUARANTEE" and each, an "IMPRESSIONS GUARANTEE").
For purposes of this Agreement, ICP's presence on
an AOL screen shall conform to the specifications
set forth on EXHIBIT D (each, an "ICP PRESENCE"),
provided that only screens that contain a Link to
the ICP Internet Site(s), the Private Store or a
Welcome Mat (created by ICP pursuant to Section
5.2.1), if applicable, will count against the
Impressions Guarantee.
1.1.4.2 DELIVERY. A minimum of *** of each
Impressions Guarantee set forth in EXHIBIT
H shall be satisfied through the relevant
placements set forth in EXHIBIT H. Up to
*** of each Impressions Guarantee may be
satisfied through additional placements on
the *** or other *** of the AOL Network.
With respect to each Impressions Guarantee,
AOL will not be obligated to provide in
excess of any such amounts in any year, nor
shall AOL be deemed in breach of this
Agreement as a result of any failure to
meet any individual Impressions Guarantee;
provided that any Under Delivery (as
defined in Section 1.1.4.4 within a
Category (as defined below) shall be cured
as described in Section 1.1.4.4.
1.1.4.3 OVER-DELIVERY. In the event AOL provides in
excess of the total annual Impressions
Guarantees in any year with respect to any
particular category (i.e.,
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***, ***, ***, ***, ***) (each a
"CATEGORY") of placements (each, an
"OVER-DELIVERY"), the Impressions
Guarantees within the same Category in the
subsequent year will be reduced (on a
pro-rata basis across all sub-Categories)
by the amount of such excess (each, an
"IMPRESSIONS GUARANTEE REDUCTION", and
collectively, "IMPRESSIONS GUARANTEE
REDUCTIONS") subject to a *** of *** per
*** (such *** to apply separately to each
such *** subject to an Impressions
Guarantee Reduction). Notwithstanding the
foregoing, nothing contained in this
Section 1.1.4.3 shall be construed to
permit AOL to terminate or suspend (i) the
Anchor Tenancy, or any portion thereof,
granted to ICP pursuant to Section 1.1.1,
or (ii) any other Continuous placement
provided pursuant to EXHIBIT H of this
Agreement.
1.1.4.4 UNDER-DELIVERY MAKE GOOD. In the event
that the total annual Impressions
Guarantees in any year with respect to a
Category of placements is not met (or AOL
reasonably believes it will not be met)
during any year of the Initial Term (each,
an "UNDER-DELIVERY"), AOL shall, as ICP's
sole remedy and at AOL's option, either:
(i) increase the total Impressions
Guarantees for the same Category (on a
pro-rata basis across all sub-Categories)
in the subsequent year (or with respect to
an Under Delivery in the last year of the
Initial Term, provide Impressions on a pro
rata basis across all sub-Categories during
the *** following the end of the Initial
Term in the amount of such Under Delivery)
by the amount of such Under Delivery (each,
an "IMPRESSIONS GUARANTEE INCREASE", and
collectively, "IMPRESSIONS GUARANTEE
INCREASES"); (ii) provide Impressions equal
to the amount of the Under Delivery on the
Targeted Screens, from time to time, in the
same or subsequent year (or during the ***
following the end of the Initial Term, with
respect to an Under Delivery in the last
year of the Initial Term); or (iii) some
combination thereof. In any event, AOL
shall fully satisfy the Aggregate
Impressions Guarantee by no later than ***
following the expiration of the Initial
Term.
1.2 GENERAL. AOL's provision of the Promotions shall be subject
to the following:
1.2.1 COMPARABLE COMMERCE PLACEMENTS IN THE EVENT OF A
REDESIGN. In the event of a redesign, AOL will have
the right to fulfill its promotional commitments
with respect to any of the Promotions set forth in
Section 1.1.3 of this Agreement by providing ICP
comparable (in terms of the mix of quality and
quantity) promotional placements, subject to ICP's
reasonable approval, in appropriate alternative
areas of the AOL Network. In addition, in the event
of a redesign, if AOL is unable to deliver any
particular Promotion set forth in Section 1.1.3 of
this Agreement, AOL will work with ICP to provide
ICP, as its sole remedy, a comparable (in terms of
the mix of quality and quantity) promotional
placement.
1.2.2 CONTENT OF PROMOTIONS. The Promotions and any other
promotions or advertisements purchased from or
provided by AOL pursuant to this Agreement will link
only to the ICP Internet Site(s) or, if applicable,
a Welcome Mat (created pursuant to Section 5.2.1)
and will be used by ICP solely for its own benefit
and will not be resold, traded, exchanged, bartered,
brokered or otherwise offered to any third party.
Notwithstanding the foregoing and subject to AOL's
rights hereunder (including without limitation,
AOL's right to approve the offer, license or sale of
all Products to AOL Purchasers, it being understood
that the foregoing clause shall not be construed as
to augment such rights or confer any additional
rights), AOL acknowledges that ICP utilizes third
party suppliers to supply, distribute, fulfill
and/or drop ship Products, and, accordingly, any
Commerce
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Promotions may promote ICP Products owned and/or
supplied by third parties so long as ICP is the
seller of the Product to an AOL User. The specific
ICP Content to be contained within the Promotions
(including, without limitation, advertising banners
and contextual promotions) (the "PROMO CONTENT")
will be determined by ICP, subject to AOL's
technical limitations, the terms of this Agreement
(including without limitation, the restrictions set
forth in EXHIBIT D of this Agreement), and AOL's
then-current generally applicable policies relating
to advertising and promotions, including without
limitation those relating to AOL's exclusivity
commitments, provided, however, nothing in this
Section 1.2.2 shall permit AOL to (A) revoke ICP's
right to sell the Premier Products or Other
Products, or (B) materially restrict ICP's ability
to conduct Promotions of the Premier Products as a
whole. Other than Promotions for individual Products
which may contain the branding of the manufacturer,
the Promo Content shall not contain any branding
other than branding for ICP without prior approval
by AOL in AOL's reasonable discretion. The Parties
will meet in person or by telephone at least *** to
review operations and performance hereunder,
including a review of the Promo Content to ensure
that it is designed to maximize performance. ICP
will consistently update the Promo Content no less
than twice per week. Except to the extent expressly
described herein, the specific form, placement,
duration and nature of the Promotions will be as
determined by AOL in its reasonable editorial
discretion (consistent with the editorial
composition of the applicable screens) subject to
*** AOL regarding such matters.
1.2.3 PROGRAMMING/MERCHANDISING CONTENT OF ICP INTERNET
SITE(S). The ICP Internet Site(s) and the Private
Store shall consist solely of the Content and
Products described on EXHIBIT A hereto. ICP agrees
that it is and will remain primarily a provider of
sports-oriented Content. The inclusion of any
Content for distribution through the AOL Network
(including, without limitation, any features or
functionality) not described on EXHIBIT A or EXHIBIT
E shall be subject to AOL's prior written approval,
which approval shall not be unreasonably withheld or
delayed.
1.2.4 THE PRIVATE STORE. All Product sales and promotions
by ICP to AOL Purchasers shall be conducted through
a private co-branded version of ICP's Interactive
Site on the World Wide Web portion of the Internet
located at http://thesportsstore.com (or direct
successor thereto), which private co-branded version
will be maintained exclusively for AOL Users (the
"PRIVATE STORE"). All Commerce Promotions, including
without limitation Promotions for Products,
displayed within the AOL Network shall link to the
Private Store. All sales of Products through the
Private Store will be conducted through a direct
sales format; and ICP will not promote, sell, offer
or otherwise distribute any products through any
format other than a direct sales format (e.g.,
through auctions or clubs) without the written
consent of AOL, which consent shall not be
unreasonably withheld nor delayed; except that ICP
shall have the right to promote, sell, offer or
otherwise distribute through the Private Store ICP
Membership or Premium Services. AOL shall use
commercially reasonable efforts to *** with the ***
to participate as *** of *** in any *** conducted by
AOL (other than ***) which include a substantial
portion of *** conducted outside the *** and within
the AOL Service (any inadvertent failure to do so
shall not constitute a breach of this Agreement).
The foregoing restriction regarding non-direct sales
format sales shall not be construed to apply to any
generally available versions of the ICP Internet
Site(s) provided such auction is not directly linked
to the AOL Network. All categories of Products sold
in the Private Store shall be subject to AOL's prior
written approval and such merchandising shall be
subject to AOL's standard, generally applicable
advertising and commerce policies, including without
limitation, AOL's exclusivity commitments. No
services listed in the definition of Interactive
Service shall be offered, licensed or sold through
the Private Store and ICP will ensure that the
Private Store does not in any respect promote,
advertise, market or
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distribute the products, services or content of any
other Interactive Service. In accordance with the
foregoing, AOL hereby approves the Product
categories listed on EXHIBIT A. ICP will review,
delete, edit, create, update and otherwise manage
all Content available on or through the Private
Store in accordance with the terms of this
Agreement. ICP shall have ninety (90) days from the
Effective Date to launch the Private Store. There
shall be no Links from the Private Store to any
Interactive Site other than to locations on (i) the
AOL Network, (ii) the ICP Internet Site(s) and (iii)
to the Interactive Sites of advertisers within the
Private Store subject to AOL's approval with respect
to clause (iii) which shall not be unreasonably
withheld or delayed.
1.2.5 COMMERCE TECHNOLOGY. ICP will take all reasonable
steps necessary to conform its promotion and sale of
Products through the Private Store to the
then-existing commerce technologies made available
to ICP by AOL (provided that ICP shall not be
required to make material changes to its underlying
technology to comply with this Section 1.2.5),
including, without limitation, AOL's "quick
checkout" tool which allows AOL Users to enter
payment and shipping information which is then
passed from AOL's centralized server unit to ICP for
order fulfillment ("AOL QUICK CHECKOUT").
Collection, storage and disclosure of information
which ICP provides to AOL will be subject to AOL's
privacy policy and all confidentiality requirements
hereunder. To the extent that the Private Store
includes AOL's Quick Checkout tool, ICP will ensure
that AOL Quick Checkout is of equal placement and
prominence to other available payment options.
1.2.6 LICENSE
1.2.6.1 Subject to the terms and conditions of this
Agreement (including without limitation
Section 8), ICP hereby grants AOL and its
Affiliates ("LICENSEES") a non-exclusive,
***, ***, worldwide license during the Term
to (a) market and promote the ICP Internet
Site(s) and the Licensed Content thereon,
or any portion thereof, solely in
connection with Links to, and framing of,
the ICP Internet Site(s) through areas
and/or features of the AOL Network, (b)
use, distribute, perform, promote, market,
store, communicate and display Content, or
any portion thereof, produced by ICP
pursuant to EXHIBIT E in the Programming
Content and Screens through areas and/or
features of the AOL Network, and (c) to the
extent that AOL caches the ICP Internet
Site(s) or any portion thereof, to store,
distribute, display, communicate, perform
and transmit the ICP Internet Site(s) and
the Licensed Content thereon, through areas
and/or features of the AOL Network in
connection with such caching.
1.2.6.2 Notwithstanding anything to the contrary
herein, the licenses granted herein shall
be fully transferable by AOL in connection
with an assignment of this Agreement
permitted under the "ASSIGNMENT" provision
of EXHIBIT C.
1.2.6.3 Except for the licenses expressly granted
herein, ICP retains all right, title and
interest in and to the Licensed Content and
the ICP Internet Site(s). The licenses
granted pursuant to this Section 1.2.6 are
solely for the purposes set forth in
Section 1.2.6.1. Nothing in this Agreement
shall be construed to grant to AOL or its
Affiliates a license to use, market, store,
distribute, display, communicate, perform,
transmit, or promote the ICP Internet
Site(s), and the Licensed Content contained
therein, generally or for any other purpose
(including but not limited to AOL or AOL
Affiliate branding of any Licensed Content
except as provided in EXHIBIT E).
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1.2.6.4 Nothing contained herein shall be deemed to
restrict an AOL User's use of the Licensed
Content in accordance with AOL's Terms of
Service (or applicable terms of service on
the Digital City Service, AOL.com, each of
the AOL Country Services and CompuServe).
1.2.7 MANAGEMENT. Except as specifically provided for herein, AOL
shall have no obligations of any kind with respect to the ICP
Internet Site(s) and/or the Private Store. ICP shall be
responsible for all costs associated with the Private Store.
*** shall be responsible for the *** associated with (i) any
agreed-upon direct *** between the *** and the ICP *** or
(ii) any *** versions of the *** other than the ***. ICP
shall be responsible for any other hosting or communication
costs associated with any ICP Internet Site(s), including
without limitation the Private Store. AOL Users shall not be
required to go through a registration process (or any similar
process) in order to access and use the ICP Internet Site(s)
or the Licensed Content; provided that, the Parties agree and
acknowledge that some features or areas of the ICP Internet
Site(s) (e.g., ICP Membership or Premium Service) may require
a registration process for all users generally and that such
registration process for AOL Users shall be no more
burdensome than for any other user.
1.3 PREMIER STATUS. Subject to the terms and conditions set forth
in this Agreement, AOL shall provide the following premier
presence to ICP ("PREMIER STATUS"):
1.3.1 GENERAL.
(a) ICP shall have the first right to choose
*** from the available *** on the ***
within the AOL Service where ICP is
entitled to receive *** pursuant to Section
*** (including redesigns of *** if such
redesign involves a redesign of the ***
area on ***), which right shall terminate
with respect to a particular *** if not
exercised within five (5) days after AOL's
request therefor. In addition, AOL agrees
that there shall be no more than ***
additional *** on such ***.
(b) AOL shall not provide to any *** any of the
following, subject to the terms, conditions
and exceptions expressly set forth in this
Agreement:
(i) *** within the *** and the ***;
(ii) any *** within any page of the ***;
(iii) any Continuous non-commerce *** on
any of the *** and ***.
(iv) AOL shall have the option of either
(1) not providing an *** any ***,
or (2) providing an *** a ***, but
displaying a "Looking for
Something" or similar screen, which
will include a link to a screen of
the AOL Sports Channel, which
screen shall be at AOL's sole
discretion; provided that, AOL may
eliminate this restriction if (A)
AOL is legally obligated to do so
(i.e., legal action is threatened
or commenced against AOL or AOL is
reasonably advised by legal counsel
of such an obligation), (B) if AOL
reasonably determines, based on
public relations, member
experience, complaints or other
related issues, that AOL should
provide a *** to any ***,
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or (C) if AOL is or becomes
contractually obligated to provide
a *** to any ***; subject to the
condition that each instance in
which an AOL User accesses the
Content of the *** by *** of such
*** pursuant this clause (C) shall
count as a Sports Impression and be
subject to the Impressions Cap
described in Section 1.3.1A.
(v) to the extent any *** fully
produces and supplies any of the
following *** and AOL receives
material cash or barter
consideration to provide *** of
***, AOL shall use commercially
reasonable efforts to restrict
(e.g., through a Welcome Mat or
otherwise) the *** to AOL *** of
any prominent above the *** for
such *** on the first *** of ***
directly *** to from the ***, ***
and the ***: ***.com, ***.com,
***.com, ***.com, ***.com, ***.com
and ***.COM. AOL's obligations
under this paragraph shall be
deemed satisfied if AOL introduces
such a restriction in a draft of
the *** agreement or otherwise
during negotiations of such ***
agreement, and, thereafter AOL
shall not be restricted in any way
from entering into, or performing
under, such agreement, whether or
not such party agrees to such
restriction.
(c) Other than with respect to Banner
Advertisements, to the extent AOL provides
any *** for an *** on a *** or a ***, such
*** shall be subject to 1.3.1A and shall
not be materially more *** (as reasonably
determined by AOL) than the most *** (as
reasonably determined by AOL) *** and/or
*** provided to ***, if any, on the *** in
question; provided that, (A) AOL may
provide a more *** if AOL has a reasonable
belief that ICP does not have a
commercially reasonable ability to provide
AOL like-quality *** with respect to
specific ***, *** or *** in the same
timeframe as the ***, and (B) if there is
no ICP *** on such ***, AOL may provide any
*** to an AOL ***, subject to Section
1.3.1A. In the event ICP believes that it
has a commercially reasonable ability to
provide AOL like-quality *** with respect
to specific ***, *** or *** in the same
timeframe as the ***, then ICP may discuss
such *** with AOL during its ***
programming conversations as described in
Section 1.3.1C.
(e) To the extent (A) AOL provides an ICP
Competitor a *** on any ***, and (B) ICP
has substantially similar *** as contained
within such ***, AOL shall offer a *** to
ICP of *** commensurate with the *** of
ICP's *** in relation to the applicable
***, in AOL's reasonable discretion only
subject to *** with AOL regarding such
Content.
1.3.1A. IMPRESSIONS CAP. With respect to any Promotion,
carriage and/or Link provided to any *** during the
Initial Term (except pursuant to the existing
agreement with ***, provided any (a) renewal, (b)
extension, and (c) modifications or amendments
thereto relating to an extension of the term, or
additional placement or additional impressions,
shall be deemed to be a new agreement as of the date
of execution of any such renewal, extension,
modification or amendments thereto) on any *** or
***, AOL shall not provide *** more than the
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following number of ***(each an "***") within the
*** and *** collectively (including any Keyword
access as provided in Section 1.3.1(b)(iv)(C)) (the
"***"):
(i) *** for all of the *** in the aggregate (but no more
than *** Banner Advertisements) or *** (but no more
than ***) to any single *** during the first year of
the Term,
(ii) *** for all of the *** in the aggregate (but no more
than *** Banner Advertisements) or *** (but no more
than *** Banner Advertisements) to any single ***
during the second year of the Term, and
(iii) *** for all of the *** in the aggregate (but no more
than *** Banner Advertisements) or *** (but no more
than *** Banner Advertisement) to any single ***
during the third year of the Initial Term.
1.3.1B. *** PROVISION.
(a) Barter Impressions. When calculating the
***, (i) all *** which were exchanged by
AOL for non-cash consideration ("*** ") in
a particular year shall be counted toward
the applicable year's *** first, and (ii)
all *** delivered to ICP in excess of the
annual *** with respect to the AOL Service
(i.e., ***) shall increase the *** by (x)
*** with respect to the *** for *** in the
aggregate (e.g., *** in year 1) and (y) ***
with respect to the *** for individual
***(e.g., *** in year 1) for such year.
(b) For each *** which was exchanged by AOL for
*** consideration ("***(S)") in excess of
*** of the ***, as ICP's sole remedy and at
AOL's option, AOL shall either: (i) deliver
to ICP in the following year *** additional
*** for each *** delivered by AOL in excess
of the ***, or (ii) pay ICP, in cash, ***
for each such excess *** delivered. For
each ***, AOL shall pay ICP, in cash, ***
for each such excess *** delivered in
excess of *** of the ***.
1.3.1C. EDITORIAL INTEGRATION. Any AOL Links to *** Content
(including on *** Interactive Sites) from the *** or
***, which Links are not directly part of a cash or
barter relationship and are used for editorial
and/or member experience reasons shall not count
against the ***; provided that, if ICP believes that
it has identical programming which it can provide in
the same timeframe as the ***, then ICP may discuss
such programming
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with AOL during its *** programming conversations as
described below. Both Parties shall use commercially
reasonable efforts to be available for ***
conversations regarding AOL's programming objectives
and ICP's programming capabilities. In connection
with such programming conversations, AOL shall
assess the ability of ICP's Content to meet AOL's
particular programming objectives and AOL shall act
in accordance with such assessments.
1.3.2 AOL COUNTRY SERVICES. AOL shall not enter into any
relationship with any *** giving such *** any
placement or promotion on the *** of all of the AOL
Country Services. Nothing contained in this Section
1.3.2 shall prevent AOL from entering into a
relationship with any *** for placement and
promotion with respect to less than all Country
Services; provided, however, AOL shall not be
permitted to contract with any *** with respect to
more than *** of the ***. Nothing contained herein
shall prevent any of the AOL Affiliates or the AOL
Country Services from entering into any agreement or
relationship with any of the ***.
1.3.3 COMPUSERVE. ICP shall have an *** (as defined in
***) with respect to the CompuServe *** during the
Initial Term. At any time after the first *** of the
Initial Term, AOL or CompuServe shall have the right
to terminate, upon *** prior notice to ICP, any
obligations herein involving CompuServe or the
CompuServe Service, including the placement provided
to ICP pursuant to Section 6 of EXHIBIT H of this
Agreement.
1.3.4 DIGITAL CITY SERVICE. During the first *** of the
Initial Term, AOL shall not enter into any
relationship with any *** giving such *** on the
Digital City Service *** on all cities covered by
Digital City Service. Nothing contained herein shall
prevent AOL at any time from entering into a
contractual relationship with any *** for *** on any
Digital City Service *** on a city by city basis or
for less than all of the cities covered by the
Digital City Service; provided that, during the
first *** of the Term, no single *** has *** on the
Digital City Service *** of more than *** the
Digital City Service. ICP shall have an *** with
respect to the *** Digital City Service Channel.
1.3.5 COMMERCE PACKAGE.
(i) ICP shall have the only *** on the ***, ***
and any of the *** (collectively, "***" and
individually, "***") which *** expressly
*** the offer or sale of a *** on a ***
basis;
(ii) When providing *** or any *** to any *** on
any ***, the content of such *** or ***
shall not promote the sale of *** or ***;
(iii) Nothing in this Section 1.3.5 shall prevent
AOL from (A) promoting on a *** basis on
the *** the sale of merchandise from any
party other than an *** or (B) providing a
*** on the *** to any party (including, but
not limited to, a party offering a
comprehensive range of ***) other than an
***,
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provided, that, with respect to clause (B)
above, within such promotion, such party is
offering only *** which is different from
the ***; and
(iv) Notwithstanding the foregoing, if AOL
provides a *** from the *** to any ***
where the sale of *** is featured, AOL will
feature on such *** sale of *** with *** to
the ***. To the extent that AOL imposes a
standard charge on any premier commerce or
content partners for inclusion in such ***,
ICP shall also pay such standard charge to
AOL.
1.3.6 CORPORATE COMMUNICATIONS AND INVESTOR RELATIONS.
Notwithstanding the "Promotional Materials/Press Releases"
section of EXHIBIT C, it is the intention of the parties to
issue a press release announcing the formation of the
relationship contemplated hereby; provided, however that no
such announcement shall be made unless approved by both
parties in advance. During the *** following the Effective
Date, AOL shall not *** any *** with any *** nor participate
in any *** by any ***(whether affirmatively or by knowingly
permitting such ***), except as required by law. AOL will use
commercially reasonable efforts to ensure that any public
announcement or other public statement made by AOL's public
relations department with respect to any third party
relationship involving portions of the AOL Network as to
which ICP has Premier Status shall not intentionally *** or
*** the *** of the *** the *** created by this Agreement by
*** such *** as having a ***; provided that, if,
notwithstanding AOL's reasonable efforts, AOL does release a
*** or other *** with respect to any third party ***
involving portions of the AOL Network as to which *** has
***, which press release has both the *** (in this regard,
*** shall mean that AOL expressly *** such *** as having a
***) and actual *** of *** and *** in the manner described
above, then, as ICP's sole remedy, AOL shall, following ICP's
request, issue a *** intended to *** hereunder. During the
last *** of the Initial Term, the restriction contained in
the foregoing sentence shall not apply to any AOL public
announcement with respect to an AOL relationship with an ***,
which relationship will take effect subsequent to any period
in which *** applies (in accordance with the terms of this
Agreement).
During the *** days following the Effective Date, ICP shall
not *** any *** with any *** regarding rights similar to
those with respect to which ICP has granted an *** to AOL
pursuant to Sections 2.2(iv), 2.4 and 2.5, respectively, nor
participate in any *** by any *** with respect to same
(whether affirmatively or by knowingly permitting such ***),
except as required by law. ICP will use reasonable efforts to
ensure that any public announcement or other public statement
made by ICP's public relations department with respect to any
third party relationship involving rights granted by ICP to
an Interactive Service similar to those granted to AOL
pursuant to Sections 2.2(iv), 2.4 and 2.5, respectively,
shall not intentionally *** or *** the *** upon AOL pursuant
to Sections 2.2(iv), 2.4 and 2.5 by *** such *** as having a
***; provided that, if, notwithstanding ICP's reasonable
efforts, ICP does release a *** or other *** with respect to
any third party ***, which press release has both the *** (in
this regard, *** shall mean that ICP expressly *** such ***
as having a ***) and actual *** of *** and *** the Parties'
*** in the manner described above, then, as AOL's sole
remedy, ICP shall, following AOL's request, issue a ***
intended to *** the *** with AOL. During the last *** of the
Initial Term, the restriction contained in the foregoing
sentence shall not apply to any ICP public announcement with
respect to an ICP relationship with an ***, which
relationship will take effect subsequent to any period in
which *** applies (in accordance with the terms of this
Agreement)
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1.3.7 CONDITIONS TO AND RESTRICTIONS ON PREMIER STATUS. AOL's
provision of the Premier Status is subject to the following
conditions and restrictions:
(a) AOL's provision of the Premier Status to ICP granted
pursuant to Sections 1.3.1 through 1.3.6 of this
Agreement is contingent upon ICP's full performance
of all material obligations and full compliance with
all material conditions set forth in this Agreement,
including without limitation, ICP's payment of all
fees and in-kind consideration, and AOL shall have
the right to terminate the Premier Status upon ICP's
failure to fully perform all material obligations or
fully comply with all material conditions set forth
in this Agreement; and
(b) AOL shall have the right to terminate the Premier
Status granted to ICP pursuant to Sections 1.3.1,
1.3.2, 1.3.3, 1.3.4 and 1.3.6 if:
(i) ICP fails to maintain its fundamental
promotional relationship or affiliation
with CBS, Inc. ("CBS") (or its successors)
or a fundamental promotional relationship
or affiliation comparable in all material
respects to ICP's current relationship with
CBS with another television sports provider
reasonably acceptable to AOL;
(ii) CBS or its successor(s) (or another
television sports provider reasonably
acceptable to AOL with whom ICP has a
fundamental promotional relationship or
affiliation comparable in all material
respects to ICP's current relationship with
CBS) does not maintain reasonably
equivalent broadcast rights to those
currently held by CBS as of the Effective
Date;
(iii) At any time after the first *** of the
Initial Term, ICP's Internet Site at
http://cbs.sportsline.com is not one of the
top *** ranked sports Web sites (or the ***
ranked sports Web Site within *** of the
*** Place Web Site) for at least ***
consecutive calendar months, in terms of
both traffic ("TRAFFIC") and audience reach
("AUDIENCE REACH") based on statistics
published by the leading Internet audience
research organization(s) ("METRICS") as
mutually agreed upon by the Parties;
provided that, if the Parties do not agree
on the Metrics before the end of the ***
after the Effective Date, the following
Metric shall apply: Audience Reach as
measured by share or percentage of Internet
online users as reported by ***, and
Traffic as measured by page views; or
(iv) At any time after the first *** of the
Initial Term, ICP's Internet Site at
http://cbs.sportsline.com is not one of the
top *** ranked sports Web sites (or the ***
ranked sports Web Site within *** of the
*** Place Web Site) for at least ***
consecutive calendar months, in terms of
quality based upon a cross-section of
mutually agreed upon independent
third-party reviewers who are recognized
authorities in such industry.
(c) AOL shall have the right to terminate the Premier
Status granted to ICP pursuant to Sections
1.3.1(b)(iv) (but only with respect to *** linking
to a commerce site) 1.3.5 and 1.3.6 if the Private
Store is not one of the top *** in the online sports
product industry, as determined by each of the
following methods:
(i) based on a cross-section of mutually agreed
upon independent third-party reviewers who
are recognized authorities in such
industry, and
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(ii) with respect to all material quality
averages or standards in such industry,
including each of the following: (1)
pricing of Products, (2) scope and
selection of Products, (3) quality of
Products, (4) customer service and
fulfillment associated with the marketing
and sale of Products, and (5) ease of use.
1.4 PERMISSIBLE AOL ACTIVITIES. Notwithstanding anything to the
contrary in Section 1.3 above (and without limiting any
actions which may be taken by AOL without violation of ICP's
rights hereunder), no provision of this Agreement will limit
AOL's ability (on or off the AOL Network) to:
(i) Undertake activities or perform duties
pursuant to (A) arrangements with third
parties, including without limitation any
relationships with ***, existing as of the
Effective Date and (B) any agreements to
which AOL becomes a party subsequent to the
Effective Date as a result of Change of
Control, or merger, acquisition or other
similar transaction. With respect to any
such arrangements and/or agreements, any
renewal by AOL, extension by AOL,
modifications or amendments thereto
relating to an extension of the term,
additional placement or additional
impressions elected to be given by AOL
(and, in the case of AOL's agreement with
***, any renewal, extension, or
modification or amendment relating to an
extension of the term or additional
placements or impressions) shall be deemed
to be a new agreement as of the date of
execution of any such renewal, extension,
modification or amendments thereto. AOL
represents that, to the best of its
knowledge, as of the Effective Date, AOL is
not a party to any agreement with any ***
that would prevent AOL from materially
performing hereunder;
(ii) Except as provided in Sections 1.3.1A,
1.3.1B and 1.3.5, sell advertising (e.g.,
banners, buttons, links, sponsorships),
including without limitation standard
placements in any shopping area or channel,
to any ***;
(iii) Enter into an arrangement with any third
party for the primary purpose of acquiring
AOL Users whereby such third party is
allowed to promote or market its products
or services to only those AOL Users that
are acquired as a result of such
arrangement; or
(iv) create editorial or news commentary or
programming, and contextual links within
such areas, relating to any third party or
third party marketer of ***.
1.5 NO ***.
(i) BY AOL. As long as ICP is entitled to Premier Status
under the terms of this Agreement, AOL shall not in
*** the terms and conditions of an ***, nor take any
action or undertake any obligation or grant any
rights to or on behalf of any ***, anywhere within
the AOL Service the primary purpose of which is to
*** or substantially ***. In addition, as a
courtesy, AOL shall use commercially reasonable
efforts to provide ICP with at least *** days
advance notice prior to *** any *** with any ***;
provided that, any failure of AOL to disclose any
*** shall not constitute a breach of this Agreement.
(II) BY ICP. ICP shall not in *** the terms and
conditions of the *** granted to AOL pursuant to
this Agreement nor take any action or undertake any
obligation or grant any rights to or on behalf of
any *** with respect to the rights for which ICP has
granted AOL an *** pursuant to this Agreement, the
primary purpose of which is to *** or substantially
*** as provided in Sections 2.2(iv), 2.4 and 2.5,
respectively. In addition, as a courtesy, ICP shall
use commercially reasonable efforts to
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provide AOL with at least *** days advance notice
prior to *** any *** with any ***; provided that,
any failure of ICP to disclose any *** shall not
constitute a breach of this Agreement.
2. PROMOTION
2.1 COOPERATION. Each Party shall cooperate with and reasonably
assist the other Party in supplying material for marketing
and promotional activities.
2.2 ICP INTERNET SITE(S). Within each generally available ICP
Internet Site, ICP shall include the following (collectively,
the "AOL PROMOS"):
(i) a prominent (in size and placement mutually agreed
to by the parties) promotional button ("AOL BUTTON")
appearing on the bottom of the first screen of the
applicable ICP Internet Site(s), which may link to a
page on AOL.com where a user may download or order
the then-current version of client software for such
AOL products or services (for example, the AOL
Service, the CompuServe brand service, the AOL.com
site, the Digital City services or the AOL Instant
Messenger service). If the AOL Button links to a
page where it makes its then-current version of
client software for the AOL Service available, AOL
shall *** a *** for each *** in accordance with
AOL's then-standard terms and conditions),
(ii) a mutually agreed upon schedule of promotions and
links for AOL Instant Messenger service (AIM);
(iii) a minimum of one (1) branded link within ICP's
"custom browser" or "hybrid browser" to locations on
the AOL Network as determined by AOL in its sole
discretion; provided (A) any page linked to from
such "Custom Browser" shall display a link back to
the ICP Internet Site(s), the Programming Content
and Screens or another mutually agreed upon
location, and (B) such branded link shall not link
directly to an Interactive Site or Welcome Mat of
any ***; and
(iv) without limiting any other provisions of this
Agreement, prior to entering into negotiations with
any third party regarding products similar to an AOL
product (e.g., AIM, AOL Netfind, Yellow Pages, etc.)
to be offered on the ICP Internet Site(s), ICP shall
give AOL an *** to enter into such agreement.
AOL will provide the creative Content to be used in the AOL
Promos; provided that, AOL shall not provide Content for more
than *** AOL Promos per week. ICP shall post (or update, as
the case may be) the creative Content supplied by AOL within
the spaces for the AOL Promos within five (5) days of its
receipt of such Content from AOL. Without limiting any other
reporting obligations of the Parties contained herein, ICP
shall provide AOL with monthly written reports within thirty
(30) days after the last day of each month specifying the
number of impressions to the pages containing the AOL Promos
during the prior month. In the event that AOL elects to serve
the AOL Promos to the ICP Internet Site from an ad server
controlled by AOL or its agent, ICP shall take all reasonable
operational steps necessary to facilitate such ad serving
arrangement, including, without limitation, inserting HTML
Code designated by AOL on the pages of the ICP Internet Site
on which the AOL Promos appear. In addition, within each ICP
Internet Site, ICP shall provide promotion for the Keywords
associated with the ICP Internet Site(s) "above the fold" on
each applicable home page.
2.3 OTHER MEDIA. Other than with respect to promotion provided by
CBS as provided in, and governed by the Addendum attached as
Exhibit E-1 to this Agreement between CBS and AOL to be
executed on the Execution Date (the "AOL/CBS AGREEMENT"), in
all of ICP's television,
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radio, print and "out of home" (e.g., buses and billboards)
advertisements and in any publications, programs, features or
other forms of media over which ICP exercises editorial
control, ICP will include specific references or mentions
(orally where possible) of the availability of the ICP
Internet Site(s) through the AOL Service, which are at least
as prominent, where commercially practicable in ICP's
reasonable judgment, as any references that ICP makes to any
of the ICP Internet Sites, including without limitation,
ICP's Internet Site(s) or any other mutually agreed upon ICP
Internet Site (by way of site name, related company name, URL
or otherwise). Without limiting the generality of the
foregoing, (i) ICP's listing of the "URL" for any ICP
Internet Site will be accompanied by (A) a prominent listing
of the AOL Keyword Search Term(s) for the ICP Internet
Site(s) or, (B) where constrained by time and/or space
limitations as reasonably determined by ICP, the availability
of the ICP Internet Site via the AOL Network, and (ii) ICP
shall promote the AOL Keyword or, where constrained by time
and/or space limitations as reasonably determined by ICP, the
availability of the ICP Internet Site via the AOL Network,
anytime and anywhere ICP promotes the URL or site name for
any of the ICP Internet Sites; subject, with respect to (i)
and (ii), to any contractual restrictions existing as of the
Effective Date which prohibit such promotions. ICP represents
that there are no contractual commitments as of the Effective
Date which would impede or restrict ICP's ability to deliver
the promotion contemplated in this Section 2.3.
2.4 PREFERRED ACCESS PROVIDER/ ***. When promoting AOL, ICP shall
promote AOL as a preferred access provider through which a
user can access the ICP Internet Site(s) (e.g., ICP shall not
authorize any third party to promote that they are "the
preferred" access provider). In this regard, ICP shall
provide to AOL an *** with respect to any transaction ICP
wishes to enter into with an Interactive Service for the
purpose of (i) distributing such Interactive Service's access
software, (ii) co-marketing such Interactive Service in
conjunction with an ICP Internet Site, or (iii) selling
and/or syndicating content not generally available on any ICP
Internet Site(s).
2.5 HOMETOWN. Prior to entering into any relationship with a
"homesteading" (i.e., personal home page service) and/or
community partner (e.g., e-mail, chat or similar service) on
the ICP Internet(s), subsequent to the Effective Date, ICP
shall offer AOL an *** with respect to such relationship. ICP
represents that, as of the Effective Date, it has not entered
into any agreement, arrangement or relationship with a
"homesteading" partner and shall commence negotiations in
good faith with AOL as soon as reasonably practicable after
the Execution Date.
3. REPORTING; PAYMENT.
3.1 USAGE AND OTHER DATA. AOL shall deliver to ICP all standard
monthly usage information related to the Commerce Promotions
which are similar in substance and form to the reports
provided by AOL to other interactive marketing partners
similar to ICP, as well as deliver, in a manner mutually
agreed upon by the Parties and no less frequently than on a
***, AOL's actual *** for the ICP Internet Site(s) cached by
AOL; provided that, ICP provides AOL a comprehensive listing
of *** and their corresponding ***. ICP agrees and
acknowledges that any AOL *** cannot be made available until
at least *** after such *** has been generated. In addition
to the reports required by Sections 4.5.4 and 4.5.5, ICP will
deliver to AOL on a daily basis ICP's *** which reflect total
hits by AOL Users based upon a mutually agreed upon method
for determining a hit by an AOL User. AOL agrees and
acknowledges that any ICP *** cannot be made available until
at least *** after such *** has been generated. In addition,
ICP shall deliver to AOL "click-through" data with respect to
the promotions specified in Section 2 on a monthly basis no
later than the end of the month following the month reported.
Without limiting the foregoing and to enable AOL and ICP to
more accurately account for the Impressions and Promotions
actually delivered pursuant to this Agreement, AOL shall use
commercially reasonable efforts, within a commercially
reasonable amount of time after the Effective Date, to assign
*** or to employ
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other similar mechanism of equal or greater accuracy for ***,
to any screens on which ICP or any ICP Competitor has a
Presence and for which there is no other way of ***. In
addition, AOL shall provide a monthly report of all
Impressions delivered to ICP under this Agreement and a
monthly "Contract ***" *** by ***, the interactive *** unit
of ***, showing *** for ICP's Banner Advertisements served by
AOL's Ad Server and reported by the *** system. AOL will
provide a monthly accounting of the number of *** provided to
the *** and the greatest number of *** provided to any single
***, but AOL shall not provide such data utilizing names or
particular placements of any *** or any other information in
violation of AOL's confidentiality obligations to such ***.
3.2 PROMOTIONAL COMMITMENTS. ICP shall provide to AOL a monthly
report, no later than the end of the month following the
month reported, documenting its compliance with any
promotional commitments it has undertaken pursuant to Section
2 of this Agreement in the form attached as EXHIBIT F hereto.
3.3 CARRIAGE AND PROMOTIONAL FEE. ICP shall pay AOL the following
consideration:
3.3.1 CASH PAYMENT. ICP shall pay AOL eight million
dollars ($8,000,000.00) (the "CASH PAYMENT") within
thirty (30) days after the full execution of this
Agreement (the "EXECUTION DATE"); and
3.3.2 IN-KIND PROGRAMMING AND PROMOTION. ICP shall provide
AOL with the programming and promotional commitments
specified on EXHIBIT E attached hereto (the "ICP
IN-KIND COMMITMENTS"). Without limiting any other
rights or remedies available to AOL, AOL's Anchor
Tenancy and Impressions commitments specified in
Sections 1.1 and 1.6 herein are and will be
contingent, upon provision by ICP of the ICP In-Kind
Commitments in accordance with EXHIBIT E AND EXHIBIT
E-1.
3.3.3 STOCK. Within thirty (30) days of the Effective
Date, ICP shall issue, or cause to be issued, to AOL
five hundred fifty thousand (550,000) shares of ***
common stock of ICP ("ICP COMMON STOCK"), which
shall be subject to Section 3.3.5 below and to the
representations, warranties, terms and conditions
contained in EXHIBIT I., and shall deliver
certificates representing such shares to AOL.
3.3.4 WARRANTS. ICP shall grant Warrants ("WARRANTS") to
purchase additional shares of common stock of ICP
(collectively, "WARRANT STOCK") in accordance with
all the terms and conditions contained in that
certain Warrant which shall be executed and
delivered contemporaneously herewith, the form of
which is attached hereto as EXHIBIT K. Pursuant to
the Warrant, the Warrants shall vest as follows:
(a) Warrants to purchase up to four hundred fifty
thousand (450,000) shares of Warrant Stock at an
exercise price of *** per share, which Warrants
shall be vested on the ***.
(b) Warrants to purchase up to an additional one
hundred fifty thousand (150,000) shares of Warrant
Stock at an exercise price of *** per share, which
Warrants shall vest at *** as ***;
(c) Warrants to purchase up to an additional one
hundred fifty thousand (150,000) shares of Warrant
Stock at an exercise price of *** per share, which
Warrants shall vest at *** as ***;
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(d) Warrants to purchase up to an additional one
hundred fifty thousand (150,000) shares of Warrant
Stock at an exercise price of *** per share, which
Warrants shall vest at *** as ***.
3.3.5 GUARANTEED PROCEEDS; ESCROW ACCOUNT.
(a) Provided that AOL holds and does not sell
any shares of the ICP Common Stock during the two
(2) year period commencing on the Effective Date,
then, subject to the provisions of this Section
3.3.5 below, at the election of AOL as provided
below, ICP shall pay AOL an amount ("DEFICIENCY
AMOUNT"), if any, equal to the difference between
the Guaranteed Proceeds less the Actual Net
Proceeds. For purposes of this Section:
(i) "ACTUAL NET PROCEEDS" means the aggregate
proceeds from sales of the Subject Shares
(as defined in Section 3.3.5(b) below)
during the Sale Period (as defined in
Section 3.3.5(b) below), less any brokerage
commission actually incurred and paid by
AOL to the Market Maker (as defined in
Section 3.3.5(b) below) in connection with
such sales;
(ii) "GUARANTEED PROCEEDS" means the product of
(a) an amount equal to fifteen million
dollars ($15,000,000) (the "Aggregate
Guarantee") and (b) a fraction, the
numerator of which is the number of Subject
Shares (as defined in Section 3.3.5(b)
below) and the denominator of which is the
total number of shares of ICP Common Stock
issued to AOL pursuant to Section 3.3.3 ;
(iii) "MARKET PRICE" means the closing price per
share of the common stock of ICP on any
given day on the Nasdaq National Market, as
reported by Nasdaq; and
(iv) "REFERENCE PRICE" means ***.
(b) On or within five (5) days of the second anniversary
of the Effective Date, ICP shall provide AOL written
notice (the "Election Notice") triggering a 10-day
period during which AOL may determine to sell any or
all of the ICP Common Stock so that AOL may make a
claim for a Deficiency Amount. If AOL has not sold
any shares of ICP Common Stock during the two (2)
year period commencing on the Effective Date (as
provided in Section 3.3.5(a) above) and AOL elects
to make a claim for a Deficiency Amount, AOL shall
provide ICP a written notice of such election (the
"AOL Notice") prior to the tenth (10th) day after
receiving the Election Notice (provided that AOL, in
its discretion, may also provide such AOL Notice at
any time after the second anniversary of the
Effective Date and prior to the delivery by ICP of
the Election Notice), which AOL Notice shall specify
the number of shares of the ICP Common Stock with
respect to which AOL desires to make a claim for a
Deficiency Amount (the "Subject Shares"). Within
five (5) business days following ICP's receipt of
the AOL Notice, ICP shall provide AOL a written
notice designating one of the primary market makers
in the common stock of ICP (the "MARKET MAKER") to
sell the Subject Shares in accordance with this
Section 3.3.5(b). Within five (5) business days
after AOL's receipt of ICP's designation of the
Market Maker, AOL shall place a standing sell order
(the "SELL ORDER") with the Market Maker covering
the Subject Shares and shall deliver to the Market
Maker in good form
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for transfer certificates representing the Subject
Shares. The Sell Order shall instruct the Market
Maker to sell the Subject Shares at the best
available market prices, in the Market Maker's
reasonable good faith judgment, during the sixty
(60) day period following the date AOL places the
Sell Order (the "Sale Period"). In the event the
Market Maker is unable to sell all or any part of
the Subject Shares (such unsold Subject Shares, the
"Unsold Stock") due to either legal restrictions or
market conditions, AOL shall notify ICP thereof as
soon as practicable following the expiration of the
Sale Period. Upon receipt of such notice, ICP shall
purchase from AOL for cash such Unsold Stock at a
price per share equal to the Reference Price.
(c) To provide security for ICP's obligation to pay the
Deficiency Amount, commencing ten (10) business days
after the Effective Date, ICP shall place and
maintain funds equal to the Required Escrow Amount
(as hereinafter defined) in an escrow account
("ESCROW ACCOUNT") with ***, as escrow agent (the
"ESCROW AGENT"). The Escrow Account shall be
established and governed by the terms of an escrow
agreement consistent with the terms hereof and
mutually acceptable to the Parties ("ESCROW
AGREEMENT") to be entered into among ICP, AOL and
the Escrow Agent within *** after the Execution
Date.
(d) The "REQUIRED ESCROW AMOUNT" shall mean an amount
equal to *** unless the *** is less than the *** in
which case the Required Escrow Amount shall equal
the product of (i) the number of shares of ICP
Common Stock issued to AOL pursuant to Section
3.3.3, multiplied by (ii) the difference, if any,
between the *** and the *** as of the end of the
calendar month for which the Required Escrow Amount
is determined; provided, that if AOL has given the
AOL Notice, the Required Escrow Amount shall
thereafter equal the product of (x) the number of
Subject Shares, times (y) the difference, if any,
between the *** and the ***. If during the two (2)
year period following the Effective Date ICP
declares a stock dividend or distribute shares of
common stock of ICP to its shareholders, or if ICP
subdivides its outstanding shares of common stock by
recapitalization, reclassification or split-up
thereof, the Reference Price shall be
proportionately decreased to give effect thereto. If
during the two (2) year period following the
Effective Date ICP combines the outstanding shares
of its common stock by recapitalization,
reclassification or combination thereof, the
Reference Price shall be proportionately increased
to give effect thereto. Any such adjustment to the
Reference Price shall be effective at the close of
business on the effective date of such subdivision
or combination or, if any adjustment is the result
of a stock dividend or distribution, then the
effective date for such adjustment shall be the
record date therefor.
(e) On or before the tenth (10th) business day of each
calendar month during the two (2) year period
following the Effective Date, ICP shall provide AOL
and the Escrow Agent a written notice specifying the
Required Escrow Amount as of the end of such
calendar month and shall deposit with the Escrow
Agent such amount, if any, as may be necessary to
increase the balance of the Escrow Account to such
Required Escrow Amount. If as of the end of any
calendar month during the two (2) year period
following the Effective Date the balance of the
Escrow Account exceeds the Required Escrow Amount,
the Escrow Agent shall be authorized to release such
excess amount to ICP. After AOL has given the AOL
Notice, ICP shall determine the Required Escrow
Amount as of the date of such notice (the "Final
Escrow Amount") and, if the balance of the Escrow
Account exceeds the Final Escrow Amount, the Escrow
Agent shall be authorized to release such excess to
ICP. All interest or other amounts earned
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on amounts on deposit in the Escrow Account shall be
payable by the Escrow Agent to ICP each month after
ICP has provided AOL and the Escrow Agent the notice
required by the first sentence of this Section
3.3.5(e) and deposited with the Escrow Agent the
amount, if any, as may be required to increase the
balance of the Escrow Account to the Required Escrow
Amount specified in such notice (or, if no such
amount is required, after the Escrow Agent's receipt
of such notice).
(f) If AOL has given the AOL Notice and placed the Sell
Order, then as soon as practicable following the
earlier to occur of the last day of the Sale Period
or the date on which all of the Subject Shares have
been sold, AOL shall provide ICP written notice of
the Deficiency Amount (the "Deficiency Notice"), if
any, due hereunder. If a Deficiency Amount is due,
ICP shall pay such Deficiency Amount to AOL within
ten (10) business days after receipt of the
Deficiency Notice; and, upon such payment, ICP shall
be authorized to receive all funds then held in the
Escrow Account. If ICP fails to make payment of the
Deficiency Amount when due, AOL shall be authorized
to make a claim against the Escrow Account for any
unpaid amount. If the balance of the Escrow Account
is not sufficient to cover the entire Deficiency
Amount, AOL may pursue any other remedies it may
have against ICP under this Agreement and at law or
equity to recover the Deficiency Amount.
(g) ICP's obligations under this Section 3.3.5 shall
terminate and have no further force and effect if
(i) if AOL sells any shares of the ICP Common Stock
during the two-year period commencing on the
Effective Date, (ii) AOL fails provide ICP the AOL
Notice or to place or maintain the Sell Order with
the Market Maker as required by Section 3.3.5(b)
(provided that de minimis deviations from such
requirements not materially effecting the sale of
the Subject Shares hereunder (including without
limitation the resulting Actual Net Proceeds) shall
not result in such termination of ICP's obligations
under this Section 3.3.5), or (iii) if during the
Sale Period the Actual Net Proceeds received by AOL
as a result of sales of the Subject Shares equals or
exceeds the Guaranteed Proceeds. At such time as
ICP's obligations under this Section 3.3.5
terminate, ICP shall be authorized to receive all
funds then held in the Escrow Account.
(h) It shall be a material breach of this Agreement if
ICP fails (a) to timely make any *** into the *** or
(b) within *** after the Effective Date to *** the
***(unless due to circumstances under which *** is
permitted to be *** under the ***) and to maintain
such *** as required under the ***.
3.4 ALTERNATIVE REVENUE STREAMS. In the event ICP or any of its
affiliates creates or desires to create, as a direct result
of any Promotions, any new revenue stream as a result of such
Promotions other than Advertising Revenues and Transaction
Revenues (an "ALTERNATIVE REVENUE STREAM"), ICP will promptly
inform AOL in writing of ICP's desire to market Products
and/or services to AOL Members which would produce an
Alternative Revenue Stream, and the Parties will negotiate in
good faith regarding whether ICP will be allowed to market
such new Products and/or services through the Promotions, and
if so, the equitable portion of revenues from such
Alternative Revenue Stream (if applicable) that will be
shared with AOL pursuant to this Agreement).
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3.5 PAYMENT SCHEDULE. Except as otherwise specified herein, each
Party agrees to pay the other Party all amounts received and
owed to such other Party as described herein on a quarterly
basis within *** of the end of the quarter in which such
amounts were collected by such Party. The first quarter for
which payment is to be made shall (i) begin on the first day
of the month following the month of full execution of this
Agreement, and (ii) include the portion of the month of
execution following the Effective Date (unless this Agreement
was executed on the first day of a month, in which case the
quarter shall be deemed to begin on the first day of such
month).
3.6 TAXES. ICP will collect and pay and indemnify and hold AOL
harmless from, any sales, use, excise, import or export value
added or similar tax or duty based on any Product sold,
including any ICP Membership or Premium Product, including
any penalties and interest, as well as any costs associated
with the collection or withholding thereof, including
attorneys' fees.
3.7 PAYMENTS. All payments by ICP hereunder shall be paid by
check in U.S. funds to "America Online" at the following
address: 22000 AOL Way, Dulles, Virginia 20166, Attention:
Chief Financial Officer, except that the Cash Payment shall
be paid in immediately available, non-refundable U.S. funds
wired to the "America Online" account, Account Number
323070752 at the Chase Manhattan Bank, 1 Chase Manhattan
Plaza, New York, New York 10081 (ABA: 021000021), or such
other account of which AOL shall give ICP written notice.
4. ADVERTISING AND MERCHANDISING
4.1 ADVERTISING SALES. AOL owns all right, title and interest in
and to, and, except as expressly provided herein, ICP shall
not have the right to sell, except as expressly provided
herein, the advertising and promotional spaces within the AOL
Network (including, without limitation, advertising and
promotional spaces on the Programming Content and Screens and
any AOL forms or pages, hybrid browsers and Welcome Mat(s),
preceding or framing the ICP Internet Site(s)), and, except
where AOL has granted ICP the express right to sell
advertising pursuant to this Agreement, to retain one hundred
percent (100%) of all advertising revenues generated
therefrom. ICP shall have the right to offer, sell or license
Advertisements on the *** with respect to the inventory
thereon as such inventory is reasonably determined by AOL and
subject to AOL's advertising policies, including without
limitation, exclusivity commitments; provided, however, that
DCI shall have the exclusive right to offer, sell or license
Advertisements on the hybrid browser(s) associated with the
Digital City Service, so long as DCI shall not include any
*** in such ***. The specific advertising inventory within
any such AOL forms or pages shall be as reasonably determined
by AOL.
4.2 PROGRAMMING ADVERTISEMENTS. Except as otherwise expressly
provided herein, AOL and/or its Affiliates shall have the
exclusive right to license or sell, and to serve,
Advertisements in or through the AOL Network including,
without limitation, any area for any Programming Content and
Screens ("PROGRAMMING ADVERTISEMENTS") and to retain one
hundred percent (100%) of all revenues generated by the
offer, sale or provision of Programming Advertisements.
Nothing contained in this Section 4.2 shall be construed as
limiting ICP's right to provide Links in the AOL Programming
as set forth in EXHIBIT E.
4.3 COMPUSERVE ADVERTISEMENTS. AOL and/or CompuServe shall have
the exclusive right to license or sell, and to serve,
Advertisements in or through any page on the CompuServe
Screens (as defined in EXHIBIT E) and CompuServe UK Screens
(as defined in EXHIBIT E), and to keep one hundred percent
(100%) of all advertising revenues generated by the offer,
sale or provision of such Advertisements. ICP shall have the
exclusive right to license or sell Advertisements in or
through all other pages of the ICP Internet Site(s) Linked
from the CompuServe Screens and the CompuServe UK Screens
("COMPUSERVE ADVERTISEMENTS"), and ICP shall have the right
to retain one hundred percent (100%) of all Advertising
Revenue generated therefrom.
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4.3A WELCOME MAT ADVERTISEMENTS. To the extent AOL requires ICP to
create any Welcome Mat(s) pursuant to Section 5.2.1, AOL
hereby grants ICP the right to license or sell promotions,
advertisements, links, pointers or similar services or rights
in or through each Welcome Mat ("WELCOME MAT
ADVERTISEMENTS").
4.4 ADVERTISING POLICIES. ICP's sale of any Welcome Mat
Advertisements or any other Advertisements in the Private
Store, the CompuServe Screens and CompuServe UK Screens or
any page or screen hosted on the AOL Network other than
solely by caching ("collectively, "AOL ADVERTISEMENTS"),
shall be subject to AOL's or the applicable Affiliate's then
standard advertising policies (provided such policies are
disclosed to ICP), including without limitation exclusivity
commitments. ICP shall (i) in each instance where Welcome
Mats or other Advertisements are hosted on the AOL Network,
provide AOL or the applicable Affiliate with a completed
standard advertising registration form relating to such AOL
Advertisement, and(ii) ensure that any AOL Advertisement sold
by ICP complies with all applicable federal, state and local
laws and regulations. To the extent ICP sells an
Advertisement as part of an advertising package including
multiple placement locations (e.g., both the ICP Internet
Site(s) which generates Advertising Revenues and another ICP
Internet Site or interactive site which does not generate
Advertising Revenues), ICP shall allocate the payment for
such advertising package between or among such locations in
an equitable fashion. Any Welcome Mat Advertisements shall be
subject to the Advertising Minimum. With respect to any other
Advertisements sold by ICP or its agents, ICP shall use best
efforts to maximize the "CPMs" to be paid pursuant to such
Advertisements and shall in all cases ensure that such sales
are made at or above then-current market rates for comparable
advertising inventory
4.5 INTERACTIVE COMMERCE. All merchandising through the Private
Store shall comply with the following:
4.5.1 PRICES. ICP will ensure that: (i) the prices (and
any other required consideration) for Products sold
through the Private Store do not exceed the prices
for the Products or substantially similar Products
offered by or on behalf of ICP; (ii) the terms and
conditions related to Products in the Private Store
are no less favorable in any respect to the terms
and conditions for the Products or substantially
similar Products offered by or on behalf of ICP
through the ICP Internet Site(s); and (iii) both the
prices and the terms and conditions related to
Products in the Private Store are reasonably
competitive in all material respects with the prices
and terms and conditions for the Products or
substantially similar Products offered by any ICP
Competitor through any Internet Site(s), except ICP
will not have to be competitive insofar as such ICP
Competitor products are sold through any auction
site or closeout sale.
4.5.2 SPECIAL OFFERS. ICP will (i) promote through the
Private Store any special or promotional offers made
available by or on behalf of ICP online, and (ii)
promote through the Private Store on a regular and
consistent basis special offers exclusively
available to AOL Members and/or AOL Users ((i) and
(ii) collectively, the "SPECIAL OFFERS"). ICP will
provide AOL with reasonable prior notice of Special
Offers so that AOL can market the availability of
such Special Offers in the manner AOL deems
appropriate in its editorial discretion, subject to
the terms and conditions hereof. In connection with
the foregoing, ICP shall make all of its existing
ICP Memberships or Premium Service(s), available to
AOL Users at a ten (10%) discount off ICP's ordinary
retail prices; provided that, ICP shall not be
obligated to provide such discount on its fantasy
games unless AOL promotes such fantasy game
discounts within the AOL Service Sports Channel
Fantasy Center(s).
4.5.3 PRODUCT OFFERING. ICP will ensure that the Private
Store includes all of the Products and other Content
(including, without limitation, any features,
offers, contests, functionality
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or technology) that are then made available by or on
behalf of ICP through any online store; provided,
however, that (i) such inclusion will not be
required where it is commercially or technically
impractical to ICP (i.e., inclusion would cause ICP
to incur substantial incremental costs); and (ii)
such offering is limited to the Product categories
outlined in EXHIBIT A and any specific changes in
scope, nature and/or offerings of such Product
categories shall be subject to AOL approval.
4.5.4 SALES REPORTS. ICP will provide AOL with a monthly
report in a mutually agreed upon format to be
delivered to AOL in an automated manner, detailing
the sales activity during such period. These sales
reports shall contain information substantially
similar to the following (and any other information
mutually agreed upon by the Parties or reasonably
required for measuring revenue activity by ICP
through the ICP Internet Site(s)): (i) summary sales
information by day (date, number of Products, number
of orders, total Transaction Revenues); and (ii)
detailed sales information (order date/timestamp (if
technically feasible), purchaser name and
screen-name, SKU or Product description) ((i) and
(ii) collectively, "SALES REPORTS"). AOL will be
entitled to use the Sales Reports in its business
operations, subject to the terms of this Agreement
(including but not limited to the provisions of
Exhibit C related to confidentiality and privacy).
AOL shall maintain the confidentiality of the
foregoing information and shall not disclose any
individual sales information to any third party
provided that, AOL may disclose such information
with ICP's prior consent; except that, AOL may use
the Sales Reports without ICP's prior consent for
(A) internal programming and advertising rotation
purposes, and (B) informational disclosures as part
of broader aggregation of data from multiple
commerce partners regarding AOL Users. More
generally, each payment to be made by ICP pursuant
to Section 7 will be accompanied by a report
containing information which supports the payment,
including information identifying (x) Gross
Transaction Revenues and all items deducted or
excluded from Gross Transaction Revenues to produce
Net Transaction Revenues, including, without
limitation, chargebacks and credits for returned or
canceled goods or services (and, where possible, an
explanation of the type of reason therefor, e.g.,
bad credit card information, poor customer service,
fraudulent transactions, etc.), and (y) any
applicable Advertising Revenues.
4.5.5 FRAUDULENT TRANSACTIONS. To the extent permitted by
applicable laws, ICP will provide AOL with a
reasonably prompt report of any fraudulent order of
which ICP has actual knowledge, including the date,
screenname or email address and amount associated
with such order, promptly following ICP obtaining
knowledge that the order is, in fact, fraudulent.
4.5.6 RIGHT OF FIRST NEGOTIATION/RIGHT OF FIRST OFFER.
Subject to AOL's approval rights set forth in
Section 1.2.4: (i) ICP shall not conduct any
merchandising through the Private Store through
auctions or any method other than a direct sales
format without providing AOL with written notice of
such desire, negotiate in good faith with AOL or its
commerce or marketing partner in the applicable
product/service category regarding a merchandising
or commerce arrangement for such non-direct sales
format, and (ii) prior to entering into any
arrangement with any third party regarding the
supply of any non-sports related products through
the Private Store, ICP shall give AOL written notice
of such desire and, upon request by AOL, negotiate
in good faith with AOL or its designated commerce or
marketing partner in the applicable product/service
category regarding such merchandising or commerce
arrangement.
5. CUSTOMIZED LINKED INTERNET SITES
5.1 PERFORMANCE. ICP shall optimize the ICP Internet Site(s) and
the Private Store for distribution hereunder according to
AOL's Operating Standards set forth on EXHIBIT G attached
hereto. To
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CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
the extent site standards are not established in EXHIBIT G
with respect to any aspect or portion of the ICP Internet
Site(s) (or the Products or other Content contained therein),
ICP will provide such aspect or portion at a level of
accuracy, quality, completeness, and timeliness which meets
or exceeds prevailing standards in the sports information or
online sales or sports-related products industry. In the
event ICP fails to comply with any material terms of this
Agreement (including without limitation, the material terms
of any Exhibit attached hereto), AOL will (i) have the right
(in addition to any other remedies available to AOL
hereunder) to decrease the promotion it provides to ICP
hereunder until such time as ICP corrects its non-compliance,
and (ii) be relieved of its promotional obligations during
the period of such non-compliance, provided that the ***
shall not be reduced unless the period of non-compliance is
more than ***.
5.2 CUSTOMIZATION. ICP shall customize the ICP Internet Site(s)
for AOL Users as follows:
5.2.1 Upon AOL's request, and ***, ICP shall create a
customized, co-branded home page "welcome mat" for
the AOL audience for each area on the ICP Internet
Site(s) linked to from the AOL Network on a
Continuous basis (each a "WELCOME MAT"), which
Welcome Mat(s) shall be subject to AOL approval; and
5.2.2 ICP shall employ some means that prevents AOL
Members and AOL Users linking to the ICP Internet
Site(s) from the AOL Network from receiving
advertisements, promotions or links from or for
another Interactive Service (provided that such
promotion or links expressly promotes an Interactive
Service) or otherwise in violation of AOL's or the
applicable Affiliate's then-standard advertising
policies or exclusivity commitments. AOL will supply
ICP with information reasonably requested by ICP to
allow ICP to identify an AOL Member and AOL User in
order to comply with its obligations under this
Section 5.2.2. AOL's *** with respect to the
foregoing shall be the *** set forth in ***, so long
as ICP is *** to comply with this Section 5.2.2.
5.3 REVIEW. ICP shall allow appropriate AOL personnel to have
access to the ICP Internet Site(s) for the purpose of
reviewing such site to determine compliance with the
provisions of this Section 5. To implement the foregoing, ICP
shall provide a mutually agreed upon number of accounts at no
charge to AOL for which such AOL personnel must register;
provided that such accounts shall not be sold, bartered or
otherwise transferred to any other party.
5.4 LINKS ON ICP INTERNET SITE(S). To the extent that AOL
notifies ICP in writing that, in AOL's reasonable judgment,
links from such site cause an excessive amount of AOL traffic
to be diverted outside of such site and the AOL Network in a
manner that has a detrimental effect on the traffic flow of
the AOL audience, then ICP shall immediately reduce the
number of links out of such site(s). In the event that ICP
cannot or does not so limit diverted traffic from the ICP
Internet Site(s), AOL's ***, with respect to the foregoing
*** set forth in *** provided that ICP will work with AOL in
good faith on a *** to limit any unreasonable traffic
diversion. AOL agrees and acknowledges that nothing contained
in this Section 5.4 is meant to apply to or in any way ***
ICP's ability to *** and *** within ICP Internet Site(s).
6. PRODUCTION OF PROGRAMMING CONTENT AND SCREENS
6.1 AOL PROGRAMMING. ICP shall be responsible for all staffing
costs associated with producing all Programming Content and
Screens as provided in Section 3.3.2 and EXHIBIT E. AOL will
work to facilitate securing necessary rights for ICP to
utilize certain Content (e.g., initially, ***) necessary to
produce the AOL Programming and AOL shall bear the reasonable
cost of providing ICP access to such Content; provided that,
(i) the Parties acknowledge that certain third party
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AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
*** may be necessary to secure such rights, and (ii) neither
party shall be obligated to *** specific to having ICP
produce such Content. If AOL is not able to *** third party
*** through the exercise of reasonable efforts or if either
Party would be required to *** to *** such ***, then the
Parties shall work together to arrive at a mutually
acceptable work-around and neither ICP nor AOL shall be ***
of *** as a consequence of the *** to *** such ***. AOL shall
have the right to reduce or limit, in any form and manner,
the features, functionality and other interactive
characteristics of the AOL Programming, and ICP shall not
incorporate into the AOL Programming new features,
functionality and other interactive aspects which require the
*** of *** AOL *** without the prior written approval of AOL.
AOL shall provide to ICP, at no cost to ICP, Tools (as
defined in Section 6.2 below) necessary for ICP to produce
the AOL Programming. In the event that ICP requests any AOL
production assistance, ICP shall work with AOL to develop
detailed production plans for the requested production
assistance (the "PRODUCTION PLAN"). Following receipt of the
final Production Plan, AOL shall notify ICP of (A) AOL's
availability to perform the requested production work, (B)
the proposed fee or fee structure for the requested
production and maintenance work, and (C) the estimated
development schedule for such work. To the extent the Parties
reach agreement regarding implementation of an agreed-upon
Production Plan, such agreement shall be reflected in a
separate work order signed by the Parties. To the extent ICP
elects to retain a third party provider to perform any such
production work, work produced by such third party provider
must generally conform to AOL's production standards
available at Keyword "Styleguide." The specific production
resources, if any, which AOL may allocate to any production
work to be performed on behalf of ICP shall be as determined
by AOL in its sole discretion; provided that, if ICP's
failure to provide the AOL Programming is caused by ***
unreasonable *** in providing such production assistance to
ICP, ICP shall not *** in *** of *** because of such failure.
6.2 PUBLISHING TOOLS. At *** to ***, AOL shall grant ICP access
to *** proprietary publishing tools (e.g., forms, feed
parsers, etc.) and other technology (each a "TOOL") necessary
(as determined by AOL in its sole discretion) for ICP to
develop and implement any AOL Programming during the Term.
ICP shall be granted a nonexclusive *** license to use any
such Tool, which license shall be subject to: (i) ICP's
compliance with all rules and regulations relating to use of
the Tools, as published from time to time by AOL, (ii) AOL's
right to withdraw or modify such license at any time, and
(iii) ICP's express recognition that AOL provides all Tools
on an "as is" basis, without warranties of any kind. If any
withdrawal or modification pursuant to (ii) above has a
material adverse effect upon ICP's ability to produce the AOL
Programming, ICP shall not be in *** of *** for any
consequent ICP failure to produce the AOL Programming as
required by this Agreement.
6.3 TRAINING AND SUPPORT. AOL shall provide ICP with AOL's ***
"training and support package" available to AOL's partners
related to ICP's management and maintenance of the screens
containing the AOL Programming. In addition, ICP will pay
reasonable travel and lodging costs associated with its
participation in any AOL training programs (including AOL's
travel and lodging costs when training is conducted at ICP's
offices), all in accordance with ICP's generally applicable
travel reimbursement guidelines.
6.4 ***. Within a reasonable amount of time after the Effective
Date, AOL shall terminate the Interactive Site(s), AOL
Keyword Search Terms and the Anchor Tenant button of its ***
property ("***") and transfer to ICP any right, title and
interest of AOL in and to the *** and/or *** "***"; provided,
however, that all of AOL's obligations pursuant to this
Section 6.4 shall be conditioned upon *** any ***, as
determined by AOL, and AOL agrees to use commercially
reasonable efforts to obtain such consents. ICP's acceptance
of any interest in the *** and/or *** "*** " shall be
contingent upon ICP's right to *** within a reasonable time
after the Effective Date. To the extent ICP elects not to
accept title to the *** and/or *** "*** ", and AOL has
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CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
performed all of its obligations under this Section 6.4, then
AOL shall (i) *** and *** all *** in and to the *** and/or
*** "*** ", (ii) refrain from any use of the *** and/or ***
"*** ", and (iii) not *** or otherwise *** any right, title
or interest in or to the *** and/or *** "*** ". To the extent
that AOL is unable by reason of law or contract to comply
with the terms of this Section 6.4, the parties agree to
negotiate a reduction in the amount of the Aggregate
Guarantee with such reduction not to exceed ***. Nothing
herein shall prevent AOL from maintaining the *** Interactive
Site(s), provided it does so under any brand other than the
*** or *** "***".
6.5 INTERIM PRODUCTION. Notwithstanding anything herein to the
contrary, for a period of *** following the Execution Date,
AOL shall produce and program the AOL Programming at *** in a
manner to be determined in AOL's sole discretion. Thereafter,
ICP shall be responsible for all production and programming
for the AOL Programming as provided in this Agreement.
Subject to the restrictions set forth in EXHIBIT E, ICP shall
be free to hire any person to produce the AOL Programming
other than an employee of AOL or any of its Affiliates,
provided however, during the *** period following the
Effective Date, ICP shall have the right to *** for *** by
ICP any AOL ***, *** is exclusively dedicated to programming
and production of the AOL Programming as of the Execution
Date, as reasonably determined by AOL.
6.6 AOL.COM. For a period of *** following the Effective Date,
AOL shall not enter into any agreement with an *** to ***, or
be the primary *** of *** for, the AOL.com ***. During such
*** period so long as AOL, and not a third party, is
producing the AOL.com ***, ICP shall be the *** of *** on the
AOL.com ***, which *** shall be subject to the terms of this
Agreement, provided that the parties will work in good faith
to develop a programming plan in such regard. ICP shall have
the *** to *** or *** Advertisements in or through all pages
on the ICP Internet Site(s) Linked to from AOL.com, and ICP
shall have the right to *** Advertising Revenue generated
therefrom. In addition, AOL will grant ICP an *** with
respect to AOL.com.
7. REVENUE SHARING. If, at any time during the Term (which specifically
excludes the Extension), Total Revenues exceed *** (the "REVENUE
THRESHOLD"), ICP shall pay AOL according to the following from and
after the date on which the Revenue Threshold is met:
7.1 ADVERTISING. ICP shall use best efforts to implement an exact
tracking mechanism for measuring Advertising Revenues. Until
such time as an exact tracking mechanism is implemented: (i)
*** of ICP's actual gross advertising revenues from the ICP
Interactive Site(s) multipled by (ii) the *** of *** to the
ICP Internet Site(s) *** by *** as determined by *** and ***.
When and if an exact tracking mechanism is implemented, the
preceding formula shall be replaced with the following
formula: *** of Advertising Revenues.
7.2 COMMERCE. ICP shall pay AOL *** of Net Transaction Revenues
excluding Net Transaction Revenues generated from the license
or sale of ICP Membership or Premium Service to AOL Users
which shall be governed by Section 7.3 below.
7.3 ICP MEMBERSHIPS OR PREMIUM SERVICE. ICP shall pay AOL *** of
Gross Transaction Revenues generated from the license or sale
of any ICP Memberships or Premium Service to AOL Purchasers.
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CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
8. TERM, TERMINATION AND SITE AND CONTENT PREPARATION.
8.1A TERM. This Agreement shall commence on the Effective Date and
continue for a period of three (3) years ("INITIAL TERM"),
unless earlier terminated as provided herein. Unless AOL
exercises the Option(s) set forth in Section 8.1B, this
Agreement shall terminate at the end of the Initial Term (or,
the end of the first Option Term if AOL does not exercise the
second Option) except with respect to the survival of
specific provisions hereof as specified in clauses (ii) and
(iii) of this Section 8.1A. For a period of *** immediately
following the Initial Term (the "EXTENSION"), provided AOL
does not exercise the Option (as defined in Section 8.1B),
(i) AOL shall have the right to use the ICP trademarks or
tradenames as Keyword Search Terms and/or branded Linked
Promotions from the AOL Network to the ICP Internet Site(s),
(ii) Articles II and IV-VIII of EXHIBIT C shall continue to
apply, (iii) ICP shall continue to comply with the terms of
Section 3.1. At the end of the foregoing *** period, the
foregoing surviving provision shall terminate. Under all
circumstances, this Agreement, including all Option Terms
shall terminate *** after the Effective Date.
8.1B AOL OPTION. Prior to AOL exercising an Option (as defined
below), ICP shall advise AOL whether ICP intends to continue
to *** the *** and *** as set forth in EXHIBIT E following
the Initial Term or the first Option Term (as defined below),
as the case may be. ICP's decision shall be based solely upon
*** reasonable *** of the *** of the *** contemplated in the
applicable *** versus the *** associated with *** the ***
during the same ***. AOL shall have *** successive one-time
options (each, an "OPTION"), which must be exercised no later
than *** prior to expiration of the Initial Term or the first
Option Term, as the case may be (provided that ICP shall
provide AOL with written notice with respect to ICP's
intention to *** the *** within *** prior to the expiration
of the Initial Term or the first Option Term, as the case may
be) to extend the Initial Term or the first Option Term for
an additional *** (each, an "OPTION TERM") upon all terms and
conditions of this Agreement except as follows (it being
understood that the provisions of Section 8.1A shall govern
during the *** following the first Option Term unless AOL
elects to exercise the Option with respect to the second
Option Term):
(i) In lieu of the Promotions described in Section 1.1,
AOL shall be obligated to provide a mutually agreed
upon subset of such Promotions and AOL shall
guarantee ICP an *** of *** during the Option Term
from *** on the AOL Network in lieu of the ***
described in Section ***;
(ii) ICP shall have no obligation to *** any *** to AOL
in accordance with Sections ***, ICP shall be
obligated to pay the revenue splits set forth in
Section 7 without regard to the ***;
(iii) To the extent AOL desires not to renew ICP's Premier
Status both as to ***(as described in Sections ***)
and *** (as described in Section ***), AOL may
elect, at its option, either (A) to discontinue
ICP's Premier Status with respect to ***(as
described in Sections ***), and, in such event,
AOL's *** under Section *** shall terminate; or (B)
discontinue ICP's Premier Status with respect to ***
(as described in Section ***), and, in such event,
AOL's *** under Sections *** shall terminate.
(iv) In all events, to the extent ICP and AOL mutually
agree to have ICP continue to produce the AOL
Programming, then AOL's obligations pursuant to
Section 1.3.1(b)(ii) shall continue in full force
and effect for so long as ICP continues to produce
the AOL Programming.
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AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
Subsequent to the expiration of the Term or earlier
termination of this Agreement, AOL shall have *** to *** any
ICP trademarks or tradenames anywhere within the AOL Network
***.
8.2 TERMINATION FOR BREACH. Either Party may terminate this
Agreement at any time in the event of a material breach by
the other Party which remains uncured after thirty (30) days
written notice thereof (or such shorter period as may be
specified elsewhere in this Agreement); provided that AOL
will not be required to provide notice to ICP in connection
with ICP's failure to make any payment to AOL required
hereunder, and the cure period with respect to any scheduled
payment will be fifteen (15) days from the date for such
payment provided for herein. Notwithstanding the foregoing,
in the event of a material breach of a provision that
expressly requires action to be completed within an express
period shorter than thirty (30) days, either Party may
terminate this Agreement if the breach remains uncured after
written notice thereof to the other Party.
8.3 TERMINATION FOR BANKRUPTCY/INSOLVENCY. Either Party may
terminate this Agreement immediately following written notice
to the other Party if the other Party (i) ceases to do
business in the normal course, (ii) becomes or is declared
insolvent or bankrupt, (iii) is the subject of any proceeding
related to its liquidation or insolvency (whether voluntary
or involuntary) which is not dismissed within ninety (90)
calendar days, or (iv) makes an assignment for the benefit of
creditors.
8.4 SITE AND CONTENT PREPARATION. ICP shall achieve Site and
Content Preparation within *** after the Effective Date.
"SITE AND CONTENT PREPARATION" shall mean that ICP shall have
(i) completed all necessary production work for the Private
Store, the Programming Content and Screens and any other
related areas or screens (including programming all Content
thereon); (ii) customized and configured the ICP Internet
Site(s) in accordance with EXHIBIT G of this Agreement, and
(iii) completed all other necessary work (including, without
limitation, undergone all AOL site testing set forth on
EXHIBIT G) to prepare the ICP Internet Site(s), and any other
related areas or screens to launch on the AOL Network as
contemplated hereunder. In the event ICP has not achieved
Site and Content Preparation within *** after the Effective
Date, then in addition to any other remedies available, AOL
shall have the right to terminate this Agreement by giving
ICP written notice thereof. If ICP is delayed in achieving
Site and Content Preparation due to a failure by AOL to
perform its obligations under this Agreement and ICP notifies
AOL in writing of such failure and the resulting delay, then
the *** day and *** day periods referenced in this Section
shall each be extended by the amount of time of ICP's delay
solely attributable to such failure by AOL.
8.5 TERMINATION ON CHANGE OF CONTROL. In the event of (i) a
Change of Control of ICP resulting in control of ICP by an
***, AOL may terminate this Agreement by providing thirty
(30) days prior written notice of such intent to terminate.
In the event of a change of Control of AOL to an ***, ICP may
*** by providing thirty (30) days prior written notice of
such *** to ***. If AOL terminates this Agreement pursuant to
this Section 8.5, then AOL shall:
(a) within thirty (30) days after the effective date of
such termination, *** a *** equal to the *** by the
*** (as defined in Section ***);
(b) immediately upon the effective date of such
termination, *** a number of *** of *** to AOL
pursuant to Section *** equal to the total *** of
*** of *** which have not been *** by the ***, and
shall *** to ***, within thirty (30) days after the
effective date of such termination, a ***
representing *** (provided that such *** shall not
affect *** as such would apply to the *** of *** of
*** not ***, or otherwise *** AOL's *** pursuant to
Section ***);
26
<PAGE> 27
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
(c) within thirty (30) days after the effective date of
such termination, *** a *** equal to the *** from
the *** of *** of *** which have been *** by the
***; and
(d) with respect to *** pursuant to Section ***:
(1) a number of *** equal to (A) the *** of
such *** which are *** but *** as of the
effective date of such termination *** by
(B) the *** shall *** immediately upon the
effective date of termination;
(2) AOL shall immediately *** a number of ***
of *** acquired through the *** of such ***
equal to the total *** of *** of such ***
which have not been *** by the ***, and
shall ***, within thirty (30) days of the
effective date of such termination, to ICP
a *** representing such ***; and
(3) within thirty (30) days after the effective
date of such termination, AOL shall *** a
*** equal to the *** from the *** of *** of
*** acquired through the *** of such *** by
the ***.
8.6 ADJUSTMENT TO *** UPON TERMINATION OF ***.
8.6.1 AOL TERMINATION OF ICP *** UNDER SECTION ***. If AOL
terminates ICP's *** pursuant to Section *** during
the Initial Term (without terminating this Agreement
as a whole), AOL shall:
(i) within thirty (30) days after the effective
date of such termination, *** a *** equal
to *** of (i) *** of the *** by (ii) a
factor the numerator of which is the *** of
full *** remaining in the ***, and (ii) the
denominator of which is thirty-six (36)
(the "***");
(ii) immediately upon the effective date of
termination, *** a number of *** of *** to
AOL pursuant to Section *** equal to *** of
*** of the total number of *** of *** which
have not been *** by the *** and shall ***
to ICP a *** representing such ***;
provided that such *** shall in no way
affect the *** as such would apply to the
number of *** not ***, or otherwise ***
AOL's *** pursuant to Section ***.
8.6.2 AOL TERMINATION OF ICP *** UNDER SECTION ***. If AOL
terminates ICP's *** pursuant to Section *** during
the Initial Term (without terminating this Agreement
as a whole), AOL shall:
(i) within thirty (30) days after the effective
date of such termination, *** a *** equal
to *** of (i) *** of the *** multiplied by
(ii) the ***;
27
<PAGE> 28
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
(ii) immediately upon the effective date of
termination, *** a number of *** of ***
delivered to AOL pursuant to Section ***
equal to *** of *** the total number of ***
of *** which have not been *** by the ***
and shall *** to ICP, within thirty (30)
days after the effective date of such
termination, a *** representing such ***;
provided that such *** shall in no way
affect the *** as such would apply to the
number of *** of *** not ***, or otherwise
*** AOL's *** pursuant to Section ***.
9. *** WITH ICP ***; ***. If, at any time during the *** or the ***
thereafter, AOL wishes to enter into any agreement commencing after
the *** but prior to the expiration of *** following the ***,
substantially the same in *** and *** or more *** in *** and *** to
this Agreement with respect to the specific services of the ***
covered under this Agreement (a "*** "), then (provided ICP is
entitled to *** under this Agreement at such time) AOL shall *** ICP
with an ***("*** ") therefor and *** such *** with ICP for a period of
at least *** days, during which *** day period AOL shall not enter
into a definitive written agreement with an *** with respect to such a
***. Once AOL has satisfied the foregoing requirements of this Section
9 on one occasion, AOL shall have no further obligation to fulfill
such requirements. During the Term, and provided ICP is entitled to
*** under this Agreement at such time, AOL shall use commercially
reasonable efforts to *** an *** for ICP to *** through a *** of the
*** which AOL may elect to *** through a *** channel.
10. *** DEFINED. "***" shall mean:
a. GRANTED TO ICP. So long as ICP is entitled to *** under this
Agreement: if (i) AOL wishes to provide an *** for a *** to
(A) *** the editorial Content of the *** of the ***, ***, ***
and ***, as applicable or (B) enter into a *** or ***
relationship involving an *** of at least ***, as reasonably
determined by AOL, and (ii) AOL wishes to offer such *** to
an ***, then AOL shall give ICP notice of such *** and the
general *** and *** of such ***. For *** days after AOL
provides such notice to ICP, (A) ICP shall have the
non-exclusive *** to *** with AOL regarding such *** and (B)
AOL will not *** an *** with an *** regarding such ***. If
the Parties have not *** a *** incorporating the terms and
conditions of such *** within such *** day period, AOL shall
have the right to enter into an agreement regarding the ***
with any other ***, including an ***. An *** shall not
include *** or any *** or *** that ICP is not, in AOL's
reasonable judgment, able to provide at a level commensurate
with the *** or *** which can be provided by the *** to which
AOL wishes to offer such ***. In addition, an *** shall not
include arrangements entered into by any Affiliate. With
respect to any *** granted to ICP pursuant to this Agreement,
once AOL has provided ICP with an *** related to a particular
service listed above (i.e., the ***, ***, *** or the ***) in
accordance with foregoing procedure, AOL shall have no
further obligation to ICP with respect to such specific
property for such agreement.
b. GRANTED TO AOL. With respect to an *** granted to AOL
pursuant to this Agreement, ICP shall give AOL notice of any
potential or proposed relationship with another *** and the
general terms and conditions of such relationship. AOL shall
have the non-exclusive *** to *** with ICP regarding such ***
for a period of *** days. During such *** day period, ICP
will not enter into a definitive written agreement with
another *** regarding the opportunity. However, if the
Parties have not executed a definitive written agreement
within such *** day period, ICP shall have the right to enter
into an agreement regarding the relationship with any other
third party, including another ***.
28
<PAGE> 29
11. TERMS AND CONDITIONS. The legal terms and conditions set forth on Exhibit C
attached hereto and the Operating Standards set forth on EXHIBIT G attached
hereto are hereby made a part of this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the Effective Date.
AMERICA ONLINE, INC. SPORTSLINE USA, INC.
By: /s/ DAVID M. COLBURN By: /s/ MICHAEL LEVY
------------------------- -------------------
Print Name: David M. Colburn Print Name: Michael Levy
Title: Senior Vice President Title: President
Date: October 6, 1998 Date: October 6, 1998
Tax ID/EIN#: 65-0470894
29
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 95,235,104
<SECURITIES> 9,670,046
<RECEIVABLES> 4,675,397
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 115,877,756
<PP&E> 9,199,222
<DEPRECIATION> 4,379,149
<TOTAL-ASSETS> 125,270,956
<CURRENT-LIABILITIES> 10,600,446
<BONDS> 0
0
0
<COMMON> 191,213
<OTHER-SE> 114,203,514
<TOTAL-LIABILITY-AND-EQUITY> 125,270,956
<SALES> 21,232,901
<TOTAL-REVENUES> 21,232,901
<CGS> 12,465,229
<TOTAL-COSTS> 37,139,245
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,659
<INCOME-PRETAX> (25,331,857)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25,331,857)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,331,857)
<EPS-PRIMARY> (1.42)
<EPS-DILUTED> (1.42)
</TABLE>
