<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 6, 1999
REGISTRATION NO. 333-76981
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
QUOKKA SPORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7999 94-3250045
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
525 BRANNAN STREET, GROUND FLOOR
SAN FRANCISCO, CA 94107
(415) 908-3800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ALAN RAMADAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
525 BRANNAN STREET, GROUND FLOOR
SAN FRANCISCO, CA 94107
(415) 908-3800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
KENNETH L. GUERNSEY STEVEN L. BERSON
ISOBEL A. JONES ROBERT E. CURRY, II
STEVE R. DAETZ MICHAEL S. RUSSELL
DAVID J. PAUL WILSON SONSINI GOODRICH & ROSATI
COOLEY GODWARD LLP PROFESSIONAL CORPORATION
ONE MARITIME PLAZA, 20TH FLOOR 650 PAGE MILL ROAD
SAN FRANCISCO, CALIFORNIA 94111 PALO ALTO, CA 94304
(415) 693-2000 (650) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 6, 1999
PROSPECTUS
5,000,000 SHARES
[QUOKKASPORTS LOGO]
COMMON STOCK
-----------------------
This is Quokka Sports, Inc.'s initial public offering, and no public
market currently exists for our stock.
We expect that the public offering price will be between $9.00 and
$11.00 per share. After pricing of the offering, we expect that the common stock
will trade on the Nasdaq National Market under the symbol "QKKA."
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
-----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Initial public offering price.............................. $ $
Underwriting discount...................................... $ $
Proceeds, before expenses, to Quokka....................... $ $
</TABLE>
The underwriters may also purchase up to an additional 750,000 shares
from Quokka within 30 days from the date of this prospectus to cover
over-allotments.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities, or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The underwriters expect that the shares of common stock will be ready
for delivery in New York, New York on or about , 1999.
-----------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
BANCBOSTON ROBERTSON STEPHENS
-----------------------
The date of this prospectus is , 1999.
<PAGE> 3
(INSIDE FRONT COVER)
[Picture of the primary Quokka web page. Quokka logo is centered on the page and
a portion of the Quokka event calender is located at the bottom of the page.]
<PAGE> 4
(INSIDE FRONT COVER GATE FOLD)
[COLOR CODED WORLD MAP ENTITLED "QUOKKA GLOBAL EVENT NETWORK" IDENTIFYING
LOCATIONS OF THE FOLLOWING SPORTING EVENTS COVERED BY QUOKKA: CART, Around
Alone, 500 Grand Prix, Marathon Des Sables, First Ascent, Great Trango Tower,
Olympic Games, Whitbread and America's Cup.]
The following descriptions accompany the identified events:
CART:
- DESCRIPTION: Champ car racers chase millions of dollars at speeds
approaching 200 mph.
- DISTANCE: VARIES
- MODE: 2.65 LITER V-8 CHAMP CAR
AROUND ALONE:
- DESCRIPTION: The ultimate sailing challenge: one person, on a boat,
around the world, alone.
- DISTANCE: 27,000 NAUTICAL MILES IN 4 LEGS
- MODE: 40-60 FT. MONOHULL SAILING YACHT
500 GRAND PRIX:
- DESCRIPTION: Riders defy asphalt and gravity in championship motorcycle
racing.
- DISTANCE: VARIES
- MODE: 500, 250 & 125 CC MOTORCYCLES
MARATHON DES SABLES:
- DESCRIPTION: Runners struggled against sand, wind, and themselves in
Morocco's scorching Sahara.
- DISTANCE: 140 MILES IN 6 STAGES
- MODE: FEET
FIRST ASCENT:
- DESCRIPTION: Seven world-class climbers probe China's Karakoram range.
- DISTANCE: 3,000 MILES IN 4 LEGS
- MODE: TRUCK, CAMEL, FEET
GREAT TRANGO TOWER:
- DESCRIPTION: Three top climbers attempt to find a new route up one of
the tallest rock faces in the world.
- DISTANCE: 6,018 VERTICAL FEET
- MODE: FEET, GEAR, ROPE
OLYMPIC GAMES:
- DESCRIPTION: Athletes from all over the world compete for gold and glory
in 35 different sports.
- DISTANCE: VARIES
- MODE: FEET, BICYCLE, SKIS, LUGE, ETC.
WHITBREAD:
- DESCRIPTION: Nine boats battled in a 32,000 nautical-mile around-the-
world race.
- DISTANCE: 32,000 NAUTICAL MILES IN 9 LEGS
- MODE: W60 SAILBOAT
AMERICA'S CUP:
- DESCRIPTION: Sailors push the limits of technology and teamwork in
pursuit of one of sport's oldest trophies.
- DISTANCE: 18.5 NAUTICAL MILES PER RACE
- MODE: IACC CLASS YACHT
<PAGE> 5
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Use of Proceeds............................................. 19
Dividend Policy............................................. 19
Capitalization.............................................. 20
Dilution.................................................... 21
Selected Consolidated Financial Data........................ 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 30
Management.................................................. 52
Certain Transactions........................................ 64
Principal Stockholders...................................... 66
Description of Capital Stock................................ 69
Shares Eligible for Future Sale............................. 74
Underwriting................................................ 76
Legal Matters............................................... 78
Experts..................................................... 78
Change in Principal Accountants............................. 78
Additional Information...................................... 79
Index to Consolidated Financial Statements.................. F-1
</TABLE>
Quokka Sports(R) and Quokka Sports Immersion(TM) are trademarks of Quokka.
This prospectus also includes trade dress, trade names and trademarks of other
companies. All other brand names or trademarks appearing in this prospectus are
the property of their respective holders.
<PAGE> 6
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our financial statements and notes to those statements appearing
elsewhere in this prospectus. References in this prospectus to "Quokka," "Quokka
Sports," "our company," "we," "our," and "us" refer to Quokka Sports, Inc.
QUOKKA SPORTS, INC.
Quokka Sports has pioneered a distinctive new style of global sports
entertainment programming that uses the digital information sharing and
communications power of the Internet. Our programming is designed to provide a
compelling sports entertainment experience by allowing viewers to choose from a
variety of perspectives, information and action sequences. Our coverage of
sporting events incorporates, where available, video, text, audio, images,
athlete vital signs, locational and directional data, environmental data,
e-mails, results and timing data collected at the sports venue and from other
sources. We call these materials used in our programming "digital media assets."
Our programming can be accessed over the Internet at www.quokka.com and may be
delivered to viewers over other interactive systems that transmit digitized
data, such as cable and satellite systems, in the future. We believe new
interactive technologies provide exciting opportunities for making
information-intensive programming also entertaining. With distinctive content
designed to build on this opportunity, we believe we are positioned to become a
leading provider of digital sports entertainment addressing the entertainment
passions of a global community of sports enthusiasts.
We are creating an interactive digital sports network that offers a variety
of sports entertainment programming. To deliver our sports entertainment
programming over the Internet and other interactive systems, we have developed
and continue to enhance proprietary technology that we call our Quokka Sports
Platform. In developing our programming calendar, we currently target sports
events that are generally long in duration and rich in the materials or digital
media assets we seek to incorporate in our programming. We also usually target
sports events that have a global audience and involve continuous action with
multiple simultaneous activities. We have selected the Olympics, motor racing,
sailing and adventure sports as the first four channels of our network.
We generate revenues primarily through the sale of sponsorships. Sponsors
pay us for the right to be named as the exclusive sponsor of our network within
a particular industry category. Sponsors also secure the opportunity to embed
and promote their products in our digital programming. Our sponsors in the
technology and communication industries also have the opportunity to showcase
the technological capabilities of their products and services in the production
of our distinctive programming. Additionally, we believe we deliver a global
audience that has demographic qualities desired by sponsors and advertisers.
Our first digital sports program was the 1997-98 Whitbread Round The World
Race, a 32,000 nautical mile, around-the-world sailing race featuring an
international field of competitors. Our coverage attracted more than 1.8 million
unique users from 177 countries, more than half of whom accessed our Whitbread
Web site from outside the United States. "Unique user" is an industry term used
to describe an individual who has visited a particular Internet site once or
more. According to a Quokka-conducted survey, visitors to the Whitbread site
were primarily between 25 and 34 years old and had an average annual household
income of $75,000. Additionally, according to this survey, 64% of the visitors
to the Whitbread site were college educated and 63% held professional, executive
or technical positions. Based on these demographic characteristics, we believe
the visitors to the Whitbread site represented an attractive, targeted audience
for sponsors and advertisers. These users spent an average of approximately 9.9
minutes per visit at the site. This compares favorably to an average of 5.8
minutes per visit at other leading sports-related Web sites, according to our
estimates based on Media Metrix statistics. We generated $9.4 million of
revenues from sponsorships related to the Whitbread race.
1
<PAGE> 7
In February 1999, we established a joint venture with NBC Olympics, Inc. to
develop interactive digital coverage of the Olympics through August 2004. In
March 1999, through a joint venture with Forsythe Racing, Inc., we acquired
digital rights to cover Championship Auto Racing Teams events through 2003.
Additionally, in March 1999, we acquired digital rights to cover FIM 500cc Road
Racing World Championship motorcycle races through 2003. In May 1999, we
acquired digital rights to cover the America's Cup Match yacht race in 2000. Our
rights to cover each of these events, including the Olympics, are subject to
limitations as described in the "Business" section of this prospectus. We began
coverage of the nine-month Around Alone sailing race in September 1998. We
covered the 14th Marathon des Sables desert footrace and are also covering
Quokka-originated, adventure sports events as part of our adventure sports
channel.
As of March 31, 1999, we had an accumulated deficit of $23.9 million.
In August 1996, we adopted our current business model and incorporated in
Delaware under the name Quokka Productions, Inc. Shortly thereafter, in
September 1996, we changed our name to Quokka Sports, Inc. Prior to August 1996,
we operated as an Australian software development and consulting company, Ozware
Developments Unit Trust, an Australian unit trust. Our main offices are located
at 525 Brannan Street, San Francisco, California 94107, and our phone number is
(415) 908-3800. Our primary Web site is located at www.quokka.com. Information
contained on our Web site does not constitute part of this prospectus.
RECENT DEVELOPMENTS
In May and June 1999, we completed the private sale of 4,522,223 shares of
our Series D preferred stock at $9.00 per share for $40.7 million to the
following strategic and financial investors:
<TABLE>
<S> <C>
- Liberty QS, Inc. - MeriTech Capital Partners L.P.
- Hearst Communications, Inc. - Pivotal Partners, L.P.
- Comcast Interactive Investments, Inc. - Crossover Fund II, L.P.
- AtHome Corporation - British Telecom (Netherlands) Holdings B.V.
</TABLE>
We intend to work closely with our strategic investors to develop new channels
of distribution, digital sports entertainment programming and related products.
2
<PAGE> 8
THE OFFERING
Common stock offered by Quokka...... 5,000,000 shares
Common stock to be outstanding after
the offering........................ 43,656,429 shares
Use of proceeds..................... For capital contributions to our joint
ventures, payments under our rights and
distribution agreements and general
corporate purposes, including working
capital, expansion of operations,
expansion of our marketing campaign and
capital expenditures.
The information above is based on shares outstanding as of March 31, 1999,
gives effect to the sale in May and June 1999 of 4,522,223 shares of Series D
preferred stock and includes 508,848 shares issuable upon the exercise of
warrants outstanding as of March 31, 1999 at a weighted average per share price
of $1.06, which will expire if not exercised prior to the closing of this
offering. The number of shares of common stock to be outstanding after the
offering excludes:
- 2,391,750 shares issuable upon the exercise of warrants outstanding as of
March 31, 1999 at a weighted average per share price of $5.33;
- 7,145,025 shares issuable upon the exercise of options outstanding as of
March 31, 1999 at a weighted average per share price of $4.35;
- 6,460,401 shares reserved for issuance under Quokka's 1997 Equity
Incentive Plan;
- 450,000 shares reserved for issuance under Quokka's 1999 Non-Employee
Director's Stock Option Plan; and
- 1,000,000 shares reserved for issuance under Quokka's 1999 Employee Stock
Purchase Plan.
Under the terms of the Series D financing agreements, Quokka may issue up to an
additional 200,000 shares of Series D preferred stock. See "Capitalization," and
"Description of Capital Stock," for additional information relating to our
capital structure. Also see "Management -- Employee Benefit Plans" for a
description of the benefit plans referred to above.
3
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- --------- --------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS:
Revenues........... $ 399 $ 82 $ 39 $ 4,000 $ 8,635 $ 4,867 $ 897
Operating
expenses......... 311 100 1,595 8,871 18,493 5,289 8,461
Income/(loss) from
operations....... 88 (18) (1,556) (4,871) (9,858) (422) (7,564)
Net
income/(loss).... $ 90 $ (6) $ (1,560) $ (4,942) $ (9,538) $ (390) $ (7,848)
Historical basic
and diluted net
income/(loss) per
share............ $ 0.02 $ 0.00 $ (0.41) $ (0.73) $ (0.99) $ (0.04) $ (0.80)
Shares used in
computing
historical basic
and diluted net
income/(loss) per
share............ 3,800,000 3,800,000 3,800,000 6,791,534 9,654,835 9,651,566 9,756,059
Pro forma net loss
per
share -- basic
and diluted...... $ (0.40) $ (0.23)
Shares used in
computing pro
forma net loss
per
share -- basic
and diluted...... 23,914,934 34,000,923
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 15,263 $ 60,446
Working capital........................................... 13,953 59,136
Total assets.............................................. 22,853 68,036
Debt and leases, long-term portion........................ 699 699
Accumulated deficit....................................... (23,894) (23,894)
Total stockholders' equity................................ 18,612 63,795
</TABLE>
In the table above, the as adjusted amounts reflect the proceeds from the
sale of the 5,000,000 shares offered by Quokka at an assumed public offering
price of $10.00, after deducting the estimated underwriting discount and
offering expenses.
4
<PAGE> 10
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also could harm our business.
If any of the following risks actually occur, our business could suffer and the
trading price of our common stock could decline.
This prospectus contains forward-looking statements. The outcome of the
events described in these forward-looking statements is subject to risks and you
should not put undue reliance on these forward-looking statements. When used in
this prospectus, the words "intend," "anticipate," "believe," "estimate," "plan"
and "expect" and similar expressions as they relate to us are included to
identify forward-looking statements. Our actual results could differ materially
from those discussed in the forward-looking statements contained in this
prospectus. This section and the sections entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
contain a discussion of some of the factors that could contribute to those
differences.
RISKS RELATED TO OUR OPERATIONS
WE HAVE A HISTORY OF OPERATING LOSSES, EXPECT TO INCUR LOSSES FOR AT LEAST THE
NEXT EIGHT QUARTERS AND MAY BE UNABLE TO ACHIEVE OR SUSTAIN PROFITABILITY OR
GENERATE POSITIVE CASH FLOW
We expect to incur losses for at least the next eight quarters, largely due
to substantial planned increases in marketing expenses and expenses associated
with our digital sports entertainment programming. We may be unable to generate
sufficient revenues or control operating expenses to achieve or sustain
profitability or generate positive cash flow. We adopted our current business
model in August 1996 and began generating revenues in connection with this model
during the first quarter of 1997. As of March 31, 1999, we had an accumulated
deficit of $23.9 million. Our net operating losses were $4.9 million for 1997,
$9.5 million for 1998 and $7.8 million for the three months ended March 31,
1999. Cash used in operating activities was $3.9 million for 1997, $10.9 million
for 1998 and $6.4 million for the three months ended March 31, 1999.
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU CAN EVALUATE OUR BUSINESS AND
PROSPECTS
Our limited operating history makes it difficult to evaluate our business
and prospects. As a digital sports entertainment company in an early stage of
development, we face significant risks, uncertainties, expenses and
difficulties. In order to succeed, we must do most, if not all, of the
following:
- develop programming to attract and retain our audience;
- secure and retain additional sponsors and advertisers;
- acquire rights on commercially feasible terms to cover additional
sporting events;
- develop, enhance and carefully manage our brand;
- deliver multiple programming events simultaneously to one or more global
distribution networks;
- promote our name in the sports and media markets;
- respond appropriately to competitive developments;
- develop and implement a successful electronic commerce strategy;
- develop a successful line of product merchandise;
- secure additional distribution systems for our content;
- continue to develop and improve our know-how, to enhance our Web sites to
meet the needs of a changing market and to adapt to changing technology;
5
<PAGE> 11
- successfully execute our business and marketing strategies; and
- attract, integrate, retain and motivate qualified personnel.
Our business operations and revenues will suffer if we are unable to accomplish
these things.
OUR QUARTERLY OPERATING RESULTS ARE EXPECTED TO FLUCTUATE AND OUR FAILURE TO
MEET EARNINGS ESTIMATES COULD CAUSE OUR STOCK PRICE TO SUFFER
Our quarterly operating results have varied in the past, and we expect them
to fluctuate in future periods. For example, our revenues for the three months
ended March 31, 1999 were $900,000 compared to revenues of $4.9 million for the
three months ended March 31, 1998. These fluctuations depend on a number of
factors described below and elsewhere in this "Risk Factors" section of the
prospectus, many of which are outside our control. We may be unable to predict
our future revenues accurately or adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Any significant shortfall of
revenues would have a negative impact on our results of operations. For these
and other reasons, we may not meet the earnings estimates of securities analysts
or investors and our stock price could suffer. Our revenues in any quarter
depend on the sports programming we offer, the sponsorship arrangements we have
in place at that time and finalize during the quarter and, to a lesser extent,
the advertising and electronic commerce transactions we execute. We expect that
our electronic commerce revenues will be higher leading up to and during our
major sports programming. It is likely that sponsorship deals will have a long
sales cycle and may be unevenly distributed across fiscal quarters. We expect
our expenses to increase over time for production and other operational costs.
The timing of these expenses, as well as our obligations under existing and
future contracts, could fluctuate from quarter to quarter and intensify leading
up to and during significant sporting events such as the Olympic Games.
WE NEED TO ACQUIRE RIGHTS TO KEY SPORTING EVENTS TO DEVELOP MORE PROGRAMMING AND
GROW OUR BUSINESS, BUT THE COST AND COMPETITION FOR THESE RIGHTS COULD PREVENT
US FROM DOING SO
We need to acquire rights to key sporting events to succeed. If we are
unable to acquire these rights, our ability to broaden our programming and grow
our business will be limited. Our limited operating history makes it difficult
to assess our ability to acquire rights in the future. Holders of rights may not
be willing to enter into strategic relationships with us or sell rights to us at
prices we can afford, or at all. We expect the cost of acquiring rights to
increase significantly as competition for these rights increases. We may not be
successful in acquiring the rights we need, especially if third parties, such as
traditional media companies, which have significantly greater resources,
experience and bargaining leverage than we do, compete for those rights.
OUR LIMITED EXPERIENCE DEVELOPING AND COORDINATING A COMPREHENSIVE PROGRAMMING
SCHEDULE COULD RESULT IN DELAYS OR SETBACKS THAT REDUCE THE APPEAL OF OUR WEB
SITES
We have limited experience developing and coordinating a comprehensive
programming schedule and may experience delays or setbacks that reduce the
appeal of our Web sites. The programming we have developed required
significantly fewer resources and technical skills than the major sports
programming we are scheduled to produce, including the Olympic Games and
coverage of motor sports. Our programming may not keep pace with technological
developments, evolving industry standards or competing programming alternatives.
We have not developed multiple large-scale programming events simultaneously and
may lack the financial and technical resources to develop content for multiple
simultaneous sporting events. Even if the resources are available, we may be
unable to coordinate a comprehensive programming schedule. To be successful, we
will need to staff and operate 24-hour production facilities that are capable of
collecting, repackaging and distributing digital coverage to a global audience.
6
<PAGE> 12
IF OUR AUDIENCE DOES NOT LIKE OUR WEB SITES OR THE INTERACTIVE NATURE OF OUR
PROGRAMMING WE MAY NOT BE ABLE TO ATTRACT AND RETAIN SPONSORS
It is difficult to predict whether our audience will like the layout and
design of our Web sites or adapt to the interactive nature of our programming.
If our layout and design are not user-friendly in the eyes of a wide and diverse
audience, we will not be successful in attracting repeat users and our revenue
could decline. Additionally, the nature of our programming requires our audience
to actively navigate through multiple pages to experience the depth of coverage.
Sports fans who are accustomed to passive listening or viewing sports coverage
provided by traditional media may not be willing to participate in the
interactive nature of sports entertainment on our Web sites. Our audience could
reduce its viewing of our existing programming due to dissatisfaction with our
programming or greater satisfaction with programming developed by one or more of
our competitors. Additionally, the number of sporting events covered on various
media may saturate the market and reduce the likelihood a sports fan would
select our Web site. If the size of our audience or the duration of visits to
our sites decreases or fails to grow as expected, we may be unable to achieve
the audience exposure we have committed and will commit to provide to our
sponsors, which could result in lost sponsorship revenues. For example,
sponsorship revenues could be affected if audience interest in the Olympic Games
is reduced as a result of recent scandals involving the International Olympic
Committee.
OUR SPONSORSHIP MODEL IS UNPROVEN AND OUR REVENUES AND RESULTS OF OPERATIONS
WILL SUFFER IF WE ARE UNABLE TO MAINTAIN OUR EXISTING SPONSORS AND SECURE
ADDITIONAL SPONSORSHIPS
Our revenues and results of operations will suffer if we are unable to
maintain our existing sponsors and secure additional sponsors. Our revenue model
is primarily based on securing long-term digital entertainment sponsorships that
provide each sponsor with the right to be named as the exclusive sponsor of our
network within a particular industry category. We have limited experience with
this sponsorship model and to date have entered into digital entertainment
sponsorships only with Compaq Computer Corporation and Computer Associates
International, Inc. Prospective sponsors may not be interested in entering into
these digital entertainment sponsorships at the rates we set, if at all.
Additionally, our sponsorship agreements typically require the delivery of
a specified number of brand impressions, which refers to the number of times the
sponsor's brand appears on a user's screen while the user is connected to our
Web sites. Our fulfillment of these commitments assumes that we will be able to
deliver these brand impressions on sports programming that we acquire or create.
Owners of rights to sporting events often have pre-arranged sponsor lists they
require us to honor. Pre-existing sponsorship relationships may prevent us from
meeting the minimum commitments we have to our exclusive digital entertainment
sponsors and could cause us to allocate impressions to our sponsors that were
otherwise available for additional revenue generating purposes. These
pre-existing sponsorship relationships could also negatively affect our business
by limiting our ability to attract new sponsors. We might acquire or create
additional programming that would allow us to provide our sponsors with
sufficient brand impressions for which we would incur additional expenses.
WE DEPEND ON A SMALL NUMBER OF SPONSORS, THE LOSS OF WHICH COULD HARM OUR
REVENUES
To date, we have depended on a limited number of sponsors for a majority of
our revenues. In 1998, two sponsors accounted for 68% of our revenues.
We anticipate that our results of operations will depend to a significant
extent upon revenues from a small number of digital entertainment sponsors. The
loss of one or more digital entertainment sponsors could negatively affect our
business. Although we seek to enter into multi-year agreements with our digital
entertainment sponsors, we cannot guarantee that these sponsors will maintain
their association with us.
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A DISASTER OR MALFUNCTION THAT DISABLES OUR COMPUTER SYSTEMS COULD HARM OUR WEB
SITES AND REDUCE THE APPEAL OF OUR PROGRAMMING
Substantially all of our communications hardware and computer hardware
operations are located in our facilities in San Francisco, California and at
Frontier GlobalCenter in Sunnyvale, California, where our Web sites are hosted.
Our operations depend on our ability to protect these systems against damage
from fire, earthquakes, power loss, telecommunications failures, break-ins and
similar events. Additionally, computer viruses, electronic break-ins or other
similar disruptive problems could harm our Web sites. A disaster or malfunction
that disables either our San Francisco production facility or our Sunnyvale
hosting services could cause an interruption in the production and distribution
of our programming, limit the quantity or timeliness of updates to our
productions or limit the speed at which our audience can access our content. Any
of these occurrences could reduce the appeal of our programming. Our insurance
policies may not adequately compensate us for any losses that may occur due to
any failures or interruptions in our systems. We do not presently have a formal
disaster recovery plan.
Our Web sites have experienced significant increases in traffic during
coverage of some sporting events. As we deliver additional programming, we
expect our audience base to increase significantly. This will require our Web
sites to accommodate a high volume of traffic and deliver frequently updated
information. Failure of our systems to accommodate higher volumes of traffic
could reduce the performance and appeal of our Web sites and harm our results of
operations. Our Web sites in the past have experienced slower response times or
other problems for a variety of reasons, including delays or malfunctions as a
result of third-party distributors on which we rely.
OUR BRAND MAY NOT ACHIEVE THE BROAD RECOGNITION NECESSARY TO SUCCEED
We believe that broad recognition and a favorable audience perception of
the Quokka brand will be essential to our success. If our brand does not achieve
favorable broad recognition, our success will be limited. We intend to build
traffic and brand recognition by aggressively marketing www.quokka.com as the
first interactive network that offers sports programming that brings the
audience closer to the athlete's perspective. We plan to market www.quokka.com
through an extensive traditional media campaign employing advertising on
television, printed publications, outdoor signage and radio. We also plan to
conduct a simultaneous online advertising campaign and to seek exposure through
our co-branded initiatives. During 1998, we spent $554,000 for advertising. We
expect to significantly increase our advertising expenses in future periods as
we build the Quokka brand and awareness of our programming. We may lack the
resources necessary to accomplish these initiatives. Even if the resources are
available, we cannot be certain that our brand enhancement strategy will deliver
the brand recognition and favorable audience perception that we seek. If our
strategy is unsuccessful, these expenses may never be recovered and we may be
unable to increase future revenues. Even if we achieve greater recognition of
our brand, competitors with greater resources or a more recognizable brand could
reduce our market share of the emerging digital sports entertainment market.
THE LOSS OF ANY STRATEGIC RELATIONSHIPS WITH MEDIA ENTITIES AND SPORTS GOVERNING
BODIES COULD NEGATIVELY IMPACT THE BREADTH OF OUR SPORTS PROGRAMMING AND OUR
ABILITY TO ACQUIRE ADDITIONAL RIGHTS TO COVER SPORTS OR SECURE SPONSORSHIPS
We depend on agreements with certain established media entities and sports
governing bodies, such as NBC Olympics, Inc. and Championship Auto Racing Teams,
Inc. The loss of any of these strategic relationships could impact the breadth
of our sports programming and affect our ability to acquire additional rights or
secure sponsorships. Our agreements with these parties enable development of
certain Olympic and motor sports programming. Additionally, these strategic
relationships, among others, provide us with credibility in the marketplace to
negotiate sponsorships and acquire rights to cover additional sports. While
these strategic relationships are grounded in contractual agreements, these
parties can terminate the agreements for various reasons, including contractual
breaches and a change in control of our company. For example, NBC Olympics, Inc.
can terminate its strategic relationship with us if a competitor of NBC acquires
us. We cannot guarantee that our strategic partners will perform their
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contractual obligations. Even if the contracts run for the full term, we may not
be able to renew the agreements on comparable terms, if at all. For a more
detailed discussion of the terms of some of our strategic relationships, see
"Business -- Joint Ventures and Rights Agreements."
FAILURE BY THIRD PARTIES ON WHOM WE DEPEND FOR INTERNET ACCESS, DELIVERY OF OUR
PROGRAMMING AND GENERATION OF MULTIPLE REVENUE STREAMS COULD HARM OUR OPERATIONS
AND REVENUES
Our audience depends on Internet service providers, online service
providers and other Web site operators for access to our Web sites. Many of them
have experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to our systems.
Access by our audience outside the United States could also be delayed or
interrupted due to the uncertainty of the telecommunications infrastructure in
foreign countries.
We depend on various domestic and international third parties for software,
systems and delivery of much of our programming. Many of these third parties
have limited operating histories, early generation technology and are themselves
dependent on reliable delivery from others. Any delays or malfunctions in the
distribution of our content would limit our ability to deliver our programming.
We also depend on Frontier GlobalCenter in Sunnyvale, California, which hosts
our Web sites. If the Frontier GlobalCenter hosting facility is disabled or
malfunctions, access to our Web sites would be limited or eliminated.
Our plans to generate multiple revenue streams also depend on third
parties. In particular, we depend on encryption technology provided by others to
enable secure electronic commerce transactions. In addition, our ability to
obtain sponsorship and advertising interest will depend on whether third parties
we hire can generate meaningful and accurate data to measure the demographics of
our audience and the delivery of advertisements on our Web sites. Companies may
choose not to advertise on our Web sites or may pay less if they do not perceive
these measurements made by third parties to be reliable.
OUR SPONSORSHIP MODEL COULD PREVENT US FROM ACQUIRING CRITICAL TECHNOLOGY, WHICH
COULD AFFECT THE QUALITY OF OUR PROGRAMMING
A significant feature of our sponsorship model is the exclusive right to be
the sole sponsor of a sponsorship category, such as computing, database
software, digital distribution, consumer electronics or wireless communications.
While we expect this exclusivity feature to be central to our marketing strategy
for securing and retaining these sponsorships, it may bind us to undesirable
sponsorship arrangements and limit our ability to acquire technology we may
otherwise want or need. Exclusive sponsors acquire multi-year rights to a
sponsorship category and sometimes provide us with equipment or technical
expertise to enable us to develop and distribute our programming. We are limited
in our ability to terminate an existing sponsor relationship if a sponsor fails
to provide us with necessary equipment and expertise, or is otherwise less
desirable than a prospective sponsor in the same sponsorship category. An
existing sponsor also may prevent us from acquiring desirable technology from
competitors of the sponsor, which could harm our programming.
OUR PROGRAMMING AND OPERATIONS WILL SUFFER IF WE ARE UNABLE TO ADAPT IN A TIMELY
MANNER TO TECHNOLOGICAL DEVELOPMENTS, EVOLVING INDUSTRY STANDARDS, CHANGING
MARKET CONDITIONS OR CUSTOMER REQUIREMENTS
The market for digital sports programming is characterized by rapid
technological change. To be successful, we must adapt to this rapidly changing
market by continually improving the features we offer and developing new
features. Our programming and operations will suffer if we are unable to adapt
in a timely manner in response to technological developments, evolving industry
standards, changing market conditions or customer requirements. We may not
maintain our competitive position in the digital sports entertainment market for
a number of reasons, including the following:
- our technology infrastructure may not provide high-quality, reliable
programming or adequately scale to support multiple simultaneous events;
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- we may be unable to afford substantial expenditures to adapt our service
to changing technologies;
- we may be unable to license leading technologies or develop new
proprietary technologies; and
- we may fail to use new technologies effectively or adapt to technological
changes.
OUR BUSINESS IS SUBJECT TO MANY RISKS ASSOCIATED WITH WORLDWIDE SPORTS EVENT
COVERAGE AND OTHER INTERNATIONAL ACTIVITIES, WHICH COULD PREVENT OR DELAY OUR
COVERAGE OR CAUSE US TO INCUR ADDITIONAL EXPENSES
Our coverage of adventure sports is not limited geographically and is
therefore subject to many risks associated with worldwide sports event coverage
and other international activities that could prevent or delay our coverage. We
have developed, and expect to continue to develop, programming covering sporting
events throughout the world and across the oceans. For example, our coverage of
yachting races and of adventure sports, such as mountaineering in the Karakoram
range in China and treks across deserts in Morocco, require us to traverse
international borders. Coverage of these events requires that we deploy
production staff to locations throughout the world. Additionally, we expect to
maintain offices in several foreign countries, including Great Britain,
Switzerland and Australia. As a result, we are subject to numerous risks
associated with doing business internationally, including the following:
- regulatory requirements, including export requirements, tariffs and other
barriers, health and safety requirements and labor and immigration laws;
- difficulties in staffing and managing foreign operations;
- differences in reliability of telecommunications infrastructure and
Internet access;
- varying technological standards and capabilities;
- differences in standards of protection for intellectual property;
- political instability;
- hostile action against event participants or our employees;
- currency fluctuations;
- potentially adverse tax consequences; and
- restrictions against the repatriation of earnings from a foreign country.
Additionally, regional events that we choose to cover may fail to attract a
global audience. In that case, we would incur the significant expenses inherent
in the coverage of an international event without achieving the audience
exposure we have committed or may commit to provide to our sponsors.
OUR BUSINESS WILL NOT OPERATE EFFICIENTLY AND OUR RESULTS OF OPERATIONS WILL BE
NEGATIVELY AFFECTED IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH
We are experiencing a period of significant expansion. We had 40 employees
at December 31, 1997, compared to 118 employees at December 31, 1998 and 186
employees at March 31, 1999. This growth is placing, and we expect any further
growth to continue to place, a significant strain on our management, operational
and financial resources. This will require us to implement additional management
information systems and to develop additional operating, administrative,
financial and accounting systems and controls. If we are unable to develop these
systems and manage our growth effectively, our business will not operate
efficiently and our results of operations could be negatively affected.
Many of our senior management have only recently joined us. Eight of our
thirteen most senior officers have worked for us for less than one year. These
individuals have not previously worked together and are becoming integrated as a
management team. Our operations and personnel relations will suffer if our
senior management is unable to successfully manage our growth.
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IF WE FAIL TO ATTRACT AND RETAIN KEY PERSONNEL WE WILL BE UNABLE TO EXECUTE OUR
BUSINESS STRATEGY
Our success will depend on the continued services of our senior management
and other key personnel, as well as our ability to attract, train, retain and
motivate other highly skilled technical, managerial, marketing and customer
service personnel. The loss of the services of any of our executive officers,
particularly Alan Ramadan, our president and chief executive officer, or other
key employees could prevent us from executing our business strategy. Competition
for these personnel is intense, and we may not be able to successfully attract,
integrate or retain sufficiently qualified personnel. Our anticipated
programming schedule in the near future will require that we attract and retain
personnel who are skilled in production, computer and other technical fields.
Skilled technical personnel are in high demand and have multiple employment
opportunities, especially in the San Francisco Bay Area, where our headquarters
are located. As a matter of practice, we do not generally enter into employment
agreements with our employees.
ACCEPTANCE OF PROPERTY OR SERVICES AS PAYMENT MAY PROVIDE LESS WORKING CAPITAL
FLEXIBILITY THAN A CASH PAYMENT WOULD PROVIDE
We have received property or services, including computer equipment,
Internet access, digital cameras and telecommunications equipment and services
as payment for our sponsorships. While these property and services allow us to
develop and distribute our programming content, they do not provide us with the
same working capital flexibility that a cash payment would provide. We expect to
reduce the amount of property and services accepted as payment in future
periods, but may not be successful in doing so.
WE MAY BE SUBJECT TO NEGATIVE PUBLICITY AND LIABILITY FOR ATHLETES OR OUR
EMPLOYEES ASSOCIATED WITH OUR EVENTS, WHICH WOULD DISRUPT OUR PROGRAMMING AND
REDUCE SPONSORSHIPS AND PARTICIPATION IN FUTURE EVENTS
Many of our events, including sailing and mountain climbing, involve
significant risks to athletes and our employees that participate in or document
the events. Additionally, many of our events take place in regions of the world
where there may be increased danger of external threats such as terrorism. We
will experience adverse publicity, and may be subject to liability claims by
athletes, employees or their relatives, for injuries or deaths that occur as a
result of our events. Any incidents like this during our events could disrupt
our programming and reduce sponsorships and athlete and employee participation
in future events. Liability claims, regardless of merit, could require us to
expend significant resources. Additionally, while we obtain insurance coverage
with respect to each event based on the risks and exposure we face in that
event, our insurance coverage may be inadequate to protect us against any
claims.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS, AND OUR EFFORTS TO DO SO COULD BE TIME-CONSUMING AND EXPENSIVE AND COULD
DIVERT MANAGEMENT ATTENTION FROM EXECUTING OUR BUSINESS STRATEGY
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our success. We rely on a
combination of copyright, trademark, service mark, patent and trade secret laws
and contractual restrictions to protect our proprietary rights in products and
services. While we actively protect and enforce our intellectual property
rights, we may be unable to prevent others from misappropriating our technology
and may be subject to claims of infringement by others. The enforcement of our
intellectual property rights could be time-consuming, result in costly
litigation and the diversion of technical and management personnel. We have
entered into confidentiality and invention assignment agreements with our
employees and contractors and nondisclosure agreements with parties with which
we conduct significant business to limit access to and disclosure of our
proprietary information. These contractual arrangements and the other measures
taken by us to protect our intellectual property may not prevent
misappropriation of our technology or deter independent third-party development
of similar technologies. In addition, we may need to engage in litigation to
enforce our intellectual property rights in the future or to determine the
validity and scope of the proprietary rights of others. This litigation could
result in substantial costs and diversion of management and other resources.
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We pursue the registration of our trademarks and service marks in the
United States and internationally. We have also filed four patent applications
in the United States Patent and Trademark Office. Effective trademark, service
mark, copyright, patent and trade secret protection may not be available in
every country in which our programming is accessible online. We have licensed in
the past, and expect to license in the future, some of our proprietary rights,
including trademarks or copyrighted material, to third parties. These licensees
may take actions that might adversely affect the value of our proprietary rights
or reputation. We also rely on off-the-shelf technologies that we license from
third parties. "Off-the-shelf" technology refers to generally commercially
available software that is not customized for a particular user. These
third-party licenses may not continue to be available to us on commercially
reasonable terms or at all. The inability to use licensed technology important
to our business could require us to obtain substitute technology of lower
quality or performance standards or at greater cost. In the future, we may seek
to license additional technology or content to enhance our current programming
or to introduce new content. We cannot be certain that any such licenses will be
available on commercially reasonable terms or at all. The loss of or inability
to obtain or maintain any of these technology licenses could result in delays in
providing our programming until equivalent technology, if available, is
identified, licensed and integrated.
Because we license some data and content from third parties, we must rely
upon these third parties for information as to the origin and ownership of the
licensed content and our exposure to copyright infringement actions may
increase. We generally obtain representations as to the origins and ownership of
licensed content and obtain indemnification to cover any breach of any
representations. However, we cannot be certain that these representations are
accurate or that any indemnification amounts will be sufficient to provide
adequate compensation for any breach of representations.
We cannot guarantee that infringement or other claims will not be asserted
or prosecuted against us in the future whether resulting from our internally
developed intellectual property or licenses or content from third parties. Any
future assertions or prosecutions could be time-consuming, result in costly
litigation and diversion of technical and management personnel or require us to
introduce new content or trademarks, develop non-infringing technology or enter
into royalty or licensing agreements. These royalty or licensing agreements, if
required, may not be available on acceptable terms, if at all. Our ability to
execute on our business strategy will suffer if a successful claim of
infringement is brought against us and we are unable to introduce new content or
trademarks, develop non-infringing technology or license the infringed or
similar technology on a timely basis.
PROBLEMS RELATED TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR BUSINESS
Computer systems, software packages and microprocessor dependent equipment
may cease to function or generate erroneous data when the year 2000 arrives. To
correctly identify the year 2000, a four-digit date code field will be required
to be what is commonly termed "year 2000 compliant." If systems material to our
business are not year 2000 compliant or if third parties fail to make their
systems year 2000 compliant in a timely manner, the year 2000 issue could affect
our operations. Our operations and programming may suffer if the systems we
depend on are not year 2000 compliant. The potential areas of exposure include
electronic data exchange systems operated by third parties with which we
transact business and computers, software, telephone systems and other equipment
used internally. While we have established a year 2000 compliance program, this
program may not uncover all year 2000 problems.
WE MAY BE SUBJECT TO LIABILITY FOR PUBLISHING OR DISTRIBUTING CONTENT, AND OUR
INSURANCE COVERAGE MAY BE INADEQUATE TO PROTECT US FROM THIS LIABILITY
We may be subject to claims relating to content associated with us,
including content that may appear on our Web sites or be obtained through other
distribution channels. Although we carry general liability insurance, our
insurance may not cover potential claims of this type or may not be adequate to
cover all costs incurred in defense of potential claims or to indemnify us for
all liability that may be imposed. These claims could take the form of lawsuits
for defamation, negligence, copyright or trademark infringement or other
theories based on the nature and content of such materials. In addition, we
could be subject to liability with respect to content that may be accessible
through our Web sites or third-party Web sites accessed from our sites.
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OUR COMPETITIVE POSITION IN THE DIGITAL SPORTS ENTERTAINMENT INDUSTRY COULD
DECLINE IF WE ARE UNABLE TO ACQUIRE BUSINESSES OR TECHNOLOGY THAT ARE STRATEGIC
FOR OUR SUCCESS OR IF WE FAIL TO SUCCESSFULLY INTEGRATE ANY ACQUISITIONS WITH
OUR CURRENT BUSINESS
If appropriate opportunities arise, we intend to acquire businesses,
technologies, services or products that we believe are strategic for our
success. The digital sports entertainment industry is new, highly competitive
and rapidly changing. We believe these industry dynamics could result in a high
level of acquisition activity as companies seek to gain competitive advantage.
While we currently do not have any understandings, commitments or agreements
with respect to any material acquisition, competitive forces could require us to
acquire companies or technology. Our competitive position in the industry could
decline if we are unable to acquire businesses or technology that are strategic
for our success or if we fail to successfully integrate any acquisitions with
our current business. We may be unable to identify, negotiate or finance future
acquisitions successfully, or to integrate successfully any acquisitions with
our current business. The process of integrating an acquired business,
technology, service or product into our business and operations may result in
unforeseen operating difficulties and expenditures, including the allocation of
significant management time and company resources that would otherwise be
available for ongoing development of our business. Moreover, the anticipated
benefits of any acquisition may not be realized.
RISKS RELATED TO THE INTERNET AND DIGITAL SPORTS ENTERTAINMENT INDUSTRIES
DELAYS IN THE ACCESSIBILITY OR GROWTH OF THE INTERNET COULD ADVERSELY AFFECT OUR
PROGRAMMING AND REDUCE THE LEVEL OF TRAFFIC ON OUR WEB SITES
Our success will depend on the continued development and growth of the
Internet. Our programming will suffer if the necessary infrastructure, standards
or protocols or complementary products, services or facilities for the Internet
are not developed in a timely manner. While Internet technologies have been
evolving rapidly in recent years, future growth may not continue at comparable
rates. As the Internet continues to experience increased numbers of users and
increased frequency of use, the Internet infrastructure may be unable to support
the demands of a global audience or the requirements of consumers for faster
access. The Internet has experienced a variety of outages and other delays as a
result of damage to portions of its infrastructure, and it could face outages
and delays in the future. This might include outages and delays resulting from
the year 2000 problem. These outages and delays could adversely affect the level
of Internet usage as well as the level of traffic on our Web sites. In addition,
the Internet could lose its viability due to delays in the development or
adoption of new standards and protocols to handle increased levels of activity
or due to regulation by governments, businesses or other organizations.
Our programming is designed to operate on today's Internet platform as well
as other interactive systems that transmit digitized data, such as cable and
satellite systems, in the future. These future systems are commonly referred to
as "broadband" systems and are expected to enable transmission of large amounts
of digitized material, such as video clips, within a relatively short time
frame. Delays in the development of broadband systems could harm our ability to
distribute our programming through subscription services and pay-per-view
events, which could adversely affect our ability to generate revenues from these
types of programming.
THE ONLINE DIGITAL SPORTS ENTERTAINMENT INDUSTRY IS INTENSELY COMPETITIVE, AND
WE MAY BE UNABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE COMPETITORS
The market for Internet services and products is relatively new, intensely
competitive and rapidly changing. Since the Internet's commercialization in the
early 1990's, the number of Web sites on the Internet competing for consumers'
attention and spending has proliferated. We expect that competition will
continue to intensify. We may be unable to compete successfully against current
and future competitors.
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Many of our current and potential competitors have significantly longer
operating histories, greater financial, technical and marketing resources,
greater name recognition and larger user or membership bases than us and,
therefore may have a significantly greater ability to attract advertisers and
users. In addition, many of these competitors may be able to respond more
quickly to new or emerging technologies and changes in Internet user
requirements and to devote greater resources to the development, promotion and
sale of their services. Our current or potential competitors may develop
products and services comparable or superior to those developed by us. Increased
competition could result in price reductions, reduced margins or loss of market
share, any of which would harm our business. In addition, as we expand
internationally, we may face new competition.
We compete, directly and indirectly, for sponsors, rights and the attention
of sports viewers with the following categories of companies:
- Web sites targeted to sports enthusiasts generally, such as
www.cbs.sportsline.com, www.cnnsi.com and www.espnsportszone.com, many of
which have been established by traditional media companies, and Web sites
targeted to enthusiasts of particular sports, such as
www.majorleaguebaseball.com, www.nascar.com, www.nba.com, www.nfl.com and
www.nhl.com;
- publishers and distributors of traditional media targeted to sports
enthusiasts, such as the ESPN networks, the FoxSports network and Sports
Illustrated;
- online services such as America Online and the Microsoft Network, which
provide access to sports-related content and services;
- vendors of sports information, merchandise, products and services
distributed through other means, including retail stores, mail, facsimile
and private bulletin board services; and
- Web search and retrieval services, such as Excite, Infoseek, Lycos and
Yahoo! and other high-traffic Web sites, such as those operated by cYnet
and Netscape.
We expect that the number of our direct and indirect competitors will
increase in the future. We anticipate that, as the Internet and other
interactive distribution systems converge with traditional television
broadcasting and cable, significant competition may come from the cable arena,
including such sports-oriented cable networks as the ESPN networks.
OUR ABILITY TO GENERATE REVENUES WILL BE ADVERSELY AFFECTED IF SPONSORS AND
ADVERTISERS DO NOT ACCEPT THE INTERNET AS AN EFFECTIVE MEDIUM TO PROMOTE THEIR
PRODUCTS AND SERVICES
Our ability to generate sponsorship and advertising revenues will depend on
many factors, including the following:
- the development of the Internet as an attractive medium for sponsors and
advertisers;
- the level of use of the Internet by consumers and the amount of traffic
on our Web sites; and
- our ability to achieve and measure demographic characteristics that are
attractive to sponsors and advertisers.
Market acceptance of the Internet as a medium for sponsorship and
advertising is highly uncertain. Most potential sponsors and advertisers have
only limited experience with the Internet as an advertising medium and have not
devoted a significant portion of their advertising expenditures to
Internet-based campaigns. Even if sponsors and advertisers are persuaded to
allocate portions of their budgets to Internet-based advertising, they may not
find the medium to be effective for promoting their products and services
relative to traditional print and broadcast media. Additionally, no standards
are widely accepted to measure the effectiveness of the Internet as a medium for
targeting consumers with particular demographics and influencing consumer
behavior. If these standards do not develop, existing sponsors or advertisers
may not continue their current level of Internet-based sponsorships or
advertising, and sponsors or advertisers who are not currently buying
sponsorships or advertising on the Internet may be reluctant to do so.
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REVENUES FROM SUBSCRIPTION SERVICES MAY FAIL TO DEVELOP, WHICH WOULD HARM OUR
RESULTS OF OPERATIONS
While we intend to generate revenues through subscription services that
provide access to premium content and pay-per-view events, we have no experience
in doing so and our failure to generate revenues from these sources would harm
our results of operations. While subscription services are a viable business
alternative to cover sporting events on television, subscription services for
our programming may not develop for a variety of reasons. These include:
- our failure to develop and implement a successful strategy for
subscription services;
- delays in the development of broadband systems that enable increased
bandwidth for content and provide faster access for consumers;
- consumers' unwillingness to pay for the programming offered through
subscription services;
- prohibitive costs of producing higher quality programming for
subscription services; and
- security concerns in transmitting payment information for the
subscription services.
CHANGES IN REGULATION OF THE INTERNET COULD LIMIT OUR BUSINESS PROSPECTS
We are subject to the same federal, state and local laws as other
businesses on the Internet. Today there are relatively few laws directed towards
online services. However, due to the increasing popularity and use of the
Internet and other online services, it is possible that a number of laws and
regulations may be adopted with respect to the Internet or other online
services. Changes in regulation of the Internet could affect our results of
operations. These laws and regulations could cover issues such as user privacy,
freedom of expression, pricing, fraud, content and quality of products and
services, taxation, advertising, intellectual property rights and information
security. Applicability to the Internet of existing laws governing issues such
as property ownership, copyrights and other intellectual property issues,
taxation, libel, obscenity and personal privacy is uncertain. The vast majority
of these laws were adopted prior to the advent of the Internet and related
technologies and, as a result, do not contemplate or address the unique issues
of the Internet and related technologies. Those laws that do reference the
Internet, such as the recently passed Digital Millennium Copyright Act, have not
yet been interpreted by the courts and their applicability and reach are
therefore uncertain.
Several states have also proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties.
While we do not sell information about users on our sites, we have historically
collected demographic data about our users to assist us in marketing our
sponsorship arrangements. Changes to existing laws or the passage of new laws
intended to address these issues, including some recently proposed changes,
could directly affect the way we do business or could create uncertainty in the
marketplace.
In addition to government regulation of the Internet, businesses and other
organizations may restrict access to the Internet at work. Many users access the
Internet through computer terminals at work, either because they do not have
access at home or because the networks at work provide faster and more reliable
access. Access at work may increase if employers upgrade their technology more
quickly than individual consumers in response to the development of broadband
solutions. In response to Internet use by employees or consultants at work,
employers may impose regulations limiting or eliminating Internet or broadband
access on their equipment. To the extent that many of our users access our Web
sites at work, our audience could diminish if businesses and other organizations
restrict Internet access at work.
OUR INTERNET ACTIVITIES MAY BECOME SUBJECT TO ADDITIONAL TAXES, WHICH COULD
NEGATIVELY AFFECT OUR RESULTS OF OPERATIONS
Tax authorities in a number of states are currently reviewing the
appropriate tax treatment of companies engaged in electronic commerce.
Therefore, our products and services may become subject to additional sales and
income taxes. If consumers of our products and services are required to pay
additional
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sales or other taxes, they could reduce their purchases, which would negatively
affect our results of operations. As our content is available over the Internet
in multiple states and foreign countries, these jurisdictions may claim that we
are required to qualify to do business as a foreign corporation. We are
qualified to do business in six states in the United States, and qualifying in
additional states could subject us to additional taxes. Additionally, failure by
us to comply with foreign laws or to qualify as a foreign corporation in a
jurisdiction where we are required to do so could subject us to taxes and
penalties for the failure to qualify and could result in the inability to
enforce contracts in such jurisdictions.
WE HAVE LIMITED EXPERIENCE GENERATING REVENUES FROM ELECTRONIC COMMERCE, AND WE
MAY NOT BE ABLE TO DO SO IF WE ARE UNABLE TO DEVELOP AND IMPLEMENT A SUCCESSFUL
ELECTRONIC COMMERCE STRATEGY, DEVELOP A SUCCESSFUL LINE OF PRODUCT MERCHANDISE,
OVERCOME INTERNET SECURITY CONCERNS OR RESPOND TO COMPETITIVE PRICING
A key component of our business model includes selling products associated
with our sports entertainment programming. We have limited experience generating
revenues from electronic commerce. If we are unable to develop and implement a
successful electronic commerce strategy, develop a successful line of product
merchandise that appeals to a broad audience, overcome Internet security
concerns or respond to competitive pricing, we may be unable to generate
revenues from electronic commerce.
The need to securely transmit confidential information over the Internet
has been a significant barrier to electronic commerce and communications over
the Internet. Any compromise of security could deter people from using the
Internet and our Web sites to conduct transactions that involve transmitting
confidential information. We may need to expend significant resources to protect
against security breaches or to address problems caused by such breaches. Even
if we are able to overcome Internet security concerns, individuals may not buy
our products, resulting in revenues from electronic commerce that fall short of
the cost of our electronic commerce strategy. Many Internet companies engaged in
electronic commerce are losing money. Additionally, many of our current and
potential competitors may have significantly greater resources and more
favorable cost structures than we do and may be able to price comparable
products at levels we are unable to match without incurring unacceptable
operating losses.
RISKS RELATED TO THIS OFFERING
OUR COMMON STOCK PRICE IS LIKELY TO BE VOLATILE, WHICH COULD HURT INVESTORS AND
EXPOSE US TO LITIGATION
The stock markets in general, and the Nasdaq National Market and the market
for Internet-related and technology companies in particular, have experienced
extreme price and volume fluctuations in recent months. These fluctuations often
have been unrelated or disproportionate to the operating performance of these
companies. These broad market and industry factors could harm the market price
of our common stock, regardless of our performance. Market fluctuations, as well
as general political and economic conditions such as a recession or interest or
currency rate fluctuations, also could harm the market price of our common
stock.
The trading prices of many technology company stocks, particularly Internet
company stocks, have recently been at or near historical highs, reflecting
valuations substantially above historical levels. Our stock price could be
subject to wide fluctuations in response to a variety of factors, including
factors that may be beyond our control. These include:
- actual or anticipated variations in our quarterly operating results;
- announcements of technological innovations or new sports entertainment
programming by us or our competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet and online entertainment industries;
- changes in the market valuations of other Internet companies;
16
<PAGE> 22
- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- additions or departures of key personnel; and
- sales of substantial amounts of our common stock or other securities in
the open market.
Volatility in the market price of our common stock could result in
securities class action litigation. This type of litigation could result in
substantial costs and a diversion of management's attention and resources.
OUR MANAGEMENT HAS BROAD DISCRETION TO DETERMINE HOW TO USE THE FUNDS RAISED IN
THIS OFFERING AND MAY USE THEM IN WAYS THAT STOCKHOLDERS MAY NOT DEEM DESIRABLE
We plan to use the net proceeds of this offering for general corporate
purposes, including working capital associated with the expansion of our network
production operations and our marketing campaigns. In addition, we may use a
portion of the net proceeds for the license or acquisition of additional
programming rights, creation of programming associated with these rights,
meeting our capital contribution obligations under our joint venture
arrangements, establishing additional joint ventures as well as capital
equipment purchases associated with both the production of our programming and
general business services. Our management will have significant discretion as to
the use of the net proceeds of this offering. This could result in the proceeds
being applied to uses stockholders may not deem desirable. In addition, we
cannot be certain that the proceeds invested will yield a significant return, if
any.
WE WILL NEED TO RAISE ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE ON
FAVORABLE TERMS AND COULD RESULT IN ADDITIONAL DILUTION
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated needs for
working capital, capital expenditures and business expansion through at least
the next 12 months. Thereafter, we will need to raise additional capital.
Additional financing may not be available on favorable terms or at all. If
adequate funds are not available or are not available on acceptable terms, we
may not be able to fund our expansion, take advantage of unanticipated
opportunities or respond to competitive pressures. We may seek to raise
additional capital sooner than the next 12 months to fund unanticipated
opportunities or respond to competitive pressures. If additional funds are
raised through the issuance of equity or convertible debt securities, the
percentage ownership of our stockholders will be reduced and the securities
issued may have rights, preferences and privileges senior to those of our common
stock.
SALES OF OUR SHARES AFTER THIS OFFERING COULD NEGATIVELY AFFECT THE MARKET PRICE
OF OUR STOCK, IMPAIR OUR ABILITY TO RAISE CAPITAL THROUGH THE SALE OF ADDITIONAL
EQUITY SECURITIES AND RESULT IN FURTHER DILUTION
Sales of a substantial number of shares in the public market after this
offering could negatively affect the market price of our common stock and could
impair our ability to raise capital through the sale of additional equity
securities. Immediately following this offering, and based upon the number of
shares outstanding as of June 9, 1999, we will have 43,791,118 shares of common
stock outstanding assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options or certain warrants after June 9,
1999. Of these shares, all of the 5,000,000 shares sold in this offering will be
freely tradable without restrictions or further registration under the
Securities Act of 1933. The remaining 38,791,118 shares of common stock will be
"restricted securities" as defined by Rule 144 adopted under the Securities Act
of 1933. These shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or Rule 701
adopted under the Securities Act of 1933. We can not predict the effect that
future sales made under Rule 144, Rule 701 or otherwise will have on the market
price of our common stock.
In addition, following closing of this offering we intend to register
shares of common stock issuable upon the exercise of stock options granted under
our stock option plans. After the effective date of such registration, shares
issued upon the exercise of stock options generally will be available for sale
in the
17
<PAGE> 23
public market. Our executive officers and directors and certain stockholders
beneficially owning in the aggregate 38,791,118 shares of common stock are
subject to lock-up agreements generally providing that, with certain limited
exceptions, the stockholder will not offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of any shares of common stock, without
the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
for a period of 180 days after the first day any of the common stock to be sold
in this offering is released by the underwriters for sale to the public. Any
shares subject to these lock-up agreements may be released at any time by
Merrill Lynch, Pierce, Fenner & Smith Incorporated, with or without notice. The
holders of approximately 38,418,653 shares of common stock are entitled to
certain registration rights with respect to such shares. The holders of warrants
to purchase approximately 2,553,288 shares of common stock are also entitled to
certain registration rights with respect to such shares.
OUR EXISTING STOCKHOLDERS HAVE SIGNIFICANT CONTROL OF OUR MANAGEMENT AND
AFFAIRS, WHICH THEY COULD EXERCISE AGAINST YOUR BEST INTEREST
Upon completion of this offering, our executive officers, directors and
their affiliates will, in the aggregate, own approximately 38.8% of our
outstanding common stock, 38.1% if the underwriters' over-allotment option is
exercised in full. As a result, these persons, acting together, will have the
ability to control all matters submitted to our stockholders for approval and to
control our management and affairs. This concentration of ownership may delay or
prevent a change in control or discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of our company, which
could decrease the market price of our common stock. Matters that would require
stockholder approval include the following:
- election and removal of directors;
- merger or consolidation of our company; and
- sale of all or substantially all of our assets.
SOME ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY
DELAY OR PREVENT A TAKEOVER OF OUR COMPANY
Some provisions of our charter documents and Delaware law may make it more
difficult for a third party to acquire control of us, even if a change in
control would be beneficial to our stockholders. Our board of directors can
issue up to 10,000,000 shares of preferred stock without stockholder approval.
The issuance of preferred stock could make it more difficult for a third party
to acquire our company. These provisions could diminish the opportunities for a
stockholder to participate in tender offers, including tender offers at a price
above the then-current market value of our common stock. Additionally, certain
of our material agreements, including our agreement with NBC Olympics, Inc.,
allow the other party to terminate the agreement if a change in control occurs.
This could also have the effect of deterring a change in control.
In addition, our charter documents provide that special meetings of
stockholders may be called only by the chairman of the board of directors, our
chief executive officer, a majority of the board of directors and holders of 50%
of the outstanding capital stock. Our charter documents also provide for a
classified board of directors, require advance notice of stockholder proposals
and nominations and do not provide for cumulative voting in the election of
directors. These provisions may make it more difficult for stockholders to
replace current members of our board of directors and may make the acquisition
of our company by a third party more difficult.
------------------------
Unless otherwise indicated, all information in this prospectus:
- assumes the automatic conversion of our outstanding preferred stock into
common stock on a one-for-one basis upon closing of the offering;
- assumes the underwriters' option to purchase additional shares in the
offering will not be exercised; and
- assumes the exercise of warrants to purchase 508,848 shares.
18
<PAGE> 24
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 5,000,000 shares of
common stock in this offering will be approximately $45.2 million ($52.2 million
if the underwriter's over-allotment option is exercised in full), assuming an
initial public offering price of $10.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses of $1.3
million. The principal purposes of this offering are to obtain additional
working capital.
We currently expect to use the net proceeds of this offering and the net
proceeds from our recent private sale of Series D preferred stock as follows:
- An estimated $20 to $25 million of these net proceeds may be used to meet
our capital contribution obligations to NBC/Quokka Ventures, LLC and CART
Digital Media Enterprises, LLC. The terms of the operating agreement for
NBC/Quokka Ventures, LLC require us to make quarterly capital
contributions in amounts necessary to fund the venture's operations on an
ongoing basis in accordance with the annual operating plan. With respect
to CART Digital Media Enterprises, LLC, we expect to make capital
contributions in order to meet our 50% share of the venture's need for
operating capital. Accordingly, the amounts and timing of these capital
contributions to be made by us with respect to each of NBC/Quokka
Ventures, LLC and CART Digital Media Enterprises, LLC will be based on
the actual activities of each venture and are unknown at this time.
- A portion of these net proceeds will be used to meet our obligations
under current programming rights and distribution agreements. Under these
agreements, we are required to make cash payments through 2003 totaling
$16.3 million.
- A portion of these net proceeds may be used for the repayment of
indebtedness. In particular, we may use a portion of the net proceeds to
repay approximately $646,000 of indebtedness outstanding under an
equipment financing arrangement with a bank. The terms of this agreement
require monthly repayments of principal and interest at 8.5% over 36
months commencing November 1998 and terminating October 2001. In
addition, we may also use a portion of the net proceeds to repay certain
other outstanding long-term equipment financing arrangements of
approximately $400,000. Terms of these agreements call for monthly
principal and interest payments through March 2004 at approximately 9.5%
interest.
- The remainder of these net proceeds will be used for general corporate
purposes, including expansion of our network production operations, the
license or acquisition of additional programming and distribution rights,
creation of programming associated with these rights, establishment of
additional joint ventures and purchases of capital equipment and
leasehold improvements and also including an estimated $7 to $12 million
for our expanded marketing campaign.
As of the date of this prospectus, we have no specific plan detailing the
amount of the proceeds to be used for each of the purposes described above and
cannot specify with certainty the particular uses for the net proceeds to be
received upon completion of this offering. We have estimated some of our uses of
proceeds above but these estimates may not be accurate, and our actual use of
proceeds may vary from these estimates. Our management will have broad
discretion in the application of the net proceeds. Pending such uses, the net
proceeds will be primarily invested in short-term, interest bearing obligations,
investment grade instruments, certificates of deposit or direct or guaranteed
obligations of the United States. For a discussion of the risks associated with
management's discretion in the application of the net proceeds, see "Risk
Factors -- Our management has broad discretion to determine how to use the funds
raised in this offering and may use them in ways that stockholders may not deem
desirable."
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock and do
not anticipate paying any cash dividends in the foreseeable future. In addition,
the terms of our subordinated debt and equipment lease lines prohibit the
payment of cash dividends on our stock.
19
<PAGE> 25
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect the issuance of 4,522,223 shares of
Series D preferred stock issued in May and June 1999 and the conversion
of all outstanding shares of preferred stock, including the Series D
preferred stock, into common stock upon the closing of this offering; and
- on a pro forma as adjusted basis to reflect this conversion and the
application of the net proceeds from the sale of the 5,000,000 shares
offered hereby at an assumed initial public offering price of $10.00 per
share, after deducting the estimated underwriting discount and estimated
offering expenses.
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt and lease obligations, net of current
portion................................................... $ 699 $ 699 $ 699
Stockholders' equity(1):
Preferred stock, $0.0001 par value; actual -- 27,600,000
shares authorized, 23,736,016 shares issued and
outstanding; pro forma -- 32,322,223 shares authorized,
no shares issued and outstanding; pro forma as
adjusted -- 28,258,239 shares authorized, no shares
issued and outstanding................................. 2 0 --
Common stock:
Voting stock, $0.0001 par value; actual -- 45,400,000
shares authorized, 9,589,342 shares issued and
outstanding; pro forma -- 45,400,000
shares authorized, 38,656,429 shares issued and
outstanding; pro forma as adjusted -- 45,400,000
shares authorized, 43,656,429 shares issued and
outstanding........................................... 1 4 4
Non-voting stock, $0.0001 par value; actual -- 300,000
shares authorized, 300,000 shares issued and
outstanding; pro forma -- 300,000 shares authorized,
no shares issued and outstanding; pro forma as
adjusted -- 300,000 shares authorized, no shares
issued and outstanding................................ -- -- --
Additional paid-in capital................................ 41,087 82,803 127,986
Stock warrants............................................ 1,416 938 938
Accumulated deficit....................................... (23,894) (23,894) (23,894)
-------- -------- --------
Total stockholders' equity........................ 18,612 59,851 105,034
-------- -------- --------
Total capitalization.............................. $ 19,311 $ 60,550 $105,733
======== ======== ========
</TABLE>
- ---------------
(1) The share numbers in this table are based on shares outstanding as of March
31, 1999. These numbers include 508,848 shares issuable upon the exercise of
warrants outstanding as of March 31, 1999 at a weighted average per share
price of $1.06, which will expire if not exercised prior to the closing of
this offering, and exclude:
- 2,391,750 shares issuable upon the exercise of warrants outstanding as of
March 31, 1999 at a weighted average per share price of $5.33;
- 7,145,025 shares issuable upon the exercise of options outstanding as of
March 31, 1999 at a weighted average per share price of $4.35;
- 6,460,401 shares reserved for issuance under Quokka's 1997 Equity
Incentive Plan;
- 450,000 shares reserved for issuance under Quokka's 1999 Non-Employee
Director's Stock Option Plan; and
- 1,000,000 shares reserved for issuance under Quokka's 1999 Employee Stock
Purchase Plan.
Under the terms of the Series D financing agreements, Quokka may issue up to an
additional 200,000 shares of Series D preferred stock. See "Capitalization," and
"Description of Capital Stock" for information relating to our capital
structure. Also see "Management -- Employee Benefit Plans" for a description of
the benefit plans referred to above.
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<PAGE> 26
DILUTION
The pro forma net tangible book value of Quokka as of March 31, 1999 was
$59.9 million, or $1.55 per share of common stock. "Pro forma net tangible book
value per share" is determined by dividing the pro forma number of outstanding
shares of common stock (reflecting the issuance of 4,522,223 shares of Series D
preferred stock in May and June 1999 as well as assuming the conversion of all
outstanding shares of preferred stock, including the Series D preferred stock,
into shares of common stock and the exercise of certain warrants) into the net
tangible book value of Quokka (total tangible assets less total liabilities).
After giving effect to the receipt of the estimated net proceeds from the sale
by Quokka of the 5,000,000 shares of common stock offered hereby (after
deducting the underwriting discount and estimated offering expenses), the pro
forma net tangible book value of Quokka as of March 31, 1999 would have been
approximately $105.0 million, or $2.41 per share. This represents an immediate
increase in pro forma net tangible book value of $0.86 per share to existing
stockholders and an immediate dilution of $7.59 per share to new investors
purchasing shares at the initial public offering price. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share as of March
31, 1999............................................... 1.55
Increase per share attributable to new investors.......... 0.86
------
Pro forma net tangible book value per share after the
offering.................................................. 2.41
------
Dilution per share to new investors......................... $ 7.59
======
</TABLE>
The following table summarizes as of March 31, 1999, on the pro forma basis
described above, the number of shares of common stock purchased from Quokka, the
total consideration paid to Quokka and the average price per share paid by
existing stockholders and by investors purchasing shares of common stock in this
offering (before deducting the underwriting discount and estimated offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 38,656,429 89% $ 82,807,494 62% $ 2.14
New stockholders............ 5,000,000 11% 50,000,000 38% 10.00
---------- --- ------------ ---
Total............. 43,656,429 100% $132,807,494 100%
========== === ============ ===
</TABLE>
The foregoing discussion and tables assume no exercise of any stock options
outstanding as of March 31, 1999. As of March 31, 1999, there were options
outstanding to purchase a total of 7,145,025 shares with a weighted average
exercise price of $4.35 per share. Additionally, the foregoing discussion and
tables assume no exercise of warrants outstanding as of March 31, 1999 to
purchase a total of 2,391,750 shares at a weighted average exercise price of
$5.33 per share. However, the discussion and tables assume the exercise of
certain warrants outstanding as of March 31, 1999 to purchase a total of 508,848
shares at a weighted average exercise price of $1.06 per share, which will
expire if not exercised prior to the closing of this offering. To the extent
that any of these warrants or options are exercised, other than the warrants
which we have assumed will be exercised, there will be further dilution to new
public investors. See "Capitalization" for information relating to our capital
structure and "Management -- Employee Benefit Plans" for a description of the
benefit plans under which the options referred to above were granted.
21
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, the Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus. The consolidated statement of operations data is qualified by
reference to:
- the audited consolidated statement of operations for each of the three
one-year periods ended December 31, 1996, 1997 and 1998;
- the unaudited consolidated statement of operations for each of the two
one-year periods ended December 31, 1994 and 1995; and
- the unaudited consolidated statement of operations for each of the two
three-month periods ended March 31, 1998 and 1999.
The consolidated balance sheet data is qualified by reference to:
- the audited consolidated balance sheet data as of December 31, 1996, 1997
and 1998; and
- the unaudited consolidated balance sheet data as of December 31, 1994 and
1995, and as of March 31, 1999, not included in this prospectus.
Note 1 of Notes to Consolidated Financial Statements contains a description
of the method used to compute the pro forma basic and diluted net income per
share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- --------- --------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues...................... $ 399 $ 82 $ 39 $ 4,000 $ 8,635 $ 4,867 $ 897
Production costs.............. 25 21 611 5,130 7,779 3,431 2,718
Research and engineering...... 41 18 423 1,030 4,480 585 2,132
Sales and marketing........... -- 5 53 816 2,519 358 1,390
General and administration.... 245 56 508 1,827 3,185 871 1,792
Depreciation and
amortization................ -- -- -- 68 530 44 430
--------- --------- --------- --------- ---------- ---------- ----------
Total costs and
expenses............. 311 100 1,595 8,871 18,493 5,289 8,462
Income/(loss) from
operations......... 88 (18) (1,556) (4,871) (9,858) (422) (7,565)
Equity and losses of
associated venture.......... -- -- -- -- -- -- 452
Interest (income)/expense,
net......................... (2) (12) 4 71 (320) (32) (169)
--------- --------- --------- --------- ---------- ---------- ----------
Net income/(loss)....... $ 90 $ (6) $ (1,560) $ (4,942) $ (9,538) $ (390) $ (7,848)
========= ========= ========= ========= ========== ========== ==========
Historical basic and diluted
net income/(loss) per
share(1).................... $ 0.02 $ 0.00 $ (0.41) $ (0.73) $ (0.99) $ (0.04) $ (0.80)
Shares used in computing
historical basic and diluted
net income/(loss) per
share....................... 3,800,000 3,800,000 3,800,000 6,791,534 9,654,835 9,651,566 9,756,059
Pro forma net loss per
share -- basic and
diluted..................... $ (0.40) $ (0.23)
Shares used in computing pro
forma net loss per share --
basic and diluted........... 23,914,934 34,000,923
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------- ---------
(UNAUDITED)
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents..... $ 72 $ 0 $ 65 $ 4,027 $ 23,994 $ 15,263
Working capital............... 1 (8) (1,566) 1,444 23,218 13,953
Total assets.................. 117 0 113 4,651 28,212 22,853
Debt and leases, long-term
portion..................... 0 0 0 83 501 699
Accumulated deficit........... 0 (8) (1,566) (6,508) (16,046) (23,894)
Total stockholders' equity.... 1 (8) (1,566) 1,663 25,453 18,612
</TABLE>
22
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the related notes included elsewhere in this prospectus. This
discussion contains certain forward-looking statements that involve risks and
uncertainties. When used in this prospectus, the words "intend," "anticipate,"
"believe," "estimate," "plan" and "expect" and similar expressions as they
relate to us are included to identify forward-looking statements. Our actual
results could differ materially from the results discussed in the
forward-looking statements as a result of certain of the risk factors set forth
below and elsewhere in this prospectus.
OVERVIEW
Quokka Sports has pioneered a distinctive new style of global sports
entertainment programming that uses the digital information sharing and
communications power of the Internet. Our programming can be accessed over the
Internet at www.quokka.com. Our programming is designed to provide a compelling
sports entertainment experience by allowing viewers to choose from a variety of
perspectives, information and action sequences. We believe new interactive
technologies provide exciting opportunities for making information-intensive
programming also entertaining. With distinctive content designed to build on
this opportunity, we believe we are positioned to become a leading provider of
digital sports entertainment addressing the entertainment passions of a global
community of sports enthusiasts.
In August 1996, we adopted our current business model. The primary focus of
our operating activities since August 1996 has been to develop our digital
sports entertainment network. Our network development activities have included
studio services to strategic partners, including the International Olympic
Committee, Sydney Organizing Committee for the Olympic Games, News America
Digital Publishing and others. Studio services represent consulting and Web
design services.
We generate revenues from digital entertainment sponsorships, studio
services, advertising and electronic commerce. During 1998, 81% of our revenues
came from digital entertainment sponsorships, 18% of our revenue came from
studio services, 1% of our revenues came from advertising and less than 1% of
our revenues came from electronic commerce. We derive the majority of our
revenues from the sale of sponsorship packages to corporations. In the past, we
have accepted property and services as payment for sponsorships, including
Internet access, computer equipment, digital cameras, hosting services, and
telecommunications equipment and services. Property and services received as
payment are valued at fair market value based on the amounts normally charged to
third parties for similar property and services. We intend to reduce the amount
of property and services accepted for payment in future periods, although we may
not be successful in this regard.
Prior to 1999, our sponsorships were primarily short-term and associated
with two individual events, the Whitbread and Around Alone races. Our sponsors
typically pay fees or provide in-kind services, which we recognize as revenue
ratably over the duration of the event based upon the actual number of
impressions generated to date as compared to an estimated total number of
impressions for the entire event. Sponsors may require that we guarantee a
minimum number of impressions over the term of the event. In these instances, we
will defer a portion of the sponsorship revenues until the minimum number of
impressions has been achieved. We will also defer a portion of the revenues
until other contractual obligations have been satisfied and collection of the
related receivable is probable.
In 1999, we began to configure our sponsorships as multi-year, multi-event
and multi-benefit sponsorships. These new sponsorships, which we call digital
entertainment sponsorships, may include a variety of benefits such as category
exclusivity, embedded product placement in our programming, traditional sports
sponsorship benefits and sales and marketing assistance. We plan to sell digital
entertainment sponsorships to technology and communications companies as well as
consumer retail goods and services companies. These multi-year sponsorship
agreements are expected to provide for periodic sponsorship fees that we intend
to recognize ratably as revenues over the corresponding period during the term
of the contract, provided that no significant obligations remain and collection
of the resulting
23
<PAGE> 29
receivable is probable. Because digital entertainment sponsorships relate to our
network of events rather than a single event, we do not track the profitability
of each event. However, we do track production costs by event as well as the
visitors to our coverage of each event.
As a direct result of having only one live program at a time, revenues from
sponsorships, advertising and electronic commerce have varied on both a
quarterly and annual basis during our short operating history. Revenues may
fluctuate from period to period in the future depending upon our ability to
attract digital entertainment sponsorships, the number of live events that are
being produced and distributed simultaneously during any one period, our ability
to maintain a continuous programming calendar, our ability to attract a
worldwide audience for our sporting events, our ability to acquire long-term
digital and other intellectual property rights to global sporting events and our
ability to develop and produce sports programming which will attract a global
audience.
We also generate revenues by providing studio services that could lead to
digital sports entertainment programming opportunities. These revenues are
recognized in the period the service is provided. We intend to continue to offer
studio services; however, we expect studio services to decline substantially as
a percentage of overall revenues in future periods.
We have incurred significant net losses and negative cash flows from
operations, and as of March 31, 1999, we had an accumulated deficit of $23.9
million. This accumulated deficit resulted from the production costs of our
network programming, the costs of developing new and enhancing existing tools
and techniques that enhance our Quokka Sports Platform technology, the costs of
expanding our sales and business development efforts and other costs related to
ongoing research and design. Due to the planned expansion of our digital sports
entertainment programming, we expect to incur significant operating losses for
the foreseeable future. Although we have experienced revenue growth in recent
periods, this growth may not be sustainable and, therefore, these recent periods
should not be considered indicative of future performance. We may never achieve
significant revenues or profitability; or if we achieve significant revenues,
they may not be sustained.
Quokka and its subsidiaries and joint venture will account for acquired
media rights pursuant to Statement of Financial Accounting Standards No. 63.
Under FAS No. 63, a licensee shall report an asset and a liability for the
rights acquired and obligations incurred under a license agreement when the
license period begins and other conditions, including availability and
acceptance, have been met. The assets will be amortized over their estimated
useful life.
RESULTS OF OPERATIONS
Years Ended December 31, 1996, 1997 and 1998
Revenues. Revenues increased from $39,000 in 1996 to $4.0 million in
1997 to $8.6 million in 1998. In 1997, we generated revenues from the sale of
sponsorships for the first time. Revenues increased from 1996 to 1997 primarily
as a result of 1997 sponsorship sales totaling $2.7 million. The increase in
revenues from 1997 to 1998 is primarily attributable to a $4.3 million increase
in sponsorship revenues. Included in total sponsorship revenues for 1996, 1997
and 1998 were revenues relating to products and services accepted as payment of
$0, $1.7 million and $4.4 million. Products and services accepted as payment
have included Internet access, computer hardware and software, digital cameras,
hosting services, telecommunications equipment and other products and services
required to operate our events. These products and services are recorded as
revenues and are also reflected as production costs in the consolidated
statements of operations for all periods presented. The balance of the increase
in revenues was primarily attributable to increases in revenues from studio
services from $39,000 in 1996 to $1.2 million in 1997 to $1.6 million in 1998.
Production Costs. Total production costs increased from $611,000 in
1996 to $5.1 million in 1997 to $7.8 million in 1998. Production costs include
costs of personnel and consultants, computer hardware and software, travel,
satellite transmission costs, field gear, cameras, satellite phones, marketing
and an allocation of general and administrative expenses. The $4.5 million
increase in production costs
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from 1996 to 1997 is due to the launch of our first digital sports entertainment
program, the Whitbread race, during 1997. The $2.7 million increase from 1997 to
1998 is attributable to an increase in the number of months of live programming.
Research and Engineering. Research and engineering expenses increased
from $423,000 in 1996 to $1.0 million in 1997 to $4.5 million in 1998. Research
and engineering expenses include personnel cost, costs associated with network
operations and expenses incurred to improve and develop our Quokka Sports
Platform and broadband applications. The increase in research and engineering
expenses from year to year is attributable to an increase in the number of
development projects. Research and engineering costs are expensed as incurred.
During 1998, we entered into a software license and development agreement.
In connection with this agreement, we issued warrants to purchase 635,650 shares
of our preferred stock and recognized a non-cash charge of $853,000 during 1998.
Sales and Marketing. Sales and marketing expenses increased from
$53,000 in 1996 to $816,000 in 1997 to $2.5 million in 1998. Sales and marketing
expenses include personnel costs, consultants and advertising. These expenses
increased primarily due to increases in the number of sales and marketing
personnel and consultants. During 1998, we spent $554,000 for advertising and we
expect to significantly increase our advertising expenses in future periods as
we build the Quokka brand and awareness of our programming.
Depreciation and Amortization. Depreciation and amortization expenses
increased from $0 in 1996 to $68,000 in 1997 to $530,000 in 1998. Depreciation
and amortization expenses consist of depreciation of computers,
telecommunications equipment, software, and furniture and fixtures associated
with our operational infrastructure. Amortization expense relates to leasehold
improvements of our facilities in San Francisco. The increase in depreciation
and amortization expenses was primarily due to increased facilities, equipment
and related costs associated with an increase in personnel in all areas.
General and Administrative. General and administrative expenses
increased from $508,000 in 1996 to $1.8 million in 1997 to $3.2 million in 1998.
General and administrative expenses include management, business and legal
affairs, finance and accounting, facilities, management information systems and
human resources. The increase in general and administrative expenses is due to
increased personnel in all areas to support and grow our business including
increased facilities and related costs.
Interest Income and Expense, Net. Net interest expense was $4,000 in
1996 and $71,000 in 1997. Net interest income was $320,000 in 1998. Interest
expense incurred during these periods relate to our financing obligations for
various equipment purchases. Interest income recorded during these periods
includes interest income earned on cash and cash equivalents. The increase from
1997 to 1998 was primarily due to a higher investment balance throughout 1998
due to the issuance of preferred stock. Interest income in 1998 was partially
offset by increased interest expense due to borrowings under a line of credit.
Net Losses. Based upon the foregoing information, we had net losses of
$1.6 million for the year ended December 31, 1996, $4.9 million for the year
ended December 31, 1997 and $9.5 million for the year ended December 31, 1998.
Three Months Ended March 31, 1998 and 1999
Revenues. Revenues declined from $4.9 million for the three months
ended March 31, 1998 to $897,000 for the three months ended March 31, 1999.
Revenues for the first quarter of 1998 were primarily derived from sponsorship
revenues associated with our coverage of the Whitbread Round The World Race, our
sole event during the period. Revenues for the first quarter of 1999 were
primarily derived from sponsorship revenues associated with our coverage of the
Around Alone race, our sole event during the period. The Whitbread is a better
known event than Around Alone and, accordingly, attracted larger sponsorship
revenues.
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Production Costs. Production costs decreased from $3.4 million for the
three months ended March 31, 1998 to $2.7 million for the three months ended
March 31, 1999. The $713,000 decrease reflects significantly lower costs
associated with our coverage of the Around Alone race as compared to the
Whitbread race. Production costs for each event we cover vary based on the
specific attributes of each event, operating efficiencies gained from our
previous experience with similar events and the depth and breadth of our event
coverage. A combination of these factors resulted in production costs for the
Around Alone race that were less than those for the Whitbread race. Decreased
Around Alone production costs were partially offset by increased expenses
related to the production activities for upcoming events. Our production costs
associated with coverage of the Around Alone race, our sole event during the
period, exceeded the revenues generated by this coverage. Accordingly, our
coverage of the Around Alone race was not profitable.
Research and Engineering. Research and engineering expenses increased
from $586,000 for the three months ended March 31, 1998 to $2.1 million for the
three months ended March 31, 1999. This increase represents the cost of
additional personnel and related expenses associated with our continuing
development of our Quokka Sports Platform, broadband applications and network
operations.
Sales and Marketing. Sales and marketing expenses increased from
$358,000 for the three months ended March 31, 1998 to $1.4 million for the three
months ended March 31, 1999. The $1.0 million increase is attributable to
increases in the number of sales and marketing personnel and expenses related to
creating a brand, developing audience awareness of our programming and launching
www.quokka.com.
General and Administrative. General and administrative expenses
increased from $870,000 for the three months ended March 31, 1998 to $1.8
million for the three months ended March 31, 1999. This increase was
attributable to increased personnel and related facilities and other third-party
expenses associated with building our operational infrastructure. During the
first quarter of 1999, we leased additional office space in San Francisco and
new office space in London.
Depreciation and Amortization. Depreciation and amortization expenses
increased from $44,000 for the three months ended March 31, 1998 to $430,000 for
the three months ended March 31, 1999. The $386,000 increase was primarily due
to increased facilities, equipment and related costs associated with an increase
in personnel in all areas.
Interest Income and Expense, Net. Net interest income was $32,000 for
the three months ended March 31, 1998 and $169,000 for the three months ended
March 31, 1999. The $137,000 net increase reflects a higher investment balance
during the three months ended March 31, 1999 due to the issuance of preferred
stock during prior periods.
Equity and Losses of Associated Venture. We incurred net losses of
$452,000 in our joint venture with Forsythe Racing, Inc. for the period from the
inception of CART Digital Media Enterprises, LLC in January 1999 through March
31, 1999. We have accounted for our 50% interest in this joint venture under the
equity method of accounting. Expenses incurred during the period related
primarily to pre-production expenses for CART programming.
Net Losses. Based upon the foregoing information, we had net losses of
$390,000 for the three months ended March 31, 1998 and $7.8 million for the
three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since August 1996, we have financed our operations primarily through
private sales of our equity securities. Total net proceeds from sales of our
equity securities since August 1996 were $41.1 million through March 31, 1999.
In May and June 1999, we completed an additional private sale of our equity
securities. The gross proceeds from this transaction were $40.7 million.
In addition to funding ongoing operations and capital expenditures, our
principal commitments consist of various obligations under operating and capital
leases. On July 24, 1997, we entered into a capital lease for the use of certain
computer and telecommunications equipment with a purchase price of approximately
$120,000. This capital lease requires monthly payments of $4,200 through
November 2000. On October 7, 1998, we entered into a financing arrangement with
a bank to borrow $750,000 for the purchase of
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equipment. Our obligations under this financing arrangement are secured by the
underlying equipment. Terms of this agreement require monthly repayment over 36
months commencing November 25, 1998 in the amount of approximately $21,000 per
month plus interest at a rate equal to 0.75% over the prime rate quoted by the
bank. At March 31, 1999, the prime rate quoted by the bank was 7.75% and
accordingly the interest rate was 8.50%. Total rent expense for outstanding
leases is approximately $90,000 per month.
In February 1999, we established NBC/Quokka Ventures, LLC, a joint venture
with NBC Olympics, Inc. The terms of the operating agreement for the venture
require us to make quarterly capital contributions in amounts necessary to fund
the venture's operations on an ongoing basis in accordance with the annual
operating plan. Accordingly, the capital contribution amounts and the timing of
these contributions will be based on the actual activities of the venture and
are unknown at this time. We plan to fund the venture with our cash and cash
equivalent balances and the net proceeds from this offering. This venture has
been consolidated in our financial statements.
In February 1999, we entered into a subordinated debt agreement. The terms
of this agreement call for maximum borrowings of $10 million. Repayment is due
in 36 monthly installments commencing in February 2000 and is subject to
acceleration under certain conditions including the completion of an initial
public offering. No amounts were outstanding on this facility as of March 31,
1999. In connection with this agreement, we issued warrants for the purchase of
215,384 shares of preferred stock. The imputed value of these warrants is
$552,000 and has been treated as a loan commitment fee. This fee is being
amortized over the term of the six-month draw down period as no further services
are required to earn the warrants and they are fully vested, and $140,000 of
this amount was amortized in the three months ended March 31, 1999.
In March 1999, we established CART Digital Media Enterprises, LLC, a joint
venture with Forsythe Racing, Inc. The terms of the venture agreement require
the two parties to make equal capital contributions on a quarterly basis. We
currently expect to make capital contributions in order to meet our 50% share of
the venture's needs for operating capital. Accordingly, the capital contribution
amounts and the timing of these contributions will be based on the actual
activities of the venture and are unknown at this time. We plan to fund the
venture with our cash and cash equivalent balances and the net proceeds from
this offering. This joint venture has been accounted for under the equity method
in our financial statements.
We have acquired programming and distribution rights to various other
events. Under these agreements, we are required to make cash payments through
2003 totaling $16.3 million. We plan to fund these payments with our cash and
cash equivalent balances and the net proceeds of this offering.
At March 31, 1999, we had $15.3 million in cash and cash equivalents. Net
cash used in operating activities was $3.8 million and $10.9 million for 1997
and 1998. Net cash used in operating activities was $1.3 million and $6.4
million for the three months ended March 31, 1998 and 1999. Net cash used in
operating activities resulted from our net operating losses, adjusted for
certain non-cash items including compensation expense related to the issuance of
warrants to attract key vendors and business partners. Non-cash charges relating
to the issuance of these warrants were $62,000 and $450,000 for 1997 and 1998
and $382,000 and $569,000 for the three months ended March 31, 1998 and 1999.
Non-cash charges relating to depreciation expense were $68,000 and $530,000 for
1997 and 1998 and $44,000 and $430,000 for the three months ended March 31, 1998
and 1999.
Net cash used in investing activities was $295,000 and $2.7 million for
1997 and 1998. Net cash used in investing activities was $246,000 and $2.6
million for the three months ended March 31, 1998 and 1999. Net cash used in
investing activities resulted primarily from capital expenditures relating to
purchases of computer equipment.
Net cash provided by financing activities was $8.1 million and $33.5
million for 1997 and 1998. Net cash used in financing activities for the three
months ended March 31, 1998 was $11,000 and net cash provided by financing
activities for the three months ended March 31, 1999 was $279,000. Net cash
provided by financing activities for these periods included the issuance of
preferred stock, common stock and warrants.
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No provision for federal or state income taxes has been recorded as we
incurred net operating losses for the three months ended March 31, 1998 and 1999
and for 1996, 1997 and 1998. However, we have paid state franchise taxes during
1997 and 1998 as well as foreign corporation taxes during 1998. At December 31,
1998, we had approximately $12.0 million of federal net operating loss
carryforwards available to offset future taxable income; these carryforwards
expire in years 2011 through 2017. In addition, we have carryforwards of
approximately $10.0 million as of December 31, 1998 for California franchise tax
purposes, commencing in 2001. As a result of various equity transactions during
1996 and 1997, we believe our company has undergone an "ownership change" as
defined by Section 382 of the Internal Revenue Code. Accordingly, the use of a
portion of the net operating loss carryforward may be limited. Due to this
limitation, and the uncertainty regarding the ultimate use of the net operating
loss carryforward, we have not recorded any tax benefit for losses and have
recorded a valuation allowance for the entire amount of the net deferred tax
asset. In addition, certain events, including any sales by us of shares of our
stock, including sales pursuant to this offering, and/or transfers of a
substantial number of shares of common stock by the current stockholders, may
partially restrict our ability to use our net operating loss carryforwards.
We believe that the net proceeds from this offering, combined with current
cash and cash equivalent balances will be sufficient to fund our operating
requirements for working capital and capital expenditures for at least the next
twelve months. Thereafter, we will need to raise additional funds. To the extent
that we encounter unanticipated opportunities, we may seek to raise additional
funds sooner, in which case we may sell additional equity or debt securities or
borrow funds from banks. No assurances can be given that our efforts to raise
these funds will be successful. In the event we are unable to raise these funds,
our operations would suffer. Sales of additional equity or convertible debt
securities would result in additional dilution of our stockholders. For a
discussion of the risks associated with raising additional capital, see "Risk
Factors -- We will need to raise additional capital, which may not be available
on favorable terms and could result in additional dilution."
YEAR 2000 IMPLICATIONS
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates and, as a result, many
companies' software and computer systems may need to be upgraded or replaced to
comply with year 2000 requirements.
We are in the process of assessing the year 2000 issue and expect to
complete our assessment by July 1999. We are conducting a three-phase process of
identifying both information technology and non-information technology systems
that are not year 2000 compliant, determining their significance to operations,
and developing plans to resolve issues where necessary. We have not incurred
material costs to date in this process and we do not believe that the cost of
additional actions will have a material effect on our operations. We currently
expect that we will complete this process in August 1999.
Although we currently believe that our systems and products are year 2000
compliant in all material respects, these systems and products may contain
undetected errors or defects with year 2000 date functions that may result in
material costs. Further, although we are not aware of any material operational
issues or costs associated with preparing our internal systems for the year
2000, we may experience serious unanticipated negative consequences, such as
significant downtime for one or more programming events, or material costs
caused by undetected errors or defects in the technology used in our internal
systems.
We use third-party equipment, software and content, including
non-information technology systems such as security systems, building equipment
and non-IT systems embedded microcontrollers that may not be year 2000
compliant. We have communicated with all of our hardware and software
developers, suppliers and other third parties to determine whether these third
parties are adequately addressing the
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year 2000 issue and whether any of their non-IT systems have material year 2000
compliance problems. Based on the written representations of these third
parties, we believe that the third-party hardware and software that we use is
compliant or is expected to be compliant prior to the year 2000. Failure of
third-party equipment, software or content to operate properly with regard to
the year 2000 and thereafter could cause us to incur unanticipated expenses to
remedy any problems, which could have a material adverse effect on our business,
results of operations and financial condition. We are in the process of
developing a contingency plan to address situations that may result if we, or
third parties that we rely upon, are unable to achieve year 2000 readiness. We
currently expect to complete this contingency plan by the end of the third
quarter in 1999.
We do not currently have any information about the year 2000 status of our
sponsors. Failure of our sponsors' equipment or software due to year 2000
problems may result in reduced funds available for sponsorship activities.
Further, the purchasing patterns of sports viewers may be affected by year 2000
issues as companies expend significant resources to correct their current
systems for year 2000 compliance. Finally, we are subject to external forces
that might generally affect industry and commerce, such as utility or
transportation company year 2000 compliance failures and related service
interruptions. The occurrence of any year 2000 compliance failures that affect
our sponsors, our audience or industry and commerce generally could have a
material adverse effect on our business, results of operations and financial
condition.
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BUSINESS
The following description of our business should be read in conjunction
with the information included elsewhere in this prospectus. The description
contains certain forward-looking statements that involve risks and
uncertainties. When used in this prospectus, the words "intend," "anticipate,"
"believe," "estimate," "plan" and "expect" and similar expressions as they
relate to us are included to identify forward-looking statements. Our actual
results could differ materially from the results discussed in the
forward-looking statements as a result of certain of the risk factors set forth
below and elsewhere in this prospectus.
OVERVIEW
Quokka Sports has pioneered a distinctive new style of global sports
entertainment programming that uses the digital information sharing and
communications power of the Internet. Our programming is designed to provide a
compelling sports entertainment experience by allowing viewers to choose from a
variety of perspectives, information and action sequences. Our coverage of
sporting events incorporates a wide range of materials or digital media assets,
which might include: video, text, audio, images, athlete vital signs, locational
and directional data, environmental data, e-mails, results and timing. Our
programming can be accessed over the Internet at www.quokka.com and may be
delivered to viewers over other interactive systems that transmit digitized
data, such as cable and satellite systems, in the future. We believe new
interactive technologies provide exciting opportunities for making
information-intensive programming also entertaining. With distinctive content
designed to build on this opportunity, we believe we are positioned to become a
leading provider of digital sports entertainment addressing the entertainment
passions of a global community of sports enthusiasts.
We are creating an interactive digital sports network that offers a variety
of sports entertainment programming. In developing our programming calendar, we
currently target sports events that are generally long in duration and rich in
the types of materials or digital media assets we seek to incorporate in our
program. We also currently target sports events that involve continuous action
with multiple simultaneous activities and have a global audience that is
attractive to sponsors and advertisers. We have selected the Olympics, motor
racing, sailing and adventure sports as the first four channels of our network.
In February 1999, we established a joint venture with NBC Olympics, Inc. to
develop interactive digital coverage of the Olympics through August 2004. In
March 1999, through a joint venture with Forsythe Racing, Inc., we acquired
digital rights to cover the Championship Auto Racing Teams events through 2003.
Additionally, in March 1999, we acquired digital rights to cover FIM 500cc Road
Racing World Championship motorcycle races through 2003. In May 1999, we
acquired digital rights to cover the America's Cup Match yacht race in 2000. We
covered the 7th Whitbread Round The World Race from September 1997 to May 1998
and began coverage of the nine-month Around Alone sailing race in September
1998. We covered the 14th Marathon des Sables desert footrace and are also
covering Quokka-created adventure sports events as part of our adventure sports
channel. We plan to add programming to each of our four existing channels and
may create additional channels in the future.
INDUSTRY BACKGROUND
The Evolution of the Internet as a Powerful New Medium
The Internet has quickly become a global medium for worldwide
communication, instant access to information and electronic commerce.
International Data Corporation estimates that the number of Web users worldwide
will increase from approximately 142 million at the end of 1998 to more than 502
million by the end of 2003 and that more than 56% of Web users in 1998 accessed
the Internet from outside the United States. We believe such rapid growth is
attributable mainly to the increasing number of personal computers in homes and
offices, the decreasing cost of personal computers, technological innovations
providing easier, faster and cheaper access to the Internet and the
proliferation of content and services available on the Internet.
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The technological advances associated with the Internet and other emerging
interactive systems that transmit digitized data, such as cable and satellite
systems, provide advertisers with a level of targetability, interactivity and
measurability not available in traditional media. Accordingly, Forrester
Research estimates that the amount of Web advertising worldwide will grow from
$1.5 billion in 1998 to over $15.3 billion by the year 2003. Additionally, as
online merchants take advantage of these technological improvements to deliver a
guided selling experience, integrating intelligent product recommendations,
real-time customer services and simplified buying procedures, more consumers are
expected to engage in electronic commerce. International Data Corporation
estimates that the number of consumers making purchases on the Internet will
grow from 30.8 million in 1998 to 182.6 million in 2003 and that the total value
of consumer goods and services purchased over the Internet will increase from
$14.9 billion to $177.7 billion over the same five-year period. The combination
of the growth in online advertising and electronic commerce enhances the
Internet's value as a commerce medium. There can be no assurance that the
current growth of the Internet and Internet-related business will result in a
corresponding growth in our business.
As new interactive systems, including cable and satellite, continue to
become more widely adopted, we believe the Internet will continue to transform
from an information-based medium to one that enables dynamic entertainment-based
content. These new systems are capable of transmitting digitized material at
faster rates and consequently can transmit large amounts of this material, such
as video clips, within a relatively short time frame. These systems are often
referred to as "broadband" systems. Technology companies are developing these
broadband systems to accommodate the larger amounts of digitized data that must
be transmitted quickly to provide faster access, portability of media over
multiple delivery devices and new interactive opportunities. According to
Forrester Research, broadband access provides consumers with high-speed,
always-on connections and multiple services like telephone and Internet on a
single line at a price to performance ratio that is 5 to 25 times better than
conventional Internet dial-up connections. As a result, Forrester Research
estimates that approximately 15.8 million households in the United States will
have high-speed personal computer connections to the Internet by 2002.
The Global Sports Industry
Participatory and spectator sports are among the leading passions in
developed nations around the globe as evidenced by the popularity of sports
media and the amount of money consumers spend on sports events, products and
related services. The ESPN Chilton Sports Poll estimates that 86.6% of the
general population 12 years of age or older in the United States are sports
fans. Further, according to Nielsen Media Research, sports television
programming in the United States consistently draws large audiences, with sports
broadcasts comprising seven of the top ten most widely viewed telecasts during
the 1997-98 television season.
The business opportunities associated with sports are large and diverse.
Today, sporting events generate revenues from the sale of broadcast rights,
sponsorships, advertising, merchandising, publishing and venue access, and these
revenue opportunities continue to evolve. The Georgia Institute of Technology
estimated that revenue streams derived from spectator sports, sporting goods and
sporting publications in the United States in 1995 exceeded $130 billion.
Sponsorships frequently integrate the sponsoring company's products, logos and
trademarks with the sporting event. Based on research conducted by Sponsorship
Research International, an independent research organization that measures
global sponsorship opportunities, we estimate that in 1998 $13.2 billion was
invested globally in sports through the sponsorship of events, federations,
teams, individuals and stadiums.
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Sponsorship Research International has identified the following events as
some of the leading global sports sponsorship opportunities:
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE GLOBAL
SPORTING EVENT DURATION COUNTRIES TELEVISION AUDIENCE
- -------------- ---------- --------- -------------------
<S> <C> <C> <C>
World Cup Soccer (1994)........................ 52 games 188 32.1 billion
Olympics: Summer (1996)........................ 16 days 214 20.0 billion
Olympics: Winter (1994)........................ 16 days 100 10.7 billion
European Championship Soccer (1996)............ 31 games 192 6.7 billion
Formula 1 Grand Prix Season (1997)............. 17 races 133 5.4 billion
World Championship Athletics (1997)............ 9 days 154 3.8 billion
World Cup Rugby (1995)......................... 32 matches 100 2.7 billion
Whitbread Round The World Race (1993-94)....... 9 months 177 2.6 billion
Wimbledon Tennis Tournament (1996)............. 15 days 167 1.6 billion
CART World Series (1997)....................... 17 races 182 1.2 billion
Super Bowl (1996).............................. 1 game 187 0.1 billion
</TABLE>
In the table above, information for each event is as of the year indicated and
is the most recently available data from Sponsorship Research International.
Additionally, in applying the method used to determine the cumulative global
television audience a person who watches multiple games or multiple days of
coverage of an event would be counted multiple times. For example, a person who
watches 15 World Cup Soccer matches would be counted 15 times.
Advertising and merchandise sales also generate substantial revenues in the
sports industry. Paul Kagan Associates, Inc. estimates that advertisers in the
United States will increase their sports-related television advertising from
$4.8 billion in 1998 to $6.6 billion in 2003. The Sporting Goods Manufacturers
Association estimates that expenditures by sports fans in the United States on
sports-related goods and services reached $45.6 billion in 1998.
The growth of the Internet presents a unique means of reaching
geographically dispersed sports audiences. Because of the low incremental cost
of distributing information and entertainment over the Internet, producing
global sporting events for a geographically dispersed fan base is now
economically feasible. Additionally, as the Internet has evolved, sports fans
have increasingly turned to the Internet for sports information, making
sports-related Web sites some of the most popular online destinations. Based on
a poll of computer owners in the United States, the ESPN Chilton Sports Poll
estimates that 36 million people in the United States accessed sports
information on the Internet in 1998, an increase of 40% over 1997. In addition,
using Media Metrix data, we estimate that sports fans spend approximately 20%
more time per usage session on sports-related Web sites than the average user
does at the average Web site and revisit these sports-related Web sites
approximately 33% more often. At this time, our sites are not tracked by Media
Metrix, which uses a sampling procedure similar to television's Nielsen ratings.
Accordingly, we believe our traffic and audience metrics, which are based on
actual visitors, are not comparable to the Media Metrix statistics. Therefore,
we do not know where our sites would rank among sports-related Web sites.
Cyberdialogue/findsvp also found that on average, sports fans spend more time
per week online, have higher household incomes and make more online purchases
than the average online adult.
Limitations of Current Sports Coverage
Because of the tremendous popularity of sports worldwide, numerous
traditional and online information sources such as newspapers, magazines,
broadcasters and specialized sports-related Web sites have attempted to address
sports fans' demand for up-to-date information and entertaining coverage of
their favorite events. Although print media, such as newspapers and magazines,
are adequate for communicating basic information such as scores and statistics
or reporting on the outcome of an event, their content cannot be enhanced with
video animation or audio stimulation. Further, although these media have the
ability to produce in-depth analysis of athletes and events, the content cannot
be changed until a new edition is published and the timeliness of this content
is often limited because of inherent delays in production and distribution.
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Although radio and television broadcasters are able to provide real-time
coverage in an entertaining fashion, all viewers and listeners of a given
program receive a single presentation of the content. Broadcast coverage is
generally regional in nature, leaving significant global audiences untapped as
broadcasters seek to meet the demands of the largest audiences in their specific
coverage regions. Additionally, broadcast media are constrained by the limited
ability of the audience to interact with the programming on a real-time basis
and the relatively small number of available frequencies or channels. Further,
because traditional broadcast media are unlikely to devote all 24 hours of
programming available on a channel to coverage of a single event and because
traditional broadcast media do not have the technological capabilities to allow
viewers to choose from a variety of perspectives, information and action
sequences, we believe they are not well suited to cover sporting events with
long durations, large or discontinuous venues, multiple simultaneous activities
and continuous action for a global audience. For example, traditional
broadcasters were limited in their ability to provide continuous coverage of the
action during the Whitbread Round The World Race, which was primarily conducted
across the most remote sections of the world's oceans for approximately nine
months.
While Web sites that include sports information as part of their offerings
have proliferated, we believe these sites are typically more informational than
engaging. In general, these sites deploy traditional styles of sports coverage
by providing access to the same type of content available through traditional
media channels, except on a real-time and interactive basis. We believe that
because these sites use traditional styles of presenting content they fail to
take full advantage of the opportunities presented by new interactive
technologies to produce engaging sports entertainment programming.
THE QUOKKA SOLUTION
We have pioneered a unique new style of global sports entertainment
programming that uses the digital information sharing and communications power
of the Internet. By leveraging our rights to digital media assets such as
locational and directional data, environmental data, e-mails, video, text,
audio, images, results and timing, we believe we are able to capitalize on the
advantages of interactive systems to provide our global audience with a
compelling sports entertainment experience. Through our distinctive approach to
covering sports we intend to capitalize on the market opportunities created by
the emergence of the Internet as a communications and commerce medium, the
worldwide popularity of sports and the appealing demographics of sports fans.
Further, because we use the Internet to distribute our programming to
geographically dispersed audiences, we are able to reach significant global
markets on a cost-effective basis. The primary advantages of our solution are as
follows:
Brings the Sports Fan Closer to the Event Through Distinctive Programming
Our programming is designed to emulate the experience of being at the
sports venue by removing barriers between the athlete and the audience and
enabling fans to experience the sport from the athlete's perspective. We call
our distinctive approach to covering sports Quokka Sports Immersion. As
performance data about the athletes and their equipment are captured during
competitions, we create graphic visualizations, simulations and extensive
performance analyses. These visualizations, simulations and analyses, together
with e-mail from the athletes themselves, audio, video and other material, tell
the story behind a given athletic endeavor to fans who want to look deeper into
the action. For example, when covering the Whitbread and Around Alone races, we
presented the data that drove each skipper's tactical decisions, including each
boat's position as well as forecasts of wind speed, currents and water
temperature. Additionally, our programming includes virtual competitions that
parallel the actual event, allowing fans to compare their performance directly
against that of the competitors. The Quokka Sports Immersion experience is
controlled by each user in an interactive environment that traditional media
does not provide, enabling our audience to become actively involved in the
sports coverage they enjoy.
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Establishes a Network Offering Distinctive Sports Programming and Content
We are creating an interactive digital sports network that offers a broad
range of engaging sports entertainment programming. Our programming can be
accessed over the Internet at www.quokka.com and related event Web sites and may
be available through other interactive systems, such as cable and satellite
systems, in the future. Our selection of sports events is central to the
experience we create for our audience. In developing our programming calendar,
we are currently targeting sports events that are particularly well-suited to
our distinctive style of coverage, such as the Olympics, motor racing, sailing
and adventure sports. These sporting events typically have long durations, large
or discontinuous venues, multiple simultaneous activities or continuous action.
We believe that Quokka Sports Immersion has the potential to change the way
sports such as these are experienced.
Provides Attractive Opportunities for Sponsors and Advertisers
We provide our sponsors with value beyond a simple media buy over the
Internet. Sponsors secure exclusivity within a particular industry category and
the opportunity to embed and promote their products in our digital programming.
Our technology and communication sponsors also have the opportunity to showcase
their technological capabilities using our Quokka Sports Immersion programming.
Additionally, we believe we deliver a global audience of loyal users with
demographics desired by sponsors and advertisers. For example, our first digital
sports program, the 1997-98 Whitbread Round The World Race, attracted more than
1.8 million unique users from 177 countries, more than half of whom accessed the
site outside the United States. According to statistics audited by Internet
Profiles Corporation, these users spent an average of approximately 9.9 minutes
per visit at the site. This compares favorably to an average of 5.8 minutes per
visit at other leading sports-related Web sites, according to our estimates
based on Media Metrix statistics. According to a Quokka-conducted survey,
visitors to the Whitbread site were primarily between 25 and 34 years old and
had an average annual household income of $75,000. Additionally, according to
this survey, 64% of the visitors to the Whitbread site were college educated and
63% held professional, executive or technical positions. Based on these
demographic characteristics, we believe the visitors to the Whitbread site
represented an attractive, targeted audience for sponsors and advertisers.
STRATEGY
Our objective is to be the leading branded interactive network for digital
sports entertainment. Our strategy includes the following key elements:
Establish Key Relationships Centered Around Global Sporting Events
We intend to establish additional key relationships to complement our
existing relationships with global sports organizations and their media partners
in order to expand our programming. Through relationships with a variety of
sports leaders, including NBC Olympics, Inc. and Forsythe Racing, Inc., we and
our joint ventures have secured rights to provide digital coverage of major
sports events such as the Olympics and CART auto racing. We intend to expand our
programming schedule as we establish additional relationships. We also expect to
capitalize on the exposure we receive from our coverage of our existing events
to gain access to digital rights to additional sporting events in the future. As
we seek to expand our programming, we will target events that attract a global
audience and are well-suited to our distinctive style of programming.
Build Brand Recognition
We intend to build traffic and brand recognition by aggressively marketing
www.quokka.com as the first interactive network that emulates the experience of
being at the sports venue. We believe building brand awareness of www.quokka.com
and the Quokka Sports Immersion experience will lead users to associate our
style of programming with a distinctive experience that inspires lengthy repeat
visits and strong audience loyalty. We plan to market www.quokka.com through an
extensive traditional media campaign employing advertising through television,
print publications, outdoor signage and radio. We also plan to conduct a
simultaneous online advertising campaign and to gain increased exposure through
our co-branded initiatives. For example, we expect to receive significant
exposure on the CART Radio Network during its broadcast of CART FedEx
Championship Series races.
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Establish Global Communities by Bringing Together Geographically Dispersed
Audiences
We intend to use the global nature of the Internet to provide our sports
programming to large, geographically dispersed audiences. Through our
programming, we plan to create global online communities of viewers with similar
interests that come together to experience international sporting events that
take place continents or oceans away. For example, we plan to establish
membership-based online communities centered around each of our major channels.
These communities will provide geographically dispersed sports fans with the
opportunity to participate in virtual competitions, chat rooms and electronic
commerce. We believe these online communities will inspire sports enthusiasts to
visit our network repeatedly and will help establish www.quokka.com as the
leading destination site for global sports enthusiasts.
Generate Multiple Revenue Opportunities
We intend to leverage our distinctive programming, dispersed global
communities and interactive content library to create multiple revenue streams.
In addition to generating revenue by selling digital entertainment sponsorships
and advertising, we intend to offer subscription services that provide access to
premium content and pay-per-view events. We are also pursuing electronic
commerce opportunities to sell merchandise targeted to the audience of each
sporting event we cover as well as certain derivative products generated from
our content, such as books, games and screen savers. We also plan to expand our
library of archived content from our sports programming that we believe may
generate additional revenues through syndication.
Enhance Our Innovative Approach to Sports Programming
We plan to continue using leading-edge digital technology to create
entertaining sports experiences for our audience. To improve and expand our
programming, we intend to continue developing our technological expertise and
our content library as well as our strategic relationships with leading
technology companies. We believe that our innovative approach to sports
programming positions us to become the leading interactive sports network and
gives us a competitive advantage in the emerging digital broadcast industry. We
intend to leverage the experience we gain from covering each event across all of
our programming to enhance the overall experience for our audiences and
encourage them to visit our network for longer periods of time.
Capitalize on Evolving Broadband Opportunities
We plan to capitalize on opportunities created by the evolution of
broadband technologies. We intend to build our programming on a component by
component basis. We expect that this programming structure will enable us to
optimize the richness of our programming for the bandwidth available across a
range of interactive systems, including the Internet, cable modems, satellite
systems and other emerging broadband technologies. We believe this approach will
enable users to enjoy our programming at all connection speeds.
OUR SPORTS ENTERTAINMENT PROGRAMMING
Our selection of sporting events is the foundation for the experience we
create for our audience. In developing our programming calendar, we currently
target sporting events that are generally long in duration, have a global
audience and involve continuous action and multiple simultaneous activities.
Additionally, these events are generally rich in the materials or digital media
assets we seek to incorporate in our programming. We believe that as we expand
our programming and develop new methods of providing our distinctive sports
coverage, we will be able to enhance the overall experience for our future
audiences and encourage them to visit our network for longer periods of time. In
developing our distinctive coverage of each event, we strive to create an
experience through which our audience can connect with our content as a member
of a community with shared interests. Our goal is to enable our audience to
understand the event with the intensity of participating athletes, get to know
the athletes so the audience will empathize with them and interact with the
experience we create.
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Whitbread Round The World Race: Our Inaugural Event
Our digital coverage of the 7th Whitbread Round The World Race, a 32,000
nautical mile around-the-world sailing competition, provides an excellent
example of the programming that we are able to create by using Quokka Sports
Immersion. We chose this event as the first test of our programming approach
because we believed it exemplified the type of global, long-duration,
large-venue, continuous and multi-focus sporting event that traditional media
has failed to cover adequately and because it fit well with our distinctive
style of programming. By exploiting the new technological opportunities afforded
by the Internet, we created interactive coverage not possible through
traditional media. Team profiles and ongoing stories, such as accounts of the
drama that unfolded when a contender collided with an iceberg in the Southern
Ocean, made the athletes more than simply names on a screen but people to be
cheered on, empathized with and cared about. The Whitbread site attracted more
than 1.8 million unique users from 177 countries during the nine-month race,
with over half the audience coming from outside the United States.
When the ten Whitbread yachts left Southampton, England on September 21,
1997 to begin their nine-month race, we had each boat fully equipped to transmit
digital assets. Satellite transceivers on each boat sent digital video, still
images, audio clips, e-mails and locational and directional data to our
production studios in San Francisco. We then combined that data with wind,
weather and water current information forecasts to create our distinctive
coverage for the www.whitbread.org site. The site presented the drama
surrounding each boat's voyage, using the crew's own words and pictures. In
addition, the site gave fans the ability to follow the race action on our
proprietary Quokka Race Viewer, a fully interactive navigation quality map that
gave fans a bird's eye view of each boat's location, maneuvers and tactical
challenges 24 hours a day, seven days a week, allowing fans to drill down deeply
into the event and understand it from the sailor's perspective.
The locational and directional data provided by the boats as well as the
wind, weather and water current forecasts also fed our proprietary Virtual Race
game engine, allowing fans to sail their own virtual yachts, competing against
other virtual racers and comparing their progress against the actual
competitors. More than 11,000 virtual boats raced side-by-side with the real
boats on our Quokka Race Viewer, bringing virtual competitors into the heart of
the action. With access to the same information on wind speed, current and
weather as the actual competitors, the virtual racers could make real-time
strategy and tactics decisions regarding sail selection and course headings in
an effort to complete the course first.
Current and Upcoming Programming
We have selected the Olympics, motor racing, sailing and adventure sports
as the first four channels of our network, and we plan to develop additional
channels in the future. The following calendar identifies our and our joint
ventures' programming, including pre- and post-event coverage.
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[GRAPH OF PROGRAMMING CALENDAR DEPICTING APPROXIMATE START AND END DATES OF THE
FOLLOWING EVENTS: (1) OLYMPICS (OLYMPICS); (2) CART (MOTOR RACING); (3) FIM
GRAND PRIX MOTORCYCLES (MOTOR RACING); (4) AROUND ALONE (SAILING); (5) AMERICA'S
CUP; (6) FIRST ASCENT (ADVENTURE); (7) MARATHON DES SABLES (ADVENTURE) AND (8)
GREAT TRANGO TOWER (ADVENTURE).]
Olympics
The International Olympic Committee expects more than 10,000 athletes from
an estimated 200 countries to compete in the 2000 Olympic Games in Sydney,
Australia. According to the International Olympic Committee, the 1996 Olympic
Games in Atlanta generated a cumulative television audience in the United States
of 2.3 billion. Additionally, the International Olympic Committee estimates that
Olympic marketing, which is composed of broadcast rights fees, sponsorships,
supplierships, license fees, ticket revenue and related merchandise sales, is
projected to exceed $3.5 billion for the 1997-2000 Olympic quadrennium.
Our joint venture with NBC Olympics, Inc. has the rights to provide
interactive digital coverage in the United States of the Summer Games in Sydney
in 2000, the Winter Games in Salt Lake City in 2002, the Summer Games in Athens
in 2004 and certain related pre-Games and United States Olympic qualifying
events. Additionally, the joint venture has secured rights to incorporate
limited highlights of NBC video into its digital interactive coverage for a
United States audience. See "-- Joint Ventures and Rights Agreements" for a
discussion of the rights held by the joint venture.
The joint venture is scheduled to launch its Web site in August 1999 in
advance of the 2000 Olympic Games. The site will build awareness for broadcast
and digital interactive coverage of the Games by covering pre-Olympic events,
such as the United States Gymnastics Championship and United States Olympic Team
Trials. In addition, covering the pre-Olympic events also has certain production
advantages. For example, the events will enable us to tune our production
infrastructure in advance of the 2000 Olympic Games. Likewise, in covering
pre-Olympic events, the joint venture will collect numerous digital assets, such
as athletes' backgrounds, that can also be used in the digital coverage of the
Olympic Games.
The joint venture is currently preparing for its coverage of the 2000
Olympic Games in Sydney and the United States trials leading up to these Games.
These development and pre-production activities include hiring key personnel,
integrating the respective expertise of NBC and Quokka, selecting the emphasis
for the coverage, gathering background information on athletes, building
templates for the joint venture's coverage and establishing the infrastructure
necessary to create the coverage and support anticipated visits to the joint
venture's Web site.
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Motor Racing
Motor racing attracts a global audience with races held around the world.
Based on information compiled by Sponsorship Research International across 14
countries including the United States, the United Kingdom, Brazil and Russia, we
estimate that there were approximately 340 million people who watched televised
motor racing events and approximately 350 million people who watched televised
motor cycling events in 1998. Additionally, we believe that auto racing is one
of the most popular spectator sports in North America. According to the 1998
Goodyear Racing Attendance Report, race attendance for the 12 North American
racing series that the Goodyear Rubber & Tire Company monitored in 1998 was
approximately 17.1 million people.
We believe motor racing is well-suited to our distinctive style of
programming due to its continuous, multi-focus action. Although it is exciting
to follow the current leader, motor races are often won or lost by action
occurring elsewhere in the race. A contender threatening to overtake the lead
may lose critical time during an inefficient pit-stop or a dark-horse may
suddenly pull into the lead because of a particularly adept cornering maneuver.
Additionally, motor racing fans tend to be interested in following one or two of
their favorite racers, who, unless in the lead, may rarely be shown on-air by
traditional broadcasters.
Our coverage of a motor racing event will generally include:
- a proprietary Quokka Race Viewer providing an up-to-the-minute lap
position graphic, lap time and time-behind-leader updates;
- track audio feeds;
- graphical representations of the course;
- a chronicle allowing fans to follow their favorite drivers and teams;
- in-depth profiles on drivers, teams and manufacturers with interactive
photo galleries;
- interactive global event map and detailed race schedules, including
United States and foreign television coverage schedules;
- a virtual competition, where fans play the role of team owners; and
- community and electronic commerce areas.
CART. We have acquired, through a joint venture with Forsythe Racing,
Inc., the exclusive worldwide interactive media rights for all Championship Auto
Racing Team (otherwise known as CART) events through December 31, 2003. CART
competitors drive open-wheel champ cars with engines generating 900 or more
horsepower at speeds up to 200 miles per hour. In 1999, the CART FedEx
Championship Series consists of 20 races held on large and small oval tracks,
permanent road courses and temporary street circuits in Japan, Brazil, Canada,
the United States and Australia. See "-- Joint Ventures and Rights Agreements"
for a discussion of the rights held by the joint venture.
In Motegi, Japan, the joint venture's digital coverage of CART captured the
drama that sometimes occurs in motor racing. Near the end of the race, live
in-car audio feeds from drivers Adrian Fernandez and Greg Moore gave our
audience a unique insight into the closing laps of Fernandez's victory at
Motegi. Fernandez and his crew gambled on having enough gas to complete the race
and stayed out of the pit, knowing that the entire race could be lost by running
out of gas on the last lap. Meanwhile, Moore spun with less than two laps to go,
bringing out a caution flag that enabled Fernandez to conserve fuel and win the
race. With live in-car audio feeds from both these drivers, our digital coverage
brought our audience inside the drama as it was developing.
We plan to provide coverage of the annual CART FedEx Championship Series
racing season, which runs from February to November, and to extend the coverage
to include pre-and post-season developments. We may elect to cover additional
CART events in the future.
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FIM Motorcycle Racing. We have acquired the exclusive, worldwide
interactive media rights for all Federation Internacionale de Motocyclisme
(otherwise known as FIM) 500cc Road Racing World Championship Grand Prix and
related 250cc and 125cc motorcycle events from January 1, 2000 through December
31, 2003. Racing prototype motorcycles, competitors in FIM Grand Prix races
compete at speeds in excess of 170 miles per hour on fixed course tracks. Races
are held throughout the world several times a month during the racing season.
The season runs from mid-April through October, with 16 races held in such
varied locations as Brazil, Germany, South Africa, Italy, Holland, Spain, Japan
and Malaysia. Beginning in 2000, we plan to provide coverage of the annual FIM
Grand Prix motorcycle racing season and to extend this coverage to include pre-
and post-season developments. See "-- Joint Ventures and Rights Agreements" for
a discussion of the rights we acquired from FIM.
Sailing
Sailing attracts a significant worldwide audience, with events like the
Whitbread Round The World Race generating a cumulative global television
audience of approximately 2.6 billion according to Sponsorship Research
International. Based on information compiled by Sponsorship Research
International across 14 countries including the United States, the United
Kingdom, Brazil and Russia, we estimate that approximately 270 million people
watched televised sailing events in 1998. As evidenced by our successful
coverage of the Whitbread race, sailing is well-suited to our distinctive style
of programming.
Our coverage of a sailing event will generally include:
- a proprietary Quokka Race Viewer depicting each boat's position as well
as wind, water current and other weather data on navigation-quality
charts 24 hours a day, seven days a week;
- substantial coverage by the competitors themselves through e-mail, moving
video, still video and audio transmissions;
- a chronicle allowing fans to follow their favorite skippers and crews;
- behind-the-scenes, in-depth coverage of the crews and boats, with
interactive photo galleries;
- a virtual competition, where fans can race head-to-head against other
virtual competitors and compare their progress against the actual
competitors, and where both actual and virtual boats are tracked on our
proprietary Quokka Race Viewer; and
- community and electronic commerce areas.
Around Alone. We have acquired the exclusive, worldwide interactive
media rights for the Around Alone race through December 31, 2001 with the option
to extend the term for two additional four-year periods.
Held every four years, the Around Alone race is a 27,000 nautical mile solo
sailing race around the world through some of the earth's most treacherous
waters. The race challenges the nautical skills, endurance, resourcefulness,
innovation and fortitude of competitors who circumnavigate the globe making only
four stops. Sixteen competitors entered the 5th Around Alone race that began in
September 1998 and ended in May 1999. This year's race had stops in Cape Town,
South Africa; Auckland, New Zealand; Punta del Este, Uruguay; and Charleston,
South Carolina. Our coverage of the 5th Around Alone race began in September
1998, and by mid-April 1999, we had attracted more than 300,000 unique users.
Because we had equipped the boats with instruments to capture real-time
information about the competitors, we were able to provide live coverage of
significant events during the race -- events that previously would have been
covered only after the sailors had reached port and the action had long-since
passed. For example, fans were able to follow the exciting rescue of Isabelle
Autissier whose boat capsized in the middle of the Southern Ocean. With
Autissier too far from land for any national rescue services to reach her, a
fellow competitor undertook the rescue effort. Our audience tracked Giovanni
Soldini as he turned back and began a 24-hour, 200-mile battle against
gale-force winds and 30-foot waves to search for and eventually rescue
Autissier. Additionally, the race garnered significant media attention in the
United
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States when traditional media companies became aware of the story we were
covering live. Traditional media, including the New York Times, National Public
Radio and Dateline NBC, picked up the story of Viktor Yazykov, a Russian
competitor who performed surgery on his own arm in the middle of the Atlantic
Ocean by following a doctor's e-mail instructions. We posted the e-mails as they
were received and were the first media company with pictures of Yazykov during
and following the surgery. We supplied video clips, still photographs and other
assets to traditional media companies seeking to cover the story, demonstrating
the distribution of our coverage possible through traditional media. We believe
our ability to cover exciting sports events as they happen in remote locations,
often using first-person accounts from participants such as Soldini and Yazykov,
increases the attractiveness of our programming to sports fans.
America's Cup 2000. We have acquired the exclusive, worldwide interactive
media rights for the America's Cup 2000 Match yacht race to be held in February
and March 2000 in Auckland, New Zealand. Sailors first competed for the
America's Cup in 1851, making it one of the oldest international sporting
trophies in continuous competition. The America's Cup race is held approximately
every four years. Syndicates from approximately ten countries will compete in a
challenger elimination series in the fall of 1999, with the winner facing the
host and defending New Zealand team in a best five-of-nine series. See "-- Joint
Ventures and Rights Agreements" for a discussion of our rights relating to
coverage of the America's Cup Match.
Adventure Sports
Adventure sports such as climbing expeditions, wilderness challenges and
similar events are particularly well-suited to our style of programming. By
collecting digital media assets from these remote events, we are able to create
entertainment experiences that help to transform these events into spectator
sports. As an emerging category of spectator sports there are few established
branded adventure sports events. Accordingly, our programming for adventure
sports will cover Quokka-originated events as well as currently existing events
such as the Marathon des Sables.
Our coverage of an adventure sports event will generally include:
- graphical displays depicting the athletes' positions, whether climbing up
a mountain or running across a desert, on a 24 hours a day, seven days a
week basis;
- vital signs, such as heart-rates, from selected athletes;
- substantial coverage by the competitors themselves through e-mail, video,
still images and audio transmissions;
- a chronicle allowing fans to follow their favorite adventure athletes and
teams;
- behind-the-scenes coverage of the rigors and challenges presented by the
event as well as the event location; and
- community and electronic commerce areas.
Marathon des Sables. We provided exclusive interactive coverage of the
14th Marathon des Sables in April 1999. The Marathon des Sables is a grueling
seven-day footrace that stretches approximately 140 miles through Morocco's
Sahara Desert. During the 14th race, rest stations were available to the
athletes at predetermined locations that ranged from six to 44 miles apart. Each
of the 590 competitors had to carry his or her own backpack containing food,
sleeping gear and anti-venom kits. Water was provided, but was typically limited
to a ration of nine liters a day.
First Ascent: The Expedition to China's Karakoram Range. From mid-April
through June 1999, we provided coverage of a crew of seven climbers traveling by
truck and camel across the ancient Silk Route from Beijing to Kashgar. This
3,000 mile Quokka-originated expedition to the mountains in the Karakoram range
in the Chinese Himalayas included several first ascents by our company-selected
team of
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world-class climbers. The team also searched for a route up Hidden Peak, the
world's 11th tallest mountain. Although a route was not found, we plan to
schedule a second expedition in 2000 to continue the search.
Great Trango Tower. We have acquired the exclusive, worldwide interactive
media rights to cover a June through August 1999 climbing expedition by the
North Face Climbing Team to and on the unclimbed northwest face of Great Trango
Tower in Pakistan. The northwest face of the Great Trango Tower looms a vertical
mile above the base camp and rises to a peak of approximately 20,500 feet. With
live images, audio, video and electronic mail from the climbing team, our
audience will be brought closer to the climbing experience.
AUDIENCE GENERATION
We are planning to employ a variety of methods to promote www.quokka.com
and to build and retain our audience.
Building Our Audience
We plan to build our audience by:
- launching an aggressive media campaign, using print, outdoor signage,
radio, television and Internet advertisements to build our brand and
promote awareness of www.quokka.com and our programming offerings;
- capitalizing on exposure to a national audience through guaranteed
promotion by NBC of the Web site being developed by the joint venture we
formed with NBC Olympics, Inc.;
- expanding our programming offerings;
- capitalizing on our association with, and promotion of our coverage
provided by, governing bodies and rights holders of the sports events we
cover; and
- exploiting appropriate syndication opportunities by distributing portions
of our programming to other Internet sites and traditional media
companies in exchange for advertisements or other promotional
consideration designed to direct audience to www.quokka.com.
Consistent with this plan to build our audience, in May 1999, we entered
into a binding letter of intent with Excite@Home to integrate and promote our
sports programming on the www.excite.com Web site and the @Home broadband
service. Under the letter of intent, we acquired guaranteed levels of promotion
and prominent placement of the Quokka brand on the Internet and broadband
services of Excite@Home. These promotional efforts will link users to content
that we develop and that Excite@Home licenses from us. We anticipate that the
branding and promotional opportunities on the www.excite.com Web site and the
@Home broadband services will help build our audience and increase awareness of
www.quokka.com.
Retaining Our Audience
We plan to retain our audience by:
- continuing to deliver immersive and engaging content;
- maximizing audience loyalty through community-building activities such as
virtual competitions, chat rooms, online forums and online transactions;
and
- migrating our audience to different channels on our network.
We believe an important metric for measuring the quality of our audience is
the duration of an average visit to our Web sites. Based on Media Metrix data,
we estimate that users spend an average of approximately 5.8 minutes per visit
on other leading sports-related Web sites. To date, our event
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programming has generated average visit durations during the event significantly
greater than this 5.8-minute average.
<TABLE>
<CAPTION>
AVERAGE
EVENT CHANNEL VISIT DURATION
- ----- ------- --------------
<S> <C> <C>
Whitbread Round The World Race.......... Sailing 9.9 minutes
Around Alone race....................... Sailing 14.6 minutes
CART auto races......................... Motor Sports 13.1 minutes
Marathon des Sables..................... Adventure 19.6 minutes
</TABLE>
Our internal statistics presented in the above table have been audited by
Internet Profiles Corporation. The CART race coverage is ongoing and final
results may differ.
Marketing and Advertising
As of March 31, 1999, we had 15 full-time employees on our marketing team.
In addition to being responsible for brand marketing, program marketing,
audience research and the coordination of our external public relations efforts,
members of our marketing team also serve as product managers for our media and
derivative products. In 1998, we spent $554,000 on advertising. In 1999, we
expect to raise our advertising expenditures and launch an aggressive media
campaign. We also plan to increase our marketing staff to support our brand
building, electronic commerce and derivative product strategies.
LEVERAGING OUR AUDIENCE AND CONTENT: GENERATING MULTIPLE REVENUE STREAMS
We plan to leverage our diverse, global audience and suite of content
offerings to create multiple revenue streams. We believe we can generate revenue
from a variety of sources, including sponsors, advertising, electronic commerce,
derivative product sales, subscription and pay-per-view opportunities and studio
services.
Digital Entertainment Sponsorships
We plan to offer multi-year digital entertainment sponsorships to
technology, communications, consumer retail and consumer services companies. We
currently sell sponsorships to certain companies whose products can be
integrated into our technical infrastructure. These companies will form the
Quokka Performance Team. Each member of the Quokka Performance Team will be an
exclusive sponsor within a particular product or service category. In early
1999, we entered into three-year digital entertainment sponsorships with Compaq
Computer Corporation and Computer Associates International, Inc. Compaq
acquired exclusive sponsorship of our programming in the computer hardware
category. Computer Associates acquired exclusive sponsorship of our programming
in the category covering database management, software, systems or tools and any
software that monitors and maintains information technology production and
delivery systems. Compaq has the right to terminate its sponsorship agreement on
an annual basis if it is dissatisfied with our performance, while Computer
Associates has the right to terminate its sponsorship agreement at the end of
the second year of the agreement.
Although the benefits associated with Team membership are and will continue
to be custom-designed and consequently may vary from agreement to agreement,
members of the Quokka Performance Team will receive benefits such as the
following:
- exclusive exposure in their category as part of our digital media
coverage, including embedded product placement in our programming that
identifies the sponsor as an enabler of the Quokka Sports Immersion
experience;
- traditional sports sponsorship benefits in connection with Quokka-owned
events, including venue signage, licenses to use event designations in
their own marketing efforts and access to hospitality suites; and
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- sales and marketing assistance, including targeted lead generation, trade
show presence, in-store demonstrations using our digital content and
sales presentations demonstrating the Team member's contribution to the
Quokka Sports Immersion experience.
In addition to the Quokka Performance Team, we plan to create additional
"Teams" with similar custom-designed sponsor benefits in order to build
sponsorship revenues. For example, consumer retail goods and services companies
could become part of an Athlete's Team, covering equipment, sports clothing and
similar items of interest to athletes of all abilities. We developed our Team
model for digital entertainment sponsorships as we identified the various ways
we provided value to sponsors of our early Web sites, such as Tandem (which has
since been acquired by Compaq Computer Corporation), which accounted for
approximately 52% of our revenues in 1998, and CompuServe, which accounted for
approximately 16% of our revenues in 1998. We plan to continually evolve our
Team model in order to better meet sponsors' needs.
Because sponsorship is already part of the sports industry, many sports
governing bodies or other rights holders for the events we cover will have
pre-existing sponsorship relationships. We believe these pre-existing
sponsorships will provide us with ready-made sales opportunities. In some
circumstances, however, pre-existing sponsorships associated with specific
events may limit the pool of prospective companies we can approach regarding
sponsorship sales in connection with these events.
Advertising Opportunities
We plan to generate additional revenues from banner advertisements that are
prominently displayed throughout our digital sports entertainment network. In
selling banner advertisements, we plan to target companies seeking to reach a
global sports audience. Our experience with the Whitbread race demonstrated that
our distinctive coverage can attract a significant loyal and global audience
representing a demographic base sought by Internet advertisers and sponsors from
the consumer-products industry. We believe that by delivering an audience that
returns to our site frequently and stays for an extended period of time, we can
provide additional value to our sponsors and advertisers and generate
advertising revenues on a per user basis in excess of that currently achieved
elsewhere in the Internet industry.
Electronic Commerce Opportunities
We plan to develop electronic commerce opportunities on our Web sites to
generate additional revenues, as well as enhance our user experience. As
electronic commerce continues to grow, we expect that sports fans will
increasingly seek sports merchandise, event gear and other equipment over the
Internet and other digital distribution systems. We believe audiences of each of
our channels provide a receptive market for goods relating to sailing, motor
sports, the Olympics and adventure sports as well as general sports merchandise.
In the future, we plan to offer event-branded gear, event-related gear, Quokka-
branded products and our derivative products. In addition, we hope to offer
products produced by our digital entertainment sponsors that we use in creating
and producing the Quokka Sports Immersion experience. We will seek to make the
electronic shopping experience as immersive as possible so that it complements
the overall look and feel of our digital media programming. Additionally, by
providing access to high-quality sporting and events-related products through
our site or other digital distribution systems, we believe that we will be
expanding the overall Quokka experience for our audience.
Derivative Products: Leveraging Digital Assets
We plan to repurpose our digital content for distribution through
derivative products, such as books, magazines, other publications, videos and
screen savers. We believe that our audience will be a receptive market for such
derivative products and that such products will also appeal to people who are
not yet part of our audience. One of our initial derivative products is a book
containing page views from the Whitbread race that tells the inside story of the
race from beginning to end and maps each competitor's progress throughout the
race. Additionally, we believe that derivative products will provide additional
value to our digital entertainment sponsors and can be used to gather important
information regarding our audience.
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For example, we created a screen saver that embedded our sponsors' logos within
digital media from the Whitbread competition. Approximately 40,000 users
downloaded the screen saver for free in exchange for providing valuable,
in-depth demographic information.
Subscription and Pay-Per-View Opportunities
As broadband interactive systems, such as cable and satellite systems,
proliferate and users are able to access greater volumes of streaming video and
audio in interactive settings, we believe we may be able to distribute our
distinctive sports content through subscription services and that certain sports
events or coverage depths may be appropriate for distribution on a pay-per-view
basis.
Studio Services
We believe our studio services, which have included designing the official
Web site for the International Olympic Committee, have provided opportunities to
build strategic relationships with key players in the sports and sports media
industries. Our studio services have been primarily strategic in nature, and we
believe that revenues from studio services are likely to decrease as a
percentage of total revenues in the future.
International Olympic Committee. We produced www.olympic.org, the
official site of the International Olympic Committee and have advised the
International Olympic Committee on interactive rights and branding on the
Internet. Creation of the www.olympic.org site was a multi-phase project aimed
at establishing a significant online presence for the Olympic movement. This
Olympic site provides a store of information on Olympic history, tradition and
current events. Our work for the International Olympic Committee accounted for
more than 12% of our revenues in 1998.
Our Sales Team
As of March 31, 1999, our sales team consisted of thirteen full-time
employees, twelve of whom focus on selling sponsorships. Because of the
strategic and customized nature of our sponsorship sales, we plan to add
additional members to our sponsorship sales force. In connection with NBC/Quokka
Ventures' coverage of the Olympics, Quokka and NBC Olympics, Inc. will jointly
sell sponsorships for the joint venture's Olympic Web site. Additionally, we
plan to expand our sales force significantly in order to grow advertising sales
and develop our media and derivative products sales. We may also use third party
vendors to sell banner ads on our site.
THE QUOKKA SPORTS PLATFORM
The Quokka Sports Platform is a proprietary set of processes and
facilitating technologies that enables us to collect digital assets from sports
events and produce and deliver our distinctive programming. We believe this set
of processes and technologies provides a robust and efficient method that
facilitates real-time production of our sports entertainment programming and
maximizes the long-term value of the digital assets that Quokka collects and
produces. Our current programming is produced using the Quokka Sports Platform,
which is continuously being enhanced and improved to accommodate our expanding
requirements.
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At the highest level, the Quokka Sports Platform is organized into six
segments:
[GRAPHIC TITLED "QUOKKA SPORTS PLATFORM" AND DEPICTING
DATA FLOW THROUGH THE FOLLOWING SIX STAGES OF THE QUOKKA SPORTS
PLATFORM: (1) COLLECTION; (2) TRANSMISSION; (3) PRODUCTION;
(4) DISTRIBUTION; (5) DELIVERY; AND (6) CLIENT.]
Collection. Collection is the process of capturing data at event
venues. Collection is the point at which the Quokka Sports Platform begins and
the raw data from venues become digital media assets, the fundamental building
blocks of the Quokka Sports Platform. Digital media assets consist of individual
units of digital content, such as photographic images, video streams or e-mails
from an athlete as well as information about the assets, such as author or
physical storage location.
Devices capturing wide-ranging data are already a part of many sports. For
example, a world-class yacht is equipped with over 40 sensors that track
multiple variables such as rig tension, rudder position and wind speed. Over 80
attributes of a CART car's performance are measured, including fuel level,
engine temperature and engine RPMs. Athletes use this feedback to hone their
skills and track their performance. We seek access to relevant portions of this
data either directly by connecting to the sensors monitoring the actual
information or indirectly through our contractual relationships with the
governing body of an event, such as CART. We also seek access to data by
securing voluntary cooperation from athletes.
Remote Production and Transmission. Collected digital media assets are
prepared for transmission and then transmitted to our production studio. In our
remote production process, we define event-specific data tags that indicate the
type of data included in a transmission in much the same way desktop icons
indicate whether a file is a word processing document or electronic spreadsheet.
Remote production teams also control which assets are captured, formatted and
transmitted from the event and manage physical resources necessary to accomplish
this task. Tagged data is then transmitted to our production studio over
Internet Protocol networks, using satellite data communications, high-bandwidth
wide-area networks or other communications technologies.
Production. Transmissions are stored at our production studio in San
Francisco on receipt. Our event producers, directors and their multi-disciplined
teams use these transmitted digital assets to create multiple visual and audio
presentations. Aided by automation technologies, digital media assets received
from the sports venue are combined with previously stored assets or original
material created by our staff of designers, writers, audio specialists and
photographers. In advance of each event, these teams have
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developed story-telling templates that enable the action to be experienced from
the athlete's perspective and drive the audience to explore the site further.
Distribution and Delivery. Distribution is the process of transporting
our content from our production studio through high-speed interactive systems to
entities that provide delivery, while delivery is the process of ultimately
reaching the end user. We currently distribute our Quokka Sports Immersion
programming through www.quokka.com over the Internet. Accordingly, delivery is
accomplished primarily through Internet service providers who provide end-users
with access to the Internet through their computers. We are also designing our
programming to exploit the technological opportunities presented by other
interactive systems, such as DSL, cable modem and satellite. If we ultimately
employ these distribution methods, our future delivery partners are likely to
include the providers of DSL service, interactive cable services, or satellite
providers. End-users accessing our programming through these systems in the
future may use computers or ultimately other interactive viewing devices such as
interactive televisions. We have also distributed our content to traditional
broadcast and print media. We believe these traditional media may serve as
additional distribution outlets for our rich digital programming.
JOINT VENTURES AND RIGHTS AGREEMENTS
We plan to secure rights to cover sporting events through a variety of
methods, including direct acquisition and the formation of joint ventures with
rights holders or other entities having established relationships with rights
holders. We have experience with both methods. To date, we have acquired the
rights to events such as FIM Motorcycle racing directly from the rights holders
and we have entered into a joint venture with NBC Olympics, Inc. in connection
with the Olympic Games and a joint venture with Forsythe Racing, Inc. in
connection with CART.
Joint Venture with NBC. In February 1999, we formed NBC/Quokka
Ventures, LLC with NBC Olympics, Inc., a wholly-owned subsidiary of National
Broadcasting Company, Inc. In connection with the formation of the joint
venture, we contracted with the joint venture to provide the services necessary
for the joint venture to provide interactive digital coverage. Consequently, we
expect that the joint venture's interactive digital coverage of the Olympics on
its Web site will showcase Quokka's distinctive style of programming and will
complement NBC's television coverage.
NBC Olympics, Inc. granted the joint venture the following interactive
media rights, subject to limitations, in connection with the Olympic Games and
certain United States qualifying events through 2004:
- United States interactive rights to incorporate limited highlights of NBC
video into its coverage;
- an exclusive license to produce the official NBC interactive media
coverage of the Games;
- a license to incorporate still photographs and sequential still
photographs taken from video produced from the Games by NBC Olympics into
the joint venture's coverage;
- a license to incorporate into the joint venture's coverage historical
Games footage, non-competition video and all research and other
materials, whether text, audio, video, still footage, written or fixed in
any other medium relating to the Games produced by NBC Olympics;
- the right to distribute the joint venture's coverage in interactive media
throughout the United States; and
- a license to use the composite NBC/Olympic logo on the joint venture's
Web site in connection with the production, operation, promotion,
marketing and distribution of the joint venture's coverage of the Games.
In order to protect its broadcast rights and brand, however, NBC Olympics,
Inc. can restrict the joint venture's use of any of the foregoing interactive
media rights if:
- NBC lacks the ability to grant such rights to the joint venture as a
result of contractual limitations or restrictions imposed by, or
conflicts with any legal rights held by the International Olympic
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Committee or any other person or entity possessing intellectual property
or other rights in the still photographs, sequential still photographs or
video, whether Games, non-competition or historical;
- a use conflicts with NBC's current sponsors or advertisers or the
sponsors or advertisers of the International Olympic Committee, United
States Olympic Committee, Sydney Organizing Committee of the Olympic
Games, Salt Lake Olympic Organizing Committee or the 2004 Games
Organizing Committee;
- the digital assets are involved in any transaction by us or the joint
venture with any NBC Competitor, as defined below;
- a use competes with NBC's broadcast, cable or direct broadcast satellite
coverage of the Games; or
- a use violates NBC's, NBC Sports', the International Olympic Committee's,
the United States Olympic Committee's or other Olympic organizations'
editorial policies and practices.
NBC/Quokka Ventures, LLC is owned 51% by us and 49% by NBC Olympics, Inc.,
and management is vested in a board of directors, three of whom are currently
appointed by us and two of whom are currently appointed by NBC Olympics, Inc.
Under the terms of the venture's operating agreement, Quokka is solely
responsible for making cash capital contributions to the venture. The terms of
the operating agreement for the venture require us to make quarterly capital
contributions in amounts necessary to fund the venture's operations on an
ongoing basis in accordance with the annual operating plan. Accordingly, the
amounts and timing of these capital contributions will be based on the actual
activities of the venture and are unknown at this time. NBC Olympics, Inc.'s
obligation to the joint venture is to contribute interactive media rights as
described above as well as on-air promotion of the site, access to NBC
personalities and research.
NBC Olympics, Inc. has the right to terminate the joint venture in the
event an NBC Competitor:
- merges or otherwise consolidates with us in a transaction where we are
not the surviving entity;
- becomes the beneficial owner of 15% or more of our outstanding equity
securities;
- becomes entitled to elect, appoint or replace a member or members of our
board of directors unless NBC Olympics, Inc. is also granted the same
right; or
- acquires all or substantially all of our assets.
For these purposes, an "NBC Competitor" includes any media company that is
significantly engaged in any of the primary businesses of NBC Olympics, Inc.,
National Broadcasting Company, Inc. or its subsidiaries or any
telecommunications, Internet or similar company that is significantly engaged in
any of the primary businesses of NBC Olympics, Inc., National Broadcasting
Company, Inc., its subsidiaries or Snap! LLC or successor entities. However, an
NBC Competitor shall not include any entity identified by Quokka in writing to
NBC Olympics, Inc. that NBC Olympics, Inc. does not designate as an NBC
Competitor in writing to Quokka within 30 days of our written notice.
Joint Venture with Forsythe Racing, Inc. In January 1999, we
established CART Digital Media Enterprises, LLC a joint venture with Forsythe
Racing, Inc. Forsythe owns two of the teams that compete as part of the
Championship Auto Racing Teams circuit and brings to the joint venture racing
expertise as well as long-standing relationships with suppliers, teams and event
promoters in the auto racing world.
CART Digital Media Enterprises, LLC is owned 50% by us and 50% by Forsythe
Racing, Inc., and management is vested in a board of managers, two of whom are
appointed by us and two of whom are appointed by Forsythe Racing, Inc. We expect
to make capital contributions in order to meet our 50% share of the venture's
need for operating capital. Accordingly, the amounts and timing of these capital
contributions will be based on the actual activities of the venture and are
unknown at this time.
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In March 1999, the joint venture secured the exclusive worldwide
interactive media rights for all CART events through December 31, 2003 with a
right of first negotiation beyond that date. In connection with this digital
coverage, the joint venture also secured exclusive worldwide rights to:
- use CART's marks in its digital coverage as well as in connection with
any derivative products;
- use data and content from the events;
- syndicate content; and
- sell commercial partnerships, advertising, official merchandise,
electronic commerce products and services, official photographs and
derivative products.
The right to sell advertising and commercial partnerships is subject to
obligations to honor category exclusivity rights of current CART sponsors or to
first negotiate with those sponsors and the right to sell derivative products
and syndicate content is subject to CART's reasonable approval. The right to
sell official merchandise, official photographs and other electronic commerce
products and services is subject to receiving approval of other third parties.
CART has the ability to terminate the agreement if:
- the joint venture materially breaches any term of the agreement,
including failure to pay amounts owing under the agreement, subject to
notice and an opportunity to cure;
- the joint venture fails to maintain state of the art quality and
technological enhancements, subject to notice and an opportunity to cure;
- the Web site fails to achieve certain minimum levels of traffic, subject
to notice and an opportunity to cure;
- if the joint venture or we provide similar services to an open wheel
professional auto racing sanctioning body, league or series currently
domiciled in the United States that promotes products or services
competitive with those of CART; or
- if more than 49% of the ownership or beneficial interest in the joint
venture or in Quokka is transferred, sold or assigned to an entity whose
products or services are competitive to or in conflict with those of
CART.
FIM Motorcycle Racing
We have acquired from Dorna Promocion del Deporte, S.A. the exclusive,
worldwide interactive media rights for all FIM Road Racing World Championship
Grand Prix events from January 1, 2000 through December 31, 2003. In connection
with our coverage rights, we have secured the exclusive worldwide rights to:
- use FIM Motorcycling World Championships' trademarks as part of our
coverage as well as in connection with any derivative products;
- use data and content from the events;
- syndicate content; and
- sell sponsorships, advertising, official merchandise, electronic commerce
products and services and derivative products.
Our right to sell advertising and sponsorships is subject to obligations to
honor category exclusivity rights of current FIM Motorcycling World
Championships sponsors or to first negotiate with those sponsors and our right
to sell derivative products is subject to Dorna's reasonable approval. Our right
to syndicate content is subject to a restriction that certain assets may not be
syndicated alone without Dorna's consent. Our right to sell official merchandise
and other electronic commerce products and services is subject to
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receiving approval of certain other third parties. Dorna has the ability to
terminate the agreement if we fail to pay the required rights fee.
Around Alone
We have acquired from Great Adventures, Ltd. the exclusive, worldwide
interactive media rights for the Around Alone race through December 31, 2001
with the option to extend the term for two additional four-year periods. In
connection with our coverage rights, we also have secured worldwide rights to:
- use Around Alone's trademarks in our coverage as well as in connection
with any derivative products;
- use data and content from the events; and
- sell sponsorships, advertising, official merchandise, certain electronic
commerce products and services, official photographs, video and audio and
derivative products.
Our right to sell advertising and sponsorships is subject to certain obligations
to approach current Around Alone sponsors. Our right to sell official
merchandise, official photographs, video and audio and certain electronic
commerce products and services is subject to receiving approval of certain other
third parties. Great Adventures has the ability to terminate the agreement if we
fail to pay any revenue sharing earned.
America's Cup 2000
We have acquired the exclusive, worldwide interactive media rights for the
America's Cup 2000 Match yacht race to be held in February and March 2000 in
Auckland, New Zealand. In connection with our coverage rights, we also have
secured rights to:
- create and host the exclusive official America's Cup 2000 and Team New
Zealand Web sites;
- use trademarks and logos of America's Cup 2000 and Team New Zealand on
the Web sites we develop;
- collect and distribute data and content from the race; and
- sell and retain the revenues from sponsorship, advertising and commercial
arrangements to sell official merchandise.
In selling advertising and sponsorships, we are required to avoid conflicts
with existing sponsors of America's Cup 2000 or Team New Zealand. The agreement
can be terminated if we materially breach its terms, which could include our
failure to pay amounts we owe under the agreement.
Commitments Relating to Rights Acquisition
In connection with securing the rights to cover various events, we agree to
pay rights holders minimum annual guaranteed amounts, profit participation or
up-front fees, or a combination of these payments. See "Management's Discussion
and Analysis -- Liquidity and Capital Resources" for a discussion of our future
aggregate financial obligations relating to existing rights agreements.
COMPETITION
The market for Internet services and products is relatively new, intensely
competitive and rapidly changing. Since the Internet's commercialization in the
early 1990's, the number of Web sites on the Internet competing for consumers'
attention and spending has proliferated. We expect that competition will
continue to intensify.
We believe that our programming does not compete directly with traditional
media, primarily because traditional media frequently do not provide substantial
coverage of the sports that we cover and because we believe our programming can
substantially enhance coverage provided by traditional media.
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We expect that the number of our direct and indirect competitors will
increase in the future. We anticipate that, as the Internet and other
interactive systems, such as cable and satellite systems, converge with
traditional television broadcasting and traditional cable networks, significant
competition may come from the cable arena, including such sports-oriented cable
networks as the ESPN networks.
We believe that the principal competitive factors in attracting and
retaining audience are the ability to offer compelling and entertaining sports
programming, the depth, breadth and timeliness of coverage and brand
recognition. We believe that the principal competitive factors in securing and
retaining long-term digital rights to cover sporting events include the ability
to do the following:
- offer high-quality coverage;
- establish and maintain relationships with rights holders;
- deliver an attractive audience demographics;
- maintain credibility as a leading and enduring company; and
- pay substantial rights fees.
We may be unable to compete successfully with respect to one or all of these
factors. To review the risks we face from competitors, see "Risk Factors -- The
online digital sports entertainment industry is intensely competitive, and we
may be unable to compete successfully against current and future competitors."
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
The www.quokka.com site is hosted at Frontier GlobalCenter in Sunnyvale,
California. All of our network operations are controlled from our headquarters
in San Francisco, California. We provide multiple Web servers that run the
Microsoft Internet Information Server on the Microsoft Windows NT Server
operating system and Compaq server hardware. Internet access is maintained
through Frontier GlobalCenter.
The network infrastructure is composed of Cisco Systems, Inc. products in
redundant configurations. The computer and networking equipment used to operate
our Web sites is configured with multiple power supplies. Frontier GlobalCenter
provides a generator with up to two weeks of backup power.
Our operations depend upon our ability to protect systems against damage
from fire, earthquakes, power loss, telecommunications failure, break-ins,
computer viruses, hacker attacks and other events beyond our control. A disaster
or malfunction that disables either our San Francisco production facility or
Frontier Global Center could interrupt our programming completely, limit the
quantity or timeliness of updates to our productions or limit the speed at which
our audience can access our content. Although we do not currently have a
documented disaster recovery plan, we intend to create one.
The market for digital media is characterized by rapid growth, rapidly
changing technology, evolving industry standards and frequent announcements of
new developments. To be successful, we must adapt to our rapidly changing
environment by continually improving the performance, features and reliability
of our services as well as adapting to new technologies. We may also incur
substantial costs if we need to modify our programming or distribution processes
to adapt to these changes. Our business could be adversely affected if we incur
significant costs without adequate results or cannot adapt to these changes.
INTELLECTUAL PROPERTY
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our success. We rely on a
combination of copyright, trademark, service mark, patent and trade secret laws
and contractual restrictions to protect our proprietary rights in products and
services. The measures taken by us to protect our intellectual property may not
prevent misappropriation of our technology or deter independent third-party
development of similar technologies.
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We also cannot guarantee that infringement or other claims will not be
asserted or prosecuted against us in the future whether resulting from our
internally developed intellectual property or licenses or content from third
parties. For a description of our intellectual property practices and potential
risks, see "Risk Factors -- We may be unable to adequately protect or enforce
our intellectual property rights, and our efforts to do so could be
time-consuming and expensive and could divert management attention from
executing our business strategy."
GOVERNMENT REGULATION
We are subject to the same federal, state and local laws as other
businesses on the Internet. Today there are relatively few laws directed towards
online services. However, due to the increasing popularity and use of the
Internet and other online services, it is possible that a number of laws and
regulations may be adopted with respect to the Internet or other online
services. For a description of risks we face from regulation of the Internet,
see "Risk Factors -- Changes in regulation of the Internet could limit our
business prospects."
We are qualified to do business in six states in the United States, and
failure by us to comply with foreign laws or to qualify as a foreign corporation
in a jurisdiction where we are required to do so could subject us to taxes and
penalties for the failure to qualify and could result in the inability to
enforce contracts in such jurisdictions. Any such new legislation or regulation,
or the application of laws or regulations from jurisdictions whose laws do not
currently apply to our business, could have a negative effect on our business.
EMPLOYEES
As of March 31, 1999, we had 186 employees, including 84 in production and
programming, 41 in engineering, software development and network operations, 15
in marketing, 13 in sales and 33 in administration, which includes rights
acquisition and other business services. We consider our relations with our
employees to be good. We believe that our future success will depend in part on
our continued ability to attract, integrate, retain and motivate highly
qualified technical and managerial personnel and upon the continued service of
our senior management and key creative personnel, none of whom is bound by an
employment agreement. Our growth has required us to continually hire, train and
manage new employees at a rapid rate, although competition for qualified
personnel in our industry and geographical location is intense. There can be no
assurance that we will be successful in attracting, integrating, retaining and
motivating a sufficient number of qualified personnel to conduct our business in
the future.
FACILITIES
Our principal administrative, marketing, production and research and
engineering facilities are located in approximately 41,000 square feet of office
space in San Francisco, California under a lease that expires in March 2006. We
have entered into three additional office leases in San Francisco, California
covering an aggregate of approximately 52,000 square feet at three additional
sites to accommodate additional personnel. We have a 168 square-foot office in
Troy, Michigan for local sales activities. Finally, we have entered into a
long-term lease covering approximately 5,000 square feet of office space in
London, England which will serve as the center for our international operations
and have sub-leased approximately 400 square feet of office space near Lausanne,
Switzerland. We are actively seeking additional space.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our directors,
executive officers and certain other key employees as of March 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Alan S. Ramadan................... 41 President, Chief Executive Officer and Director
Richard H. Williams(1)............ 55 Chairman of the Board of Directors
John Bertrand A.M................. 52 Vice Chairman of the Board of Directors
Alvaro J. Saralegui............... 42 Chief Operating Officer
Les Schmidt....................... 44 Executive Vice President, Chief Financial Officer and
Secretary
Michael W. Gough.................. 43 Chief Creative Officer and Executive Producer
L. Steve Nelson................... 40 Senior Vice President, Olympics
Thomas P. Newell.................. 41 Senior Vice President, Business and Legal Affairs
David A. Riemer................... 41 Senior Vice President, Marketing
Pascal Wattiaux................... 38 Senior Vice President, Engineering
Mark J. Ellis..................... 40 Vice President, Sales
Marc P. Erzberger................. 31 Vice President, Motor Racing and General Manager
G. Michael Novelly................ 34 Vice President Finance and Controller
M. Elizabeth Sandell.............. 43 Vice President, Organizational Design and Development
Gerardo Seeliger.................. 52 General Manager, Europe
Brian J. Terkelsen................ 35 Vice President, Programming and Production
Walter W. Bregman(1)(2)........... 65 Director
Roel Pieper....................... 43 Director
James G. Shennan, Jr.(1)(2)(3).... 57 Director
Barry M. Weinman(2)(3)............ 60 Director
</TABLE>
- ---------------
(1) Member of the Nominating Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Alan S. Ramadan has served as our President and Chief Executive Officer
and as a director since August 1996, when we incorporated in Delaware under the
name Quokka Productions, Inc. Additionally, Mr. Ramadan served as Managing
Director of our Company from 1990 to August 1996, during which period we were
known as Ozware Developments Unit Trust and operated in Australia. In January
1993, Mr. Ramadan joined Fluid Thinking, Pty. Ltd. in Melbourne, Australia as
that company's Chief Executive Officer until June 1995. As Chief Executive
Officer of Fluid Thinking, Pty. Ltd., Mr. Ramadan was responsible for drawing
together a team of specialists that, together with the Technology Foundation,
developed key technology used by oneAustralia in the America's Cup challenge.
Mr. Ramadan also founded Best Knowledge Systems, a consulting company, and
worked as a research scientist at BHP Steel and as a computer scientist at
Monash University in Melbourne, Australia. Mr. Ramadan holds a B.Sc. in Computer
Science and Applied Mathematics from Monash University and is a 1995 graduate of
the Stanford Business School's Executive Program for Growing Companies.
Richard H. Williams has served as a director since August 1996, when we
incorporated in Delaware under the name Quokka Productions, Inc. Since April
1997, Mr. Williams has served as our Chairman of the Board. From December 1993
to February 1996, Mr. Williams was President and Chief Executive Officer of
Illustra Information Technologies, Inc. In February 1996, Illustra Information
Technologies, Inc. was acquired by Informix Software, Inc., where Mr. Williams
served as Senior Vice
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President until August 1996. From October 1991 to May 1992, Mr. Williams was
Executive Vice President of Sales for Novell, Inc., and General Manager of that
company's Digital Research Systems Group. Prior to that time, Mr. Williams
served as President and Chief Executive Officer of Digital Research, Inc. Before
joining Digital Research, Inc., Mr. Williams was employed by IBM for twenty two
years, where he served as Vice President of Plans, Controls and Product
Management for the General Products Division from May 1984 to December 1986. Mr.
Williams holds a B.S. in Mathematics from the University of North Dakota and
conducted graduate studies at the University of Minnesota in numerical analysis
and statistics.
John Bertrand A.M. has served as a director since August 1996 when we
incorporated in Delaware under the name Quokka Productions, Inc. Since April
1997, Mr. Bertrand has served as our Vice Chairman of the Board. From September
1992 to June 1995, Mr. Bertrand was the Chairman of the Board of Fluid Thinking,
Pty. Ltd. and the skipper of oneAustralia, the 1995 America's Cup Challenge team
that received technological support from Fluid Thinking, Pty. Ltd. From
September 1995 to October 1998, Mr. Bertrand was Chairman of the Australian
Government's Industry Research and Development Board. From June 1993 to the
present, Mr. Bertrand has been the Chairman of the Southern Cross Foundation, an
Australian scholarship foundation for engineering and applied science students.
Mr. Bertrand holds a B.S. in Mechanical Engineering from Monash University and a
M.S. in Naval Architecture from M.I.T. During his twenty-nine year international
sailing career, from 1970 to the present, Mr. Bertrand has represented Australia
in five America's Cups and two Olympic Games. Mr. Bertrand won the America's Cup
for Australia in September 1983 and is a life member of the Australia's Sports
Hall of Fame as well as the International America's Cup Hall of Fame.
Alvaro J. Saralegui joined Quokka in April 1999 as our Chief Operating
Officer. From March 1998 to April 1999, Mr. Saralegui was employed by the People
Magazine Group where he initially served as Vice President of People Weekly
until he was promoted to Group Publisher in January 1999. From September 1983 to
March 1998, Mr. Saralegui was employed at Sports Illustrated, Inc, where he
served as General Manager from November 1992 to March 1998. During his fifteen
years at Sports Illustrated, Inc., Mr. Saralegui also served as that company's
Business manager, Director of Marketing and Sales Development and Advertising
Sales Director. Mr. Saralegui holds a B.A. in History and Economics from
Dartmouth and an M.B.A. from Columbia University.
Les Schmidt joined Quokka in February 1998 as our Senior Vice President,
Quokka Productions, Chief Financial Officer and Secretary and was promoted to
Executive Vice President, Chief Financial Officer and Secretary in February
1999. From September 1996 to June 1997, Mr. Schmidt served as the Chief
Executive Officer of MECON, a healthcare benchmarking company. Mr. Schmidt
joined The Learning Company in 1987 and served as that company's Chief Financial
Officer until September 1994 when he was promoted to Chief Operating Officer. He
served as Chief Operating Officer of The Learning Company and its successor, The
Learning Company, Inc., a publicly traded developer and publisher of
educational, foreign language and home office productivity software, until
September 1996. Prior to that, Mr. Schmidt served as the Controller for Applied
ImmuneSciences, Inc., a venture-backed biotech start-up. Before joining Applied
ImmuneSciences, Inc., Mr. Schmidt was employed by Coopers & Lybrand, an
accounting firm, during which time he became a CPA. Mr. Schmidt holds a B.A. in
Political Economics from Antioch College and an M.S. in Taxation from Golden
Gate University.
Michael W. Gough joined Quokka in July 1997 as our Vice President,
Design and Creative Director and was promoted to Chief Creative Officer and
Executive Producer in September 1998. In August 1995, Mr. Gough co-founded
Construct Internet Design, a digital media design firm, where he served as
Creative Director until July 1997. Prior to that, Mr. Gough co-founded Jones,
Partners: Architecture, a design-focused architecture firm, where he served as
Managing Partner from December 1994 to August 1995. Earlier in his career, Mr.
Gough was an architect for Holt Hinshaw Pfau Jones and, before that, an
architect for the San Jose Redevelopment Agency. Mr. Gough studied Architecture
at California Polytechnic State University.
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<PAGE> 59
L. Steve Nelson joined Quokka in December 1996 as our Senior Vice
President. In February 1999, Mr. Nelson became the Senior Vice President,
Olympics. From December 1995 to December 1996, Mr. Nelson served as Vice
President, America's Marketing and Sales for Informix Software, Inc. While at
Informix Software, Inc., Mr. Nelson oversaw industry sales and marketing for
telecommunications, media, financial services, retail and manufacturing. From
October 1994 to December 1996, Mr. Nelson served as Vice President of Software
Marketing for IBM. During his fourteen years at IBM, Mr. Nelson also served as
that company's Director of Marketing and General Manager of Product Marketing.
Mr. Nelson holds a B.S. in Business from Wake Forest University where he was on
the Varsity Golf Team.
Thomas P. Newell joined Quokka in March 1998 as Vice President of
Business Affairs and was promoted to Senior Vice President, Business and Legal
Affairs in October 1998. From May 1994 to August 1997, Mr. Newell served as
Executive Vice President and General Counsel for GGP Productions, LP, an
independent sports television production, syndication and sports marketing
company. There, he handled the company's financial and business operations for
three and a half years until its sale to International Management Group, a
Cleveland-based sports marketing and television company. From April 1992 to
April 1994, Mr. Newell served as Vice President, Business Affairs and Operations
of CBS Enterprises for CBS, Inc. During his seven years at CBS, Inc., Mr. Newell
also served as Litigation Counsel, then as Broadcast Counsel and as Director of
Business Affairs of CBS Sports, in which capacity he conducted negotiations that
resulted in CBS Sports' opportunity to cover the 1992 Olympic Winter Games.
Prior to that, Tom worked as a civil litigator for five years at O'Melveny &
Myers, a national law firm. Mr. Newell holds a B.A. from Stanford University and
a J.D. from USC Law School.
David A. Riemer joined Quokka in November 1998 as our Senior Vice
President, Marketing. Prior to joining us, Mr. Riemer spent 13 years at J.
Walter Thompson, where he served as President, JWT/West from May 1997 to
September 1998. While serving as President, JWT/West, Mr. Riemer oversaw the
JWT/Digital Unit and developed an agency specialization in telecommunications,
technology, retail and service marketing. Over the course of his career, Mr.
Riemer has written two musical comedies, two books and directed various
theatrical productions. Mr. Riemer holds a B.A. in Urban Studies and History
from Brown University and an M.B.A. from Columbia University.
Pascal Wattiaux joined Quokka in June 1999 as our Senior Vice President,
Engineering. From August 1996 to June 1999, Mr. Wattiaux served as Director of
Technology at the International Olympic Committee in Lausanne, Switzerland,
where he was responsible for all Olympic technology functions, including timing,
scoring, telecommunications and information systems, as well as managing
relationships with strategic technology partners. From January 1996 until August
1996, he served as senior manager at Price Waterhouse LLP, which has been
renamed PricewaterhouseCoopers LLP, and was responsible for developing a systems
integration practice in Europe. From August 1993 until January 1996, Mr.
Wattiaux served as Information Technology Director for International Operations
at Reebok International Ltd., having previously served as Management Information
Systems Director for Reebok France since January 1993. Prior to that, Mr.
Wattiaux worked at Andersen Consulting for nine years in Paris, France, first as
a consultant and then as a director. Mr. Wattiaux holds a Diplome d'Ingenieur
from Ecole Nationale Superieure des Telecommunications.
Mark J. Ellis joined Quokka in May 1999 as our Vice President, Sales.
From March 1998 to April 1999, Mr. Ellis served as a Vice President/Publisher
for Time Inc. New Media. From November 1997 to March 1998, Mr. Ellis served as
the Publishing Director for Sports Illustrated Presents. From July 1991 to
November 1997, Mr. Ellis served as the Detroit Advertising Director for Sports
Illustrated. Mr. Ellis holds a B.A. in Marketing from the University of Notre
Dame and an M.B.A. from the University of Detroit.
Marc P. Erzberger joined Quokka in August 1998 as our Vice President,
Motor Racing. From June 1991 to June 1998, Mr. Erzberger served as a consultant
for the Boston Consulting Group in London where he worked extensively in the
financial services and consumer/retail sectors. Mr. Erzberger worked on issues
of strategy and implementation in several product areas, including household
products, spirits and beverages, food, automotive and credit cards. Mr.
Erzberger holds a B.Sc. in Mathematics and Management
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<PAGE> 60
from the University of London, King's College, and an M.B.A. from the Harvard
Graduate School of Business Administration. Mr. Erzberger is an avid sportsman,
having represented Switzerland in the windsurfing event at the 1984 Olympic
Games in Los Angeles.
G. Michael Novelly joined Quokka in August 1998 as our Controller and
was promoted to Vice President, Finance and Controller in January 1999. From
March 1995 to August 1998, Mr. Novelly served as the Senior Vice President and
Chief Financial Officer of PolyGram Television, a division of the publicly
traded global music and entertainment group, PolyGram, N.V. During his years at
PolyGram, Mr. Novelly oversaw all financial and administrative aspects of the
Company's film production, acquisition and worldwide distribution of its library
of over 10,000 hours of filmed entertainment programming. Before joining
PolyGram Television, Mr. Novelly was employed by KPMG Peat Marwick LLP, an
accounting firm, where he provided auditing and consulting services to film
production and distribution companies, including Metro-Goldwyn-Mayer Inc,
Ticketmaster Corporation and Gramercy Pictures. Mr. Novelly is a CPA and holds a
B.S. in Accounting and Finance from the University of Colorado at Boulder.
M. Elizabeth Sandell joined Quokka in July 1998 as our Vice President,
Organizational Design and Development. From December 1996 to June 1998, Ms.
Sandell served as Vice President, Human Resources for NetChannel Inc., a
multi-media, internet service provider. In 1993, Ms. Sandell founded The Sandell
Group, a consulting firm for technology companies, where she has served as that
company's Principal from November 1993 to the present. Prior to that time, Ms.
Sandell served as Western Region Director of Human Resources for Service America
Corporation, where she was responsible for 4500 employees throughout 10 states
and Canada. Ms. Sandell began her career in Human Resources with Marriott
Corporation, holding a variety of corporate personnel management positions in
the Hotel and Lodging Division. She holds a B.A. in Psychology from Agnes Scott
College and a Masters of Divinity with emphasis in cross-cultural communication
from Alliance Theological Seminary.
Gerardo Seeliger joined Quokka in August 1998 as an advisor and was
promoted to General Manager, Europe, in April 1999. Mr. Seeliger co-founded
Seeliger & Conde, one of Spain's largest executive search firms, and served as
that company's Managing Partner from April 1990 to April 1999. Prior to that
time, Mr. Seeliger served as the General Manager of Sardan AG, the holding
company for Adidas Group, Switzerland. Before that, Mr. Seeliger served as a
Managing Director for Russell Reynolds Associates, an executive recruitment
firm, and as a General Manager for Bankers Trust, Co. Mr. Seeliger has held
several positions within the International Sailing Federation, including
Chairman, Marketing. Mr. Seeliger holds a degree in Economics and Science from
the University of Freiburg, Germany.
Brian J. Terkelsen joined Quokka in June 1998 as our Vice President,
Programming and Production. In January 1993, Mr. Terkelsen co-founded
Eco-Challenge Lifestyles, Inc., an adventure racing company, where he served as
Chief Operating Officer from that company's inception to January 1998. During
that period, Mr. Terkelsen also served as Executive Producer for several
adventure racing television productions, including productions for MTV and The
Discovery Channel. From May 1985 to June 1992, Mr. Terkelsen was employed as an
investment banker for Barclay's Bank and Bankers Trust, Co. Mr. Terkelsen holds
a B.S. in Business Administration, Finance from Bryant College.
Walter W. Bregman became a director of Quokka in October 1997. From
January 1988 to the present, Mr. Bregman has served as Chairman and Joint Chief
Executive Officer of S&B Enterprises, a marketing and consulting company. In
1985, Mr. Bregman co-founded Cormorant Beach Club in St. Croix USVI and served
as its Chief Executive Officer and Manager from 1985 to 1987. Prior to that
time, Mr. Bregman was President of International Playtex, Inc. a manufacturer of
intimate apparel, toiletries, pantyhose and baby nursers. Before joining
International Playtex, Inc., Mr. Bregman served as Vice President of Marketing
and Advertising for E&J Gallo Winery and as President of NCK, Inc., a worldwide
advertising agency. Mr. Bregman also serves on the boards of directors for
Symantec, Inc. and Sento, Inc. Mr. Bregman holds an A.B. in English Literature
from Harvard College.
Roel Pieper became a director of Quokka in December 1997. From May 1998
to May 1999, Mr. Pieper has served as a director and an Executive Vice President
of Royal Philips Electronics N.V. From August 1997 to March 1998, Mr. Pieper
served as Senior Vice President, Worldwide Sales and Marketing,
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<PAGE> 61
of Compaq Computer Corporation. From January 1996 to August 1997, Mr. Pieper
served as the President and Chief Executive Officer of Tandem Computers, Inc.,
where he helped reposition the company for its eventual merger with Compaq
Computer Corporation. From September 1993 to December 1995, Mr. Pieper also
served as the President and Chief Executive officers of Ub Networks, Inc., a
wholly-owned subsidiary of Tandem Computers, Inc., until that subsidiary merged
with Compaq Computer Corporation. From December 1990 to August 1993, Mr. Pieper
was the President and Chief Executive Officer of AT&T's UNIX System
Laboratories. Prior to that time, Mr. Pieper spent ten years in the employ of
Software AG, where he was eventually promoted to the position of Chief
Technology Officer. Mr. Pieper also serves on the boards of directors of
Computer Associates, Inc., Veritas Software, Inc., General Magic, Inc. and
Lincoln Financial Group. Mr. Pieper holds a Doctoral Degree in Mathematics and
Computer Science from Delft Technical University and is Crown Fellow of the
Aspen Institute in the United States.
James G. Shennan, Jr., became a director of Quokka in December 1997.
From June 1989 to the present, Mr. Shennan has been a General Partner of Trinity
Ventures, a venture capital firm. Mr. Shennan has over 25 years experience in
consumer products and services marketing. Mr. Shennan also serves on the boards
of directors of the Starbucks Coffee Company and P. F. Chang's China Bistro,
Inc., as well as several private consumer and e-commerce companies in which
Trinity Ventures is an investor. Mr. Shennan holds a B.A. in International
Politics from Princeton University and an M.B.A. from the Stanford Graduate
School of Business.
Barry M. Weinman became a director of Quokka in November 1997. From May
1993 to the present, Mr. Weinman has been a General Partner at Media Technology
Ventures/AVI Management and has been making high tech venture capital
investments in Silicon Valley since 1980. AVI Management and its new media fund,
Media Technology Ventures, had approximately $300 million under management as of
March 31, 1999. Mr. Weinman is also on the boards of directors of Women.com
Networks (Women's Wire), Be, Inc., InfoGear, Inc. and TalkCity, Inc. Mr. Weinman
holds a B.S. in Industrial Engineering from Clarkson College of Technology and
an M.A. in International Relations from the London School of
Economics/University of Southern California.
BOARD COMPOSITION
Upon the completion of this offering, Quokka will have authorized seven
directors. In accordance with the terms of our certificate of incorporation and
bylaws, each of which will become effective upon the completion of this
offering, the board of directors will be divided into three classes, Class I,
Class II and Class III, with each class serving staggered three-year terms. Upon
the completion of this offering, the members of the classes will be divided as
follows:
- Class I: Messrs. Bertrand, Pieper and Ramadan;
- Class II: Messrs. Bregman and Shennan; and
- Class III: Messrs. Weinman and Williams.
The Class I directors will stand for re-election or election at the 1999
annual meeting of stockholders. The Class II directors will stand for
re-election or election at the 2000 annual meeting of stockholders and the Class
III directors will stand for re-election or election at the 2001 annual meeting
of stockholders. At each annual meeting of stockholders after the initial
classification, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following the election or special meeting held in lieu thereof.
Our certificate of incorporation provides that the authorized number of
directors may be changed only by resolution of the board of directors. Any
additional directorships resulting from an increase in the number of directors
will be distributed between the three classes so that, as nearly as possible,
each class will consist of one-third of the directors. This classification of
the board of directors may have the effect of delaying or preventing changes in
the control or management of Quokka. Notwithstanding the foregoing, if Quokka is
subject to Section 2115 of the California General Corporation Law, all directors
shall be designated of the same class, and such directors shall be elected by
cumulative voting if any stockholder
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requests cumulative voting. See "Description of Capital Stock -- Section 2115"
for additional information relating to the effect of Section 2115 on Quokka.
Directors of Quokka may be removed for cause by the affirmative vote of the
holders of a majority of our voting stock and such directors may be removed
without cause by the affirmative vote of the holders of at least two-thirds of
our voting stock. Notwithstanding the foregoing, if Quokka is subject to Section
2115 of the California General Corporation Law, unless every director is
removed, no single director may be removed without cause when the votes cast
against such director's removal would be sufficient to elect that director if
voted cumulatively. See "Description of Capital Stock -- Section 2115" for
additional information relating to the effect of Section 2115 on Quokka.
BOARD COMMITTEES
The Audit Committee of the board of directors consists of Messrs. Shennan
and Weinman. The Audit Committee reviews our financial statements and accounting
practices, makes recommendations to the board of directors regarding the
selection of independent auditors and reviews the results and scope of the audit
and other services provided by our independent auditors. The Compensation
Committee of the board of directors consists of Messrs. Bregman, Shennan and
Weinman. The Compensation Committee makes recommendations to the board of
directors concerning salaries and incentive compensation for our officers and
employees and administers our employee benefit plans. The Nominating Committee
of the board of directors consists of Messrs. Bregman, Shennan and Williams. The
Nominating Committee makes recommendations to the board of directors concerning
the nomination of new directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the board of directors
is an officer or employee of Quokka. None of our executive officers serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving on our board of directors or
Compensation Committee.
DIRECTOR COMPENSATION
Except for Mr. Bregman, we have not provided cash compensation to
non-employee directors for their services as directors. Following the completion
of this offering, all directors will be eligible to participate in our 1999
Equity Incentive Plan, employee directors will be eligible to participate in our
1999 Employee Stock Purchase Plan and non-employee directors will be eligible to
participate in our 1999 Non-Employee Directors' Stock Option Plan. See
"-- Employee Benefit Plans" for additional information relating to these plans.
In October 1997, we entered into an agreement with Mr. Bregman, under which
Mr. Bregman had been paid, as of March 31, 1999, an aggregate of $43,000. Prior
to the completion of this offering, Mr. Bregman was compensated under the
agreement at a rate of $2,000 for every board meeting attended and $500 for
every committee meeting attended, if the committee meeting was held in
conjunction with a board meeting. For each committee meeting not held in
conjunction with a board meeting, Mr. Bregman received $1,500. Additionally,
under the agreement, Mr. Bregman received an initial option grant as well as
option grants in the amount of 16,000 shares each year. As of March 31, 1999,
Mr. Bregman had been granted an aggregate of 112,000 shares of our stock outside
of the 1997 Equity Incentive Plan with a weighted average exercise price of
$0.80 per share.
EXECUTIVE COMPENSATION
The following table shows compensation earned during fiscal 1998 by
Quokka's chief executive officer and our only other executive officer who earned
more than $100,000 in 1998. These people are referred to as the named executive
officers. Titles shown in the table are titles held as of March 31, 1999. The
information in the table includes salaries, bonuses, stock options granted and
other miscellaneous compensation. We have not granted stock appreciation rights
or restricted stock awards and provide no long-term compensation benefits other
than stock options.
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SUMMARY COMPENSATION TABLE(1)(2)
<TABLE>
<CAPTION>
LONG-TERM AND
ANNUAL COMPENSATION FOR 1998 OTHER COMPENSATION
------------------------------- --------------------
OTHER ANNUAL NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION UNDERLYING OPTIONS
- ---------------------------- -------- ----- ------------ --------------------
<S> <C> <C> <C> <C>
Alan Ramadan.................................... $214,583 -- -- --
President, Chief Executive Officer and
Director
Les Schmidt..................................... $172,051 -- -- 200,000
Executive Vice President, Chief Financial
Officer and Secretary
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission the
compensation described in this table does not include medical, group life
insurance or other benefits received by the named executive officers that
are available generally to all of our salaried employees and certain
perquisites and other personal benefits received by the named executive
officers, which do not exceed the lesser of $50,000 or 10% of any such
officer's salary and bonus disclosed in this table.
(2) Messrs. Riemer and Williams did not serve as employees of Quokka for all of
1998. If these officers' base salaries were annualized for all of fiscal
1998, their compensation would have required disclosure on this table. For
1998, Mr. Riemer's base salary on an annualized basis was $200,000. For
1998, Mr. William's base salary on an annualized basis was $200,000.
Additionally, if Mr. Saralegui, who was not hired by Quokka until April
1999, had been employed with Quokka during 1998 pursuant to the same
compensation arrangement that he has with us during 1999, his compensation
would have required disclosure in this table. For 1999, Mr. Saralegui's base
salary is $275,000.
OPTION GRANTS DURING 1998
The following table sets forth each grant of stock options made during 1998
to each of the named executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES
NUMBER OF PERCENTAGE OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM(4)
OPTIONS EMPLOYEES PER EXPIRATION --------------------------
NAME GRANTED(1) DURING 1998(2) SHARE(3) DATE 5% 10%
- ---- ---------- -------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alan Ramadan(5)....... -- -- -- -- -- --
Les Schmidt(6)........ 200,000 8.8% $0.50 2/16/08 $3,158,000 $5,087,000
</TABLE>
- ---------------
(1) Options granted in 1998 to the named executive officers were granted under
the 1997 Equity Incentive Plan. All options granted to the named executive
officers are immediately exercisable, incentive stock options, to the extent
permissible under applicable IRS regulations. Generally, initial option
grants vest as to 20% of the shares subject to the option one year from the
date of hire and one-forty-eighth of the remaining shares subject to the
option vest on each monthly anniversary thereafter. Bonus or promotion
options vest according to the same schedule as the initial option grants
except that the one year waiting period typically commences on the date the
bonus is awarded or on the date of promotion. Other options vest according
to the same schedule as the initial option grants except that the one year
waiting period is reduced to ten months and the waiting period commenced on
January 1, 1999. Upon certain changes in control of Quokka, this vesting
schedule will accelerate as to all shares that are then unvested. Unvested
shares are subject to Quokka's right of repurchase upon termination of
employment. Options expire ten years from the date of grant.
(2) Based on an aggregate of 2,273,000 shares subject to options granted to
employees of Quokka in 1998, including named executive officers.
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(3) The exercise price per share of each option granted was equal to the fair
market value of the common stock as determined by the board of directors on
the date of the grant. In determining the fair market value of the stock
granted on the grant date, the board of directors considered, among other
things, Quokka's absolute and relative levels of revenues and other
operating results and the state of Quokka's strategic relationships.
(4) Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by an assumed initial
public offering price of $10.00 per share, (b) assuming that the aggregate
stock value derived from that calculation compounds at the annual 5% or 10%
rate shown in the table for the entire ten-year term of the option and (c)
subtracting from that result the aggregate option exercise price. The 5% and
10% assumed annual rates of stock price appreciation are mandated by the
rules of the SEC and do not represent Quokka's estimate or projection of
future common stock prices.
(5) Excludes 300,000 shares subject to options granted in March 1999. Such
options are subject to the same provisions regarding vesting as described in
footnote (1) above, expire on March 15, 2009 and were granted at an exercise
price of $8.00 per share.
(6) Excludes 250,000 shares subject to options granted in February 1999. Such
options are subject to the same provisions regarding vesting as described in
footnote (1) above, expire on February 25, 2009 and were granted at an
exercise price of $7.00 per share.
AGGREGATE OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES AT DECEMBER 31,
1998
The following table sets forth the number of shares of common stock
acquired and the value realized upon exercise of stock options during 1998 and
the number of shares of common stock subject to exercisable and unexercisable
stock options held as of December 31, 1998 by each of the named executive
officers. Value at fiscal year end is measured as the difference between the
exercise price and the fair market value on December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED
NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998(3) DECEMBER 31, 1998(4)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(1) REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alan Ramadan............... -- -- -- -- -- --
Les Schmidt................ 32,000 $304,000 168,000(5) -- $1,596,000 --
</TABLE>
- ---------------
(1) Represents shares which were vested on the date of exercise.
(2) Based on an assumed initial public offering price per share of $10.00, minus
the per share exercise price, multiplied by the number of shares issued upon
exercise of the option.
(3) Options granted to named executive officers may be exercised immediately
(i.e. prior to vesting) pursuant to early exercise provisions contained in
option agreements. Any unvested shares issued pursuant to any such early
exercise are subject to a repurchase option in favor of Quokka at the
original exercise price paid per share upon the optionee's cessation of
service as an employee, director or consultant prior to the vesting of such
shares. Such repurchase option lapses at a rate reflecting the vesting
schedule of the underlying option. Accordingly, such repurchase option
generally lapses at a rate of 2.083% per month.
(4) Based on the difference between the assumed initial public offering price
per share of $10.00 and the exercise price.
(5) If exercised in full within 60 days of June 9, 1999, 143,334 of these shares
would be subject to a right of repurchase in favor of Quokka.
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<PAGE> 65
EMPLOYEE BENEFIT PLANS
1997 Equity Incentive Plan
General. In February 1997, the board of directors adopted, and the
stockholders approved, the 1997 Equity Incentive Plan. The incentive plan was
amended in September 1998 and March 1999 and amended and restated in April 1999.
As of June 9, 1999, options to purchase a total of 8,276,436 shares of common
stock were held by all participants under the Incentive Plan and options to
purchase 4,729,801 remained available for grant. The incentive plan provides for
the grant of:
- incentive stock options, as defined under the Internal Revenue Code of
1986, as amended, to employees (including officers);
- nonstatutory stock options;
- restricted stock purchase awards; and
- stock bonuses to employees (including officers), directors and
consultants.
Administration. The incentive plan is administered by the board of
directors. The board of directors may delegate authority to administer the
incentive plan to the compensation committee. The board of directors determines
recipients, types of options to be granted, number of shares subject to the
option vesting, and the exercisability of options granted. The board of
directors also determines the exercise price of options granted. The exercise
price for an incentive stock option cannot be less than 100% of the fair market
value of the common stock on the date of grant. The exercise price for a
nonstatutory stock option cannot be less than 85% of the fair market value of
the common stock on the date of grant. Options granted under the incentive plan
vest at the rate specified in the option agreement.
In general, the term of stock options granted under the incentive plan may
not exceed 10 years. Unless the terms of an optionee's stock option agreement
provide for earlier termination, in the event an optionee's service relationship
with us, or any affiliate of ours, ceases due to disability or death, the
optionee (or his beneficiary) may exercise any vested options up to twelve
months (eighteen months in the event of death) after the date such service
relationship ends. If an optionee's relationship with us, or any affiliate of
ours, ceases for any reason other than disability or death, the optionee may
(unless the terms of the stock option agreement provide for earlier termination)
exercise any vested options up to three months from cessation of service.
Generally, an optionee may not transfer a stock option other than by will
or the laws of descent or distribution unless the optionee holds a nonstatutory
stock option that provides otherwise. However, an optionee may designate a
beneficiary who may exercise the option following the optionee's death.
Option Grants. Incentive stock options may be granted only to our
employees. The aggregate fair market value, determined at the time of grant, of
shares of our common stock with respect to which incentive stock options are
exercisable for the first time by an optionee during any calendar year under all
of our stock plans may not exceed $100,000. No incentive stock option, and prior
to our stock being publicly traded no nonstatutory stock option, may be granted
to any person who, at the time of the grant, owns or is deemed to own stock
possessing more than 10% of the total combined voting power of Quokka or any of
its affiliates unless the following conditions are satisfied:
- the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and
- the term of the incentive stock option award must not exceed five years
from the date of grant.
When we become subject to Section 162(m) of the Internal Revenue Code of
1986 (which denies a deduction to publicly held corporations for certain
compensation paid to specified employees in a taxable year to the extent that
the compensation exceeds $1.0 million), no person may be granted options under
the incentive plan covering more than 2,000,000 shares of common stock in any
calendar year. Shares subject to stock options that have expired or otherwise
terminated without having been exercised in full
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again become available for the grant of awards under the incentive plan. Under
its general authority to grant options, the board of directors has the implicit
authority to reprice outstanding options or to offer optionees the opportunity
to replace outstanding options with new options for the same or a different
number of shares. Both the original and new options will count toward the
Section 162(m) limitation.
Restricted Stock and Stock Bonus Awards. Prior to our stock being
publicly traded, the purchase price for each restricted stock award granted must
be at least 100% of the fair market value of the stock subject to the option on
the date of the award or at the time the purchase is consummated. For restricted
stock awards made on or after the date that our stock is publicly traded, the
purchase price for such awards must be at least 85% of the fair market value of
the stock subject to the option on the date of the award or at the time the
purchase is consummated. Rights to acquire shares under a stock bonus or
restricted stock bonus agreement may not be transferred other than by will or by
the laws of descent and distribution and are exercisable during the life of the
optionee only by the optionee. Certain restricted stock awards made following
the completion of this offering may be otherwise transferable if the stock bonus
agreement so provides.
Changes in Control. In the event of certain changes in control, all
outstanding options under the incentive plan either will be assumed, continued
or substituted for by any surviving entity. If the surviving entity determines
not to assume, continue or substitute for such awards, the vesting provisions of
such stock awards will be accelerated and such stock awards will be terminated
upon the change in control if not previously exercised. In the event of an
acquisition pursuant to Section 13(d) or 14(d) of the Exchange Act of securities
representing 50% of our combined voting power, the vesting provisions of stock
awards will either be assumed, continued or substituted by Quokka (or a
controlling affiliate of Quokka) or accelerated immediately upon the occurrence
of such event and such stock awards will be terminated upon such acquisition if
not previously exercised.
1999 Non-Employee Directors' Stock Option Plan
General. In April 1999, the board of directors adopted, subject to
stockholder approval, the 1999 Non-Employee Directors' Stock Option Plan to
provide for the automatic grant of options to purchase shares of common stock to
our non-employee directors. The aggregate number of shares of common stock that
may be issued pursuant to options granted under the directors' plan is 450,000
shares.
Administration and Terms. The board of directors shall administer the
directors' plan unless and until it delegates administration to a committee.
Options granted under the directors' plan are generally subject to the following
terms:
- the exercise price of options granted will be equal to the fair market
value of the common stock on the date of grant;
- no option granted may be exercised after the expiration of 3 years from
the date it was granted;
- options granted are not transferable other than by will or by the laws of
descent and distribution and are exercisable during the life of the
optionee only by the optionee;
- an optionee may designate a beneficiary who may exercise the option
following the optionee's death; and
- an optionee whose service relationship with Quokka or any affiliate
(whether as a non-employee director of Quokka or subsequently as an
employee, director or consultant of either Quokka or an affiliate) ceases
for any reason may exercise vested options for the term provided in the
option agreement (12 months generally, 18 months in the event of death).
Automatic Grants. Upon the completion of this offering, subject to
certain exceptions, each non-employee director will automatically be granted an
option to purchase 25,000 shares of common stock. Any individual who becomes a
non-employee director after this offering will automatically receive this
initial grant upon being elected to the board of directors. On June 1 of each
year, commencing in 2000, any person who is then a non-employee director will
automatically will be granted an option to purchase
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<PAGE> 67
25,000 shares of common stock, provided that if any non-employee director that
had not served in that capacity for the entire period since the preceding June
1, then the number of shares subject to the annual grant shall be reduced, pro
rata, for each full quarter the person did not serve during the previous period.
Initial grants and annual grants vest and become immediately exercisable upon
grant.
1999 Employee Stock Purchase Plan
General. In April 1999, the board of directors adopted, subject to
stockholder approval, the 1999 Employee Stock Purchase Plan, authorizing the
issuance of 1,000,000 shares of common stock pursuant to purchase rights granted
to our employees or to employees of any affiliate of ours. The purchase plan is
intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the Code. As of the date hereof, no shares of common stock have
been purchased under the purchase plan.
Administration. The purchase plan shall be administered by the board of
directors, but such administration may be delegated to the compensation
committee. The purchase plan provides a means by which employees may purchase
our common stock through payroll deductions. The purchase plan is implemented by
offerings of rights to eligible employees. Generally, all regular employees,
including executive officers, who work at least 20 hours per week and are
customarily employed by Quokka or by an affiliate of Quokka for at least five
months per calendar year may participate in the purchase plan and may authorize
payroll deductions of up to 15% of their earnings for the purchase of stock
under the Purchase Plan. Under the plan, we may specify offerings with a
duration of not more than 27 months, and may specify shorter purchase periods
within each offering. The first offering will begin on the effective date of
this offering and be approximately 12 months in duration with purchases
occurring every six months. Unless otherwise determined by the board of
directors, common stock is purchased for accounts of employees participating in
the purchase plan at a price per share equal to the lower of:
- 85% of the fair market value of a share of our common stock on the date
of commencement of participation in this offering; or
- 85% of the fair market value of a share of our common stock on the date
of purchase.
Limitations. Eligible employees may be granted rights only if the
rights, together with any other rights granted under employee stock purchase
plans, do not permit such employee's rights to purchase stock to accrue at a
rate which exceeds $25,000 of the fair market value of such stock for each
calendar year in which such rights are outstanding. In addition, an employee may
purchase no more than 2,000 shares during any one offering. No employee shall be
eligible for the grant of any rights under the Purchase Plan if immediately
after such rights are granted, such employee has voting power over 5% or more of
our outstanding capital stock (measured by vote or value).
401(k) Plan
We sponsor the Quokka Sports, Inc. 401(k) Plan, a defined contribution plan
intended to qualify under Section 401 of the Internal Revenue Code of 1986, as
amended. All employees are eligible to participate and may enter the 401(k) plan
as of the first day of any month. Participants may make pre-tax contributions to
the 401(k) plan of up to 15% of their eligible earnings, subject to a
statutorily prescribed annual limit. We do not make matching contributions. Each
participant's contributions, and the corresponding investment earnings, are
generally not taxable to the participants until withdrawn. Participant
contributions are held in trust as required by law. Individual participants may
direct the trustee to invest their accounts in authorized investment
alternatives.
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EMPLOYMENT AGREEMENTS
In April 1999, we entered into a key employee agreement with Mr. Saralegui,
under which Mr. Saralegui is compensated at a rate of $275,000 per year, paid on
a semi-monthly basis. The agreement also provides for an stock option grant,
pursuant to our 1997 Equity Incentive Plan, for the purchase of 1,000,000 shares
our common stock at an exercise price of $8.50 per share. To the extent
permissible under applicable IRS rules, this grant will be an incentive stock
option grant. In the event Mr. Saralegui is terminated without cause, he is
entitled to receive from us an amount equal to twelve months of his base salary
as well as acceleration of a portion of his unvested options under certain
circumstances.
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CERTAIN TRANSACTIONS
In January 1997, we issued and sold and aggregate of 3,800,000 shares of
common stock in exchange for all of the properties, rights, interests and other
tangible and intangible assets of Ozware Developments Unit Trust, an Australian
unit trust. From March 1997 to August 1997, we issued and sold an aggregate of
5,851,566 shares of common stock at $0.50 per share. In October 1997, we issued
warrants to purchase an aggregate of 212,800 shares of common stock at an
exercise price of $0.50 per share. In December 1997, we issued and sold an
aggregate of 7,720,590 shares of Series A preferred stock at $0.68 per share.
Between March 1998 and December 1998, we issued and sold warrants to purchase up
to 245,098 shares of Series A preferred stock at an exercise price of $1.02 per
share, 245,098 shares of Series B preferred stock at an exercise price of $1.02
per share, 72,727 shares of Series B preferred stock at an exercise price of
$1.50 per share and 72,727 shares of Series C preferred stock at an exercise
price of $3.25 per share. The warrants were amended and partially exercised in
December 1998 for 145,559 shares of Series A preferred stock, 145,559 shares of
Series B preferred stock, 24,242 shares of Series B preferred stock and 24,242
shares of Series C preferred stock. The warrants, as amended, are currently
exercisable for 99,539 shares of Series A preferred stock at an exercise price
of $1.02 per share, 99,539 shares of Series B preferred stock at an exercise
price of $1.02 per share, 48,485 shares of Series B preferred stock at an
exercise price of $1.50 per share and 48,485 shares of Series C preferred stock
at an exercise price of $3.25 per share and will expire upon the closing of our
initial public offering. From June to August 1998, we issued and sold an
aggregate of 10,737,068 shares of Series B preferred stock at $1.50 per share.
In December 1998, we issued and sold an aggregate of 4,938,756 shares of Series
C preferred stock at $3.25 per share. From February 1999 to March 1999, we
issued and sold warrants to purchase up to an aggregate of 2,391,750 shares of
Series C preferred stock at a weighted average per share price of $5.33. In
April 1999, we issued and sold warrants to purchase up to an aggregate of
161,538 shares of Series C preferred stock at an exercise price of $3.25 per
share. In May and June 1999, Quokka issued and sold an aggregate of 4,522,223
shares of Series D preferred stock at $9.00 per share.
The following table identifies the directors, executive officers and five
percent stockholders who have made equity investments in Quokka to purchase
shares of our preferred stock or common stock. See "Principal Stockholders" for
additional information relating to the beneficial ownership of these
stockholders.
<TABLE>
<CAPTION>
SHARES OF SHARES OF SERIES A SHARES OF SERIES B SHARES OF SERIES C SHARES OF SERIES D
INVESTOR COMMON STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
- -------- ------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Alan S. Ramadan(1)............. 2,090,572 -- -- -- --
Richard H. Williams(2)......... 2,500,000 208,823 -- -- --
John Bertrand A.M. ............ 2,116,204 -- -- -- --
Walter W. Bregman(3)........... 200,000 22,058 89,381 30,769 --
Roel Pieper.................... 500,000 257,353 305,523 215,679 --
Les Schmidt(4)................. 35,500 -- 200,000 76,923 --
L. Steve Nelson................ 360,967 -- 33,333 15,385 --
David A. Riemer................ -- -- -- 20,000 --
M. Elizabeth Sandell........... -- -- -- 15,385 --
Media Technology Ventures,
LP(5)........................ -- 2,941,177 1,185,524 769,231 --
MediaOne Interactive Services,
Inc.(6)...................... -- -- 2,666,667 1,230,770 --
Intel Corporation(7)........... -- 1,322,030 1,311,003 1,255,012 --
Accel VI LP(8)................. -- -- 3,333,333 153,846 --
Trinity Ventures V, LP(9)...... -- 2,205,883 884,752 153,846 --
Wakefield Group II LLC.(10).... 800,000 577,942 555,791 92,308 --
</TABLE>
- ---------------
(1) Includes 1,900,000 shares of common stock held by Pogmohane Partners, LP, an
entity for which Mr. Ramadan serves as a general partner.
(2) Excludes warrants to purchase 56,800 shares of common stock issued to Mr.
Williams in October 1997.
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(3) Includes 200,000 shares of common stock, 22,058 shares of Series A
preferred stock, 89,381 shares of Series B preferred stock and 30,769
shares of Series C preferred stock held in the Bregman Revocable Trust
u/a/d 8/21/92, for which Mr. Bregman, a director of Quokka, serves as a
trustee. Does not include warrants to purchase 6,000 shares of common stock
issued to the Bregman Revocable Trust u/a/d 8/21/92 in October 1997.
Excludes options to purchase 112,000 shares of common stock granted to Mr.
Bregman outside of the 1997 Equity Incentive Plan.
(4) Includes 182,000 shares of Series B preferred stock and 76,923 shares of
Series C preferred stock held in The Les Schmidt and Joanne P. Hattum
Family Trust u/t/d 4/8/92, for which Mr. Schmidt, an executive officer of
Quokka, serves as a trustee. Also includes 6,000 shares of common stock
held by each of The Schmidt Family Irrevocable Trust, dated 12/27/95, FBO
Caryn H. Schmidt, The Schmidt Family Irrevocable Trust, dated 12/27/95, FBO
Bryan P. Schmidt and The Schmidt Family Irrevocable Trust, dated 12/27/95,
FBO Taylor G. Schmidt.
(5) Includes 769,231 shares of Series C preferred stock held by Media
Technology Equity Partners, LP, and 336,337 shares of Series A preferred
stock and 135,570 shares of Series B preferred stock held by Media
Technology Ventures Entrepreneurs Fund, L.P. Mr. Weinman, a director of
Quokka, is affiliated with the Media Technology entities.
(6) Excludes warrants to purchase 153,846 shares of Series C preferred stock
issued to MediaOne Interactive Services, Inc. in April 1999.
(7) Excludes warrants to purchase 99,539 shares of Series A preferred stock,
warrants to purchase 148,024 shares of Series B preferred stock and
warrants to purchase 48,485 shares of Series C preferred stock issued to
Intel Corporation in December 1998. These warrants represent the balance of
warrants issued upon the amendment and partial exercise of the original
warrants issued between March 1998 and December 1998.
(8) Includes 346,667 shares of Series B preferred stock and 16,000 shares of
Series C preferred stock held by Accel Internet Fund II LP, 230,000 shares
of Series B preferred stock and 10,615 shares of Series C preferred stock
held by Accel Investors '98 LP, and 43,333 shares of Series B preferred
stock and 2,000 shares of Series C preferred stock held by Accel Keiretsu
VI LP.
(9) Includes 121,791 shares of Series A preferred stock, 48,849 shares of
Series B preferred stock and 7,692 shares of Series C preferred stock held
by Trinity V, side-by-side fund, LP. Mr. Shennan, a director of Quokka, is
affiliated with Trinity Ventures V, LP and Trinity V, Side-by-Side Fund,
LP.
(10) Excludes warrants to purchase 100,000 shares of common stock issued to
Wakefield Group LLC in October 1997.
Pursuant to an investors' rights agreement dated May 27, 1999 between
Quokka and certain investors, the investors have certain registration rights for
the shares of common stock held by them, or subject to acquisition upon exercise
of certain warrants. See "Description of Capital Stock -- Registration Rights"
for a description of these registration rights.
In March 1998, we entered into a software license and development agreement
with Intel Corporation, a holder of more than five percent of our outstanding
capital stock. Under this agreement, Intel is developing transport level
software that will allow end users to view multiple video streams which are
delivered over a satellite network. In connection with this agreement, we issued
warrants to Intel to purchase 635,650 shares of our preferred stock at prices
ranging from $1.02 to $3.25 per share. Intel has exercised warrants to purchase
339,602 shares of our preferred stock. The remaining outstanding warrants will
expire upon this offering if not earlier exercised.
In April 1999, we entered into a trial agreement with MediaOne Interactive
Services, Inc., a holder of more than five percent of our outstanding capital
stock. Under this agreement, Quokka and MediaOne are working together to
implement and test streaming media over the MediaOne cable modem infrastructure.
In connection with this agreement, Quokka has issued warrants to MediaOne to
purchase 153,846 shares of our preferred stock at an exercise price of $3.25 per
share. These warrants will expire in January 2009 if not earlier exercised.
Since February 1, 1999, in connection with Mr. Bertrand's relocation to
London, England, we have been paying, and will continue to pay, Mr. Bertrand an
amount equal to $3,000 per month to secure Mr. Bertrand's residence in San
Francisco, California as short-term corporate housing for various persons
associated with Quokka.
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<PAGE> 71
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of June 9, 1999 by:
- each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
- each of our directors;
- the named executive officers; and
- all executive officers and directors as a group.
Unless otherwise noted, the address for the individuals listed below is: c/o
Quokka Sports, 525 Brannan Street, San Francisco, California 94107.
<TABLE>
<CAPTION>
PERCENTAGE OWNED(1)
NUMBER OF ---------------------------------
NAME OF BENEFICIAL OWNER SHARES BEFORE OFFERING AFTER OFFERING
- ------------------------ ---------- --------------- --------------
<S> <C> <C> <C>
Entities associated with Media Technology
Ventures(2)........................................ 4,895,932 12.6% 11.2%
One First Street, Suite 2
Los Altos, CA 94022
Intel Corporation.................................... 4,184,093 10.8% 9.6%
2200 Mission College Blvd.
Santa Clara, CA 95052
MediaOne Interactive Services, Inc.(3)............... 4,051,283 10.4% 9.2%
9000 E. Nichols Avenue, Suite 100
Englewood, CO 80112
Entities associated with Accel VI LP(4).............. 3,487,179 9.0% 8.0%
428 University Avenue
Palo Alto, CA 94301
Entities associated with Trinity Ventures(5)......... 3,244,481 8.4% 7.4%
3000 Sand Hill Road
Building 1, Suite 240
Menlo Park, CA 94025
Wakefield Group II LLC(6)............................ 2,126,041 5.5% 4.8%
1110 East Morehead
Charlotte, NC 28204
Pogmohane Partners, LP............................... 1,900,000 4.9% 4.3%
151 Lark Lane
Mill Valley, CA 94941
Alan Ramadan(7)...................................... 2,390,572 6.1% 5.4%
Richard H. Williams(8)............................... 2,915,623 7.5% 6.6%
P.O. Box 4281
Incline Village, NV 89450
John Bertrand(9)..................................... 2,266,204 5.8% 5.2%
c/o Quokka Sports
133 Long Acre
London, WC2E98D
Walter Bregman(10)................................... 379,674 1.0% *
Roel Pieper(11)...................................... 1,278,555 3.3% 2.9%
</TABLE>
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<PAGE> 72
<TABLE>
<CAPTION>
PERCENTAGE OWNED(1)
NUMBER OF ---------------------------------
NAME OF BENEFICIAL OWNER SHARES BEFORE OFFERING AFTER OFFERING
- ------------------------ ---------- --------------- --------------
<S> <C> <C> <C>
James G. Shennan, Jr.(12)............................ 3,244,481 8.4% 7.4%
c/o Trinity Ventures V, L.P.
3000 Sand Hill Road
Building 1, Suite 240
Menlo Park, CA 94025
Barry M. Weinman(13)................................. 4,895,932 12.6% 11.2%
c/o Media Technology Ventures
One First Street, Suite 12
Los Altos, CA 94022
Les Schmidt(14)...................................... 708,923 1.8% 1.6%
All directors and executive officers as a group (8
persons)(15)....................................... 18,079,964 45.3% 40.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Unless otherwise indicated
below, the persons and entities named in the table have sole voting and
sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable. Percentage ownership
is based on 38,791,118 shares of common stock outstanding as of June 9,
1999 and 43,791,118 shares outstanding immediately following completion of
this offering. Shares of common stock subject to options that are currently
exercisable or exercisable within 60 days of June 9, 1999 are deemed to be
outstanding and to be beneficially owned by the person holding such options
for the purpose of computing the percentage ownership of such person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Includes 3,654,794 shares held by Media Technology Ventures, LP, 769,231
shares held by Media Technology Equity Partners, LP, and 471,907 shares
held by Media Technology Ventures Entrepreneurs Fund, LP (collectively, the
"MT Funds"). Mr. Weinman, a director of Quokka, is a general partner of
each of the MT Funds and, as such, may be deemed to have an indirect
pecuniary interest (within the meaning of Rule 16a-1 under the Securities
Exchange Act of 1934) in an indeterminate portion of the shares
beneficially owned by the MT Funds. Mr. Weinman disclaims beneficial
ownership of these shares within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934.
(3) Includes warrants to purchase 153,846 shares that are currently
exercisable.
(4) Includes 2,838,564 shares held by Accel VI LP, 362,667 shares held by Accel
Internet Fund II LP, 240,615 shares held by Accel Investors '98 LP, and
45,333 shares held by Accel Keiretsu VI LP (collectively, the "Accel
Funds").
(5) Includes 3,066,149 shares held by Trinity Ventures V, LP and 178,332 shares
held by Trinity V, Side-by-Side Fund, LP. Mr. Shennan, a director of
Quokka, is a general partner of Trinity Ventures V, LP and Trinity V,
side-by-side fund, LP. As such, Mr. Shennan may be deemed to have an
indirect pecuniary interest (within the meaning of Rule 16a-1 under the
Securities Exchange Act of 1934) in an indeterminate portion of the shares
beneficially owned by Trinity Ventures V, LP and Trinity V, side-by-side
fund, LP. Mr. Shennan disclaims beneficial ownership of these shares within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934.
(6) Includes warrants to purchase 100,000 shares that expire if not exercised
prior to the completion of this offering.
(7) Includes 1,900,000 shares held by Pogmohane Partners, L.P. Mr. Ramadan, a
director of Quokka, is a general partner of Pogmohane Partners, L.P. As
such, Mr. Ramadan may be deemed to have an
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<PAGE> 73
indirect pecuniary interest (within the meaning of Rule 16a-1 under the
Securities Exchange Act of 1934) in an indeterminate portion of the shares
beneficially owned by Pogmohane Partners, L.P. Mr. Ramadan disclaims
beneficial ownership of these shares within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934. Also includes 300,000 shares
underlying currently exercisable stock options. If exercised in full within
60 days of the date of this table, all of the shares subject to the options
would be subject to a repurchase right in favor of Quokka.
(8) Includes warrants to purchase 56,800 shares that expire if not exercised
prior to the completion of this offering. Includes 150,000 shares
underlying currently exercisable stock options. If exercised in full within
60 days of the date of this table, all of the shares subject to the option
would be subject to a repurchase right in favor of Quokka.
(9) Includes 150,000 shares underlying currently exercisable stock options. If
exercised in full within 60 days of the date of this table, all of the
shares subject to the option would be subject to a repurchase right in
favor of Quokka.
(10) Includes 342,208 shares held in the Bregman Revocable Trust u/a/d 8/21/92,
for which Mr. Bregman, a director of Quokka, serves as a trustee. Mr.
Bregman disclaims beneficial ownership of these shares within the meaning
of Rule 13d-3 under the Securities Exchange Act of 1934. Includes warrants
to purchase 6,000 shares that expire if not exercised prior to the
completion of this offering. Includes 33,066 shares underlying currently
exercisable stock options granted to Mr. Bregman outside Quokka's 1997
Equity Incentive Plan.
(11) All shares are held outright by Mr. Pieper.
(12) Includes 3,066,149 shares held by Trinity Ventures V, LP and 178,332 shares
held by Trinity V, Side-by-Side Fund, LP See footnote (5) above regarding
Mr. Shennan's indirect pecuniary interest in these shares.
(13) Includes 4,895,932 shares held by MT Funds. See footnote (2) above
regarding Mr. Weinman's indirect pecuniary interest in these shares.
(14) Includes 258,923 shares held in The Les Schmidt and Joanne P. Hattum Family
Trust u/t/d 4/8/92, for which Mr. Schmidt, an executive officer of Quokka,
serves as a trustee. Mr. Schmidt disclaims beneficial ownership of these
shares within the meaning of Rule 13d-3 under the Securities Exchange Act
of 1934. Includes 414,500 shares underlying currently exercisable stock
options. If exercised in full within 60 days of the date of this table,
389,834 shares would be subject to a right of repurchase in favor of
Quokka.
(15) See footnotes (1) through (14) above, as applicable.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and material provisions of
our certificate of incorporation and bylaws, which will become effective upon
the completion of this offering, is a summary only and is qualified in its
entirety by the complete provisions of the certificate of incorporation and
bylaws, which have been filed as exhibits to the registration statement, of
which this prospectus is a part.
Upon the closing of this offering, our authorized capital stock will
consist of 110,000,000 shares of common stock, $0.0001 par value per share and
10,000,000 shares of preferred stock, $0.0001 par value per share.
COMMON STOCK
Upon the closing of this offering, each outstanding share of non-voting
common stock will be automatically converted to voting common stock and, at such
time, no share of common stock, whether previously designated as non-voting
common stock or voting common stock, will be subject to any further conversion
right. The common stock is not entitled to preemptive rights and is not subject
to redemption.
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the board of directors may from time to time
determine. Each stockholder is entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders. Unless Section
2115 of the California Corporations Code is applicable to us, holders of common
stock are not entitled to cumulative voting rights with respect to the election
of directors and, as a consequence, minority stockholders will not be able to
elect directors on the basis of their votes alone. Upon a liquidation,
dissolution or winding-up of Quokka, the assets legally available for
distribution to stockholders are distributable ratably among the holders of the
common stock and any participating preferred stock outstanding at that time
after payment of liquidation preferences, if any, on any outstanding preferred
stock and payment of other claims of creditors. Each outstanding share of common
stock is, and all shares of common stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Series A,
Series B, Series C and Series D preferred stock will be converted into
28,258,239 shares of common stock. Following the conversion, the shares
converted will be retired from the number of authorized shares of preferred
stock.
Upon the closing of this offering, the board of directors will have the
authority, without further action by the stockholders, to issue up to 10,000,000
shares of preferred stock in one or more series, to establish from time to time
the number of shares to be included in each such series, to fix the rights,
preferences and privileges of the shares of each wholly unissued series and any
qualifications, limitations or restrictions thereon, and to increase or decrease
the number of shares of any such series (but not below the number of shares of
such series then outstanding). The board of directors may authorize the issuance
of preferred stock with voting or conversion rights that could adversely affect
the voting power or other rights of the holders of the common stock. The
issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
have the effect of delaying, deferring or preventing a change in control of
Quokka and may adversely affect the market price of the common stock and the
voting and other rights of the holders of common stock.
WARRANTS
In October 1997, we issued warrants to purchase an aggregate of 212,800
shares of common stock at an exercise price of $0.50 per share to four
investors. Each of these warrants will expire upon the closing of this offering,
unless earlier exercised.
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<PAGE> 75
Between March 1998 and December 1998, we issued and sold warrants to
purchase up to 245,098 shares of Series A preferred stock at an exercise price
of $1.02 per share, 245,098 shares of Series B preferred stock at an exercise
price of $1.02 per share, 72,727 shares of Series B preferred stock at an
exercise price of $1.50 per share and 72,727 shares of Series C preferred stock
at an exercise price of $3.25 per share to Intel Corporation (the "Intel
Warrants"). The Intel Warrants were amended in December 1998 and partially
exercised by Intel in December 1998 for 145,559 shares of Series A preferred
stock, 145,559 shares of Series B preferred stock, 24,242 shares of Series B
preferred stock and 24,242 shares of Series C preferred stock. The Intel
Warrants, as amended, are currently exercisable for 99,539 shares of Series A
preferred stock at an exercise price of $1.02 per share, 99,539 shares of Series
B preferred stock at an exercise price of $1.02 per share, 48,485 shares of
Series B preferred stock at an exercise price of $1.50 per share and 48,485
shares of Series C preferred stock at an exercise price of $3.25 per share. Each
of the Intel Warrants will expire upon completion of this offering, unless
earlier exercised.
From February 1999 to April 1999, we issued and sold warrants to purchase
up to an aggregate of 2,553,288 shares of Series C preferred stock at a weighted
average per share price of $5.24 to four investors. On February 8, 2009,
2,100,000 of these warrant shares will expire. On March 19, 2004, 76,366 of
these warrant shares will expire. On January 22, 2009, 153,846 of these warrant
shares will expire. The remaining 223,076 of these warrant shares will expire
three years from the effective date of this offering.
Each of the aforementioned warrants are subject to the provisions of an
investors' rights agreement. See "-- Registration Rights" for additional
information relating to this agreement.
REGISTRATION RIGHTS
Pursuant to an investors' rights agreement dated May 27, 1999, between
Quokka and some of our investors, the investors have registration rights for the
38,418,653 shares of common stock held by them, or subject to acquisition upon
exercise of warrants. Under the rights agreement, the investors may demand, by
written request from holders of more than 50% of the then outstanding investors'
registrable securities, that we file a registration statement under the
Securities Act covering all or a portion of the investors' registrable
securities, provided that, in the case of a registration on a form other than a
Form S-3, there is a reasonably anticipated aggregate offering price to the
public of at least $10.0 million, or in the case of a registration of Form S-3,
there is a reasonably anticipated aggregate offering price to the public of at
least $1.0 million. These registration rights are subject to our right to delay
the filing of a registration statement, in the case of a registration on a form
other than a Form S-3, for a period not to exceed 60 days, and, in the case of a
registration on a Form S-3, for a period not to exceed 90 days. In the case of a
registration on a form other than a Form S-3, we cannot delay more than twice in
a 12-month period after receiving the registration demand. In the case of a
registration on a Form S-3, we cannot delay more than once in a 12-month period
after receiving the registration demand. In the case of a registration on a form
other than a Form S-3, the managing underwriter, if any, of any such offering
has certain rights to limit the number of the Registrable Securities proposed to
be included in such registration.
In addition, the investors have "piggyback" registration rights. If we
propose to register any of its securities under the Securities Act of 1933
(other than pursuant to the investors' demand registration rights noted above),
the investors may require us to include all or a portion of their registrable
securities in such registration. The managing underwriter, if any, of any such
offering will have the right to limit the number of the registrable securities
to no less than 25% of the total number of securities proposed to be included in
such registration.
All registration expenses incurred in connection with the above
registrations would be borne by us. Each selling investor would pay all
underwriting discounts and selling commissions applicable to the sale of his or
its registrable securities.
All registration rights described above will terminate ten years after the
date of our initial public offering. Following the closing of this offering, the
rights of each investor holding less than 1% of our outstanding common stock
under the rights agreement will terminate when that investor may sell all of its
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<PAGE> 76
or his shares under Rule 144(k) of the Securities Act or during any 90-day
period under Rule 144 of the Securities Act.
SECTION 2115
We are currently subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, certain provisions of California corporate law will apply to that
company if more than 50% of its outstanding voting securities are held of record
by persons having addresses in California and the majority of the Company's
operations occur in California.
The following table sets forth some of the effects on our corporate
governance of Section 2115:
<TABLE>
<CAPTION>
SECTION 2115 NON-SECTION 2115
------------ ----------------
<S> <C> <C>
Election of Cumulative voting is allowed which No cumulative voting is allowed;
Directors allows each shareholder to vote the accordingly a holder of 50% or more
number of votes equal to the number of voting stock controls election
of candidates multiplied by the of all directors.
number of votes to which the
shareholders' shares are normally
entitled in favor of one candidate.
This potentially allows minority
stockholders to elect some members
of the board of directors.
Removal of Directors Removal with or without cause by Removal is only allowed without
the affirmative vote of the holders cause upon the affirmative vote of
of a majority of outstanding voting 66 2/3% of the outstanding voting
stock is allowed. stock.
Supermajority Vote In order to institute a Simple majority may adopt amendment
Requirement supermajority provision, the providing for supermajority.
amendment must be approved by at
least as large a proportion as
would be required under the
amendment.
Dividend Dividends are only payable (a) out Dividends are payable out of either
Distribution of the surplus of retained earnings the surplus of retained earnings or
and (b) if, immediately after the out of its net profits for the year
distribution, a company's assets the distribution takes place, or
are at least equal to its the preceding year.
liabilities.
Dissenters' Rights Generally available in any type of Generally only available in a
reorganization, including a merger, merger. No rights so long as our
sale of assets or sale/exchange of common stock is quoted on the
shares. If the shares are listed on Nasdaq National Market or traded on
an exchange, 5% of the stockholders an exchange.
must assert their right for any
stockholder to have these rights.
</TABLE>
In addition to these differences, Section 2115 also provides for information
rights and required filings in the event a company effects a sale of assets or
completes a merger.
We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we will have at
least 800 stockholders of record by the record date for our 2000 annual meeting
of stockholders. If these two conditions occur, then we will no longer be
subject to Section 2115 as of the record date for our 2000 annual meeting of
stockholders. See "-- Common Stock" and "Management -- Board Composition" for
additional information relating to the effects of Section 2115 on Quokka.
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<PAGE> 77
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. Section 203, subject to exceptions, prohibits a
Delaware corporation from engaging in any "business combination" with any
"interested stockholder" for a period of three years following the date that the
stockholder became an interested stockholder unless:
- prior to the date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers, and employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to the date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines business combination to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
Section 203 defines an "interested stockholder" as:
- any entity or person beneficially owning 15% or more of the outstanding
voting stock of the corporation; and
- any entity or person affiliated with or controlling or controlled by the
entity or person.
A Delaware corporation may "opt out" of Section 203 with an express
provision in its original certificate of incorporation or an express provision
in its certificate or incorporation or bylaws resulting from a stockholders'
amendment approved by a majority of the outstanding voting shares. We have not
"opted out" of the provisions of Section 203. The statute could prohibit or
delay mergers or other takeover or change-in-control attempts with respect to
Quokka and, accordingly, may discourage attempts to acquire Quokka.
Charter Provisions
Our bylaws divide the board of directors into three classes as nearly equal
in size as possible with staggered three-year terms. The classification of the
board of directors could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from acquiring, control of
Quokka. In addition, the bylaws provide that any action required or permitted to
be taken by our stockholders at an annual meeting or a special meeting of the
stockholders may be taken only if it is properly brought before such meeting and
may not be taken by written action in lieu of a meeting. The
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<PAGE> 78
bylaws also provide that special meetings of our stockholders may be called only
by the board of directors, the chairman of the board, the chief executive
officer or the holders of 50% or more of our outstanding stock. See
"Management -- Board Composition" for additional information relating to the
classification of the board of directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation, which will become effective upon the
closing of this offering, contains provisions permitted under Delaware law
relating to the liability of directors. These provisions eliminate a director's
personal liability for monetary damages resulting from a breach of fiduciary
duty, except in circumstances involving wrongful acts, such as:
- any breach of the director's duty of loyalty;
- acts or omissions which involve a lack of good faith, intentional
misconduct or a knowing violation of the law;
- payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law; or
- any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief, such as an injunction or rescission, in the
event of a breach of director's fiduciary duty. These provisions will not alter
a director's liability under federal securities laws.
Our bylaws, which will become effective upon the closing of this offering,
require us to indemnify our directors and executive officers to the fullest
extent not prohibited by the Delaware law. We may limit the extent of such
indemnification by individual contracts with our directors and executive
officers. Further, we may decline to indemnify any director or executive officer
in connection with any proceeding initiated by such person or any proceeding by
such person against Quokka or its directors, officers, employees or other
agents, unless such indemnification is expressly required to be made by law or
the proceeding was authorized by our board of directors.
We have entered into indemnity agreements with each of our current
directors and certain of our executive officers to give such directors and
officers additional contractual assurances regarding the scope of the
indemnification set forth in our certificate of incorporation and bylaws and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of Quokka for
which indemnification is sought, nor are we aware of any threatened litigation
that may result in claims for indemnification.
We have the power to indemnify our other officers, employees and other
agents, as permitted by Delaware law, but we are not required to do so.
Quokka plans to obtain directors' and officers' liability insurance.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Quokka's common stock is BankBoston
N.A.
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<PAGE> 79
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and based on the number of shares
outstanding as of June 9, 1999, Quokka will have outstanding 43,791,118 shares
of common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options. Of these shares, the 5,000,000 shares
sold in this offering will be freely tradable without restriction under the
Securities Act unless purchased by "affiliates" of Quokka as that term is
defined in Rule 144 under the Securities Act. Of the remaining shares, all of
the 38,791,118 shares held by existing stockholders are subject to lock-up
agreements generally providing that, with certain limited exceptions, the
stockholder will not:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of or otherwise dispose of or transfer any
shares of common stock or securities convertible into or exchangeable or
exercisable for or repayable with common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of the common stock whether
any such swap or transaction is to be settled by delivery of common stock
or other securities, in cash or otherwise, without the prior written
consent of Merrill Lynch on behalf of the underwriters for a period of
180 days after the date of this prospectus.
As a result of these lock-up agreements, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, none of
these shares can be sold until 181 days after the date of the final prospectus.
Beginning 181 days after the date of the final prospectus, 33,737,470 of these
shares will be eligible for sale in the public market, although a portion of
such shares will be subject to certain volume limitations pursuant to Rule 144.
The remaining restricted shares will become eligible for sale from time to time
thereafter upon expiration of applicable holding periods under Rule 144 under
the Securities Act and Quokka's right to repurchase unvested shares. Holders of
options to purchase common stock of Quokka are also subject to 180-day lock-up
agreements.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least one year (including the holding period of any prior owner except an
affiliate) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding (which will
equal approximately 437,911 shares immediately after this offering); or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
Quokka. Under Rule 144(k), a person who is not deemed to have been an affiliate
of Quokka at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirement,
of Rule 144. Any employee, officer or director of or consultant to Quokka who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell such shares in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or notice
provisions of Rule 144.
Some holders of shares of common stock are also entitled to rights with
respect to registration of such shares of common stock for offer and sale to the
public. See "Description of Capital Stock -- Registration Rights" for additional
information relating to registration rights.
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<PAGE> 80
There can be no assurance that an active public market for the common stock
will continue after this offering. Future sales of substantial amounts of common
stock (including shares issued upon exercise of outstanding options) in the
public market after this offering could adversely affect market prices
prevailing from time to time and could impair Quokka's ability to raise capital
through the sale of its equity securities. As described below, only a limited
number of shares will be available for sale immediately after this offering due
to certain contractual restrictions on resale. Sales of substantial amounts of
common stock of Quokka in the public market after the restrictions lapse could
adversely affect the prevailing market price and the ability of Quokka to raise
equity capital in the future.
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<PAGE> 81
UNDERWRITING
GENERAL
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc.
and BancBoston Robertson Stephens Inc. are acting as representatives of each of
the underwriters named below. Subject to the terms and conditions set forth in a
purchase agreement among Quokka and the underwriters, Quokka has agreed to sell
to the underwriters, and each of the underwriters severally and not jointly has
agreed to purchase from Quokka, the number of shares of common stock set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Lehman Brothers Inc. .......................................
BancBoston Robertson Stephens Inc. .........................
---------
Total.......................................... 5,000,000
=========
</TABLE>
In the purchase agreement, the several underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the shares of
common stock being sold pursuant to each such agreement if any of the shares of
common stock being sold pursuant to such agreement are purchased. In the event
of a default by an underwriter, the purchase agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting underwriters may be
increased or the purchase agreement may be terminated.
Quokka has agreed to indemnify the underwriters against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments the underwriters may be required to make in respect of
this offering.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised Quokka that the underwriters propose
initially to offer the shares of common stock to the public at the initial
public offering price set forth on the cover page of this prospectus, and to
certain dealers at such price less a concession not in excess of $ per share
of common stock. The underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per share of common stock to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The following table shows the per share and total public offering price,
underwriting discount to be paid by Quokka to the underwriters, and the proceeds
before expenses to Quokka. This information is presented assuming either no
exercise or full exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price.......................... $ $ $
Underwriting discount.......................... $ $ $
Proceeds, before expenses, to Quokka........... $ $ $
</TABLE>
The expenses of this offering (exclusive of the underwriting discount and
commissions) are estimated at $1.3 million and are payable by Quokka.
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<PAGE> 82
OVER-ALLOTMENT OPTION
Quokka has granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of 750,000
additional shares of common stock at the public offering price set forth on the
cover page of this prospectus, less the underwriting discount. The underwriters
may exercise this option solely to cover over-allotments, if any, made on the
sale of the common stock offered hereby. To the extent that the underwriters
exercise this option, each underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares of common stock
proportionate to such underwriters initial amount reflected in the foregoing
table.
RESERVED SHARES
At the request of Quokka, the underwriters have reserved for sale, at the
initial public offering price, up to 500,000 of the shares offered hereby to be
sold to certain directors, officers, employees, distributors, dealers, business
associates and related persons of Quokka. The number of shares of common stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not orally
confirmed for purchase within one day of the pricing of this offering will be
offered by the underwriters to the general public on the same terms as the other
shares offered in this prospectus.
NO SALES OF SIMILAR SECURITIES
Quokka and its executive officers, directors and other stockholders
beneficially owning substantially all of the outstanding shares of common stock
have agreed, subject to certain exceptions, not to directly or indirectly:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of or otherwise dispose of or transfer any
shares of common stock or securities convertible into or exchangeable or
exercisable for or repayable with common stock, whether now owned or
thereafter acquired by the person executing the agreement or with respect
to which the person executing the agreement thereafter acquires the power
of disposition, or file a registration statement under the Securities Act
with respect to the foregoing;
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of the common stock whether
any such swap or transaction is to be settled by delivery of common stock
or other securities, in cash or otherwise; or
- make any demand for, or exercise any right with respect to, the
registration of any share of common stock or any securities convertible
into or exchangeable for common stock, without the prior written consent
of Merrill Lynch on behalf of the underwriters for a period of 180 days
after the date of this prospectus.
NASDAQ NATIONAL MARKET LISTING
Prior to this offering, there has been no public market for the common
stock of Quokka. The initial public offering price will be determined through
negotiations between Quokka and the representatives. The factors to be
considered in determining the initial public offering price, in addition to
prevailing market conditions, are expected to be price-revenue and discounted
price-earnings ratios of publicly traded companies that the representatives
believe to be comparable to Quokka, certain financial information of Quokka, the
history of, and the prospects for, Quokka and the industry in which it competes,
and an assessment of Quokka's management, its past and present operations, the
prospects for, and timing of, future revenues of Quokka, and the present state
of Quokka's development. There can be no assurance that an active trading market
will develop for the common stock or that the common stock will trade in the
public market subsequent to this offering at or above the initial public
offering price.
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<PAGE> 83
The underwriters do not expect sales of the common stock to be made to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares being offered hereby.
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the common stock is completed, SEC rules may
limit the ability of the underwriters and certain selling group members to bid
for and purchase our common stock. As an exception to these rules, the
representatives are permitted to engage in certain transactions that stabilize
the price of our common stock. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering contemplated hereby, i.e., if they sell more shares
of common stock than are set forth on the cover page of this prospectus, the
representatives may reduce that short position by purchasing our common stock in
the open market. The representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option described above.
PENALTY BIDS
The representatives may also impose a penalty bid on certain underwriters
and selling group members. This means that if the representatives purchase
shares of our common stock in the open market to reduce the underwriters' short
position or to stabilize the price of our common stock, they may reclaim the
amount of the selling concession from the underwriters and selling group members
who sold those shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither Quokka nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
Quokka nor any of the underwriters makes any representation that the
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Quokka by Cooley Godward LLP, San Francisco, California. Certain legal
matters will be passed upon for the underwriters by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California. An investment
partnership affiliated with Cooley Godward LLP owns 127,887 shares of Quokka's
preferred stock, which will convert into 127,887 shares of Quokka's common stock
upon the closing of this offering.
EXPERTS
The financial statements included in this prospectus have been audited by
PricewaterhouseCoopers LLP, independent accountants. The companies and periods
covered by these audits are indicated in the individual reports of
PricewaterhouseCoopers LLP. Such financial statements have been so included in
reliance on the reports of PricewaterhouseCoopers LLP given on the authority of
said firm as experts in auditing and accounting.
CHANGE IN PRINCIPAL ACCOUNTANTS
In March 1998, KPMG LLP was dismissed and PricewaterhouseCoopers LLP
replaced KPMG LLP as our independent accountants. The selection of
PricewaterhouseCoopers LLP as our independent accountants was ratified by our
board of directors in April 1998. During fiscal 1997 and fiscal 1998, we had no
disagreement with our former accountants, KPMG LLP, on any matter of accounting
principles or
78
<PAGE> 84
practices, financial statement disclosure or auditing scope or procedure, which
disagreements if not resolved to their satisfaction would have caused them to
make reference in connection with their opinion to the subject matter of the
disagreement. KPMG LLP did not issue a report on our financial statements with
respect to the years ended December 31, 1997 or 1998.
ADDITIONAL INFORMATION
A registration statement on Form S-1 relating to the common stock offered
hereby has been filed by Quokka with the Securities and Exchange Commission in
Washington, D.C. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules thereto.
Statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference. For further information with respect to Quokka
and the common stock offered hereby, reference is made to such registration
statement, exhibits and schedules. A copy of the registration statement may be
inspected by anyone without charge at the SEC's principal office at the public
reference facility maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
part thereof may be obtained from the SEC's at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon the payment of certain fees prescribed by the SEC.
The SEC maintains a Web site that contains reports, proxy statements and other
information regarding registrants, including Quokka. The address of the SEC's
Web site is www.sec.gov.
As a result of this offering, Quokka will be subject to the information
requirements of the Securities Exchange Act of 1934. So long as Quokka is
subject to periodic reporting requirements of the Exchange Act, it will continue
to furnish the reports and other information required thereby to the SEC. Quokka
intends to furnish its stockholders with annual reports containing financial
statements audited by an independent public accounting firm and quarterly
reports containing unaudited financial information.
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<PAGE> 85
QUOKKA SPORTS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 86
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Quokka Sports, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Quokka Sports, Inc. and subsidiaries at December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
January 22, 1999, except as to Note 12
for which the date is July 1, 1999
F-2
<PAGE> 87
QUOKKA SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1999 1999
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 4,026,610 $ 23,994,355 $ 15,262,901
Accounts receivable................................... 76,151 1,150,603 819,800
Prepaid expenses and other............................ 246,328 331,108 1,413,683
----------- ------------ ------------
Total current assets........................... 4,349,089 25,476,066 17,496,384
Property and equipment, net............................. 301,944 2,736,298 5,357,025
----------- ------------ ------------
Total assets................................... $ 4,651,033 $ 28,212,364 $ 22,853,409
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 480,577 $ 289,050 $ 2,220,288
Accrued expenses...................................... 81,990 1,199,357 726,819
Current portion of long-term debt and capitalized
lease obligations................................... 37,112 290,188 347,132
Deferred revenues..................................... 2,305,613 479,735 248,985
----------- ------------ ------------
Total current liabilities...................... 2,905,292 2,258,330 3,543,224
----------- ------------ ------------
Long term debt and capitalized lease obligations, net of
current portion....................................... 82,572 500,710 698,523
Commitments (Note 5)
Stockholders' equity:
Preferred stock, $0.0001 par value; authorized:
8,500,000 at December 31, 1997 and 27,600,000 at
December 31, 1998 and March 31, 1999 (unaudited);
issued and outstanding: 7,720,590 at December 31, 1997
and 23,736,016 at December 31, 1998 and March 31, 1999
and pro forma shares (unaudited); liquidation value:
$37,839,029 at December 31, 1998 and March 31, 1999
(unaudited)........................................... 772 2,374 2,374 $ --
Common stock:
Voting stock, $0.0001 par value; authorized:
20,500,000 at December 31, 1997 and 45,400,000 at
December 31, 1998 and March 31, 1999 (unaudited);
issued and outstanding: 9,351,566 at December 31,
1997 and 9,400,365 at December 31, 1998; and
9,589,342 and March 31, 1999 (unaudited) and
34,134,206 pro forma shares......................... 935 940 959 3,413
Non-voting stock, $0.0001 par value; authorized:
300,000 at December 31, 1997 and 1998 and March 31
1999 (unaudited); issued and outstanding: 300,000 at
December 31, 1997 and 1998 and March 31, 1999
(unaudited) and no pro forma shares................. 30 30 30 --
Additional paid-in capital.............................. 8,107,295 41,018,912 41,086,953 42,103,621
Warrants and other...................................... 61,860 477,115 1,414,993 938,038
Accumulated deficit..................................... (6,507,723) (16,046,047) (23,893,647) (23,893,647)
----------- ------------ ------------ ------------
Total stockholders' equity..................... 1,663,169 25,453,324 18,611,662 $ 19,151,425
----------- ------------ ------------ ============
Total liabilities and stockholders' equity..... $ 4,651,033 $ 28,212,364 $ 22,853,409
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 88
QUOKKA SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 38,906 $ 3,999,781 $ 8,635,099 $ 4,867,218 $ 896,566
Costs and expenses
Production costs.............. 610,867 5,130,130 7,779,593 3,430,803 2,717,704
Research and engineering...... 423,303 1,029,539 4,480,224 585,500 2,132,284
Sales and marketing........... 53,165 815,540 2,519,418 358,491 1,389,967
General and administrative.... 507,770 1,827,380 3,184,372 870,704 1,790,681
Depreciation and
amortization............... -- 68,247 530,261 43,789 430,406
----------- ----------- ----------- ----------- -----------
Total costs and expenses... 1,595,105 8,870,836 18,493,868 5,289,287 8,461,042
----------- ----------- ----------- ----------- -----------
Loss from operations..... (1,556,199) (4,871,055) (9,858,769) (422,069) (7,564,476)
Equity and losses of associated
venture....................... -- -- -- -- (452,275)
Interest income/(expense),
net........................... (3,580) (70,785) 320,445 32,428 169,151
----------- ----------- ----------- ----------- -----------
Net loss................. $(1,559,779) $(4,941,840) $(9,538,324) $ (389,641) $(7,847,600)
=========== =========== =========== =========== ===========
Historical net loss per share:
Basic and diluted............. $ (0.41) $ (0.73) $ (0.99) $ (0.04) $ (0.80)
Number of shares used in
calculation of historical
net loss per share -- basic
and diluted................ 3,800,000 6,791,534 9,654,835 9,651,566 9,756,059
Pro forma net loss per share
(unaudited):
Basic and diluted............. $ (0.40) $ (0.23)
Shares used in computing pro
forma net loss per share --
basic and diluted.......... 23,914,934 34,000,923
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 89
QUOKKA SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C VOTING
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------ ------------------- ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ ---------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996................... -- $ -- -- $ -- -- $ -- 3,800,000 $380
Net loss................................... -- -- -- -- -- -- -- --
--------- ---- ---------- ------ --------- ---- --------- ----
Balance, December 31, 1996................. -- -- -- -- -- -- 3,800,000 380
Issuance of common stock to founder for
cash (January 1997)....................... -- -- -- -- -- -- -- --
Issuance of common stock to founder for
cash net of issuance costs of $31,401
(January 1997)............................ -- -- -- -- -- -- 1,900,000 190
Issuance of common stock for cash at $0.50
per share of issuance costs of $17,591
(August 1997)............................. -- -- -- -- -- -- 3,651,566 365
Issuance of warrants in connection with
promissory notes (October 1997)........... -- -- -- -- -- -- -- --
Issuance of Series A Preferred Stock for
cash of $0.68 per share, net of issuance
costs of $18,141 (December 1997).......... 7,720,590 772 -- -- -- -- -- --
Net loss................................... -- -- -- -- -- -- -- --
--------- ---- ---------- ------ --------- ---- --------- ----
Balance, December 31, 1997................. 7,720,590 772 -- -- -- -- 9,351,566 935
Issuance of Series B Preferred Stock for
cash of $1.50 per share, net of issuance
costs of $75,543 (June and August 1998)... -- -- 10,737,068 1,074 -- -- -- --
Issuance of warrants (August 1998)......... -- -- -- -- -- -- -- --
Issuance of options for services rendered
(August 1998)............................. -- -- -- -- -- -- -- --
Issuance of options for services rendered
(September 1998).......................... -- -- -- -- -- -- -- --
Exercise of voting common stock options to
employees for cash of $0.50 per share
(August -- December 1998)................. -- -- -- -- -- -- 48,799 5
Issuance of Series C Preferred Stock for
cash of $3.25 per share, net of issuance
costs of $36,031 (December 1998).......... -- -- -- -- 4,938,756 494 -- --
Issuance of warrants under joint
development agreement (December 1998)..... -- -- -- -- -- -- -- --
Exercise of warrants (December 1998)....... 145,559 15 169,801 17 24,242 2 -- --
Cumulative translation adjustment.......... -- -- -- -- -- -- -- --
Net loss................................... -- -- -- -- -- -- -- --
--------- ---- ---------- ------ --------- ---- --------- ----
Balance as of December 31, 1998............ 7,866,149 787 10,906,869 1,091 4,962,998 496 9,400,365 940
Exercise of voting common stock options to
employees for cash of $0.50 to $3.25 per
share (January -- March 1999)............. -- -- -- -- -- -- 197,775 20
Repurchase of common stock (11,875 shares
at $8.00 per share)....................... -- -- -- -- -- -- (11,875) (1)
Issuance of common stock for services
rendered.................................. -- -- -- -- -- -- 3,077 --
Issuance of warrants for subordinated-debt
agreement (March 1999).................... -- -- -- -- -- -- -- --
Issuance of warrants for CART rights
agreement (March 1999).................... -- -- -- -- -- -- -- --
Issuance of options for services
rendered.................................. -- -- -- -- -- -- -- --
Cumulative translation adjustment.......... -- -- -- -- -- -- -- --
Net loss................................... -- -- -- -- -- -- -- --
--------- ---- ---------- ------ --------- ---- --------- ----
Balance as of March 31, 1999 (unaudited)... 7,866,149 $787 10,906,869 $1,091 4,962,998 $496 9,589,342 $959
========= ==== ========== ====== ========= ==== ========= ====
<CAPTION>
NON-VOTING
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN WARRANTS ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL AND OTHER DEFICIT EQUITY/(DEFICIT)
------- ------ ----------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996................... -- $-- $ -- $ -- $ (6,104) $ (5,724)
Net loss................................... -- -- -- -- (1,559,779) (1,559,779)
------- --- ----------- ---------- ------------ -----------
Balance, December 31, 1996................. -- -- -- -- (1,565,883) (1,565,503)
Issuance of common stock to founder for
cash (January 1997)....................... 200,000 20 99,980 -- -- 100,000
Issuance of common stock to founder for
cash net of issuance costs of $31,401
(January 1997)............................ 100,000 10 968,399 -- -- 968,599
Issuance of common stock for cash at $0.50
per share of issuance costs of $17,591
(August 1997)............................. -- -- 1,807,828 -- -- 1,808,193
Issuance of warrants in connection with
promissory notes (October 1997)........... -- -- -- 61,860 -- 61,860
Issuance of Series A Preferred Stock for
cash of $0.68 per share, net of issuance
costs of $18,141 (December 1997).......... -- -- 5,231,088 -- -- 5,231,860
Net loss................................... -- -- -- -- (4,941,840) (4,941,840)
------- --- ----------- ---------- ------------ -----------
Balance, December 31, 1997................. 300,000 30 8,107,295 61,860 (6,507,723) 1,663,169
Issuance of Series B Preferred Stock for
cash of $1.50 per share, net of issuance
costs of $75,543 (June and August 1998)... -- -- 15,988,310 -- -- 15,989,384
Issuance of warrants (August 1998)......... -- -- -- 588,734 -- 588,734
Issuance of options for services rendered
(August 1998)............................. -- -- 5,293 -- -- 5,293
Issuance of options for services rendered
(September 1998).......................... -- -- 29,495 -- -- 29,495
Exercise of voting common stock options to
employees for cash of $0.50 per share
(August -- December 1998)................. -- -- 24,395 -- -- 24,400
Issuance of Series C Preferred Stock for
cash of $3.25 per share, net of issuance
costs of $36,031 (December 1998).......... -- -- 16,014,432 -- -- 16,014,926
Issuance of warrants under joint
development agreement (December 1998)..... -- -- -- 263,996 -- 263,996
Exercise of warrants (December 1998)....... -- -- 849,692 (437,636) -- 412,090
Cumulative translation adjustment.......... -- -- -- 161 -- 161
Net loss................................... -- -- -- -- (9,538,324) (9,538,324)
------- --- ----------- ---------- ------------ -----------
Balance as of December 31, 1998............ 300,000 30 41,018,912 477,115 (16,046,047) 25,453,324
Exercise of voting common stock options to
employees for cash of $0.50 to $3.25 per
share (January -- March 1999)............. -- -- 135,118 -- -- 135,138
Repurchase of common stock (11,875 shares
at $8.00 per share)....................... -- -- (94,999) -- -- (95,000)
Issuance of common stock for services
rendered.................................. -- -- 10,000 -- -- 10,000
Issuance of warrants for subordinated-debt
agreement (March 1999).................... -- -- -- 552,486 -- 552,486
Issuance of warrants for CART rights
agreement (March 1999).................... -- -- -- 400,841 -- 400,841
Issuance of options for services
rendered.................................. -- -- 17,922 -- -- 17,922
Cumulative translation adjustment.......... -- -- -- (15,449) -- (15,449)
Net loss................................... -- -- -- -- (7,847,600) (7,847,600)
------- --- ----------- ---------- ------------ -----------
Balance as of March 31, 1999 (unaudited)... 300,000 $30 $41,086,953 $1,414,993 $(23,893,647) $18,611,662
======= === =========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 90
QUOKKA SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(1,559,779) $(4,941,840) $ (9,538,324) $ (389,641) $(7,847,600)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization of
property and equipment............. -- 68,247 530,261 43,789 430,406
Non-cash compensation-related charges
and other.......................... -- 61,860 450,044 381,948 569,077
Non-cash charges for equipment........ -- 44,220 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable................ -- (76,151) (1,074,452) 3,081 330,803
Prepaid expenses and other......... (47,500) (198,828) (84,780) (113,590) (670,403)
Accounts payable................... 70,144 410,433 (433,336) (1,008) 1,447,292
Accrued expenses................... 77,258 (1,293) 1,117,367 621,774 (472,538)
Deferred revenues.................. 1,525,051 780,562 (1,825,878) (1,888,699) (230,750)
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in)
operating activities.......... 65,174 (3,852,790) (10,859,098) (1,342,346) (6,443,713)
----------- ----------- ------------ ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment.... -- (294,727) (2,722,807) (245,712) (2,567,187)
----------- ----------- ------------ ----------- -----------
Net cash used in investing
activities.................... -- (294,727) (2,722,807) (245,712) (2,567,187)
----------- ----------- ------------ ----------- -----------
Cash flows from financing activities:
Proceeds from borrowing............... -- -- 750,000 -- 331,069
Proceeds from bridge loan............. -- 532,000 -- -- --
Payments on notes and long-term
capital leases..................... -- -- (78,786) (11,067) (76,312)
Proceeds from the issuance of common
stock, net of issuance cost........ -- 2,876,792 24,400 -- 119,689
Repurchase of common stock............ -- -- -- -- (95,000)
Proceeds from the issuance of Series A
Preferred Stock, net of issuance
cost............................... -- 4,699,860 -- -- --
Proceeds from the issuance of Series B
Preferred Stock, net of issuance
cost............................... -- -- 15,989,384 -- --
Proceeds from the issuance of Series C
Preferred Stock, net of issuance
cost............................... -- -- 16,014,926 -- --
Proceeds from issuance and exercise of
warrants........................... -- -- 849,726 -- --
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in)
financing activities.......... -- 8,108,652 33,549,650 (11,067) 279,446
----------- ----------- ------------ ----------- -----------
Increase (decrease) in cash... 65,174 3,961,135 19,967,745 (1,599,125) (8,731,454)
Cash, beginning of period............... 301 65,475 4,026,610 4,026,610 23,994,355
----------- ----------- ------------ ----------- -----------
Cash, end of period..................... $ 65,475 $ 4,026,610 $ 23,994,355 $ 2,427,485 $15,262,901
=========== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 91
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES:
Organization
Prior to August 1996, Quokka Sports, Inc. operated as an Australian
software development and consulting company known as Ozware Developments Unit
Trust. In August 1996, Quokka adopted its current business model, incorporated
in Delaware under the name Quokka Productions, Inc. and relocated its
headquarters to San Francisco. In September 1996, Quokka Productions, Inc.
changed its name to Quokka Sports, Inc.
Quokka is an independent digital sports network providing real-time
coverage of sporting events for worldwide audiences. Utilizing digital assets
generated at a sports venue that are under-utilized by traditional media, Quokka
is building a digital sports network by creating digital programming content
that is specifically designed for interactive distribution systems.
Revenues are generated from digital entertainment sponsorships,
advertising, electronic commerce and studio services. The majority of revenues
are derived from the sale of sponsorship packages to corporations. Digital
entertainment sponsors may embed their products in Quokka's productions, site
branding, access to development projects, the use of trademarks and logos and
participation in various print and media campaigns.
Unaudited Interim Financial Information
The accompanying interim consolidated financial statements as of March 31,
1998 and 1999 and the three months then ended together with the related notes
are unaudited but include all adjustments, consisting of only normal recurring
adjustments, which management considers necessary to present fairly, in all
material respects, the consolidated financial position, and consolidated results
of operations and cash flows for the three month periods ended March 31, 1998
and 1999. Results for the three months ended March 31, 1999 are not necessarily
indicative of results of the entire year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign Currency Translation
The functional currency of Quokka's subsidiaries is the local currency.
Accordingly, Quokka applies the current rate method to translate the
subsidiaries' financial statements into United States dollars. Translation
adjustments are included as a separate component of stockholders' equity in the
accompanying financial statements.
Basis of Presentation
The consolidated financial statements include the accounts of Quokka, and
all of its wholly and majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in the consolidated financial
statements. Investments in and advances to our joint venture in which we have a
50% ownership interest are accounted for by the equity method.
F-7
<PAGE> 92
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
Quokka includes in cash and cash equivalents all highly liquid investments
that mature within three months of their purchase date. Cash equivalents consist
primarily of money market funds.
Property and Equipment
Property and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the related assets that
range from three to five years. Leased assets are amortized on a straight-line
basis over the lesser of the estimated useful life or the lease term.
Maintenance and repairs are charged to operations as incurred. When assets are
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts, and any resulting gain or loss is reflected in
operations in the period realized.
Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statements and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
Net loss per share and pro forma net loss per share
Quokka computes net loss per share in accordance with SFAS No. 128,
Earnings per Share, and SEC Staff Accounting Bulletin ("SAB") No. 98. Under the
provisions of SFAS No. 128 and SAB No. 98, basic net loss per share is computed
by dividing the net loss available to common stockholders for the period by the
weighted average number of common shares outstanding during the period. Diluted
net loss per share is computed by dividing the net loss for the period by the
weighted average number of vested common and common equivalent shares
outstanding during the period. However, as Quokka generated net losses in all
periods presented, common equivalent shares, composed of incremental common
shares issuable upon the exercise of stock options and warrants and upon
conversion of preferred stock, are not included in diluted net loss per share
because such shares are anti-dilutive.
Pro forma net loss per share in 1998 and the period ended March 31, 1999 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of Quokka's
preferred stock and exercise of in the money warrants to purchase 508,848 shares
into shares of Quokka's common stock effective upon the closing of Quokka's
initial public offering as if such conversion and exercise occurred on January
1, 1998 or at the date of original issuance, if later. The resulting pro forma
adjustments result in an increase in the weighted average shares used to compute
basic and diluted net loss per share in 1998 and for the three months ended
March 31, 1999. Pro forma common equivalent shares, composed of unvested
restricted common stock and incremental common shares issuable upon the exercise
of stock options and warrants, are not included in pro forma diluted net loss
per share because they would be anti-dilutive.
Pro Forma Stockholder's Equity (Unaudited)
Effective upon the closing of the Company's initial public offering, the
outstanding shares of Series A, Series B, Series C and Series D Preferred Stock
will automatically convert into shares of common stock. The pro forma effects of
these transactions are unaudited and have been reflected in the accompanying pro
forma consolidated balance sheet at March 31, 1999.
F-8
<PAGE> 93
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the computation of historical and pro forma
basic and diluted net loss per share for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss available to common
stockholders............... $(1,559,779) $(4,941,840) $(9,538,324) $ (389,641) $(7,847,600)
Denominator:
Weighted average shares....... 3,800,000 6,791,534 9,656,857 9,651,566 9,772,933
Weighted average unvested
common shares subject to
repurchase agreements...... -- -- (2,022) -- (16,874)
----------- ----------- ----------- ----------- -----------
Denominator for basic and
diluted calculation........ 3,800,000 6,791,534 9,654,835 9,651,566 9,756,059
=========== =========== =========== =========== ===========
Net loss per share:
Basic and diluted............. $ (0.41) $ (0.73) $ (0.99) $ (0.04) $ (0.80)
Anti-dilutive securities
including options, warrants
and preferred stock not
included in historical net
loss per share calculations... 0 1,643,306 17,755,299 9,373,525 32,685,779
PRO FORMA NET LOSS PER SHARE:
Net loss........................ $(9,538,324) $(7,847,600)
Shares used in computing net
loss per share,
basic and diluted............. 9,654,835 9,756,059
Adjustment to reflect assumed
conversion of preferred stock
and exercise of warrants...... 14,260,099 24,244,864
----------- -----------
Shares used in computing pro
forma net loss per share,
basic and diluted............. 23,914,934 34,000,923
=========== ===========
Pro forma net loss per share,
basic and diluted
(unaudited)................... $ (0.40) $ (0.23)
</TABLE>
Recently Issued Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
130, Reporting Comprehensive Income. SFAS 130 establishes standards for
reporting comprehensive income and its components in a financial statement.
Comprehensive income as defined includes all changes in equity (net assets)
during a period from nonowner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include foreign
currency translation adjustments and unrealized gains/losses on
available-for-sale securities. The difference between net loss, as reported, and
comprehensive income relates solely to the change in the cumulative translation
adjustment for the respective periods which were not material to these financial
statements.
During June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information" SFAS No. 131 replaces SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise" and changes the way
public companies report segment information. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997 and has been adopted by Quokka
for the year ended December 31, 1998. Quokka operates in one business segment.
F-9
<PAGE> 94
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position No. 98-1, "Software for Internal Use" which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. Statement of Position No. 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998. Quokka
does not expect that the adoption of Statement of Position No. 98-1 will have a
material impact on its financial statements.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." This standard requires companies to expense
the costs of start-up activities and organization costs as incurred. In general,
Statement of Position 98-5 is effective for fiscal years beginning after
December 15, 1998. Quokka believes the adoption of Statement of Position 98-5
will not have a material impact on its results of operations.
Fair Value of Financial Instruments
Carrying amounts of certain of Quokka's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities, approximate fair value due to their short
maturities. Based upon borrowing rates currently available for Quokka for loans
with similar terms, the carrying value of capital lease obligations approximates
fair value.
Business Risk and Concentration of Credit Risk
Quokka operates in the Internet industry, which are rapidly evolving and
intensely competitive. Quokka potentially competes with other Internet
companies, large, established media companies and sports marketing
organizations.
Financial instruments that potentially subject Quokka to concentrations of
credit risk consist primarily of one money market account placed with one
financial institution which exceeds federally insured limits.
Quokka performs ongoing credit evaluations, does not require collateral and
does not currently maintain any reserves for potential credit losses. For the
year ended December 31, 1998, three customers accounted for 52%, 16% and 12%,
respectively, of all revenues generated by Quokka. For the three months ended
March 31, 1998, three customers accounted for 63%, 18% and 10% of all revenues
generated by Quokka. For the three months ended March 31, 1999, three customers
accounted for 48%, 25% and 18% of all revenues generated by Quokka. At December
31, 1998, 23% of the outstanding accounts receivable was attributable to the
smallest of the three largest customers. One additional customer accounted for
another 65% of total outstanding accounts receivable. The remaining accounts
receivable balance at December 31, 1998 was attributable to three additional
customers. At March 31, 1999, 100% of the outstanding accounts receivable was
attributable to three customers.
For the year ended December 31, 1997, three customers accounted for 52%,
21% and 15% of all revenues generated by Quokka. At December 31, 1997, there
were no receivables from these customers. For the year ended December 31, 1996,
one customer accounted for all the revenues generated.
REVENUE RECOGNITION
Quokka generates revenues from digital entertainment sponsorships,
advertising, electronic commerce and studio services. Sponsorship revenues are
recognized over the term of the sponsored event based on the ratio of current
period impressions to projected total ultimate impressions based on a
determination that no significant obligations remained and collection of the
resulting receivable was probable. When Quokka was obligated to provide a
minimum number of impressions, a pro rata portion of amounts received was
recorded as deferred revenue until these obligations were satisfied. Revenues
from studio services are recognized in the period the service is provided.
Advertising and electronic commerce revenues, which have not been material to
date, are recognized when the commitment is met or product is
F-10
<PAGE> 95
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shipped and payment is assured. Quokka has accepted property and services as
payment for sponsorship. Property and services received as payment are valued at
fair market value based on the amounts normally charged to third parties for
similar property and services.
Total property and services received as payment were $0 in 1996, $1,738,298
in 1997 and $4,320,622 in 1998. Total property and services received as payment
were $2,773,874 and $244,763 for the three months ended March 31, 1998 and 1999.
RESEARCH AND ENGINEERING
Research and engineering expenses include personnel costs, costs incurred
to improve and develop the "Quokka Sports Platform," broadband applications and
costs associated with network operations. Research and engineering costs are
expensed as incurred.
ADVERTISING
Advertising is expensed as incurred. Advertising expenses were $4,000 in
1996, $62,000 in 1997 and $554,000 in 1998.
STOCK-BASED COMPENSATION
In 1997, Quokka adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-based Compensation." Quokka has elected to continue
accounting for stock-based compensation issued to the employees using Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and,
accordingly, pro forma disclosures required under SFAS No. 123 have been
presented (See Note 8). Under APB No. 25, compensation expense is based on the
difference, if any, on the date of the grant, between the fair value of Quokka's
common stock and the exercise price. Additionally, pursuant to SFAS No. 123,
stock issued to non-employees is accounted for at the fair value of the equity
instruments issued, or at the fair value of the consideration received,
whichever is more reliably measurable.
RECLASSIFICATION
Quokka has reclassified the presentation of certain prior year information
to conform to the current year presentation. These changes had no effect on
previously reported financial position or results of operations.
F-11
<PAGE> 96
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1997 1998 1999
-------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Computer, telecommunications equipment and
software..................................... $ 61,595 $2,241,644 $4,156,456
Leasehold improvements......................... 227,394 567,680 780,147
Furniture and fixtures......................... 5,738 356,068 611,346
Production equipment........................... -- 93,951 431,383
Leased equipment............................... 75,464 75,464 406,533
-------- ---------- ----------
370,191 3,334,807 6,385,865
Less accumulated depreciation and
amortization................................. (68,247) (598,509) (1,028,840)
-------- ---------- ----------
Property and equipment, net............... $301,944 $2,736,298 $5,357,025
======== ========== ==========
</TABLE>
Accumulated amortization related to leased equipment was $12,577 at
December 31, 1997 and $37,732 at December 31, 1998. There were no asset
disposals during 1996, 1997 and 1998. Accumulated amortization related to leased
equipment was $18,866 at March 31, 1998 and $62,413 at March 31, 1999. There
were no asset disposals during the three months ended March 31, 1999.
3. INCOME TAXES
The provision for income taxes are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Current tax expense:
Federal -- Foreign........................ $ -- $ -- $ 12,090
State..................................... -- 800 800
Deferred tax expense
Federal................................... -- (1,438,864) (2,845,930)
State..................................... -- (128,098) (486,101)
Valuation allowance for deferred tax
assets.................................... -- 1,566,962 3,332,031
----------- ----------- -----------
$ -- $ 800 $ 12,890
=========== =========== ===========
</TABLE>
The change in the valuation allowance was $1,566,962 during the period from
August 15, 1996 (date of incorporation) to December 31, 1997 and $3,332,031 in
1998. Tax expenses, which were insignificant, were recorded in general and
administrative expenses.
F-12
<PAGE> 97
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The primary components of the net deferred tax asset are:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforwards.................. $ 1,526,769 $ 4,671,438
Other............................................. 40,193 227,554
----------- -----------
1,566,962 4,898,992
Valuation allowance............................... (1,566,962) (4,898,992)
----------- -----------
Deferred tax liability............................ -- --
----------- -----------
Net deferred tax asset............................ $ -- $ --
=========== ===========
</TABLE>
At December 31, 1998, Quokka had net operating loss carryforwards of
$12,025,228 for federal tax purposes expiring in 2011 through 2018, and
$9,987,838 for California income tax purposes which expire in 2004. The issuance
of preferred stock in December, 1997, resulted in a change of ownership under
Section 382 of the Internal Revenue Code. As a result of the change,
approximately $3.8 million in federal losses and $1.8 million in California
losses are subject to an annual limitation of $254,319. The losses incurred
while operating as Ozware Developments Unit Trust in Australia are not available
for future utilization. Therefore, no deferred income taxes were recorded in the
financial statements.
The effective income tax rate differs from the federal statutory income tax
rate of 34% primarily as a result of state income taxes and the change in the
valuation allowance. The difference between Quokka's effective income tax rate
and the federal statutory rate is reconciled below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Provision computed at federal statutory
rate....................................... $ -- $(1,702,090) $(3,242,713)
State taxes, net of federal tax benefit...... -- (291,325) (556,411)
Change in valuation allowance................ -- 1,566,962 3,332,031
Other........................................ -- 427,253 479,983
---------- ----------- -----------
Net tax provision............................ $ -- $ 800 $ 12,890
========== =========== ===========
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities are comprised of:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------- -----------
1997 1998 1999
------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued compensation and related
expenses................................. $79,993 $ 579,380 $255,817
Accrued expenses........................... 1,997 544,977 450,000
Accrued professional service fees.......... -- 75,000 21,002
------- ---------- --------
Total accrued liabilities........ $81,990 $1,199,357 $726,819
======= ========== ========
</TABLE>
5. COMMITMENTS
Quokka's rental expense for office facilities was $149,839 in 1997 and
$232,799 in 1998 and $174,015 for the three months ended 1999. Quokka has the
option to terminate its facilities lease after December 2000 if the landlord is
unable to accommodate Quokka's expansion needs.
F-13
<PAGE> 98
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Lease Obligations
Quokka leases office facilities and equipment under noncancelable operating
leases. Additionally, Quokka leases certain office equipment under capital lease
agreements. Minimum future payments under capital and operating lease agreements
for the year ended December 31, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
1999.................................................. $ 51,017 $ 438,668
2000.................................................. 45,960 412,980
2001.................................................. -- 381,314
2002.................................................. -- 55,746
-------- ----------
96,977 $1,288,708
==========
Less amount representing interest..................... 14,412
--------
Present value of minimum lease payments under capital
lease............................................... 82,565
Less current portion.................................. (40,188)
--------
Non-current portion......................... $ 42,377
========
</TABLE>
Long-Term Debt
Quokka has an equipment financing arrangement with a bank. Under the terms
of the agreement, Quokka had the right to draw on a $750,000 line of credit
until November 23, 1998 for the purchase of equipment collateralized by the
loan. These amounts are classified as long-term debt on the accompanying
financial statements. Quokka withdrew the maximum amount available under this
line during the period. The terms of the agreement require repayment over 36
months commencing November 23, 1998. Prior to that date, Quokka was obligated to
make payments of interest only on the unpaid balance. The current rate of 8.50%
is 0.75% over the prime rate quoted by the bank (7.75% at December 31, 1998).
Principal and interest payments are made monthly to fully amortize the loan.
6. STOCKHOLDERS' EQUITY
Preferred Stock
At December 31, 1998, Quokka had Series A, Series B and Series C preferred
stock authorized and outstanding. At December 31, 1997, Quokka was authorized to
issue 8,500,000 shares of preferred stock, all of which were designated Series A
Preferred Stock. At December 31, 1998, Quokka was authorized to issue 27,600,000
shares of preferred stock, 7,965,688 of which were designated Series A Preferred
Stock, 11,127,620 of which were designated Series B Preferred Stock and
8,500,000 of which were designated Series C Preferred Stock. The holders of
preferred stock have the following rights:
Dividends
The holders of all series of preferred stock outstanding are entitled
to receive in any fiscal year, when and if declared by the Board of
Directors, out of any funds legally available, cash dividends at the rate
of 8.00% of the original issuance price per share. The right to dividends
is not cumulative, and no dividends were declared through December 31,
1998.
F-14
<PAGE> 99
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Conversion Rights
At the option of the holder, each share of Series A, Series B and
Series C Preferred Stock is convertible, at any time, into one share of
common stock. The conversion ratio is subject to adjustment resulting from
future capital transactions. In addition, each share of Series A, Series B
and Series C Preferred Stock will convert automatically into common stock:
(i) at any time based on the affirmative vote of 75% of the outstanding
shares of all of Series A, Series B and Series C Preferred Stock; or (ii)
immediately prior to the closing of a firm commitment underwritten public
offering, provided the gross cash proceeds to Quokka are at least
$15,000,000 and the public offering price per share is at least $4.50.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of Quokka,
either voluntary or involuntary, the holders of the Series C Preferred
Stock retain liquidation preference over Series A and Series B Preferred
Stock and common stock equal to the original issuance price ($3.25 per
share) plus declared but unpaid dividends. After the payment of the full
liquidation preference of the Series C Preferred Stock, the holders of the
Series B Preferred Stock retain liquidation preference over Series A
Preferred Stock and common stock equal to the original issuance price
($1.50 per share) plus declared but unpaid dividends. After the payment of
the full liquidation preference of the Series C Preferred Stock and Series
B Preferred Stock, the holders of the Series A Preferred Stock retain
liquidation preference over common stock equal to the original issuance
price ($0.68 per share) plus declared but unpaid dividends. If there are
any available funds and assets remaining after payments or distributions
are made to the holders of Series A, Series B and Series C Preferred Stock
of their full preferential amounts, then all remaining funds and assets
will be distributed pro rata among the holders of the then-outstanding
common stock and Series A, Series B and Series C Preferred Stock on a pro
rata, as converted to common stock basis.
Voting Rights
The holders of all series of preferred stock and the holders of common
stock are entitled to notice of any stockholders' meeting. Holders of
voting common stock and Series A, Series B and Series C Preferred Stock ,
vote as a single class upon any matter submitted to the stockholders for a
vote, as follows: (i) each holder of Series A, Series B and Series C
Preferred Stock, has one vote for each full share of common stock into
which each share of preferred stock would be convertible on the record date
for the vote and (ii) each holder of common stock has one vote per share of
common stock. Voting as a separate class, holders of Series A Preferred
Stock have the right to elect two directors. This right can be exercised of
any annual meeting or at any special meeting called. Directors elected by
holders of a majority of all outstanding shares of Series A Preferred Stock
will serve until their successors have been elected or have been removed by
holders of the majority of the Series A Preferred Stock.
7. BRIDGE LOANS AND WARRANTS
In October 1997, Quokka obtained a bridge loan and issued warrants to
purchase common stock. The loan amount was subsequently converted into Series A
Preferred Stock in connection with the Series A Preferred Stock financing in
December 1997. Quokka issued 212,800 warrants at an exercise price of $0.50 per
share expiring in November 2004. In connection with these warrants, Quokka
recorded a charge to interest expense of $61,860, representing the fair value of
the warrants issued.
F-15
<PAGE> 100
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1998, Quokka issued warrants to purchase 635,650 shares of Series A, B,
and C Preferred Stock under a joint development agreement. In connection with
these warrants, Quokka recorded charges for research and engineering of
$852,730, representing the fair value of the warrants issued. In December 1998,
339,602 shares of preferred stock were exercised. As of December 31, 1998, the
following warrants were outstanding:
<TABLE>
<CAPTION>
AGGREGATE
EXERCISE
SHARES PRICE EXPIRATION DATES
------- --------- ----------------
<S> <C> <C> <C>
Common stock......... 212,800 $106,400 The earlier of November 2004 or initial public offering
Series A Preferred
Stock.............. 99,539 101,530 The earlier of August 2009 or initial public offering
Series B Preferred
Stock.............. 148,024 174,257 The earlier of August 2009 or initial public offering
Series C Preferred
Stock.............. 48,485 157,576 The earlier of August 2009 or initial public offering
</TABLE>
The estimated fair value of these warrants has been determined based on the
Noreen-Wolfson fair value model with a volatility of 70%.
8. STOCK OPTIONS
Pursuant to the Quokka Sports, Inc. 1997 Equity Incentive Plan ("the
Plan"), employees, directors and consultants of Quokka may be granted options to
purchase shares of common stock. At December 31, 1998, 7,350,000 shares of
common stock were reserved for issuance pursuant to the Plan. Options granted
under the Plan are exercisable but subject to repurchase at cost in the event
that the individual ceases to be an employee or provide services to Quokka.
Repurchase rights generally lapse according to a vesting schedule of 60 months.
A summary of the activity under the Plan together with options granted
outside of the Plan is as follows:
<TABLE>
<CAPTION>
EXERCISE WEIGHTED
PRICE AGGREGATE AVERAGE
SHARES PER SHARE PRICE EXERCISE PRICE
--------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Outstanding at December 31,
1996.......................... -- -- -- --
Granted......................... 1,340,000 $0.50 $ 670,000 $0.50
Cancelled....................... (252,000) $0.50 (126,000) $0.50
--------- ----------- ----------- -----
Outstanding at December 31,
1997.......................... 1,088,000 $0.50 544,000 $0.50
Granted......................... 2,695,000 $0.50-$2.60 3,719,000 $1.34
Exercised....................... (48,799) $0.50 (24,400) $0.50
Cancelled....................... (239,001) $0.50-$1.50 (176,000) $0.74
--------- ----------- ----------- -----
Outstanding at December 31,
1998.......................... 3,495,200 $0.50-$2.60 4,062,600 $1.12
--------- ----------- ----------- -----
Granted......................... 3,894,600 $3.25-$8.00 27,276,950 $7.00
Exercised....................... (197,775) $0.50-$7.00 (135,138) $0.68
Cancelled....................... (47,000) $1.50-$7.00 (131,000) $2.79
--------- ----------- ----------- -----
Outstanding at March 31, 1999... 7,145,025 $0.50-$8.00 $31,073,412 $4.35
========= =========== =========== =====
</TABLE>
At December 31, 1998, options to purchase 819,480 shares were fully vested.
F-16
<PAGE> 101
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information with respect to stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------- ----------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE 12/31/98 EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.50 1,454,200 8.68 $0.50 441,429 $0.50
$0.75-$1.25 911,000 9.65 $1.13 156,867 $1.12
$1.50-$2.60 1,106,000 9.88 $2.08 221,184 $2.08
</TABLE>
The following information concerning the Plan is provided in accordance
with Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123). Quokka accounts for the Plan in accordance
with Accounting Principles Board (APB) Opinion No. 25 and related
interpretations.
The fair value of each employee stock option grant has been estimated on
the date of grant using the minimum value method with the following weighted
average assumptions used for grants in 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Risk-free interest rates........................... 5.72% 5.25%
Expected life of options........................... 5years 5years
Expected dividends................................. $0 $0
</TABLE>
The weighted average fair value of options granted in 1998 was $1.38. Stock
options issued to consultants were valued utilizing the Black-Scholes option
pricing model with a volatility of 71%.
The following comprises the pro forma information pursuant to the provision
of SFAS No. 123:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss -- historical.............. $(1,559,779) $(4,941,840) $(9,538,324)
Pro forma........................... $(1,559,779) $(4,966,164) $(9,694,002)
Basic and diluted net loss per share
Historical........................ ($0.41) ($0.73) ($0.99)
Pro forma......................... ($0.41) ($0.73) ($1.00)
</TABLE>
These pro forma amounts may not be representative of the effects on pro
forma net income (loss) for future years as options vest over several years and
additional awards are generally made each year.
9. 401(k) PLAN
On November 5, 1997, Quokka established a 401(k) plan, which took effect on
January 1, 1998. Under the plan, eligible employees are permitted to contribute
up to 15% of gross compensation, not to exceed the annual 402(g) limitation for
any plan year. Discretionary contributions may be made by Quokka. No
contributions have been made by Quokka since the adoption of the plan.
F-17
<PAGE> 102
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information and non-cash activities for 1997 and
1998, and the three months ended March 31, 1998 and 1999:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------------
1997 1998 1998 1999
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Supplement disclosure of cash:
Equipment financed through capital lease.... $119,684 $ -- $ -- $ --
Account payable related to purchase of
property and equipment................... -- 241,809 -- 483,946
Issuance of warrants for preferred stock
under joint development agreement........ 61,860 415,094 381,948 --
Issuance of preferred warrants under license
rights agreement......................... -- -- -- 400,841
Issuance of preferred warrants for
subordinated debt........................ -- -- -- 552,486
Stock options issued as compensation for
services rendered........................ -- 34,788 -- 27,922
</TABLE>
11. COMMITMENTS & CONTINGENCIES
Quokka, together with, in some instances, some of its directors and
officers, may from time to time be the subject of claims or named as a defendant
or co-defendant in various legal actions involving breach of contract and
various other claims incident to the conduct of its businesses. Management does
not expect Quokka to suffer any material liability by reason of such actions,
nor does it expect that such actions will have a material effect on Quokka's
liquidity or operating results.
12. SUBSEQUENT EVENTS
In February 1999, Quokka established NBC/Quokka, LLC a joint venture with
NBC Olympics, Inc. NBC/Olympics, Inc. is owned 51% by Quokka and 49% by NBC
Olympics, Inc. The terms of the operating agreement for the venture require
Quokka to make quarterly capital contributions in amounts necessary to fund the
venture's operations on an ongoing basis in accordance with the annual operating
plan. Accordingly, the amount and timing of these capital contributions will be
based on the actual activities of the venture and are unknown at this time. In
consideration for Quokka's share of the equity in the joint venture, Quokka also
issued 2,100,000 warrants that have a fair value of $4.9 million. This joint
venture has been consolidated in Quokka's financial statements. NBC's obligation
to the joint venture is to contribute interactive media rights as well as on-air
promotion of the site, access to NBC personalities and research.
In March 1999, Quokka formed CART Digital Media Enterprises, LLC with
Forsythe Inc. CART Digital Media Enterprises, LLC is 50% owned by Quokka and 50%
owned by Forsythe, Inc., and both parties have an equal representation on the
Board of Managers. The terms of the agreement require the two partners to make
capital contributions in order to meet the venture's need for operating capital.
Accordingly, the amounts and timing of these capital contributions will be based
on the actual activities of the venture and are unknown at this time. This joint
venture will be treated as an equity investment within the financial statements.
As part of the consideration for the equity in this joint venture, Quokka issued
warrants to purchase 76,366 shares of Series C Preferred Stock, which has a fair
value of $400,841.
F-18
<PAGE> 103
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Quokka has acquired rights to various other events. Under these agreements
Quokka is required to make cash payments through 2003 totaling $6,700,000.
Quokka and its subsidiaries and joint venture will account for acquired
media rights pursuant to Statement of Financial Accounting Standards No. 63.
Under FAS No. 63, a licensee shall report an asset and a liability for the
rights acquired and obligations incurred under a license agreement when the
license period begins and other conditions, including availability and
acceptance, have been met. The assets will be amortized over their estimated
useful life.
In February 1999, Quokka entered into a subordinated debt agreement. Terms
of this agreement call for maximum borrowings of $10 million. Repayment is due
in 36 monthly installments commencing on February 1, 2000 subject to
acceleration under certain conditions including the completion of an initial
public offering. No amounts were outstanding on this facility as of March 31,
1999. In connection with this agreement, Quokka has issued warrants for the
purchase of 215,384 shares of Series C Preferred Stock at an exercise price of
$3.25. The fair value of these warrants was $552,486 and has been treated as a
loan commitment fee and is being amortized over the term of the six-month
draw-down period as no further services are requested to earn the warrants, and
they are fully vested.
The estimated fair value of the above warrants have been determined based
on the Noreen-Wolfson fair value model with a volatility of 70%.
In April 1999, Quokka entered into a Trial Agreement with MediaOne
Interactive Services, Inc. Under this agreement, Quokka and MediaOne are working
together to implement and test streaming media over the MediaOne cable modem
infrastructure. In connection with this agreement, Quokka has issued warrants to
MediaOne to purchase 153,846 shares of Series C preferred stock at an exercise
price of $3.25 per share. These warrants will expire in January 2009 if not
earlier exercised.
In May 1999, Quokka entered into a noncancelable facilities lease. Terms of
the lease call for annual lease payments of approximately $1.9 million. Terms of
the lease agreement further require a $700,000 security deposit in the form of
an irrevocable letter of credit. The lease expires in February 2002.
In May 1999, Quokka completed an additional private sale of equity
securities issuing 3,966,667 shares of Series D Preferred Stock at a price of
$9.00 per share. Aggregate gross proceeds approximate $35.7 million.
In May 1999, Quokka entered into a binding letter of intent with
Excite@Home to integrate and promote their sports programming on the
www.excite.com web site and the @Home broadband service. Terms of this agreement
call for semiannual payments through January 2000 and quarterly payments
thereafter through October 2002 totaling $9.6 million.
In May 1999, the Company entered into a purchase commitment for property
and equipment totalling $10.5 million through December 2001.
In May 1999, the Company entered into an agreement to purchase software and
services totalling $3.5 million through December 2000.
In June 1999, Quokka completed an additional private sale of equity
securities issuing 555,556 shares of Series D Preferred Stock at a price of
$9.00 per share. Aggregate gross proceeds approximate $5.0 million.
F-19
<PAGE> 104
(INSIDE BACK COVER)
[Picture of the Race Viewer web page related to Quokka's coverage of the 1999
FedEx Championship Series car race, a CART event.]
<PAGE> 105
(INSIDE BACK COVER GATE FOLD)
[GRAPHIC TITLED "QUOKKA SPORTS PLATFORM" DEPICTING DATA FLOW THROUGH THE
FOLLOWING SIX STAGES OF THE QUOKKA SPORTS PLATFORM: (1) COLLECTION; (2)
TRANSMISSION; (3) PRODUCTION; (4) DISTRIBUTION; (5) DELIVERY; AND (6) CLIENT.]
<PAGE> 106
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 1999 (the 25(th) day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
5,000,000 SHARES
[QUOKKASPORTS LOGO]
COMMON STOCK
-----------------------
P R O S P E C T U S
--------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
BANCBOSTON ROBERTSON STEPHENS
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 107
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by Quokka
in connection with the sale of the shares of common stock being registered
hereby. All amounts are estimates except for the SEC registration fee, the NASD
filing fee and the Nasdaq National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 17,584
NASD filing fee............................................. 6,250
Nasdaq National Market filing fee........................... 95,000
Accounting fees and expenses................................ 250,000
Legal fees and expenses..................................... 350,000
Printing and engraving expenses............................. 325,000
Blue sky fees and expenses.................................. 10,000
Transfer agent and registrar fees and expenses.............. 15,000
Miscellaneous............................................... 248,401
----------
Total.................................................. $1,317,235
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our certificate of incorporation, which will become effective upon the
closing of this offering, contains provisions permitted under Delaware law
relating to the liability of directors. These provisions eliminate a director's
personal liability for monetary damages resulting from a breach of fiduciary
duty, except in circumstances involving wrongful acts, such as:
- any breach of the director's duty of loyalty;
- acts or omissions which involve a lack of good faith, intentional
misconduct or a knowing violation of the law;
- payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law; or
- any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief, such as an injunction or rescission, in the
event of a breach of director's fiduciary duty. These provisions will not alter
a director's liability under federal securities laws.
Our bylaws, which will become effective upon the closing of this offering,
require us to indemnify our directors and executive officers to the fullest
extent not prohibited by the Delaware law. We may limit the extent of such
indemnification by individual contracts with our directors and executive
officers. Further, we may decline to indemnify any director or executive officer
in connection with any proceeding initiated by such person or any proceeding by
such person against Quokka or its directors, officers, employees or other
agents, unless such indemnification is expressly required to be made by law or
the proceeding was authorized by our board of directors.
We have entered into indemnity agreements with each of our current
directors and certain of our executive officers to give such directors and
officers additional contractual assurances regarding the scope of the
indemnification set forth in our certificate of incorporation and bylaws and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of Quokka for
which indemnification is sought, nor are we aware of any threatened litigation
that may result in claims for indemnification.
II-1
<PAGE> 108
We have the power to indemnify our other officers, employees and other
agents, as permitted by Delaware law, but we are not required to do so.
Quokka plans to obtain directors' and officers' liability insurance.
Reference is made to the following documents filed or to be filed as
exhibits to this registration statement regarding relevant indemnification
provisions described above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT NUMBER
- ---------------- ------
<S> <C>
Form of Underwriting Agreement.............................. 1.01
Amended and Restated Certificate of Incorporation........... 3.03
Amended and Restated Bylaws................................. 3.04
Amended and Restated Investors' Rights Agreement dated May
27, 1999.................................................. 4.02
Form of Indemnity Agreement................................. 10.01
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following list sets forth information regarding all securities sold by
Quokka since its incorporation in Delaware on August 15, 1996:
1. In January 1997, Quokka issued and sold an aggregate of 3,800,000
shares of its common stock to one entity in exchange for all of the
properties, rights, interests and other tangible and intangible assets
of Ozware Developments Unit Trust, an Australian unit trust.
2. From March 1997 to August 1997, Quokka issued and sold an aggregate of
5,851,566 shares of its common stock at $0.50 per share, 3,351,076 of
which were sold to five executive officers and/or directors (and
related entities) of Quokka.
3. In October 1997, Quokka issued warrants to purchase an aggregate of
212,800 shares of common stock at an exercise price of $0.50 per share
to four investors, 62,800 of which were sold to two executive officers
and/or directors (and related entities) of Quokka.
4. In December 1997, Quokka issued and sold an aggregate of 7,720,590
shares of Series A Preferred Stock at $0.68 per share to 11 investors,
5,635,294 of which were sold to five executive officers and/or
directors (and related entities) of Quokka.
5. Between March 1998 and December 1998, Quokka issued and sold warrants
to purchase up to 245,098 shares of Series A Preferred Stock at an
exercise price of $1.02 per share, 245,098 shares of Series B Preferred
Stock at an exercise price of $1.02 per share, 72,727 shares of Series
B Preferred Stock at an exercise price of $1.50 per share and 72,727
shares of Series C Preferred Stock at an exercise price of $3.25 per
share to one investor that is now a 5% stockholder of Quokka. The
warrants were amended in December 1998 and partially exercised by the
5% stockholder in December 1998 for 145,559 shares of Series A
Preferred Stock, 145,559 shares of Series B Preferred Stock, 24,242
shares of Series B Preferred Stock and 24,242 shares of Series C
Preferred Stock. The warrants, as amended, are currently exercisable
for 99,539 shares of Series A Preferred Stock at an exercise price of
$1.02 per share, 99,539 shares of Series B Preferred Stock at an
exercise price of $1.02 per share, 48,485 shares of Series B Preferred
Stock at an exercise price of $1.50 per share and 48,485 shares of
Series C Preferred Stock at an exercise price of $3.25 per share.
6. From June to August 1998, Quokka issued and sold an aggregate of
10,737,068 shares of Series B Preferred Stock at $1.50 per share to 21
investors, 9,767,269 of which were sold to six investors that are now
5% stockholders of Quokka, and 576,904 shares of which were sold to
three executive officers and directors (and related entities) of
Quokka.
7. In December 1998, Quokka issued and sold an aggregate of 4,938,756
shares of Series C Preferred Stock at $3.25 per share to 26 investors,
3,630,771 of which were sold to six
II-2
<PAGE> 109
investors that are now 5% stockholders, and 323,371 of which were sold
to three executive officers and directors (and related entities) of
Quokka.
8. From February 1999 to March 1999, Quokka issued and sold warrants to
purchase up to an aggregate of 2,391,750 shares of Series C Preferred
Stock at a weighted average per share price of $5.33 to three
investors, one of which is now a 5% stockholder of Quokka.
9. In April 1999, Quokka issued and sold warrants to purchase up to an
aggregate of 161,538 shares of Series C Preferred Stock at an exercise
price of $3.25 per share to two investors, one of which is now a 5%
stockholder of Quokka.
10. In May and June 1999, Quokka issued and sold an aggregate of 4,522,223
shares of Series D Preferred Stock at $9.00 per share to 8 investors.
11. Since inception, Quokka has granted stock options under its 1997 Equity
Incentive Plan, covering an aggregate of 8,620,199 shares of common
stock (net of expirations and cancellations) at exercise prices ranging
from $0.50 to $8.50 per share.
12. Since inception, options to purchase an aggregate of 343,763 shares of
common stock have been exercised for an aggregate purchase price of
$258,131.50 at a weighted exercise price of $0.75 per share.
13. Since inception, Quokka has granted stock options outside of its 1997
Equity Incentive Plan, covering an aggregate of 517,000 shares of
common stock (net of expirations and cancellations) at exercise prices
ranging from $0.50 to $8.50 per share. To date, no options granted
outside of the 1997 Equity Incentive Plan have been exercised.
All sales of common stock made pursuant to the exercise of stock options
granted under the 1997 Equity Incentive Plan to Quokka's officers, directors,
employees and consultants were made in reliance on Rule 701 under the Securities
Act or on Section 4(2) of the Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were made
without general solicitation or advertising. Each purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment and represented to Quokka that the shares were being acquired for
investment.
II-3
<PAGE> 110
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) THE FOLLOWING EXHIBITS ARE FILED HEREWITH:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
1.01** Form of Underwriting Agreement.
3.01* Amended and Restated Certificate of Incorporation.
3.02* Bylaws.
3.03* Form of Amended and Restated Certificate of Incorporation to
be filed upon completion of this offering.
3.04* Form of Amended and Restated Bylaws upon completion of this
offering.
4.01* Form of Specimen Stock Certificate.
4.02* Amended and Restated Investors' Rights Agreement, dated May
27, 1999, among Quokka and certain investors named therein.
5.01* Opinion of Cooley Godward LLP regarding legality of the
securities being registered.
10.01* Form of Indemnity Agreement entered into by Quokka with each
of its directors and certain executive officers.
10.02* Amended and Restated 1997 Equity Incentive Plan.
10.03* Form of Stock Option Agreement under the Amended and
Restated 1997 Equity Incentive Plan.
10.04* 1999 Non-Employee Directors' Stock Option Plan.
10.05* Form of Nonstatutory Stock Option Agreement under the 1999
Non-Employee Directors' Stock Option Plan.
10.06* 1999 Employee Stock Purchase Plan.
10.07* Form of 1999 Employee Stock Purchase Plan Offering.
10.08* Key Employee Agreement, dated March 25, 1999, between Alvaro
Saralegui and Quokka.
10.09* Subordinated Loan and Security Agreement, dated February 12,
1999, between Quokka and Comdisco, Inc.
10.10+ Software License and Development Agreement, dated March 20,
1998, as amended, between Quokka and Intel Corporation.
10.11 Lease, dated October 1, 1996, between Brannan Street
Partners and Quokka, as amended.
10.12 Sublease, dated June 23, 1998, between San Francisco
Mercantile Company, Inc. and Quokka, as amended.
10.13* Office Lease, dated February 18, 1999, between Tiffany M.
Gin and Stanton Lowe dba Spear Street Saphire and Quokka.
10.14+ Master Venture Agreement, dated February 9, 1999, by and
among Quokka, NBC Olympics, Inc. and NBC/Quokka Ventures,
LLC.
10.15+ Agreement, dated January 1, 1999, between Championship Auto
Racing Teams, Inc. and CART Digital Media Enterprises, LLC.
10.16+ Operating Agreement of NBC/Quokka Ventures, LLC, dated
February 9, 1999, between Quokka and NBC Olympics, Inc., as
amended.
10.17+ Digital Entertainment Partnership Agreement, dated January
1, 1999, between Quokka and Compaq Computer Corporation.
10.18* Lease, dated April 23, 1999, between Quokka and 1301 Evans
Street Associates, LLC.
</TABLE>
II-4
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
10.19* Office Lease Agreement, dated May 27, 1999, between Quokka
and EOP-Mission Street, L.L.C.
16.01* Letter from KPMG LLP regarding change in certifying
accountant.
21.01* List of Subsidiaries.
23.01* Consent of Cooley Godward LLP (included in Exhibit 5.01).
23.02 Consent of PricewaterhouseCoopers LLP, independent
accountants.
24.01* Power of Attorney.
27.01* Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed with the Commission.
** To be filed by amendment.
+ Certain portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. A full copy of this Exhibit has been filed with the
Commission.
(b) FINANCIAL STATEMENT SCHEDULES.
All financial statement schedules are omitted because the information
called for is not required, is not applicable, or is shown either in the
consolidated financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Quokka
pursuant to the provisions described under Item 14 above, or otherwise, Quokka
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Quokka of expenses incurred
or paid by a director, officer or controlling person of Quokka in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, Quokka
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by Quokka pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Quokka Sports, Inc. has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on the 6th day of July, 1999.
QUOKKA SPORTS, INC.
By: /s/ LES SCHMIDT
----------------------------------
Les Schmidt
Executive Vice President, Chief
Financial Officer and Secretary
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
ALAN S. RAMADAN* President, Chief Executive Officer July 6, 1999
- ------------------------------------------ and Director (Principal Executive
Alan S. Ramadan Officer)
/s/ LES SCHMIDT Executive Vice President, Chief July 6, 1999
- ------------------------------------------ Financial Officer and Secretary
Les Schmidt (Principal Financial and
Accounting Officer)
RICHARD H. WILLIAMS* Director (Chairman of the Board of July 6, 1999
- ------------------------------------------ Directors)
Richard H. Williams
JOHN BERTRAND A.M.* Director (Vice-Chairman of the July 6, 1999
- ------------------------------------------ Board of Directors)
John Bertrand A.M.
WALTER W. BREGMAN* Director July 6, 1999
- ------------------------------------------
Walter W. Bregman
ROEL PIEPER* Director July 6, 1999
- ------------------------------------------
Roel Pieper
JAMES G. SHENNAN, JR.* Director July 6, 1999
- ------------------------------------------
James G Shennan, Jr.
BARRY M. WEINMAN* Director July 6, 1999
- ------------------------------------------
Barry M. Weinman
*By: /s/ LES SCHMIDT
------------------------------------
Les Schmidt
Attorney-in-Fact
(Signing under the authority of a Power of
Attorney previously filed with the
Securities and Exchange Commission)
</TABLE>
II-6
<PAGE> 113
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT TITLE PAGE
- ------- ------------- ------------
<C> <S> <C>
1.01** Form of Underwriting Agreement..............................
3.01* Amended and Restated Certificate of Incorporation...........
3.02* Bylaws......................................................
3.03* Form of Amended and Restated Certificate of Incorporation to
be filed upon completion of this offering...................
3.04* Form of Amended and Restated Bylaws upon completion of this
offering....................................................
4.01* Form of Specimen Stock Certificate..........................
4.02* Amended and Restated Investors' Rights Agreement, dated May
27, 1999, among Quokka and certain investors named
therein.....................................................
5.01* Opinion of Cooley Godward LLP regarding legality of the
securities being registered.................................
10.01* Form of Indemnity Agreement entered into by Quokka with each
of its directors and certain executive officers.............
10.02* Amended and Restated 1997 Equity Incentive Plan.
10.03* Form of Stock Option Agreement under the Amended and
Restated 1997 Equity Incentive Plan.........................
10.04* 1999 Non-Employee Directors' Stock Option Plan..............
10.05* Form of Nonstatutory Stock Option Agreement under the 1999
Non-Employee Directors' Stock Option Plan...................
10.06* 1999 Employee Stock Purchase Plan...........................
10.07* Form of 1999 Employee Stock Purchase Plan Offering..........
10.08* Key Employee Agreement, dated March 25, 1999, between Alvaro
Saralegui and Quokka........................................
10.09* Subordinated Loan and Security Agreement, dated February 12,
1999, between Quokka and Comdisco, Inc......................
10.10+ Software License and Development Agreement, dated March 20,
1998, as amended, between Quokka and Intel Corporation......
10.11 Lease, dated October 1, 1996, between Brannan Street
Partners and Quokka, as amended.............................
10.12 Sublease, dated June 23, 1998, between San Francisco
Mercantile Company, Inc. and Quokka, as amended.............
10.13* Office Lease, dated February 18, 1999, between Tiffany M.
Gin and Stanton Lowe dba Spear Street Saphire and Quokka....
10.14+ Master Venture Agreement, dated February 9, 1999, by and
among Quokka, NBC Olympics, Inc. and NBC/Quokka Ventures,
LLC.........................................................
10.15+ Agreement, dated January 1, 1999, between Championship Auto
Racing Teams, Inc. and CART Digital Media Enterprises,
LLC.........................................................
10.16+ Operating Agreement of NBC/Quokka Ventures, LLC, dated
February 9, 1999, between Quokka and NBC Olympics, Inc., as
amended.....................................................
10.17+ Digital Entertainment Partnership Agreement, dated January
1, 1999, between Quokka and Compaq Computer Corporation.....
10.18* Lease, dated April 23, 1999, between Quokka and 1301 Evans
Street Associates, LLC......................................
10.19* Office Lease Agreement, dated May 27, 1999, between Quokka
and EOP-Mission Street, L.L.C...............................
16.01* Letter from KPMG LLP regarding change in certifying
accountant..................................................
21.01* List of Subsidiaries........................................
</TABLE>
<PAGE> 114
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT TITLE PAGE
- ------- ------------- ------------
<C> <S> <C>
23.01* Consent of Cooley Godward LLP (included in Exhibit 5.01)....
23.02 Consent of PricewaterhouseCoopers LLP, independent
accountants.................................................
24.01* Power of Attorney...........................................
27.01* Financial Data Schedule.....................................
</TABLE>
- ---------------
* Previously filed with the Commission.
** To be filed by amendment.
+ Certain portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. A full copy of this Exhibit has been filed with the
Commission.
<PAGE> 1
Exhibit 10.10
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES ACT OF 1933. A COMPLETE
COPY OF THIS EXHIBIT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
INTEL/QUOKKA CONFIDENTIAL
SOFTWARE LICENSE AND DEVELOPMENT AGREEMENT
THIS SOFTWARE LICENSE AND DEVELOPMENT AGREEMENT (the "Agreement") is
made as of this 20th day of March, 1998, by and between INTEL CORPORATION, a
Delaware corporation with an office at 2111 NE 25th Avenue, Hillsboro, Oregon
("Intel") and QUOKKA SPORTS, INC., a Delaware corporation with an office at 525
Brannan Street, Ground Floor, San Francisco, CA, 94107 ("Quokka").
RECITALS
Intel is a manufacturer of microprocessors, software and systems. Quokka
has certain expertise in Total Sports Immersion ("TSI") and related businesses.
Intel and Quokka desire to work together to create a TSI application using
broadband broadcast distribution (as described below, the "Project").
Intel and Quokka have entered into that certain Series A Preferred Stock
Purchase Agreement dated as of December 19, 1997 and related agreements (the
"Equity Agreements"). The Equity Agreements contemplate that Intel and Quokka
enter into a development and licensing agreement such as the one set forth
herein.
NOW THEREFORE, based on the Recitals and the terms and conditions
herein, and for other good and valuable consideration, receipt of which is
hereby acknowledged, the parties agree as follows:
AGREEMENT
SECTION 1. DEFINITIONS
1.1 "PROJECT" means the development of a specific TSI application, the
Quokka Application and general industry enabling technologies on which it is
based, the Intel Software and the Quokka Venue Based Software, to be delivered
over a satellite down link to and experienced by the end user on a home personal
computer. The targeted client system may have a back channel that need not be
operational during the entire time the user is deriving value from the
application, but may be available at the end user's option for enhanced
functionality. Critical features of the Quokka Application shall be documented
in the Project Specification but may include (i) an interactive game that uses
telemetry data from a real event to create a 3D simulation in which the user can
participate in the event, (ii) an event viewer that allows users to (a) view the
event, competitors or groups of competitors (such as the event leader, all
competitors, split times between competitors, etc.) (b) switch between multiple
video feeds that may be broadcast as part of the event and (c) watch the
broadcaster feed. The Project contemplates Intel developing the Intel Software,
Quokka developing the Quokka Venue Based Software, and Quokka developing the
specific Quokka Application to interface with the Intel Software and the Quokka
Venue Based Software. The parties contemplate a TSI SDK emerging from the
Project on which additional TSI applications can be produced, which TSI SDK
shall be the property of Intel as described in this Agreement, but Intel shall
not be obligated to produce the TSI SDK.
1.2 "INTEL SOFTWARE" means the software developed by the Dedicated
Resources for the Project as delivered to Quokka together with all Quokka
Improvements. Intel may at its discretion incorporate pre-existing Intel or
third party software into the Intel Software which shall be provided to Quokka
in accordance with the terms and conditions of this Agreement and the licenses
granted to Quokka in Sections 3.1 and 3.2 or as otherwise agreed by the parties
in writing.
1.
<PAGE> 2
INTEL/QUOKKA CONFIDENTIAL
1.3 "QUOKKA VENUE BASED SOFTWARE" means the software developed by Quokka
for the Project that is (i) specifically targeted towards manipulating audio,
video and data from a sporting venue (ii) includes APIs and protocols for
application to a sporting venue (iii) is independent of any specific Quokka
implementation and (iv) does not contain the product specific proprietary
elements of the Quokka Application. The Quokka Venue Based Software will be a
logical layer on top of the more generic Intel Software and will have elements
on the server side as well as on the client system. It is Quokka's intent that
the Quokka Venue Based Software become broadly diffused into the industry in
order to proliferate a more standard way of interfacing between sports venue
systems and broadband means of data transmission.
1.4 "QUOKKA APPLICATION" means the specific TSI application that Quokka
will develop in the Project to interface with the Intel Software and the Quokka
Venue Based Software. The Quokka Application will be targeted at a sporting
event to be determined by Quokka in accordance with the terms and provisions of
this Agreement.
1.5 "QUOKKA IMPROVEMENTS" means bug fixes that Quokka may make to the
Intel Software in the course of creating the Quokka Venue Based Software, the
Quokka Application, Quokka Derivatives or otherwise, which Quokka shall provide
to Intel in source and object code form designated as Quokka Improvements.
1.6 "INTEL IMPROVEMENTS" means bug fixes that Intel may make to the
Quokka Venue Based Software in the course of creating the TSI SDK or other Intel
product incorporating the Quokka Venue Based Software, which Intel shall provide
to Quokka in source and object code form designated as Intel Improvements.
1.7 "DERIVATIVE WORK" means a work based upon one or more preexisting
works, such as a translation, abridgment, condensation, modification, or any
other form in which a work may be recast, transformed, or adapted.
1.8 "QUOKKA DERIVATIVES" means any Derivative Works of the Intel
Software created by Quokka (but not including Quokka Improvements).
1.9 "INTEL DERIVATIVES" means any Derivative Works of the Quokka Venue
Based Software created by Intel (but not including Intel Improvements).
1.10 "PROJECT SPECIFICATION" means identification of the prime target
sport for the Quokka Application, a description of the Project Trial, and
identification of the bandwidth provider.
1.11 "TSI SDK" means the Intel Software and the Quokka Venue Based
Software in an integrated software development kit type of format, together with
appropriate documentation and sample code, which Intel may use to enable the
industry in the creation of TSI applications like the Quokka Application.
1.12 "LICENSED PRODUCTS" means any product offered by Quokka, including
but not limited to the Quokka Application, that (i) incorporates the Intel
Software and at Quokka's election, the Quokka Venue Based Software and (ii) adds
significant functionality to the Intel Software.
1.13 "DEDICATED RESOURCES" shall mean [*] engineer man years, with
one (1) engineer man year being equal to forty hours of work per week for
forty-eight weeks; provided, however,
[*] Confidential Treatment Requested
2.
<PAGE> 3
INTEL/QUOKKA CONFIDENTIAL
that (i) Intel shall not be required to have [*] engineers dedicated to the
Project at any one time, (ii) Intel shall be free to allocate its engineering
resources to the Project and change staff assigned to the Project at its sole
discretion. Notwithstanding the foregoing, however, Intel shall reasonably
endeavor to maintain continuity of staffing on the Project and will take into
reasonable consideration Quokka's requests regarding staffing, including without
limitation identity, qualifications and number of engineers dedicated to the
Project and removal of specific engineers from the Project; provided, however,
all such decisions shall be made by Intel at its sole discretion. Dedicated
Resources shall also include all costs and expenses incurred by Intel in
connection with furnishing such engineering resources.
1.14 "PROJECT COMPLETION" shall mean the earlier of (i) delivery of the
Intel Software to Quokka, delivery of the Quokka Venue Based Software to Intel
and completion of a Project Trial (ii) failure to reach agreement on the Project
Specification by September 30, 1998 and (iii) November 1, 1999.
1.15 "PROJECT TRIAL" shall mean a trial of the Project to test the
success of the Project and its commercial feasibility. The Project Trial shall
be further described in the Project Specification.
1.16 "INTELLECTUAL PROPERTY RIGHTS" means copyrights in software as
delivered and, to the minimum extent necessary to exercise the copyright
license, (i) claims of patents and patent applications that read on inventions
incorporated in the software as delivered and (ii) trade secrets in the software
as delivered.
SECTION 2. OBLIGATIONS OF THE PARTIES
2.1 PROJECT DEVELOPMENT. Subject to the terms and conditions of this
Agreement, Intel and Quokka will cooperate with each other and use commercially
reasonable efforts to complete the Project, including the Quokka Application, by
April 30, 1999. The parties will use commercially reasonable efforts to agree in
writing upon the Project Specification by September 30,1998. The Project shall
be deemed complete upon the occurrence of an event constituting Project
Completion.
2.2 INTEL SOFTWARE. The Intel Software will be delivered with full
documentation including architecture, design and usage specifications.
Components of the Intel Software will be aggregated in a feasibility prototype
that demonstrates how they all fit together, but Quokka shall have no rights to
the feasibility prototype or any Intel intellectual property incorporated
therein other than the Intel Software. Depending on the final Project
Specification and the mutual agreement of the parties, Intel staff may, but
shall have no obligation to, perform work or take action in connection with
areas such as:
1) Developing a prototype that demonstrates how near real time
data and video can be delivered from a sporting event to the end user PC.
2) Integration of specific content providers' communication
stack into the client side components.
3) Interface components that provide a high level abstraction
(to be defined jointly with Quokka) that can be used by all of the viewer's
components to create the required application.
4) Technology to deliver the data from the event itself to the
service provider for broadcast.
[*] Confidential Treatment Requested
3.
<PAGE> 4
INTEL/QUOKKA CONFIDENTIAL
5) Technology required to synchronize the video and the data
within several frames (frame synchronization may or may not be possible in the
time frame required).
6) Video compression and decompression technology (including
scalable video)
7) Defining, developing and integrating a service provider
solution that fulfills the requirements of both the client side application, as
well as the delivery of near real time data from the event itself.
8) Refining the definition of the application including items
such as a product requirements document, over-all system level architecture and
design overview.
9) A concept prototype that can be used to sell the Quokka
Application.
10) Assisting Quokka in identifying and securing bandwidth
transmission with a satellite service provider.
11) Assisting in identifying and integrating third party
components and services (such as a game engine).
The list above is included in this Agreement only as a guideline and does not
represent specific obligations of Intel. The specific obligation of Intel shall
be to use commercially reasonable efforts to develop the Intel Software.
2.3 INTEL DEDICATED RESOURCES. Intel shall commit the Dedicated
Resources to the Project and use commercially reasonable efforts to develop the
Intel Software in accordance with the Project Specifications. Intel shall have
no obligation under this Agreement to provide any goods or services or otherwise
contribute resources to the Project and the development of the Intel Software
beyond the Dedicated Resources. If Intel's development of the Intel Software and
completion of the Project requires less than the Dedicated Resources, Intel's
obligations in regard to the Dedicated Resources shall terminate upon Project
Completion and (i) Intel shall have no further obligation in regard to the
Dedicated Resources and (ii) Quokka shall not be entitled to any credit and/or
offset of any kind in regard to any consideration given by it to Intel hereunder
or otherwise. If development of the Intel Software for the Project, or Project
Completion, requires Intel to commit resources beyond the Dedicated Resources,
the parties shall enter into good faith negotiations to determine whether Intel
shall commit any additional resources to the Project and, if so, the amount and
nature of the consideration that Intel should receive for such additional
contribution. Notwithstanding the foregoing, the parties reiterate that Intel
shall have no obligation under this Agreement to provide any goods or services
or otherwise contribute resources to the Project and the development of the
Intel Software beyond the Dedicated Resources.
2.4 QUOKKA VENUE BASED SOFTWARE. Quokka shall dedicate the resources
necessary to develop the Quokka Venue Based Software and otherwise complete the
Project. Quokka shall maintain continuity of staffing on development of the
Quokka Based Venue Software and the Project and will take into reasonable
consideration Intel's requests regarding staffing, including without limitation
identity, qualifications and number of engineers dedicated to the Project and
removal of specific engineers from the Project; provided, however, all such
decisions shall be made by Quokka at its sole discretion. Quokka shall deliver
the Quokka Venue Based Software to Intel in source and binary code form both (i)
integrated with the Intel Software, and (ii) separate from the Intel Software,
for Intel's use solely in accordance with the license grant set forth in Section
3.6 and 3.6. Quokka shall provide Intel all documentation and sample code
necessary for Intel to develop the TSI SDK ("SDK Materials").
2.5 QUOKKA APPLICATION. Quokka shall have the right to define, market
and position the Quokka Application consistent with the Project Specification.
Quokka shall have the right to all
4.
<PAGE> 5
INTEL/QUOKKA CONFIDENTIAL
revenue streams generated by the Quokka Application, including without
limitation subscriptions, transaction fees and advertising revenue. Quokka will
develop (or cause to be developed) all aspects of the Project and the Quokka
Application other than the development of the Intel Software, including but not
limited to all Project testing and software (Intel Software and Quokka Venue
Based Software) integration responsibilities. Quokka specifically agrees to
dedicate the resources necessary to develop or take action in connection with,
inter alia, the following elements of the Project:
1) Market, positioning and revenue models associated with the
Quokka Application.
2) Negotiating bandwidth with a service provider.
3) End user experience including user interface, look and feel,
etc.
4) Data acquisition at the sports venue. This includes all
relationships with the data acquisition equipment of choice as well as driver
requirements to take the data from the data acquisition equipment to and make it
acceptable for consumption by the client side application.
5) Sponsorship.
6) Business arrangements with all third parties (such as
vendors, event organizers, sports governing bodies, third party vendors, etc.).
7) System integration and testing for both the trial and the
Quokka Application.
8) Securing all relevant rights to data, video, etc. needed to
develop, test and market the Quokka Venue Based Software and the Quokka
Application (including, inter alia, using all commercially reasonable efforts to
acquire rights to the broadcaster feed at the event selected for the Quokka
Application).
9) Development of venue specific software for use in the Quokka
Application.
2.6 PROJECT TRIAL. Quokka shall conduct a Project Trial. The Project
Trial will be further defined as part of the Project Specification, but the
responsibility to conduct and finance the Project Trial shall be Quokka's.
2.7 CONSIDERATION AND CLOSING. Upon execution of this Agreement, Quokka
will issue to and deliver to Intel warrants to purchase 490,196 (four hundred
ninety thousand one hundred ninety six) shares of Quokka preferred stock for
US$1.02 (One Dollar and 02/100) per share (collectively, the "Quokka Warrants")
in the form attached hereto as Exhibit A. Half of such Quokka Warrants will be
for Quokka Series A Preferred Stock and half will be for Quokka Series B
Preferred Stock having the rights, preferences and privileges as determined in
connection with a sale of Series B Preferred Stock in an aggregate amount of at
least One Million Dollars ($1,000,000) (a "Qualified Financing"). In the event a
Qualified Financing does not take place within at least one hundred eighty (180)
days from the execution date of this Agreement, the Quokka Warrants shall be for
Series A Preferred Stock. Closing shall take place on March 20, 1998, or such
other time, and at such place, as the parties shall agree. Intel shall have the
right to exercise the Quokka Warrants upon: (i) delivery of the Intel Software
to Quokka, (ii) material breach of this Agreement by Quokka, or (iii) Project
Completion. The Quokka Warrants shall terminate unless exercised upon or prior
to Quokka's initial public offering or any merger, consolidation, sale of
substantially all the assets or similar event resulting in the payment of cash
or marketable securities to the holders of Quokka's capital stock.
Upon execution of this Agreement the Put Agreement between Intel and
Quokka dated December 19, 1997 shall terminate.
5.
<PAGE> 6
INTEL/QUOKKA CONFIDENTIAL
SECTION 3. LICENSES
Intel grants to Quokka and Quokka grants to Intel the following rights:
3.1 INTEL SOFTWARE SOURCE CODE. Intel hereby grants to Quokka a
worldwide, perpetual, irrevocable (except as set forth in Section 9.3.2),
non-exclusive, non-sublicensable, royalty-free license under Intel's
Intellectual Properly Rights in the Intel Software to use, reproduce, perform
and display the Intel Software in source code form for internal use only,
solely for the purpose of (i) preparing the Quokka Venue Based Software, (ii)
integrating the Quokka Venue Based Software with the Intel Software to create a
format suitable for the TSI SDK and the Quokka Application, (iii) preparing
Quokka Derivatives for incorporation into the Quokka Application and other
Licensed Products, (iv) preparing Quokka Derivatives for the purpose of
correcting any infringement of any third party intellectual property right, (v)
making Quokka Improvements, and (vi) providing technical support for the Quokka
Application and other Licensed Products. The Quokka Derivatives, the Quokka
Venue Based Software, the Quokka Application and other Licensed Products shall
be the property of Quokka subject to Intel's ownership of the Intel Software,
and Quokka shall be the owner (subject to the proviso below) of all right, title
and interest (including without limitation, all intellectual property rights)
therein; provided, however, that to the extent that Intel or any Intel employee,
agent or contractor may make any contribution the Quokka Derivatives, the Quokka
Venue Based Software, the Quokka Application or any Licensed Product (other than
the Intel Software), Intel agrees to license under the Intel Intellectual
Property Rights in such contribution and hereby grants to Quokka a worldwide,
perpetual, irrevocable (except as set forth in Section 9.3.2), non-exclusive,
royalty-free license under the Intel Intellectual Property Rights in such
contribution (to the extent that Intel has the right to grant such a license) to
use, reproduce, perform, display, sublicense and distribute such contributions
as incorporated in the Quokka Derivatives, the Quokka Venue Based Software, the
Quokka Application or any Licensed Product as contemplated by this Agreement.
The parties intend the Quokka Derivatives, the Quokka Venue Based Software and
the Quokka Application be the property of Quokka and not jointly owned by Quokka
and Intel.
3.2 INTEL SOFTWARE OBJECT CODE. Intel hereby grants to Quokka a
worldwide, irrevocable (except as set forth in Section 9.3.2), perpetual,
non-exclusive, royalty-free license to reproduce, distribute, license through
multiple levels of distribution, display and perform the Intel Software only in
binary code form and only incorporated into Licensed Products (including without
limitation the Quokka Application). The Intel Software may only be licensed
without warranties of non-infringement of third party intellectual property
rights.
3.3 RESTRICTIONS ON QUOKKA. Quokka shall not assign, sub-license, lease,
or in any other way transfer, use, perform, display or disclose the Intel
Software to any third party or reproduce or distribute any part of the Intel
Software except as specifically provided in this Agreement. Intel acknowledges,
however, that third party vendors may require temporary access to source code
for the Intel Software in emergency situations, and, subject to Intel's prior
written approval, which will not unreasonably be withheld, Quokka may grant such
access (subject to appropriate confidentiality agreements) as reasonably
necessary to remedy an emergency situation.
3.4 NO OTHER RIGHTS IN INTEL PROPERTY. No rights or licenses are granted
by Intel to Quokka under this Agreement, expressly, by estoppel or by
implication, with respect to any proprietary information or patent, copyright,
trade secret or other intellectual property right
6.
<PAGE> 7
INTEL/QUOKKA CONFIDENTIAL
owned or controlled by Intel, except as expressly provided in this Agreement.
3.5 QUOKKA VENUE BASED SOFTWARE SOURCE CODE. Effective six (6) months
after delivery of the Intel Software to Quokka, Quokka hereby grants to Intel
under Quokka's Intellectual Property Rights a worldwide, perpetual, irrevocable
(except as set forth in Section 9.3.2), non-exclusive, non-sublicensable,
royalty-free license to use, reproduce, perform and display the Quokka Venue
Based Software in source code form for internal use only, solely for the purpose
of (i) creating the Intel Software, (ii) creating the TSI SDK or other Intel
product incorporating the Quokka Venue Based Software, (iii) preparing Intel
Derivatives for incorporation into the TSI SDK or other Intel product, (iv)
making Intel Improvements, (v) preparing Intel Derivatives for the purpose of
correcting any infringement of any third party intellectual property right, and
(vi) providing technical support for the TSI SDK or other Intel products. The
Intel Derivatives, the TSI SDK and all Intel products incorporating the Quokka
Venue Based Software or Intel Derivatives shall be the property of Intel subject
to Quokka's ownership of the Quokka Venue Based Software, and Intel shall be the
owner of all right, title and interest (including without limitation, all
intellectual property rights) therein provided, however, that to the extent that
Quokka or any Quokka employee, agent or contractor may make any contribution to
the Intel Software, the Intel Derivatives, the TSI SDK or any Intel product
incorporating the same, Quokka agrees to license under the Quokka Intellectual
Property Rights in such contribution and hereby grants to Intel a worldwide,
perpetual, irrevocable (except as set forth in Section 9.3.2), non-exclusive,
royalty-free license under the Quokka Intellectual Property Rights in such
contribution (to the extent that Quokka has the right to grant such a license)
to use, reproduce, perform, display, sublicense and distribute such
contributions as incorporated in the Intel Software, TSI SDK, Intel Derivatives
and Intel products incorporating the same. The parties intend the Intel
Software, the Intel Derivatives, the TSI SDK and the Intel products
incorporating the same be the property of Intel and not jointly owned by Quokka
and Intel.
3.6 QUOKKA VENUE BASED SOFTWARE OBJECT CODE. Quokka hereby grants to
Intel a worldwide, irrevocable (except as set forth in Section 9.3.2),
perpetual, non-exclusive, royalty-free license to reproduce, distribute, license
through multiple levels of distribution, display and perform the Quokka Venue
Based Software only in binary code form and only incorporated into the TSI SDK
or other Intel product (or as part of any Intel Derivative) that adds
significant functionality to the Quokka Venue Based Software.
3.7 SDK MATERIALS. Quokka hereby grants to Intel a worldwide,
irrevocable (except as set forth in Section 9.3.2), perpetual, non-exclusive,
royalty free license to reproduce, make Derivative Works of, distribute, license
through multiple levels of distribution, display and perform the SDK Materials.
3.8 LICENSED PRODUCTS. Quokka hereby grants to Intel a non-exclusive,
worldwide, royalty free, irrevocable (except for material breach), perpetual
license to use, reproduce, distribute, perform and display the Quokka
Application and other Licensed Products for promotional purposes to demonstrate
the Intel Software, the Quokka Venue Based Software, the TSI SDK and the
Project.
3.9 RESTRICTIONS ON INTEL. Intel shall not assign, sub-license, lease,
or in any other way transfer, use, perform, display or disclose the Quokka Venue
Based Software to any third party or reproduce or distribute any part of the
Quokka Venue Based Software except as specifically provided in this Agreement.
Quokka acknowledges, however, that Intel's third party vendors and developers
may require temporary access to source code for the Quokka
7.
<PAGE> 8
INTEL/QUOKKA CONFIDENTIAL
Venue Based Software in emergency situations, and, subject to Quokka's prior
written approval, which will not unreasonably be withheld, Intel may grant such
access (subject to appropriate confidentiality agreements) as reasonably
necessary to remedy an emergency situation.
3.10 NO OTHER RIGHTS IN QUOKKA PROPERTY. No rights or licenses are
granted by Quokka to Intel under this Agreement, expressly, by estoppel or by
implication, with respect to any proprietary information or patent, copyright,
trade secret or other intellectual property right owned or controlled by Quokka,
except as expressly provided in this Agreement.
SECTION 4. PROPRIETARY RIGHTS
The Intel Software, Intel Derivatives and all Intel products
incorporating the same, in whole or in part, and all copies, are and shall
remain owned by and be the sole and exclusive property of Intel. Intel has the
right to use, copy, modify, license, sub-license, make derivative works of,
perform and display the Intel Software in any manner and for any purpose that
Intel deems appropriate at its sole discretion, subject only to Quokka's
ownership of the Quokka Venue Based Software and the license rights granted to
Quokka by Intel under this Agreement. Similarly, the Quokka Derivatives, the
Quokka Application, the Quokka Venue Based Software and other Licensed Products
shall be the sole and exclusive property of Quokka as provided in Section 3.5 of
this Agreement subject only to Intel's ownership of the Intel Software and the
license rights granted to Intel by Quokka under this Agreement.
SECTION 5. TECHNICAL SUPPORT AND UPDATES
5.1 QUOKKA. Quokka shall provide commercially appropriate technical
support for all Licensed Products. Quokka shall have no obligation to provide
technical or other support to Intel or its customers in regard to the TSI SDK.
Subject to the license set forth in Section 3.5 and 3.6, Quokka shall provide
Intel updates and improvements to the Quokka Venue Based Software in source and
object code form that Quokka may make, but Quokka shall have no obligation to
make any such updates and improvements.
5.2 INTEL. INTEL WILL NOT BE REQUIRED TO PROVIDE ANY TECHNICAL OR OTHER
SUPPORT, ASSISTANCE, INSTALLATION, TRAINING OR OTHER SERVICES EXCEPT AS
SPECIFICALLY PROVIDED IN THIS AGREEMENT. EXCEPT AS SET FORTH IN THIS SECTION
5.2, INTEL WILL NOT BE REQUIRED TO PROVIDE ANY UPDATES, ENHANCEMENTS OR
EXTENSIONS TO THE INTEL SOFTWARE OF ANY KIND OR PROVIDE ANY TECHNICAL SUPPORT
FOR THE LICENSED PRODUCTS. Intel shall, at its sole discretion, provide
technical support of all kinds at all levels for the TSI SDK and Intel products.
Intel shall have no obligation to provide technical or other support to Quokka
or its customers in regard to the Licensed Products. Subject to the license set
forth in Section 3.1 and 3.2, Intel shall provide Quokka updates and
improvements to the TSI SDK in source and object code form that Intel may make,
but Intel shall have no obligation to make any such updates and improvements.
SECTION 6. MARKETING AND PROMOTION
The parties will issue a press release describing the Intel-Quokka
cooperation in relation to the Project as soon as reasonably practicable after
execution of this Agreement. Text of the press release will be subject to the
prior review and approval of Intel and Quokka.
8.
<PAGE> 9
INTEL/QUOKKA CONFIDENTIAL
SECTION 7. COPYRIGHTS AND TRADEMARK
7.1 COPYRIGHTS. The Intel Software, the Intel Derivatives, the Quokka
Derivatives, the Quokka Venue Based Software, the Quokka Application and the
Licensed Products are copyrighted and are protected by United States copyright
laws and international treaty provisions. Quokka shall use commercially
reasonable efforts to prevent any unauthorized copying of the Intel Software and
the Intel Derivatives and Intel shall use commercially reasonable efforts to
prevent any unauthorized copying of the Quokka Derivatives, the Quokka Venue
Based Software, the Quokka Application and the Licensed Products. Quokka shall
not remove or obscure any of Intel's or its vendors' copyright notices or other
proprietary notices from the Intel Software and the Intel Derivatives and Intel
shall not remove or obscure any of Quokka's or its vendors' copyright notices or
other proprietary notices from the Quokka Derivatives, the Quokka Venue Based
Software, the Quokka Application or the Licensed Products. In addition, each
Licensed Product shall display "Portions Copyright 1998 Intel Corporation" in
"About" boxes of Licensed Products. Quokka and its licensees shall display
"Broadband Media Technologies by Intel Corporation" (or such other attribution
that Intel may reasonably request) in 10 point or larger type in start-up or
"splash" screens of Licensed Products. Intel and its licensees shall display
such copyright and other reasonable attribution that Quokka may reasonably
request in 10 point or larger type in start-up or "splash" screens of the TSI
SDK and Intel products incorporating the same.
7.2 TRADEMARKS. No rights or licenses are granted by this Agreement,
expressly or by implication, to use any Intel trademark or trade name, or any
word or mark similar thereto, in connection with any products manufactured, used
or sold by Quokka, or as part of Quokka's corporate, firm or trade name, or for
any other purpose, except as expressly provided for in this Agreement. No rights
or licenses are granted by this Agreement, expressly or by implication, to use
any Quokka trademark or trade name, or any word or mark similar thereto, in
connection with any products manufactured, used or sold by Intel, or as part of
Intel's corporate, firm or trade name, or for any other purpose, except as
expressly provided for in this Agreement.
SECTION 8. NO WARRANTIES; LIMITED LIABILITY
8.1 INTEL SOFTWARE AS IS. INTEL MAKES NO WARRANTY OF ANY KIND REGARDING
THE INTEL SOFTWARE AND ANY SUPPORT, INPUT, RECOMMENDATIONS, ASSISTANCE OR OTHER
CONTRIBUTIONS OF ANY KIND THAT INTEL MAY MAKE TO THE PROJECT. INTEL SOFTWARE IS
LICENSED TO QUOKKA ON AN "AS IS" BASIS. INTEL SPECIFICALLY DISCLAIMS ANY IMPLIED
WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT OF ANY INTELLECTUAL PROPERTY
RIGHT AND FITNESS FOR A PARTICULAR PURPOSE.
8.2 QUOKKA VENUE BASED SOFTWARE AS IS. QUOKKA MAKES NO WARRANTY OF ANY
KIND REGARDING THE QUOKKA VENUE BASED SOFTWARE AND ANY SUPPORT, INPUT,
RECOMMENDATIONS, ASSISTANCE OR OTHER CONTRIBUTIONS OF ANY KIND THAT QUOKKA MAY
MAKE TO THE PROJECT. THE QUOKKA VENUE BASED SOFTWARE IS LICENSED TO INTEL ON AN
"AS IS" BASIS. QUOKKA SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, NONINFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHT AND FITNESS
FOR A PARTICULAR PURPOSE.
9.
<PAGE> 10
INTEL/QUOKKA CONFIDENTIAL
8.3 LIMITED LIABILITY. EXCEPT FOR QUOKKA'S DUTY TO INDEMNIFY, DEFEND AND
HOLD INTEL HARMLESS WITHOUT LIMITATION PURSUANT TO SECTION 12.1 OF THIS
AGREEMENT, NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGE OF ANY KIND. IN NO EVENT SHALL A PARTY BE LIABLE TO THE
OTHER UNDER THIS AGREEMENT IN AN AMOUNT EXCEEDING $[*].
SECTION 9. TERM AND TERMINATION
9.1 TERM. The term of this Agreement shall commence on the date first
written above and shall continue until the date of Project Completion, unless
earlier terminated by a party as permitted herein. This Agreement may be
extended for such additional term and under such conditions as the parties may
mutually agree in a duly executed writing
9.2 TERMINATION. Either party may terminate this Agreement at any time
without cause by giving the other party written notice of termination. Either
party may terminate this Agreement for cause in the event of a material breach
of the terms of this Agreement by the other party, provided that it gives
written notice of such breach to the other party and the other party has not
cured such breach within thirty (30) days of receipt of such notice.
9.3 EFFECT OF TERMINATION.
9.3.1 CONSIDERATION. If Quokka terminates this Agreement for
other than uncured material breach, Intel may keep all consideration given by
Quokka to Intel hereunder without further obligation. If Quokka terminates this
Agreement for cause as a result of uncured, material breach by Intel prior to
delivery of the Intel Software to Quokka, the Quokka Warrants shall expire. If
Intel terminates the Agreement for cause due to uncured, material breach by
Quokka, Intel may keep all consideration given by Quokka to Intel without
further obligation and the Quokka Warrants may thereafter be exercised by Intel
notwithstanding anything to the contrary in this Agreement. In the event that
Intel terminates the Agreement for other than uncured, material breach by
Quokka, Intel's rights with respect to the Quokka Warrants shall expire as
follows:
<TABLE>
<CAPTION>
TERMINATION DATE NUMBER OF WARRANTS
EXPIRING
<S> <C>
Between March 21, 1998 and August 20, 1998 490,196
Between August 21, 1998 and January 21, 1999 343,137
Between January 22, 1999 and June 22, 1999 199,078
Between June 23, 1999 and November 1, 1999 98,039
</TABLE>
Nothing in this Section shall be construed to limit Intel's right to exercise
the Quokka Warrants upon Project Completion as that term is defined herein.
9.3.2 LICENSES. If Intel terminates this Agreement for any reason
other than for uncured, material breach by Quokka, or if Quokka terminates this
Agreement for uncured, material breach by Intel, Intel shall deliver to Quokka
the Intel Software in its then current form (both binary and source code). If
Quokka terminates this Agreement for any reason other than for uncured, material
breach by Intel, or if Intel terminates this Agreement for uncured, material
breach by Quokka, Quokka shall deliver to Intel the Quokka Venue Based Software
in its then current form (both binary and source code). The licenses granted by
Intel to Quokka and by Quokka to Intel pursuant to
[*] Confidential Treatment Requested
10.
<PAGE> 11
INTEL/QUOKKA CONFIDENTIAL
Section 3 of this Agreement, however, may only be revoked for uncured material
breach of the license terms as provided in this Agreement. Each party reserves
the right to verify the other party's compliance with this Agreement and the
licenses granted herein by reasonable means, and each party agrees to cooperate
with the other in that regard. In the event that a party is in material breach
of any of the licenses granted herein, the non-breaching has the right to
terminate all license rights granted herein upon thirty (30) days written notice
to the breaching party if the breaching party fails to correct such material
noncompliance within the thirty (30) day notice period.
9.3.3 OTHER. Sections 3 (unless the licenses therein are
terminated pursuant to Section 9.3.2), 4, 5, 7, 8, 9, 10, 11, 12, 15, and 16
shall survive any termination or expiration of this Agreement.
SECTION 10. CONFIDENTIALITY AND NON-DISCLOSURE
10.1 SOURCE CODE. The Intel Software, Intel Derivatives, TSI SDK (other
than the Quokka Venue Based Software) and source code constitute proprietary,
confidential, and trade secret information of Intel, and the Quokka Derivatives,
the Quokka Venue Based Software, the Quokka Application and the Licensed
Products (other than the Intel Software) and source code constitute proprietary,
confidential, and trade secret information of Quokka. Each of the parties shall
ensure that the source code of the other party receives at least the same degree
of confidentiality that is accorded to its own source code. Except as expressly
permitted by this Agreement, neither party shall disclose the other party's
source code to any third party absent prior written approval from the other
party and a prior written confidentiality and nondisclosure agreement with each
such third party that is satisfactory to the other party in its sole discretion.
10.2 CNDA. This Agreement and the terms thereof are confidential and
shall not be disclosed to any third party without the prior written consent of
the non-disclosing party. Except as expressly provided herein, this Agreement
and all disclosures relating thereto, shall be governed by CNDA number 101693
executed by the parties on November 18, 1997.
SECTION 11. NOTICES
All notices required or permitted to be given hereunder shall be in
writing, shall make reference to this Agreement, and shall be delivered by hand,
or dispatched by prepaid nationally recognized overnight air courier or by
registered or certified airmail, postage prepaid, addressed as follows:
If to Quokka: If to Intel:
525 Brannan Street Intel Corporation
Ground Floor 211 N.E. 25th Avenue
San Francisco, CA 94107 Hillsboro, OR 97124-5961
Attn: President JF3-145
Attn: Legal Counsel
With a copy to: With a copy to:
Cooley Godward LLP Post Contract Management
One Maritime Plaza Same Address
20th Floor
11.
<PAGE> 12
INTEL/QUOKKA CONFIDENTIAL
San Francisco, CA 94111
Attn: Paul Startz, Esq.
Such notices shall be deemed served on the earlier of: (i) actual
receipt by addressee, (ii) two (2) days after deposit with a nationally
recognized overnight air courier or (iii) five (5) days after appropriate
mailing. Either party may give written notice of a change of address and, after
notice of such change has been received, any notice or request shall thereafter
be given to such party at such changed address.
SECTION 12. INDEMNITY
12.1 QUOKKA AND LICENSED PRODUCTS. Quokka shall defend, indemnify, and
hold Intel harmless from and against any loss, cost, liability and expense
(including reasonable attorney fees) arising from any action or claim brought or
threatened against Quokka or Intel or their customers alleging that any Licensed
Product infringes any patent, copyright, trademark, trade secret, or other
intellectual property right of any third party provided that Intel (i) promptly
notifies Quokka in writing of any such suit or proceeding brought against it,
(ii) provides Quokka at its sole discretion with sole control over the defense
or settlement of such suit or proceeding, and (iii) provides reasonable
information and assistance in the defense and/or settlement of any such claim or
action brought against it. Without limiting Quokka's duty to defend and hold
Intel harmless, Quokka's indemnity obligation hereunder shall not apply to any
successful suit or proceeding based solely upon a claim that the Intel Software
or a part thereof (except any Quokka Improvement), alone and not in combination
with any other technology or product (including but not limited to the Licensed
Product or the Quokka Venue Based Software), constitutes a direct infringement
of any patent or copyright of any third party; provided that Quokka (i) promptly
notifies Intel in writing of any such suit or proceeding, (ii) provides Intel at
its sole discretion and at its own expense with sole control over the defense or
settlement of such suit or proceeding, (iii) provides reasonable information and
assistance in the defense and/or settlement of any such claim or action, and
(iv) a court of competent jurisdiction (after appropriate appeals have been
filed) concludes that the Intel Software, or a part thereof (except any Quokka
Improvement), alone and not in combination with any other technology or product
(including but not limited to the Licensed Product or the Quokka Venue Based
Software) constitutes a direct infringement of any patent or copyright of any
third party.
12.2 QUOKKA AND QUOKKA VENUE BASED SOFTWARE IN TSI SDK OR INTEL PRODUCT.
Subject to an aggregate limit of US$[*], Quokka shall defend, indemnify and
hold Intel harmless from and against any loss, cost, liability and expense
(including reasonable attorney fees) arising solely from an action or claim
brought against Intel alleging that the Quokka Venue Based Software incorporated
and distributed in the TSI SDK or other Intel product, alone and not in
combination with any other product or technology, infringes any United States
copyright of any third party provided that Intel (i) promptly notifies Intel in
writing of any such suit or proceeding, (ii) provides Quokka at its sole
discretion with sole control over the defense or settlement of such suit or
proceeding, and (iii) provides reasonable information and assistance in the
defense and/or settlement of any such claim or action and (iv) a court of
competent jurisdiction (after appropriate appeals have been filed) concludes
that the Quokka Venue Based Software, or a part thereof (except any Intel
Improvement), alone and not in combination with any other technology or product
(including but not limited to the Intel Software) constitutes a direct
infringement of any United States copyright of any third party.
[*] Confidential Treatment Requested.
12.
<PAGE> 13
INTEL/QUOKKA CONFIDENTIAL
12.3 INTEL. Subject to an aggregate limit of US$[*], Intel shall
defend, indemnify and hold Quokka harmless from and against any loss, cost,
liability and expense (including reasonable attorney fees) arising solely from
an action or claim brought against Quokka alleging only that the Intel Software,
alone and not in combination with any other product or technology, infringes any
United States copyright of any third party provided that Quokka (i) promptly
notifies Intel in writing of any such suit or proceeding, (ii) provides Intel at
its sole discretion with sole control over the defense or settlement of such
suit or proceeding, and (iii) provides reasonable information and assistance in
the defense and/or settlement of any such claim or action and (iv) a court of
competent jurisdiction (after appropriate appeals have been filed) concludes
that the Intel Software, or a part thereof (except any Quokka Improvement),
alone and not in combination with any other technology or product (including but
not limited to a Licensed Product and the Quokka Venue Based Software)
constitutes a direct infringement of any United States copyright of any third
party.
12.4 LIMITATIONS. Intel shall not be liable for any claims, liabilities,
damages, losses, and costs (including attorney fees), and Quokka shall
indemnify, defend and hold Intel harmless from, any claims, liabilities,
damages, losses, and costs (including reasonable attorney fees) resulting from
any suit or proceeding to the extent arising from (i) Intel's compliance with
Quokka's designs specifications or instructions in the development of the Intel
Software (other than the Project Specification) or (ii) modifications to or
Derivative Works of the Intel Software by Quokka.
12.5 REMEDIES. If the distribution of a Licensed Product is permanently
enjoined, or Intel determines in its reasonable discretion that it may be
enjoined, because the Intel Software or a part thereof constitutes or appears to
constitute an infringement of any patent, copyright, trademark, trade secret, or
other intellectual property right of any third party, Intel may, at its sole
discretion (i) procure sufficient rights for Quokka to enable distribution of
the Licensed Product consistent with this Agreement (ii) modify the Intel
Software so that it becomes non-infringing, or (iii) terminate the Intel
Software licenses granted herein without liability to Quokka. Nothing in this
section, however, shall preclude Quokka from modifying the Intel Software to
correct the infringement, and, if such corrective action is taken to the
satisfaction of Intel that the infringement has been corrected, the licenses
granted herein with respect to the Intel Software may not be terminated by Intel
pursuant to this Section on the basis of infringement. If the distribution of
the TSI SDK or an Intel product is permanently enjoined, or Quokka determines in
its reasonable discretion that it may be enjoined, because the Quokka Venue
Based Software or a part thereof constitutes or appears to constitute an
infringement of any patent, copyright, trademark, trade secret, or other
intellectual property right of any third party, Quokka may, at its sole
discretion (i) procure sufficient rights for Intel to enable distribution of the
TSI SDK or Intel product consistent with this Agreement (ii) modify the Quokka
Venue Based Software so that it becomes non-infringing, or (iii) terminate the
Quokka Venue Based Software licenses granted herein without liability to Intel.
Nothing in this section, however, shall preclude Intel from modifying the Quokka
Venue Based Software to correct the infringement and if such corrective action
is taken to the satisfaction of Quokka that the infringement has been corrected,
the licenses granted herein with respect to the Quokka Venue Based Software may
not be terminated by Quokka pursuant to this Section for infringement. If a
party elects to terminate a license rather than cure the infringement on which
the termination is based ("Infringing Party") and the other party
("Non-Infringing Party") does not elect to cure the infringement itself, then
all license rights granted by the Non-Infringing Party to the Infringing Party
in this Agreement shall terminate.
[*] Confidential Treatment Requested.
13.
<PAGE> 14
INTEL/QUOKKA CONFIDENTIAL
SECTION 13. FORCE MAJEURE
Neither party shall be liable for any failure to perform due to
unforeseen circumstances or causes beyond that party's reasonable control,
including, but not limited to, acts of God, war, riot, embargoes, acts of civil
or military authorities, delay in delivery by vendors, fire, flood, earthquake,
accident, strikes, inability to secure transportation, facilities, fuel, energy,
labor or materials. In the event of force majeure, the time for delivery or
other performance will be extended for a period equal to the duration of the
delay caused thereby.
SECTION 14. ASSIGNMENT, SALE OR TRANSFER
Neither party shall transfer or assign any of its rights under this
Agreement to any person. Any attempt to assign any rights, duties or obligations
hereunder without the other party's written consent shall be void.
SECTION 15. RELATIONSHIP OF THE PARTIES
This Agreement shall not be construed to create a partnership, joint
venture or other agency relationship between the parties. Neither party hereto
will be deemed the agent or legal representative of the other for any purpose
whatsoever and each party will act as an independent contractor with regard to
the other in its performance under this Agreement. Nothing herein will authorize
either party to create any obligation or responsibility whatsoever, express or
implied, on behalf of the other or to bind the other in any manner, or to make
any representation, commitment or warranty on behalf of the other.
SECTION 16. MISCELLANEOUS
16.1 EXPORT RESTRICTIONS. The Intel Software, the Intel Derivatives, the
Quokka Derivatives, the Quokka Venue Based Software, the Quokka Application and
the Licensed Products may be controlled for export purposes by the U.S.
Government. Neither party shall export, either directly or indirectly, any such
material without first obtaining any required license or other approval from the
U.S. Department of Commerce or any other agency or department of the United
States Government as required. The parties agree to provide reasonable
cooperation to one another in connection with obtaining any such licenses or
approvals.
16.2 GOVERNING LAW. Any claim arising under or relating to this
Agreement shall be governed by the internal substantive laws of the State of
California, without regard to principles of conflict of laws.
14.
<PAGE> 15
INTEL/QUOKKA CONFIDENTIAL
16.3 INTEGRATION. This Agreement, together with the and the CNDA,
constitute the entire agreement between Quokka and Intel relating to the subject
matter hereof. This Agreement shall only be amended by a writing signed by both
parties.
16.4 HEADINGS. The headings to the paragraphs and subparagraphs of this
Agreement are to facilitate reference only, do not form a part of this
Agreement, and will not in any way affect the interpretation thereof.
16.5 SEVERABILITY. The terms and conditions of this Agreement are
severable. If any paragraph, provision, or clause in this Agreement shall be
found or be held to be invalid or unenforceable in any jurisdiction in which
this Agreement is being performed, the remainder of this Agreement shall be
valid and enforceable and the parties shall use good faith to negotiate a
substitute, valid and enforceable provision that most nearly effects the
parties' intent in entering into this Agreement.
16.6 REMEDIES. The rights and remedies provided in this Agreement are in
addition to any other rights and remedies provided at law or in equity.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first written above.
QUOKKA SPORTS, INC. INTEL CORPORATION
By: /s/ ALAN RAMADAN By: /s/ D. CRAIG KINNIC
----------------------------- -----------------------------------
Name: Alan Ramadan Name: D. Craig Kinnic
----------------------------- -----------------------------------
Title: President & CEO Title: Vice President, Director IAL
----------------------------- -----------------------------------
15.
<PAGE> 16
Mr. Alan Ramadan
President
Quokka Sports, Inc.
Ground Floor
525 Brannan Street
San Francisco, CA 94107
August 10, 1998
Dear Al:
In connection with the purchase by Intel Corporation ("Intel") of 1,141,202
shares of Series B Preferred Stock of Quokka Sports, Inc. ("Quokka") pursuant to
the Series a Preferred Stock Purchase Agreement (the "Purchase Agreement") dated
June 12, 1999 among Quokka, Intel and the Investors named therein, Quokka and
Intel hereby agree as follows:
1. Amendments to the Software License and Development Agreement. Pursuant
to that certain Software License and Development Agreement (the
"Agreement") dated March 20, 1998 between Quokka and Intel, Intel and
Quokka agreed to use commercially reasonable efforts to complete the
Project (as defined in the Agreement) by April 30, 1999. Pursuant to
Section 16.3 of the Agreement. the parties hereby amend Agreement as
follows:
1.1 In Section 2.1, "April 30, 1999" is changed to "August 31,
1999."
1.2 At the end of Section 1.13 the following is added:
"Notwithstanding any provision herein to the contrary, and in
addition to the engineer man years set forth above, Intel shall
also dedicate [*] Intel engineers from February 1999 through
August 1999 to the Project, with such engineers to provide no
less than forty hours per week to the Project during such
period."
1.3 At the end of Section 1.2, the following is added:
"Notwithstanding any provision herein to the contrary, Intel
Software shall, without limiting the foregoing, include the
following:
1.2.1 [*]
1.2.2 [*]
1.2.3 [*]
1.2.4 [*]
1.2.5 [*]
[*] Confidential Treatment Requested
<PAGE> 17
1.2.6 PACKAGE DELIVERY SOFTWARE. For purposes of this Section 1.2,
"Package Delivery Software shall mean software that performs a
"Package Delivery" functionality (as defined below). Package
Delivery will allow Quokka to deliver files from the production
facility to client systems. It will provide a file transfer
protocol, a mechanism to tag the content of the files and the
ability to notify the application when specific files have arrived.
Intel will provide a sample application that demonstrates how to use
the components on both the content provider system and the client
system. Intel will work with Quokka to ensure that the file transfer
can be accomplished using at least one broadband service provider to
be jointly identified by the two parties."
2. CUSTOMIZATION OF TECHNOLOGY TO NEXT APPLICATION. Intel and Quokka agree to
negotiate in good faith a new agreement with substantially the same
technology licensing terms to those set forth in the Agreement pursuant to
which Intel will work with Quokka to customize the key technology
components of the next application that Quokka will create. Intel and
Quokka currently anticipate that this application will be in another motor
sports series, an adventure sports series or in a water sports series.
3. [*] OPTIMIZATION. Based on a mutual belief that they will execute an
agreement to optimize Quokka products for the [*] processor as described
below, Intel and Quokka currently anticipate that the Project (as defined
in the Agreement) will use a [*] optimized version of the [*] to decode
multiple video streams delivered over a satellite network. The parties
will negotiate in good faith an agreement for Intel to contribute
engineering resources and/or money to help Quokka optimize its products
for the [*] processor. The products may include a user interface to take
advantage of multiple video streams delivered over a satellite network,
and end user functionality that allows users to view multiple video
streams (at least 3) as part of the Project. Intel will loan to Quokka,
under standard terms and conditions to which Intel makes such systems
available to other strategic technology partners, two early [*] platforms
for the optimization work. In addition, Intel will make available one
Intel Application Engineer as needed to assist Quokka personnel in this
effort.
4. [*] Intel agrees to license to Quokka, under mutually agreeable terms and
conditions, its [*] to be included in the Project.
5. BOARD OBSERVER.
5.1 The Company acknowledges that Intel will likely have, from time to
time, information that may be of interest to Quokka ("Information")
regarding a wide variety of matters including, by way of example only,
(1) Intel's technologies, plans and services, and plans and strategies
relating thereto, (2) current and future investments Intel has made, may
make, may consider or may become aware of with respect to other companies
and other technologies, products and services, including, without
limitation, companies that may be competitive with Quokka's, and (3)
developments with respect to the technologies, products and services, and
plans and strategies relating thereto, of other companies, including,
without limitation, companies that may be competitive with Quokka. The
Company recognizes that a portion of such Information may be of interest
to Quokka. Such Information may or may not be known by Intel's observer.
The Company, as a material part of the consideration for the Purchase
Agreement, agrees that Intel and its observer shall have no duty to
disclose any Information to Quokka or permit Quokka to participate in any
projects or investments based on any Information, or
[*] Confidential Treatment Requested.
<PAGE> 18
to otherwise take advantage of any opportunity that may be of interest to Quokka
if it were aware of such information, and hereby waives, to the extent permitted
by law, any claim based on the corporate opportunity doctrine or otherwise that
could limit Intel's ability to pursue opportunities based on such information or
that would require Intel or its observer to disclose any such information to
Quokka or offer any opportunity relating thereto to Quokka.
5.2 Pursuant to Section 3.3 of the Amended and Restated Investors'
Rights Agreement dated June 12, 1996 (as such may be amended and
restated from time to time, the "Investor Agreement"), the
representative designated by Intel to attend Quokka Board
meetings and receive all Board materials is obligated to hold all
information so acquired "in confidence and trust" Quokka and
Intel hereby acknowledge and agree that such obligation shall not
limit such representative's ability to report such information to
other Intel employees. Intel acknowledges that any information to
so disclosed shall be "confidential information" under Section
4.1 of the Investor Agreement.
6. JOINT MARKETING ACTIVITY. Intel and Quokka will make reasonable efforts
to identify joint marketing and promotional activities to promote
Quokka's application in industry events. Intel and Quokka intend to use
Quokka products optimized for the [*] platform at the [*] launch.
7. INTEL INSIDE(R) PROGRAM OPTIMIZED CONTENT. Intel will offer technical
assistance to Quokka to meet the current IIPOC criteria (found at
http:www.intel.com/business/intelinsideprogram/optcontent/) for a period
of 6 months.
8. EQUITY PURCHASE. In partial consideration of Intel's obligations under
this letter, Quokka has allowed Intel to purchase an additional 666,667
shares of Series B Preferred Stock for a purchase price of $1 million
and 50 cents (the "Put Shares"), above and beyond the 474,636 shares
which represented Intel's pro rata portion of the Series B round.
Failure by Intel to fulfill its obligations in this letter shall
constitute a material breach. If Intel falls to cure such material
breach within sixty days after written notice from Quokka, Quokka shall
have the right to repurchase the Put Shares from Intel at a purchase
price of $1 million and 50 cents. Purchase of the Put Shares would
constitute the sale and final remedy for Intel's breach under this
letter agreement (other than the expiration of the warrants as set forth
in paragraph 10 below), and Quokka would automatically waive all claims
it might have against Intel arising out of such breach (other than the
expiration of the warrants as set forth in paragraph 10 below). Such
right of Quokka to purchase the Put Shares may be assigned by Quokka.
9. INVESTMENT IN NEW ENTITY FOR MOTOR SPORTS. Quokka is currently planning
to create a new entity for products relating to motor sports. Intel is
interested in the possibility of lending a first round of financing for
such entity. So, when the time comes, Quokka will provide Intel with the
opportunity to meet with the Board of Directors of Quokka and present a
proposal for Intel to lead the financing round. Quokka and Intel agree
to reasonably cooperate with each other so that the timing of this
opportunity will in no way put Intel at a disadvantage to other
potential lead investors or adversely impact the formation or financing
of such entity. Quokka will consider Intel's proposal fairly, using its
best business judgment. Whether or not Intel ends up the lead investor,
Intel will have the opportunity to invest at least $5 million or 10% of
the total cash raised, whichever is greater, in the first round of
financing for such entity.
10. WARRANTS. As partial consideration for Intel's obligations hereunder,
Quokka has granted
[*] Confidential Treatment Requested
<PAGE> 19
Intel warrants in the form attached hereto as Attachment A.
11. NO LICENSES. Except with respect to any license resulting from the
amendments to the Agreement set forth herein, nothing in this agreement
grants any rights to the technology or intellectual property of either
party.
Your signature below indicates your agreement with the terms of this letter.
Very truly yours,
/s/ RONALD J. WHITTIER
-----------------------------------------
Ronald J. Whittier
Senior Vice President and General Manager,
Content Group
Intel Corporation
ACCEPTED AND AGREED TO:
QUOKKA SPORTS, INC.
By: /s/ ALAN RAMADAN
---------------------------------
Alan Ramadan
President
Date: 11 Aug. 98
------------------
<PAGE> 20
Mr. Alan Ramadan
President
Quokka Sports, Inc.
Ground Floor
525 Brannan Street
San Francisco, CA 94107
Dear Al:
In connection with the amendment and restatement as of the effective date hereof
of the Quokka Warrants (as such term is defined in that certain Software License
and Development Agreement dated March 20, 1998 between Quokka Sports, Inc. and
Intel Corporation, as amended by letter agreement dated August 10, 1998 (the
"Agreement")), Quokka Sports, Inc. and Intel Corporation hereby agree to amend
Section 2.6 of the Agreement by deleting the following sentences in their
entirety:
"Intel shall have the right to exercise the Quokka Warrants upon: (i)
delivery of the Intel Software to Quokka, (ii) material breach of this
Agreement by Quokka, or (iii) Project Completion. The Quokka Warrants
shall terminate unless exercised upon or prior to Quokka's initial
public offering or any merger, consolidation, sale of substantially all
the assets or similar event resulting in the payment of cash or
marketable securities to the holders of Quokka capital stock."
Quokka Sports, Inc. and Intel Corporation agree that the Quokka Warrants, as
amended and restated as of the date hereof, shall be exercisable and shall
terminate as set forth therein.
This letter agreement shall be effective as of August 11, 1998.
Your signature below indicates your agreement with the terms of this letter.
Very truly yours,
/s/ RONALD J. WHITTIER
-----------------------------------------
Ronald J. Whittier
Senior Vice President and General Manager,
Content Group
Intel Corporation
ACCEPTED AND AGREED TO:
QUOKKA SPORTS, INC.
By: /s/ ALAN RAMADAN
---------------------------------
Alan Ramadan
President
<PAGE> 1
EXHIBIT 10.11
LEASE
1. PARTIES. This Lease, dated, for reference purposes only October 1, 1996, is
made by and between BRANNAN STREET PARTNERS, a California limited partnership
(herein called "Landlord"), and QUOKKA SPORTS, INC., a Delaware corporation
(herein called "Tenant").
2. PREMISES. Landlord does hereby lease to Tenant and Tenant hereby leases from
Landlord that certain office space (herein called "Premises") indicated on
Exhibit "A" attached hereto and hereby reference thereto made a part hereof,
said Premises being agreed, for the purpose of this Lease, to have an area of
approximately 10,000 square feet and being situated on the ground floor of that
certain Building known as 525 Brannan Street, San Francisco, California
("Building").
Said Lease is subject to the terms, covenants and conditions herein set
forth and the Tenant covenants as a material part of the consideration for this
Lease to keep and perform each and all of said terms, covenants and conditions
by it to be kept and performed and that this Lease is made upon the condition of
said performance.
3. TERM. The term of this Lease shall be for five (5) years, commencing fifteen
(15) days following written notice from Landlord to Tenant of Landlord's
substantial completion of Landlord's Work as described below. Following
commencement, Landlord and Tenant shall execute a Memorandum to be attached
hereto confirming the occupancy date.
LANDLORD'S WORK. As partial consideration for this Lease, Landlord
agrees to provide and pay for tenant improvements to the Premises up to the
total sum of TWO HUNDRED THOUSAND AND NO/HUNDREDTHS DOLLARS ($200,000.00)
("Landlord's Work") pursuant to plans and specifications mutually agreed upon
between Landlord and Tenant. In the event Landlord's Work costs in excess of
$200,000, but less than $250,000, Landlord agrees to amortize the additional
cost as part of the rent over the five (5)-year term of this Lease, together
with interest at 10% per annum on the unpaid balance (Landlord would prefer that
Tenant pay this excess in cash at the time of construction). To the extent
Landlord's Work costs in excess of $250,000, Tenant agrees to pay such
additional costs in cash prior to the commencement of construction. In the event
Landlord's Work costs less than $200,000, the rent shall be reduced pursuant to
the following formula:
$750,000 + Cost of Landlord's Work x $15,833.33 = new monthly rental
----------------------------------
$950,000
Landlord's Work shall include, but not be limited to, the costs of all
labor and materials, architectural, design, permits, fees and costs of
construction of Tenant's improvements; provided, however, the following items
shall be completed by Landlord, and the cost thereof shall be excluded:
demolition, code compliance (e.g., ADA, general fire safety), new entrance in
the front of the building, entrance in the rear freight lobby, convert loading
dock doors to windows, landscape the atrium and installation of HVAC system to
(but not within) the Premises.
Landlord and Tenant shall diligently pursue the preparation of all plans
and specifications for all improvements to the Premises, whether Landlord's Work
or Tenant's Work. All such plans and specifications shall have the approval of
both Landlord and Tenant, which approval shall not be unreasonably withheld by
either party.
Upon execution of this Lease, Tenant, at its expense, shall have
provided Landlord's architect with instructions sufficient to enable Landlord's
architect to prepare complete plans and specifications for Landlord's Work. Such
plans and specifications and a cost estimate for Landlord's
1
<PAGE> 2
work shall also have been prepared by Landlord's architect and submitted to
Landlord and Tenant for preliminary approval within ten (10) business days from
the date of execution of this Lease. When the plans, specifications and cost
estimate are so approved by Landlord and Tenant, Landlord shall obtain from its
general contractor a quotation of the cost of Landlord's Work under Landlord's
construction contract and, if Landlord approves such quotation, it shall submit
the same to Tenant for approval. If Tenant disagrees with the quotation from
Landlord's general contractor, Tenant may obtain its own quotation for
Landlord's approval. If Landlord and Tenant are unable to agree upon a quotation
for the cost of Landlord's Work and the contractor to do Landlord's Work, the
parties agree to submit the dispute to arbitration under the Construction
Arbitration Rules of the American Arbitration Association. One arbitrator shall
be Landlord's architect; one arbitrator shall be appointed by Tenant and the
third arbitrator shall be appointed by the two arbitrators or, lacking
agreement, the Presiding Judge of the Superior Court of the City and County of
San Francisco. The arbitrators shall be appointed within ten (10) days of the
parties' disagreement and there shall be a hearing and decision within twenty
(20) days' of the arbitrators' appointment. Upon written approval by Tenant or
determination by arbitration, Landlord and Tenant shall be deemed to have given
final approval to the plans and specifications on the basis of which the
quotation was made, or cost determined, and Landlord shall be authorized to
proceed with the Landlord's Work to the Premises in accordance with such plans
and specifications. Tenant shall bear the cost of any changes in the work
requested by Tenant after final approval of plans and specifications.
All work, labor, materials and supplies furnished to the Premises other
than Landlord's Work shall be furnished and installed at Tenant's sole cost and
expense ("Tenant's Work"). All of Tenant's Work shall be subject to the terms
and conditions of par. 10 of this Lease and shall be coordinated with Landlord's
Work if undertaken at the same time. All of Tenant's Work shall comply with all
state, Federal and local laws and regulations, with the standards of the
National Board of Fire Underwriters (NBFU), the National Electrical Code (NEC),
the American Gas Association (AGA), and the American Society of Heating and
Ventilating Engineers (ASHVE), and shall conform to the following: Tenant's Work
shall be performed in a first-class, workmanlike manner and prosecuted
diligently to completion, free of defects in workmanship and materials. All
contracts for Tenant's Work shall require that the contractor repair or replace
in a first-class, workmanlike manner, without additional charge, all defective
work done under such contract whether by the contractor or its subcontractors,
for a period which shall not be less than one year following recording notice of
completion. Tenant's Work shall be performed by licensed contractors and
licensed subcontractors who will work harmoniously with each other and with
Landlord and its contractors and subcontractors, and who shall be capable of
providing a completion and a mechanics' and materialmen's lien bond to Tenant
for such work.
Upon Landlord's fifteen (15)-day notice to Tenant, Tenant shall have
access to the Premises for cabling and move-in, provided Tenant does not
interfere with Landlord's contractor. Tenant shall not be required to pay any
rent during such fifteen (15)-day period.
4. POSSESSION.
4.a. Landlord and Landlord's agents and contractors shall use their best
efforts and diligence to complete Landlord's work and deliver possession of the
Premises to the Tenant on or before February 1, 1997. If the Landlord, for any
reason whatsoever, cannot deliver possession of the said Premises to the Tenant
at the commencement of the term hereof, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom, nor shall the expiration date of the above term be in any
way extended, but in that event, all rent shall be abated under this Lease (but
not as to the second floor "temporary premises," par. 31) during the period
2
<PAGE> 3
between the commencement of said term and the time when Landlord delivers
possession. Notwithstanding the provisions of this paragraph, if Landlord has
not delivered the Premises to Tenant in the condition required under this Lease
oil or before April 1, 1997, Tenant shall have the right to cancel this Lease.
Upon such cancellation, Landlord shall return to Tenant all sums theretofore
deposited by Tenant with Landlord, and both parties shall be released from all
further liability under this Lease.
4.b. In the event that Landlord shall permit Tenant to occupy the
Premises prior to the commencement date of the term, such occupancy shall be
subject to all the provisions of this Lease, except for payment of rent. Said
early possession shall not advance the termination date hereinabove provided.
5. RENT. Tenant agrees to pay to Landlord as rental, without prior notice or
demand, for the Premises the sum of NINE HUNDRED FIFTY THOUSAND DOLLARS
($950,000.00) for the term of this Lease or FIFTEEN THOUSAND EIGHT HUNDRED
THIRTY-THREE AND NO/HUNDREDTHS DOLLARS ($15,833.33) per month (subject to
adjustment pursuant to par. 3) on or before the first day of the first full
calendar month of the term hereof and a like sum on or before the first day of
each and every successive calendar month thereafter during the term hereof,
except that the first month's rent shall be paid upon the execution hereof Rent
for any period during the term hereof which is for less than one (1) month shall
be a prorated portion of the monthly installment herein, based upon a thirty
(30)-day month. Said rental shall be paid to Landlord without deduction or
offset in lawful money of the United States of America, which shall be legal
tender at the time of payment at the office of the Building, or to such other
person or at such other place as Landlord may from time to time designate in
writing.
6. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum of THIRTY-ONE
THOUSAND SIX HUNDRED SIXTY-SIX AND 66/HUNDREDTHS DOLLARS ($31,666.66). In
addition, a Letter of Credit, in form and substance acceptable to Landlord for
an additional equivalent sum (i.e., $31,666.66) will be delivered to Landlord
upon written notice from Landlord to Tenant of Landlord's substantial completion
of Landlord's Work Said sum and Letter of Credit shall be held by Landlord as
security for the faithful performance by Tenant of all the terms, covenants, and
conditions of this Lease to be kept and performed by Tenant during the term
hereof. If Tenant defaults with respect to any provision of this Lease,
including, but not limited to the provisions relating to the payment of rent,
Landlord may (but shall not be required to) use, apply or retain all or any part
of this security deposit for the payment of any rent or any other sum in
default, or for the payment of any amount which Landlord may spend or become
obligated to spend by reason of Tenant's default, or to compensate Landlord for
any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said deposit is so used or applied, Tenant shall
within seven (7) business days after written demand therefor, deposit cash with
Landlord in an amount sufficient to restore the security deposit to its original
amount and Tenant's failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep this security deposit separate from its
general funds, and Tenant shall not be entitled to interest on such deposit. If
Tenant shall fully and faithfully perform every provision of this Lease to be
performed by it, the security deposit or any balance thereof shall be returned
to Tenant (or, at Landlord's option, to the last assignee of Tenant's interest
hereunder) at the expiration of the Lease term. In the event of termination of
Landlord's interest in this Lease, Landlord shall transfer said deposit to
Landlord's successor in interest. Provided Tenant is not then in default after
expiration of any applicable cure period, at the second (2nd) anniversary of the
commencement of the term of this Lease, if Landlord determines in Landlord's
reasonable discretion that Tenant has a sufficient financial condition, income,
profits and net worth, Tenant's security deposit shall be reduced to $15,833.33
cash and a Letter of Credit for an additional equivalent sum (i.e., $15,833.33).
7. OPERATING EXPENSE ADJUSTMENTS. [DELETED]
3
<PAGE> 4
8. USE. Tenant shall use the Premises for general office purposes, software
development, multimedia studio, occasional special events for the "trade" and
related uses, and shall not use or permit the Premises to be used for any other
purpose without the prior written consent of Landlord.
Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will in any way increase the
existing rate of or affect any fire or other insurance upon the Building or any
of its contents, or cause cancellation of any insurance policy covering said
Building or any part thereof or any of its contents. Tenant shall not do or
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building or injure or annoy them or use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause,
maintain or permit any nuisance in, or about the Premises. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises.
9. COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit anything to
be done in or about the Premises which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense,
promptly comply with all laws, statutes, ordinances and governmental rules,
regulations or requirement snow in force or which may hereafter be in force, and
with the requirements of any board of fire insurance underwriters or other
similar bodies now or hereafter constituted, relating to, or affecting Tenant's
use or occupancy of the Premises, excluding structural changes not related to or
affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord be a party thereto or not, that Tenant has violated any law,
statute, ordinance or governmental rule, regulation or requirement, shall be
conclusive of that fact as between the Landlord and Tenant.
10. ALTERATIONS AND ADDITIONS. Tenant shall not make or suffer to be made any
alterations, additions or improvements to or of the Premises, or any part
thereof, in excess of a value of $5,000.00 without the written consent of
Landlord first had and obtained and any alterations, additions or improvements
to or of said Premises, including, but not limited to, wall covering, paneling
and built-in cabinet work, but excepting movable furniture and trade fixtures,
shall on the expiration of the term become a part of the realty and belong to
the Landlord and shall be surrendered with the Premises. In the event Landlord
consents to the making of any alterations, additions or improvements to the
Premises by Tenant, the same shall be made by Tenant at Tenant's sole cost and
expense, and any contractor or person selected by Tenant to make the same must
first be approved of in writing by the Landlord. Tenant shall provide Landlord
with written notice of the value and description of alterations, additions or
improvements with a value of $2,000 to $5,000.00. Upon the expiration or sooner
termination of the term hereof, Tenant shall, upon written demand by Landlord,
given at least thirty (30) days prior to the end of the term, at Tenant's sole
cost and expense, forthwith and with all due diligence remove any alterations,
additions, or improvements made by Tenant, designated by Landlord to be removed
by written notice to Tenant at the time of Landlord's granting approval for such
addition, alteration or improvement (or Landlord's receiving notice from Tenant
if the value is $2,000.00 to $5,000.00) and Tenant shall, forthwith and with all
due diligence at its sole cost and expense, repair any damage to the Premises
caused by such removal.
11. REPAIRS.
11.a. By taking possession of the Premises, Tenant shall be deemed to
have accepted the Premises as being in good, sanitary order, condition and
repair. Tenant shall, at Tenant's sole cost and expense, keep the Premises and
every part thereof in good condition and repair, damage thereto from causes
beyond the reasonable control of Tenant and ordinary wear and tear excepted.
Tenant shall upon the expiration or sooner termination of this Lease hereof
surrender the Premises to the Landlord in good condition, ordinary wear and tear
and damage from causes beyond the reasonable control of Tenant excepted. Except
as specifically provided in an addendum', if any, to this Lease, Landlord shall
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have no obligation whatsoever to alter, remodel, improve, repair, decorate or
paint the Premises or any part thereof and the parties hereto affirm that
Landlord has made no representations to Tenant respecting the condition of the
Premises or the Building except as specifically herein set forth.
11.b. Notwithstanding the provisions of par. 11(a) hereinabove, Landlord
shall repair and maintain the structural portions of the Building, including the
basic plumbing, air conditioning, heating, and electrical systems, installed or
furnished by Landlord, unless such maintenance and repairs are caused in part or
in whole by the act, neglect, fault or omission of any duty by the Tenant, its
agents, servants, employees or invitees in which case Tenant shall pay to
Landlord the reasonable cost of Tenant's share of such maintenance and repairs.
Landlord shall not be liable for any failure to make any such repairs or to
perform any maintenance unless such failure shall persist for an unreasonable
time after written notice of the need of such repairs or maintenance is given to
Landlord by tenant. Except as provided in par. 22 hereof, there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the Premises
or in or to fixtures, appurtenances and equipment therein. Tenant waives the
right to make repairs at Landlord's expense under any law, statute or ordinance
now or hereafter in effect.
11.c. Notwithstanding any provision of this Lease, Landlord warrants to
Tenant that on the commencement of the term hereof, the Premises and any
improvements to be constructed by Landlord (a) shall be free from material
structural defects and (b) shall comply with all applicable covenants and
restrictions of record, statutes, ordinances, codes, rules, regulations, orders,
and requirements, including Title 24 of the California Administrative Code and
the Americans with Disabilities Act. In the event of a breach of the foregoing
warranties, Landlord shall promptly rectify such breach at its sole cost and
expense. Landlord also shall protect, indemnify, defend, and hold Tenant
harmless from an against any and all liability, loss, suits, claims, actions,
costs, and expense (including, without limitation, attorneys' fees) arising from
any breach of the foregoing warranties. The provisions of this section shall
survive the termination of this Lease.
12. LIENS. Tenant shall keep the Premises and the property in which the Premises
are situated free from any liens arising out of any work performed, materials
furnished or obligations incurred by tenant. Landlord may require, at Landlord's
sole option, that Tenant shall provide to Landlord, at Tenant's sole cost and
expense, a lien and completion bond in an amount equal to one and one-half (1/2)
times any and all estimated costs of any improvements, additions, or alterations
in the Premises, to insure Landlord against any liability for mechanics' and
materialmen's liens and to insure completion of the work.
13. ASSIGNMENT AND SUBLETTING. Except as set forth in this paragraph 13, Tenant
shall not either voluntarily or by operation of law, assign, transfer, mortgage,
pledge, hypothecate or encumber this Lease or any interest therein, and shall
not sublet the said Premises or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person (the employees, agents, servants
and invitees of Tenant excepted) to occupy or use the said Premises, or any
portion thereof, without the written consent of Landlord first had and obtained,
which consent shall not be unreasonably withheld, and a consent to one
assignment, subletting, occupation or use by any other person shall not be
deemed to be a consent to any subsequent assignment, subletting, occupation or
use by another person. Any such assignment or subletting without such consent
shall be void, and shall, at the option of the Landlord, constitute a default
under this Lease. An assignment or subletting shall include, but not be limited
to, a merger or a sale or exchange of more than 50% of Tenant's stock or assets.
(a) If at any time or from time to time during the term of this Lease
Tenant desires to sublet all or any part of the Premises, including any
expansion space, Tenant shall give notice to Landlord setting forth the terms of
the proposed subletting and the space so proposed to be sublet. Landlord shall
have the option, exercisable by notice given to Tenant within twenty (20) days
after Tenant's notice is
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given, either to sublet from Tenant such space at the rental and other terms set
forth in Tenant's notice, or, if the proposed subletting is for the entire
Premises for (lie balance of the term of this Lease, to terminate this Lease;
provided, however, that should Landlord so notify Tenant, Tenant shall have the
right to withdraw its request within twenty (20) days after receiving Landlord's
notice. If Landlord does not exercise such option, Tenant shall be free to
sublet such space to any third party subject to the following conditions:
(1) The sublease shall be on the same terms set forth in the
notice given to Landlord;
(2) No sublease shall be made without the prior written consent
of Landlord, which consent Landlord agrees will not unreasonably be withheld or
delayed;
(3) No sublease shall be valid and not subtenant shall take
possession of the Premises sublease until an executed counterpart of such
sublease has been delivered to Landlord;
(4) No subtenant shall have a right further to sublet; and
(5) Any sums or other economic consideration received by Tenant
as a result of such subletting (except all out-of-pocket costs incurred in
connection with such subletting or assignment ((including, without limitation,
leasing commissions, advertising costs, rental concessions and legal fees)) and
rental or other payments received which are attributable to the amortization of
the cost of leasehold improvements, other than building standard tenant
improvements, made to the sublet portion of the Premises by Landlord) whether
denominated rentals under the sublease or otherwise, which exceed, in the
aggregate, the total sums which Tenant is obligated to pay Landlord under this
Lease (prorated to reflect obligations allocable to that portion of the Premises
subject to such sublease) shall be payable to Landlord as additional rental
under this Lease without affecting or reducing any other obligation of Tenant
hereunder.
(b) Notwithstanding the provisions of paragraphs 13 and 31(a) above,
Tenant may "go public" under the Securities Act of 1933 (even if it involves
trading in excess of 50% of the Company's stock) or assign this Lease or sublet
the Premises or any portion thereof, including any expansion space, without
Landlord's consent and without extending any option to Landlord, to any
corporation which controls, is controlled by or is under common control with
Tenant, or to any corporation resulting from the merger or consolidation with
Tenant, or to any person or entity which acquires all the assets of Tenant as a
going concern of the business that is being conducted oil the Premises, provided
that said assignee has substantially the same or better financial condition then
Tenant and assumes, in full, the obligations of Tenant under this Lease.
(c) Regardless of Landlord's consent, no subletting or assignment shall
release Tenant of Tenant's obligation or alter the primary liability of Tenant
to pay the rental and to perform all other obligations to be performed by Tenant
hereunder. The acceptance of rental by Landlord from any other person shall not
be deemed to be a waiver by Landlord of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by any assignee of Tenant or
any successor of Tenant in the performance of any of the terms hereof, Landlord
may proceed directly against Tenant without the necessity of exhausting remedies
against such assignee or successor.
(d) In the event Tenant shall assign or sublet the Premises or request
the consent of Landlord to any assignment or subletting or if Tenant shall
request the consent of Landlord for any act that Tenant proposes to do, then
Tenant shall pay Landlord's reasonable attorneys' fees (not to exceed $500.00
per request) incurred in connection therewith.
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14. HOLD HARMLESS. Tenant shall indemnify and hold harmless Landlord against and
from any and all claims arising from Tenant's use of tile Premises for the
conduct of its business or from any activity, work, or other thing done or
permitted by the Tenant in or about the Building (or suffered by Tenant in the
Premises), and shall further indemnify and hold harmless Landlord against and
from any and all claims arising from any breach or default in the performance of
any obligation on Tenant's part to be performed under tile terms of this Lease,
or arising from any willful misconduct or negligence of the Tenant, or any
officer, agent, employee, guest, or invitee of Tenant, and from all and against
all costs, attorneys' fees, expenses and liabilities incurred in or about any
such claim or any action or proceeding brought thereon, and, in any case, action
or proceeding be brought against Landlord by reason of any such claim, Tenant
upon notice from Landlord shall defend the same at Tenant's expense by counsel
reasonably satisfactory to Landlord. Tenant as a material part of the
consideration to Landlord hereby assumes all risk of damage to property or
injury to persons, in, upon or about the Premises, from any cause other than
negligence or willful misconduct of Landlord or its agents and Tenant hereby
waives all claims in respect thereof against Landlord.
Landlord or its agents shall not be liable for any damage to property
entrusted to employees of the Building, nor for loss or damage to any property
by theft or otherwise, nor for any injury to or damage to persons or property
resulting from fire, explosion, Falling plaster, steam, gas, electricity, water
or rain which may leak from any part of the Building or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
from any other place resulting from dampness or any other cause whatsoever,
unless caused by or due to the negligence or willful misconduct of Landlord, its
agents, servants or employees. Landlord or its agents shall not be liable for
interference with the light or other incorporeal hereditaments, loss of business
by Tenant, nor shall Landlord be liable for any latent defect in tile Premises
or in the Building unless known to Landlord or its agents. Tenant shall give
prompt notice to Landlord in case of fire or accidents in the Premises or in the
Building or of defects therein or in the fixtures or equipment.
Landlord hereby indemnifies; and holds harmless Tenant and its agents,
employees and successors and assignees against any and all liability, loss,
suits, claims, actions, costs and expense arising from (i) Landlord's or
Landlord's agents' breach of this Lease and (ii) the negligence or willful
misconduct of Landlord or its agents.
15. SUBROGATION. As long as their respective insurers so permit, Landlord and
Tenant hereby mutually waive their respective rights of recovery against each
other for any loss insured by fire, extended coverage and other property
insurance policies existing for the benefit of the respective parties. Each
party shall obtain any special endorsements, if required by their insurer, to
evidence compliance with the aforementioned waiver.
16. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
force during the term of this Lease a policy of comprehensive public liability
insurance insuring Landlord and Tenant against any liability arising out of the
ownership, use, occupancy or maintenance of tile Premises and all areas
appurtenant thereto. The limit of said insurance shall not, however, limit the
liability of the Tenant hereunder. Tenant may carry said insurance under a
blanket policy, providing, however, said insurance by Tenant shall have a
Landlord's protective liability endorsement attached thereto. If Tenant shall
fail to procure and maintain said insurance, Landlord may, but shall not be
required to, procure and maintain same, but at the expense of Tenant. Insurance
required hereunder, shall be in companies rated A+ AAA or better in "Best's
Insurance Guide". Tenant shall deliver to Landlord prior to occupancy of the
Premises copies of policies of liability insurance required herein or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Landlord. No policy shall be cancellable or
subject to reduction of coverage except after ten (10) days' prior written
notice to Landlord.
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17. SERVICES AND UTILITIES. Provided that Tenant is not in default hereunder,
Landlord agrees to furnish to the Premises during reasonable hours of generally
recognized business days, to be determined by Landlord at its reasonable
discretion (minimum 8:00 a.m. - 6:00 p.m. Monday through Friday) and subject to
the rules and regulations of the Building of which the Premises are a part,
electricity for normal lighting and fractional horsepower office machines, heat
and air conditioning required in Landlord's judgment for the comfortable use and
occupation of the Premises and janitorial service. Landlord shall also maintain
and keep lighted the common stairs, common entries and toilet rooms in the
Building of which the Premises are a part. Landlord shall not be liable for, and
Tenant shall not be entitled to, any reduction of rental by reason of Landlord's
failure to furnish any of the foregoing when such failure is caused by accident,
breakage, repairs, strikes, lockouts or other labor disturbances or labor
disputes of any character, or by any other cause, similar or dissimilar, beyond
the reasonable control of Landlord. Landlord shall not be liable under any
circumstances for a loss of or injury to property, however occurring, through or
in connection with or incidental to failure to furnish any of the foregoing
unless such loss or injury is caused by the negligence or willful misconduct of
Landlord or Landlord's agents. Wherever heat generating machines or equipment
are used in the Premises which affect the temperature otherwise maintained by
the air conditioning system, Landlord reserves the right to install
supplementary air conditioning units in the Premises and the cost thereof,
including the cost of installation, and the cost of operation and maintenance
thereof shall be paid by Tenant to Landlord upon demand by Landlord.
Tenant will not, without written consent of Landlord, use any apparatus
or device in the Premises, including, but without limitation thereto, electronic
data processing machines, punch card machines, and machines using in excess of
120 volts, which will in any way materially increase the amount of electricity
usually furnished or supplied for the use of the Premises as general office
space nor connect with electric current except through existing electrical
outlets in the Premises, any apparatus or device, for the purpose of using
electric current. If Tenant shall require water or electric current in excess of
that usually furnished or supplied for the use of the Premises as general office
space, Tenant shall first procure the written consent of Landlord, to the use
thereof and Landlord may cause a water meter or electrical current meter to be
installed in the Premises, so as to measure the amount of water and electric
current consumed for any such use, or otherwise charge Tenant the reasonably
estimated cost thereof. The cost of any such meters and of installation,
maintenance and repair thereof shall be paid for by the Tenant and Tenant agrees
to pay to Landlord promptly upon demand therefor by Landlord for all such water
and electric current consumed as shown by said meters or estimate, at the rates
charged for such services by the local public utility furnishing the same, plus
any additional expense incurred in keeping account of the water and electric
current so consumed. If a separate meter is not installed, such excess cost for
such water and electric current will be established by an estimate made by a
utility company or electrical engineer.
18. PROPERTY TAXES. Tenant shall pay, or cause to be paid, before delinquency,
any and all taxes levied or assessed and which become payable during the term
hereof upon all Tenant's leasehold improvements, equipment, furniture, fixtures
and personal property located in the Premises; except that which has been paid
for by Landlord and is the standard of the Building. In the event any or all of
the Tenant's leasehold improvements, equipment, furniture, fixtures and personal
property shall be assessed and taxed with the Building, Tenant shall pay to
Landlord its share of such taxes within ten (10) days after delivery to Tenant
by Landlord of a statement in writing setting forth the amount of such taxes
applicable to Tenant's property.
19. RULES AND REGULATIONS. Tenant shall faithfully observe And comply with the
rules and regulations that Landlord shall from time to time promulgate. Landlord
reserves the right from time to time to make all reasonable modifications to
said rules, provided any such modifications do not unreasonably interfere with
Tenant's use of, or access to, the Premises. The additions and modifications to
those rules shall be binding upon Tenant upon delivery of a copy of them to
Tenant.
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20. HOLDING OVER. If Tenant remains in possession of the Premises or any part
thereof after the expiration of the term hereof, with the express written
consent of Landlord, such occupancy shall be a tenancy from month to month at a
rental in the amount of the last monthly rental, plus all other charges payable
hereunder, and upon all the terms hereof applicable to a month to month tenancy.
21. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times have the
right (upon reasonable notice to Tenant except in cases of emergency) to enter
the Premises, inspect the same, supply janitorial service and other service to
be provided by Landlord to Tenant hereunder, to submit said Premises to
prospective purchasers or tenants, to post notices of non-responsibility, and to
after, improve or repair the Premises and any portion of the Building of which
the Premises are a part that Landlord may deem necessary or desirable, without
abatement of rent and may for that purpose erect scaffolding any other necessary
structures where reasonably required by the character of the work to be
performed, always providing that the entrance to the Premises shall not be
blocked thereby, and further providing that the business of the Tenant shall not
be interfered with unreasonably. Tenant hereby waives any claim for damages or
for any injury or inconvenience to or interference with Tenant's business, any
loss of occupancy or quiet enjoyment of the Premises, and any other loss
occasioned thereby, unless caused by the negligence or willful misconduct of
Landlord or its agents. For each of the aforesaid purposes, Landlord shall at
all times have and retain a key with which to unlock all of the doors in, upon
and about the Premises, excluding Tenant's vaults, safes and files, and Landlord
shall have the right to use any and all means which Landlord may deem proper to
open said doors in an emergency, in order to obtain entry to the Premises
without liability to Tenant except for any failure to exercise due care for
Tenant's property. Any entry to the Premises obtained by Landlord by any of said
means, or otherwise shall not under any circumstances be construed or deemed to
be a forceable or unlawful entry into, or a detainer of, the Premises, or an
eviction of Tenant from the Premises or any portion thereof.
22. RECONSTRUCTION. In the event the Premises or the Building of which the
Premises are a part are damaged by fire or other perils covered by extended
coverage insurance, Landlord agrees to forthwith repair the same; and this Lease
shall remain in full force and effect, except that Tenant shall be entitled to a
proportionate reduction of the rent while such repairs are being made, such
proportionate reduction to be based upon the extent to which the making of such
repairs shall materially interfere with the business carried on by the Tenant in
the premises. If the damage is due to the fault or neglect of Tenant or its
employees, there shall be no abatement of rent.
In the event the Premises or the Building of which the Premises are a
part are damaged as a result of any cause other than the perils covered by fire
and extended coverage insurance, then Landlord shall forthwith repair the same,
provided the extent of the destruction be less than twenty-five percent (25%) of
the then full replacement cost of the Premises or the Building of which the
Premises are a part. In the event the destruction of the Premises or the
Building is to an extent greater than twenty-five percent (25%) of the full
replacement cost, then Landlord shall have the option: (1) to repair or restore
such damage within forty-five (45) days (if Landlord is unable to do so, Tenant
shall have the right to terminate this Lease upon written notice to Landlord),
this Lease continuing in full force and effect, but the rent to be
proportionately reduced as hereinabove in this Article provided; or (2) give
notice to Tenant at any time within twenty (20) days after such damage
terminating this Lease as of the (late specified in such notice, which date
shall be thirty (30) days after the giving of such notice. In the event of
giving such notice, this Lease shall expire and all interest of the Tenant in
the Premises shall terminate on the date so specified in such notice and the
Rent, reduced by a proportionate amount, based upon the extent, if any, to which
such damage materially interfered with the business carried on by the Tenant in
the Premises, shall be paid up to date of said such termination.
Notwithstanding anything to the contrary in this Article, Landlord shall
not have any obligation whatsoever to repair, reconstruct or restore the
Premises when the damage resulting from any casualty
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covered under this Article occurs during the last nine (9) months of the term of
this Lease or any extension thereof
Landlord shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacements of any panels, decoration,
office fixtures, railings, floor covering, partitions, or any other property
installed in the Premises by Tenant unless such damage or injury is caused by
the negligence or willful misconduct of Landlord or Landlord's agents.
Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the premises, Tenant's
personal property or any inconvenience or annoyance occasioned by such damage,
repair, reconstruction or restoration unless caused by the negligence or willful
misconduct of Landlord or Landlord's agents.
23. DEFAULT. The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant.
23.a. The vacating or abandonment of the Premises by Tenant.
23.b. The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder, as and when due, where such
failure shall continue for a period of five (5) business days after written
notice thereof by Landlord to Tenant.
23.c. The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Tenant, other than described in par. 23(b) above, where such failure shall
continue for a period of thirty (30) days after written notice thereof by
Landlord to Tenant; provided, however, that if the nature of Tenant's default is
such that more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant commences such cure within
said thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
23.d. The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; or the filing by or against Tenant of
a petition to have Tenant adjudged a bankrupt, or a petition or reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days); or
the appointment of a trustee or a receiver to take possession of substantially
all of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interests in this Lease,
where such seizure is not discharged in thirty (30) days.
24. REMEDIES IN DEFAULT. In the event of any such material default or breach by
Tenant, Landlord may at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of a right or remedy which
Landlord may have by reason of such default or breach:
24.a. Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
any real estate commission actually paid; the worth at the time of award by (lie
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Tenant proves could be reasonably avoided;
that portion of the leasing commission paid by Landlord and applicable to the
unexpired term of this Lease. Unpaid installments of rent or other sums shall
bear
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interest from the date due at the rate of ten (10%) per cent per annum. In the
event Tenant shall have abandoned the Premises, Landlord shall have the option
of (a) taking possession of the Premises and recovering from Tenant the amount
specified in this paragraph, or (b) proceeding under the provisions of the
following par. 24(b).
24.b. Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant shall have abandoned the
Premises. In such event Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
24.c. Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decision of the State in which the Premises are
located.
25. EMINENT DOMAIN. If more than twenty-five (25%) per cent of the Premises
shall be taken or appropriated by any public or quasi-public authority under the
power of eminent domain, either party hereto shall have the right, at its
option, to terminate this Lease, and Landlord shall be entitled to any and all
income, rent, award, or any interest therein whatsoever which may be paid or
made in connection with such public or quasi-public use or purpose, and Tenant
shall have no claim against Landlord for the value of any unexpired term of this
Lease. If either less than or more than twenty-five (25%) per cent of the
Premises is taken and neither party elects to terminate as herein provided, the
rental thereafter to be paid shall be equitably reduced based upon the
proportion of the Premises taken. If more than fifty percent (50%) of the
Building other than the Premises may be so taken or appropriated, Landlord shall
have the right at its option to terminate this Lease and shall be entitled to
the entire award as above provided. Notwithstanding any of the foregoing in the
event that any taking under the power of eminent domain shall affect the
Premises in such a manner that, in Tenant's reasonable opinion, such damage
materially and adversely interferes with the conduct of Tenant's business,
Tenant shall have the right to terminate this Lease upon written notice thereof
to Landlord. Notwithstanding the foregoing, Tenant shall be entitled to that
portion of any award which is separately stated which compensates Tenant for
Tenant's relocation expenses and loss of fixtures, equipment and personal
property.
26. OFFSET STATEMENT. [DELETED]
27. PARKING. [DELETED]
28. AUTHORITY OF PARTIES.
28.a. CORPORATE AUTHORITY. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance with a duly adopted resolution of the board of
directors of said corporation or in accordance with the by-laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
28.b. LIMITED PARTNERSHIPS. If the Landlord herein is a limited
partnership, it is understood and agreed that any claims by Tenant on Landlord
shall be limited to the assets of the limited partnership, and furthermore,
Tenant expressly waives any and all rights to proceed against the individual
partners or the officers, directors or shareholders of any corporate partner,
except to the extent of their interest in said limited partnership.
29. GENERAL PROVISIONS.
(i) PLATS AND RIDERS. Clauses, plats and riders, if any, signed by the
Landlord and the Tenant and endorsed on or affixed to this Lease are a part
hereof.
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(ii) WAIVER. The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of (lie same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of the
Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of the acceptance of such rent.
(iii) NOTICES. All notices and demands which may or are to be required
or permitted to be given by either party to the other hereunder shall be in
writing. All notices and demands by the Landlord to the Tenant shall be sent by
United States Mail, postage prepaid or overnight courier, addressed to the
Tenant at the Premises, or to such other place as Tenant may from time to time
designate in a notice to the Landlord. All notices and demands by the Tenant to
the Landlord shall be sent by United States Mail, postage prepaid or overnight
courier, addressed to the Landlord at the office of the Building, or to such
other person or place as the Landlord may from time to time designate in a
notice to the Tenant.
(iv) JOINT OBLIGATIONS. If there be more than one Tenant the obligations
hereunder imposed upon Tenants shall be joint and several.
(v) MARGINAL HEADINGS. The marginal headings and paragraph titles to the
paragraphs of this Lease are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.
(vi) TIME. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
(vii) SUCCESSORS AND ASSIGNS. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
(viii) RECORDATION. Neither Landlord nor Tenant shall record this Lease
or a short form memorandum hereof without the prior written consent of the other
party.
(xi) QUITE POSSESSION. Upon Tenant paying the rent reserved hereunder
and observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease.
(x) LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent or other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Landlord by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or of a sum due from Tenant shall not be
received by Landlord or Landlord's designee within ten (10) days after Tenant's
receipt of written notice that said amount is past due, then Tenant shall pay
toe Landlord a late charge equal to seven (7%) per cent of such overdue amount.
The parties hereby agree that such late charges represent a fair and reasonable
estimate of the cost that Landlord will incur by reason of the late payment by
Tenant. Acceptance of such later charges by the Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies granted
hereunder.
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(xi) PRIOR AGREEMENTS. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreements or understanding pertaining to any such matters shall be
effective for any purpose. No provision of this Lease may be amended or added to
except by an agreement in writing signed by the parties hereto or their
respective successors in interest. This Lease shall not be effective or binding
on any party until fully executed by both parties hereto.
(xii) INABILITY TO PERFORM. This Lease and the obligations of the Tenant
and Landlord hereunder shall not be affected or impaired because either party is
unable to fulfill any of its obligations hereunder or is delayed in doing so, if
such inability or delay is caused by reason of strike, labor troubles, acts of
God, or any other cause beyond the reasonable control of such party. This
provision shall not excuse or extend performance of Tenant's rental payment
obligation hereunder.
(xiii) ATTORNEYS' FEES. In the event of any action or proceeding brought
by either party against the other under this Lease the prevailing party shall be
entitled to recover all costs and expenses including the fees of its attorneys
in such action or proceeding in such amount as the court may adjudge reasonable
as attorneys' fees.
(xiii) SALE OF PREMISES BY LANDLORD. In the event of any sale of the
Building, after delivery to the purchaser of Tenant's security deposit and any
other funds of Tenant held by Landlord on account of Tenant's obligations
hereunder, Landlord shall be and is hereby entirely freed and relieved of all
liability under any and all of its covenants and obligations contained in or
derived from this Lease arising out of any act, occurrence or omission occurring
after the consummation of such sale; and the purchaser, at such sale or any
subsequent sale of the Premises shall be deemed, without any further agreement
between the parties or their successors in interest or between the parties and
any such purchaser, to have assumed and agreed to carry out any and all of the
covenants and obligations of the Landlord under this Lease.
(xv) SUBORDINATION, ATTORNMENT. Upon request of the Landlord, Tenant
will in writing subordinate its rights hereunder to the lien of any first
mortgage, or first deed of trust to any bank, insurance company or other lending
institution, now or hereafter in force against the land and Building of which
the Premises are a part, and upon any buildings hereafter placed upon the land
of which the Premises are a part, and to all advances made or hereafter to be
made upon the security thereof, provided that such bank, insurance company or
other lending institution delivers to Tenant a non-disturbance agreement
reasonably satisfactory to Tenant.
In the event any proceedings are brought for foreclosure, or in the
event of the exercise of the power of sale under any mortgage or deed of trust
made by the Landlord covering the Premises, the Tenant shall attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser as the
Landlord under this Lease, provided that such bank, insurance company or other
lending institution delivers to Tenant a non-disturbance agreement reasonably
satisfactory to Tenant.
The provisions of this Article to the contrary notwithstanding, and so
long as Tenant is not in default hereunder, this Lease shall remain in full
force and effect for the full term hereof.
Within 30 days of execution of this Lease, Landlord shall deliver to
Tenant a non-disturbance agreement in a form reasonably satisfactory to Tenant
executed by each beneficiary or mortgagee holding a lien on the Premises.
(xvi) NAME. Tenant shall not use the name of the Building or of the
development in which the Building is situated for any purpose other than as an
address of the business to be conducted by the Tenant in the Premises.
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(xvii) SEPARABILITY. Any provision of this Lease which shall prove to be
invalid, void or Illegal shall in no way affect, impair or invalidate any other
provision hereof and such other provision shall remain in full force and effect.
(xviii) CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
(xix) CHOICE OF LAW. This Lease shall be governed by the laws of the
State in which the Premises are located.
(xx) SIGNS AND AUCTIONS. Tenant shall not place any sign upon the
Premises or Building or conduct any auction thereon without Landlord's prior
written consent, which shall not be unreasonably withheld or delayed. Landlord,
at its sole cost and expense, shall provide building directory signage for
Tenant in the first floor lobby. Tenant shall have the right to install exterior
Building signage both in the front and back of the Building, with the design to
be mutually agreed upon by Landlord and Tenant. Said design is to be tasteful
and fully integrated into the design of the Building.
30. BROKERS. Tenant warrants that it has had no dealings with any real estate
broker or agents in connection with the negotiation of this Lease excepting only
Whitney Cresinan Limited (for Landlord) and Cushman & Wakefield (for Tenant) and
it knows of no other real estate broker or agent who is entitled to a commission
in connection with this Lease.
31. TEMPORARY PREMISES. Upon the Landlord's completion of construction of a
demising wall or October 1, 1996, Landlord shall lease to Tenant, and Tenant
shall lease from Landlord, approximately 1,545 sq. ft. of office space located
on the second floor of the building containing the Premises, as indicated on
Exhibit "B" attached hereto and hereby reference to and made a part hereof,
"AS-IS" at a monthly rent of $2,446.25 per month, and otherwise subject to all
of the terms and conditions of this Lease. Tenant shall pay Landlord the first
month's rent upon execution of this Lease. The lease of this temporary premises
shall automatically terminate upon commencement of the term of this Lease, or
become month-to-month, pursuant to par. 3 of this Lease.
32. RIGHT OF FIRST OPPORTUNITY TO LEASE ADDITIONAL SPACE. Provided Tenant is not
then in default after expiration of any applicable cure period under any of the
terms and provisions of this Lease, Tenant shall have a "right of first
opportunity" to lease any additional space that comes available in the Building
during the term of this Lease. Landlord shall notify Tenant in writing of any
such space becoming available after receiving notice from an existing tenant
intending to vacate such space. Tenant shall respond to Landlord's notice of the
right of first opportunity within fifteen (15) business days of the date of
written notice from Landlord.
The term of the lease of the additional space shall coincide with the
remaining term of this Lease. The rent shall be the fair market value for the
space as a gross lease for comparable space in similar buildings in the area of
the building. Within fifteen (15) days of Tenant's response, Landlord and Tenant
shall attempt to agree upon a mutually acceptable rent.
If the parties are unable to agree on the new rent within that period,
then within ten (10) days after expiration of that period each party, at its
cost and by giving notice to the other party, shall appoint a real estate
appraiser with at least five (5)-years' full-time commercial appraisal
experience in (he area in which the Premises are located to appraise and set the
new rent for the additional space. If a party does not appoint an appraiser with
ten (10) days after the other party has given notice of the name of its
appraiser, the single appraiser appointed shall be the sole appraiser and shall
set the new rent for the additional space. If the two appraisers are appointed
by the parties as stated in this paragraph, they shall meet promptly and attempt
to set the new rent. If they are unable to agree within thirty (30) days
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after the second appraiser has been appointed, they shall attempt to select a
third appraiser meeting the qualifications stated in this paragraph within ten
(10) days after the last day the two appraisers are given to set the new rent.
If the parties are unable to agree oil the third appraiser, either of the
parties to this Lease by giving ten (10) days' notice to the other party can
file a petition with the American Arbitration Association solely for the purpose
of selecting a third appraiser who meets the qualifications stated in this
paragraph. Each party shall bear half the cost of the American Arbitration
Association's appointing the third appraiser and of paying the third appraiser's
fee. The third appraiser, however selected, shall be a person who has not
previously acted in any capacity for either party. Within thirty (30) days after
the selection of the third appraiser, a majority of the appraisers shall set the
new rent for the additional space. If a majority of the appraisers are unable to
set the new rent within the stipulated period of time, the three appraisals
shall be added together and their total divided by three; the resulting quotient
shall be the new rent for the additional space and the parties shall execute an
Amendment to this Lease describing the space as part of the Premises and setting
forth the rent. The additional space shall be otherwise subject to all of the
terms and conditions of this Lease.
33. OPTION TO TERMINATE. Upon expiration of the thirty-second (32nd) month of
the term of this Lease, if Landlord is unable to accommodate Tenant's expansion
needs, Tenant shall have the option to terminate this Lease by providing
Landlord one hundred twenty (120) days' advanced written notice to Landlord and
paying Landlord all current rent and performing all covenants and conditions of
this Lease to the effective date of termination. In, addition, in the event
Tenant exercises its option to terminate, as consideration, Tenant shall pay
Landlord the unamortized portion of tenant improvements and leasing commissions
(e.g., by way of example, $20.00 per sq. ft. T.I. allowance + $5.00 per sq. ft.
commission x 10,000 sq. ft./60 months = $4,166.66 per month).
34. REASONABLE CONSENT OR APPROVAL. When any provision of this Lease, or the
accompanying Rules and Regulations, calls for a party's consent or approval,
Landlord and Tenant each agree that such consent or approval shall not be
unreasonably withheld or delayed.
35. ESTOPPEL CERTIFICATE. Tenant shall at any time and from time to time upon
not less than ten (10) business days' prior notice from Landlord execute,
acknowledge and deliver to Landlord a statement in writing, which may be in the
form specified by Landlord, which shall certify: (a) that the Premises have been
completed to the satisfaction of Tenant and accepted and possessed by Tenant,
(b) the date the term of Lease commenced, the term of the Lease, any portions to
renew or extend, the amount of any security deposit and the date to which rental
and any other charges are paid in advance, (c) that the Lease is in full force
and effect and unmodified (or if there have been modifications, stating the
nature of the modifications and certifying that the Lease so modified is in full
force and effect), (d) that no notice has been received by Tenant of any default
of Tenant which has not been cured (or specifying such notices), (e) that there
are no uncured defaults on the part of Landlord (or specifying such defaults if
any are claimed), off-sets, counterclaims or credits against the rents,
obligations or stipulations due or to become due or required, (f) that Tenant
has no knowledge of an, prior assignment, hypothecation or pledge of rents and
(g) such other matters as may be reasonably requested by Landlord. Any such
certificate may be relied upon by any prospective purchase of all or any portion
of the real property of which the Premises are a part.
36. SUBORDINATION. This Lease shall be subject and subordinated at all times to
(a) all ground or underlying leases which may hereafter be executed affecting
the real property of which the Premises are a part, and (b) the lien of all
mortgages and deeds of trust in any amount or amounts whatsoever now or
hereafter placed on or against said real property or on or against Landlord's
interest or estate therein or on or against all such ground or underlying
leases, all without the necessity of having further instruments executed on the
part of Tenant to effectuate such subordination. Notwithstanding the foregoing,
(1) in the event of termination for any reason whatsoever of any such ground or
underlying lease, this Lease shall not then be barred, terminated, cut off or
foreclosed nor shall the rights and possession of Tenant hereunder be disturbed
if Tenant shall not then be in default in
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the payment of rental or other sums or be otherwise in default under the terms
of this Lease and Tenant shall attorn to Landlord of any such ground or
underlying lease, or, if requested, enter into a new lease for the balance of
the original or extended term hereof then remaining upon the same terms and
provisions as are in this Lease contained; (2) in the event of a foreclosure of
any such mortgage or deed of trust or of any other action or proceeding of the
enforcement thereof, or of any sale thereunder, this Lease will not be barred,
terminated, cut off or foreclosed nor will the rights and possession of Tenant
thereunder be disturbed if Tenant shall not then be in default in the payment of
rental or other sums or be otherwise in default under the terms of this Lease
and Tenant shall attorn to the purchaser at such foreclosure, sale or other
action or proceeding; and (3) Tenant agrees to execute and deliver upon demand
such further instrument evidencing such subordination of this Lease to said
deed, to such ground or underlying leases, and to the lien of any such mortgages
or deeds of trust as may reasonably be required by Landlord. Tenant's covenant
to subordinate this Lease to ground or underlying leases and/or mortgages or
deeds of trust hereafter executed is conditioned upon each such senior
instrument containing the commitments specified in the preceding clauses (1) and
(2).
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE AND ON THE
DATES SPECIFIED IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTIONS RELATING
THERETO.
Dated: October 1, 1996 BRANNAN STREET PARTNERS, a
California limited partnership
Address: 525 Brannan Street, Suite 300 By: /s/ W. LANEY THORNTON
San Francisco, CA 94105 --------------------------------
Attn: Diana E. Lees W. Laney Thornton, General
Partner
LANDLORD
Dated: September __, 1996 QUOKKA SPORTS INC., a Delaware
corporation
By: /s/ [Signature Illegible]
--------------------------------
President
Address: 525 Brannan Street, Suite 203 By: /s/ [Signature Illegible]
San Francisco, CA 94105 --------------------------------
Attn: Secretary
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RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of (lie
outside or inside of the Building (excluding the interior of the
Premises) without the written consent of Landlord first had and obtained
and Landlord shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the
expense of Tenant.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by any of the tenants or used by them
for any purpose other than for ingress and egress from their respective
Premises.
3. Tenant shall not alter any lock or install any new or additional locks
or any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown therein and
the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose
employees or invitees shall have caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. No heavy or large volume of furniture, freight or equipment of any kind
shall be brought into the Building without the prior notice to Landlord
and all moving of the same into or out of the Building shall be done at
a reasonable time and manner as Landlord shall designate. Landlord shall
have the right to prescribe the weight, size and position of all safes
and other heavy equipment brought into the Building and also the times
and manner of moving the same in and out of the Building Safes or other
heavy objects shall, if considered necessary by Landlord, stand on
supports of such thickness as is necessary to properly distribute the
weight. Landlord will not be responsible for loss of or damage to any
such safe or property from any cause and all damage done to the Building
by moving or maintaining any such safe or other property shall be
repaired at the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable
to the Landlord or other occupants of the Building by reason of noise,
odors and/or vibrations, or interfere in any way with other tenants or
those having business therein, nor shall any animals or birds be brought
in or kept in or about the Premises or the Building.
8. No cooking shall be done or permitted by any Tenant on the Premises, nor
shall the Premises be used for the storage of merchandise, for washing
clothes, for lodging, or for any improper, objectionable or immoral
purposes.
9. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material or
use any method of heating or air conditioning other than that supplied
by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires
will be allowed without the consent of the Landlord. The location of
telephones, call boxes and other office equipment affixed to the
Premises shall be subject to the approval of Landlord.
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11. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 P.M. and 8:00 A.M. the following day, access to the
Building, or to the halls, corridors, elevators or stairways in the
Building, or to the Premises may be refused unless the person seeking
access is known to the person or employee of the Building in charge and
has a pass or is properly identified. The Landlord shall in no case be
liable for damages for any error with regard to the admission to or
exclusion from the Building of any person. In case of invasion, mob,
riot, public excitement, or other commotion, the Landlord reserves (lie
right to prevent access to (lie Building during the continuance of the
same by closing of the doors or otherwise, for the safety of the tenants
and protection of property in the Building and the Building.
12. Landlord reserves the right to exclude or expel from the Building ally
person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the Building.
13. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of
the Landlord.
14. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the
Building of which the Premises are a part.
15. Tenant shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name
of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public portions
of the Building, and the public facilities, and heating and air
conditioning, as well as facilities furnished for the common use of the
tenants, in such manner as it deems best for the benefit of the tenants
generally.
18. All entrance doors in the Premises shall be left locked when the
Premises are not in use, and all doors opening to public corridors shall
be kept closed except for normal ingress and egress from the Premises.
19. Except for seeing eye dogs, no animals shall be allowed in the Building
at any time.
20. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular Tenant or Tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in
favor of any other Tenant or Tenants, nor prevent Landlord from
thereafter enforcing any such Rules and Regulations against any or all
of the Tenants of the Building.
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FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("First Amendment") is made and entered
into this 17th day of August 1998, by and between BRANNAN STREET PARTNERS, a
California limited partnership ("Landlord"), and QUOKKA SPORTS, INC., a Delaware
corporation ("Tenant").
RECITALS
WHEREAS, Landlord and Tenant have made and entered into that certain
Lease dated October 1, 1996, as amended by that letter agreement dated July 10,
1997 (collectively, "Lease"), for the lease and improvement by Landlord to
Tenant of those certain premises consisting of approximately 10,000 rentable
square feet on the ground floor of the building commonly known as 525 Brannan
Street San Francisco, California, as more particularly described in the Lease
("Premises"); and
WHEREAS, Landlord and Tenant desire to amend the Lease further to
provide for adding additional premises on the Second Floor of the Building to
the Premises and agree upon certain other and related matters upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and conditions hereinafter set forth, Landlord and Tenant agree to
amend the Lease as follows:
1. ADDITIONAL PREMISES. Upon commencement of the Additional Premises
Term (as hereinafter defined), paragraph 2 of the Lease is hereby amended to add
the following to the Premises, subject to all of the terms and conditions of the
Lease and this Amendment: that certain office space, known as "Suites 207 and
208," indicated on Exhibit "A-l" attached hereto consisting of One Thousand
Three Hundred Fifty-Two (1,352) sq. ft. on the Second Floor of the Building
(said space shall be sometimes hereinafter specifically referred to as the
"Additional Premises").
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<PAGE> 20
2. TERM OF THE ADDITIONAL PREMISES. The term of the lease of the
Additional Premises ("Additional Premises Term") shall commence on August 17,
1998. The Additional Premises Term shall expire on August 31, 1999; provided,
however, that Tenant may give Landlord written notice on or before June 1, 1999,
of Tenant's election to extend the Additional Premises Term so as to be
co-terminus with the term of the Premises. The term of this Lease for the
Premises (including the Additional Premises if Tenant gives the notice referred
to in the preceding sentence) shall expire on March 31, 2002, subject to
Tenant's option to terminate as provided in paragraph 33 of the Lease, as
amended by this First Amendment.
3. CONDITION OF THE ADDITIONAL PREMISES. Tenant acknowledges that it has
had an opportunity to inspect and investigate the condition of the Additional
Premises and Tenant accepts the Premises in its present condition, "as-is." Any
changes or alterations to the Premises shall be made pursuant to paragraph 10 of
this Lease and shall be subject to Landlord's prior written consent.
4. RENT FOR THE ADDITIONAL PREMISES. Upon commencement of the Additional
Premises Term; paragraph 5 of the Lease is hereby amended to provide that Tenant
agrees to pay to Landlord as rental, without prior notice or demand, for the
Additional Premises the sum of THREE THOUSAND TWO HUNDRED ELEVEN AND
NO/HUNDREDTHS DOLLARS ($3,211.00) per month on or before the first day of the
first full calendar month of the term hereof, commencing with the commencement
of the Additional Premises Term, and a like sum on or before the first day of
each and every successive calendar month thereafter during the term hereof
except that the first partial month's rent of $1,533.71 (15/31ths) shall be paid
upon the execution hereof. The aforesaid sum of rental is payable in addition to
payment of the sum of $15,833.33 per month, making the total rental to be in the
sum of NINETEEN THOUSAND FORTY-FOUR AND 33/HUNDREDTHS DOLLARS ($19,044.33) per
month. Rent for any period during the term hereof which is for less than one
month shall be a prorated portion of the monthly installment based upon a
thirty-day month.
5. SECURITY DEPOSIT. Paragraph 6 of the Lease is hereby amended to
delete the reference to the Letter of Credit and that Absolute Guaranty of Lease
dated July 10, 1997, executed by John E. Bertrand, Alan S. Ramadan and Richard
Williams ("Guaranty") which replaced it and reduction in the security deposit.
In lieu thereof upon execution hereof, Tenant agrees to deposit with Landlord
the additional sum of SIX THOUSAND FOUR HUNDRED TWENTY-TWO AND N0/HUNDREDTHS
DOLLARS ($6,422.00), representing two (2) months' rent for the Additional
Premises which, when added to the present security deposit of $31,666.66 (two
months' rent prior to this Amendment), makes the total security deposit the sum
of THIRTY-EIGHT THOUSAND EIGHTY-EIGHT AND 66/HUNDREDTHS DOLLARS ($38,088.66),
which sum shall not be reduced, but rather, shall be held by
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Landlord pursuant to paragraph 6 for the entire term of the Lease. Upon
execution of this First Amendment Landlord shall return to Tenant the original
Guaranty, which is null and void as of June 23, 1998.
6. OPTION TO TERMINATE. Paragraph 33 of the Lease is hereby amended to
provide that Tenant's option to terminate the Lease shall not be effective until
on or after March 31, 2000. Landlord and Tenant also confirm that Landlord's
contribution to the total amount of tenant improvements for the ground floor was
in the sum of $200,000.00 and leasing commissions for the ground floor were in
the sum of $53,199.99 and that the unamortized portion is 60 months less the
period commencing April 1, 1997, to the date of termination divided by 60
months.
7. RATIFICATION. Landlord and Tenant hereby ratify, confirm and readopt
all of the terms and provisions of the Lease, as amended by this First
Amendment.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First
Amendment as of the date first above written.
LANDLORD TENANT
BRANNAN STREET PARTNERS, QUOKKA SPORTS, INC.,
a California limited partnership a Delaware corporation
By: /s/ WILLIAM LANEY THORNTON By: /s/ [Signature Illegible]
-------------------------------- -------------------------------------
William Laney Thornton, President
General Partner
By: /s/ [Signature Illegible]
-------------------------------------
Secretary
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[FLOOR PLAN]
<PAGE> 23
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("Second Lease Amendment") is made and
entered into this 12th day of June, 1999, by and between BRANNAN STREET
PARTNERS, a California limited partnership (herein called "Landlord"), and
QUOKKA SPORTS, INC., a Delaware corporation (herein called "Tenant").
RECITALS
WHEREAS, Landlord and San Francisco Mercantile Company, Inc., a California
corporation ("Sublessor")(as tenant), have made and entered into that certain
Lease dated December 1, 1985, as amended April 1, 1997 and June 23, 1998
(collectively, the "Master Lease"), relating to certain premises consisting of
27,306 square feet of the Building (the "Building") commonly known as 525
Brannan Street, San Francisco, California, as more particularly described in the
Master Lease (the "Master Leased Premises");
WHEREAS, Landlord and Tenant have made and entered into that certain Lease
dated October 1, 1996, as amended by that letter agreement dated July 10, 1997
(collectively, "Original Lease"), for the lease and improvement by Landlord to
Tenant of those certain premises consisting of approximately 10,000 rentable
square feet on the ground floor of the Building (the "Leased Premises");
WHEREAS, Landlord and Tenant have made and entered into that certain First
Amendment to Lease dated August 17, 1998 (the "First Amendment"), adding a
portion of the second floor of the Building to the Leased Premises, making the
total Leased Premises approximately 11,352 sq. ft., confirming the Lease
expiration date of March 31, 2002, and amending the amount of the security
deposit to be in the total amount of $38,088.66. The Original Lease and First
Amendment are sometimes hereinafter collectively referred to as the "Lease;"
WHEREAS, Sublessor and Tenant (as "Sublessee") have made and entered into
that certain Sublease dated June 23, 1998 (the "Original Sublease"), with the
consent of Landlord, for the lease by Tenant of those certain premises
consisting of 7,824 rentable sq. ft. on the second floor of the Building and,
concurrently herewith have entered into a First Amendment to Sublease (the
"First Sublease Amendment"), adding portions of the third floor of the Building
to the subleased premises, consisting of 8,418 sq. ft., extending the term of
the Sublease and agreeing on other matters consistent with this Second Lease
Amendment (the above-described subleased premises are sometimes hereinafter
referred to collectively as the "Subleased Premises"); and
WHEREAS, Landlord and Tenant desire to enter into this Second Lease
Amendment to amend the Lease to add additional portions of the second, third,
and fourth floors of the Building to the Leased Premises, to extend the term of
the Lease, to increase the rental, to provide for a contribution by Landlord to
a tenant improvement allowance, to provide for options to extend, and to agree
upon certain other and related matters upon the terms and conditions hereinafter
set forth.
1.
<PAGE> 24
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and conditions hereinafter set forth, Landlord and Tenant agree to amend the
Lease as follows:
1. ADDITIONAL LEASED PREMISES. Paragraph 2 of the Lease is hereby
amended to add the following to the Leased Premises, as shown on EXHIBIT A
attached hereto, subject to all of the terms and conditions of the Lease and
this Second Lease Amendment:
<TABLE>
<CAPTION>
FLOOR SUITE REFERENCE RENTABLE SQ. FT.
<S> <C> <C>
Second Suite 201 1,720
Third Suite 302 2,500
Third Suite 304 891
Third Suite 305 542
Third Suite 306 320
Third Suite 307 987
Third Suite 308 741
Third Suite 309 560
Fourth Suite 400 1,932
Fourth Suite 404 1,803
Fourth Suite 408 741
Fourth Suite 409 560
------
13,297
======
</TABLE>
The foregoing suites shall be sometimes hereinafter specifically referred
to as the "Additional Leased Premises."
2. COMMENCEMENT OF RENT FOR THE ADDITIONAL LEASED PREMISES. Tenant
acknowledges that Suite 302 is presently subject to a written lease with a term
expiring on September 30, 1999. The obligation to pay rent for the Additional
Leased Premises shall commence thirty (30) days following the date Landlord
delivers physical possession of the Additional Leased Premises to Tenant,
"as-is," in broom-clean condition (the "Additional Rent Commencement Date").
Landlord agrees to use its best efforts to deliver physical possession of all of
the suites constituting the Additional Leased Premises, on or before September
15, 1999, except Suite 302 shall be delivered on October 1, 1999. Upon the
taking of physical possession, Tenant shall deliver to Landlord amended
certificates of liability insurance pursuant to Paragraph 16 of the Lease and
Paragraph 8 of this Second Lease Amendment.
Landlord and Tenant agree that the expiration of the initial term of the
Lease is hereby extended to expire on March 31, 2006.
2.
<PAGE> 25
Landlord and Tenant agree that Paragraph 33 of the Lease, "Option To
Terminate", is hereby deleted in its entirety and declared null and void and of
no further force and effect.
3. CONDITION OF THE ADDITIONAL LEASED PREMISES; TENANT ALLOWANCE.
Tenant acknowledges that it has had an opportunity to inspect and investigate
the condition of the Additional Premises and Tenant accepts the Premises in its
present condition, "as-is," subject only to being delivered physically vacant
and "broom clean" by Landlord, except in all cases subject to latent defects
which severely impair Tenant's ability to use the Additional Leased Premises for
their intended purpose and which are not reasonably discoverable by Tenant at
this time; provided that Tenant's sole remedy in such event shall be to
terminate the Lease as to the portion of the Leased Premises affected by such
defect. Any changes or alterations to the Leased Premises (including the
Additional Leased Premises) shall be made pursuant to paragraph 10 of the Lease
and shall be subject to Landlord's prior written consent, which consent shall
not be unreasonably withheld.
Landlord agrees to pay Tenant the following sums as tenant allowances for
improvements to be made to the Leased Premises pursuant to Paragraph 10 of the
Lease (said payments to be made on invoices presented to, and approved by,
Landlord, which approval shall not be unreasonably withheld):
(a) For the present 11,352 sq. ft. of Leased Premises, the sum of
$3.87 per sq. ft., or the total sum of $43,932.24; provided, however, upon the
request of Tenant, Landlord agrees to loan Tenant an additional sum up to $7.50
per sq. ft. ($85,140.00), said sum to be amortized as additional rent over the
period from the Additional Rent Commencement Date through March 31, 2002,
together with interest at 10% per annum on the unpaid balance.
(b) For the Additional Leased Premises, the sum of $11.37 per sq.
ft., or the total sum of $151,186.89.
4. RENT. Upon commencement of the term of the lease of the Additional
Premises, Paragraph 5 of the Lease is hereby amended to provide that Tenant
agrees to pay to Landlord as rental, without prior notice or demand, the
following:
<TABLE>
<CAPTION>
PORTION OF PREMISES PERIOD MONTHLY RENT
<S> <C> <C>
1st Floor, 10,000 sq. ft. Additional Rent Commencement Date through 3/31/2002 $15,833.33/mo.
4/1/2002-3/31/2006 $29,166.67/mo.
2nd Floor, 1,352 sq. ft. Additional Rent Commencement Date through 3/31/2002 $3,211.00/mo
4/1/2002-3/31/2006 $3,943.33/mo.
Additional Premises (as Additional Rent Commencement Date through 3/31/2006 $35.00 per sq. ft. per year
delivered, up to 13,297 sq. ft.) ($2.92 per sq. ft. per month),
up to $38,782.92/mo. total
</TABLE>
3.
<PAGE> 26
5. SECURITY DEPOSIT. Tenant's present security deposit pursuant to the
First Amendment to Lease is in the sum of Thirty-Eight Thousand Eighty-Eight And
66/Hundredths Dollars ($38,088.66), which represents two months' rent for 11,532
sq. ft. of the Premises. Upon execution hereof, the foregoing sum shall be
reduced to $37,500.00, and Tenant shall make an additional deposit in the form
of a Letter of Credit (in the form attached hereto as EXHIBIT B) in the total
sum of $112,500, as an additional security deposit for Tenant's performance of
all of the terms and conditions of the Lease (the "Letter of Credit"). The
Security Deposit shall be governed by the terms of the Lease; provided, however,
that at such time as Tenant has had an initial public offering and has
demonstrated that it has earned net profits after taxes from its business
operations as shown on published or certified financial statements for at least
two (2) calendar quarters, said Letter of Credit shall be reduced to an amount
which, together with the cash portion of the Security Deposit, shall equal one
(1) month's base rent under the Lease, to be held by Landlord pursuant to
paragraph 6 of the Original Lease for the entire term of the Lease.
6. PARKING; LANDLORD'S USE. Landlord and Tenant agree that there are
presently thirteen (13) parking spaces in the Building, of which nine (9) are
inside. Landlord agrees to rent to Tenant for the term of this Lease and
Sublease, plus any extension thereof, all of said parking spaces, as said spaces
become available due to vacation by other tenants, except (1) interior space,
upon the following terms and conditions: (1) Tenant shall pay initial rent for
the parking spaces in the amount of $200.00 per space as additional rent under
this Lease, as and when such spaces are leased by Tenant, (2) Landlord shall be
entitled to raise the monthly rent per space to the prevailing rental being
charged to third party, nontenants for comparable interior parking in the area
(e.g., 330 Townsend) upon thirty (30) days' prior written notice to Tenant; and
(3) Tenant shall not remove or disturb the existing "car lifts" in the garage
area and shall allow Landlord occasional access thereto, e.g. 5 days per month,
without charge (Landlord shall be responsible for all repairs, maintenance,
permits, etc.). Tenant may, at Tenant's sole option, share the foregoing rights
with Sublessee at any time and from time to time, at no additional charge to
Tenant or Sublessee.
7. SATELLITE DISHES. For the monthly sum of $1,200.00 payable by Tenant
as additional rent from and after the installation of the platform described
below, to be paid with Tenant's payment of Monthly Rent, Tenant shall have the
right to install, operate, and maintain a platform on the roof of the Building
capable of holding up to fifteen (15) satellite dishes, and to install, operate,
and maintain on such platform such satellite dishes, subject to reasonable
restrictions to be agreed upon by Landlord and Tenant with respect to the
allowable number of roof penetrations, permissible loads, and Tenant's
insurance, maintenance, repair, and removal obligations relating thereto. The
approximate dimensions of the platform described above are set forth on EXHIBIT
C attached hereto. Tenant may, at Tenant's sole option, share the foregoing
rights with Sublessee at any time and from time to time, at no additional charge
to Tenant or
4.
<PAGE> 27
Sublessee. Tenant reaffirms and confirms that, in addition to providing Landlord
with certificates of insurance naming Landlord as an additional insured for any
liability in connection with the satellite dishes, Tenant shall indemnify and
hold harmless Landlord against and from any and all claims arising from Tenant's
installation and use of the satellite dishes, including, but not limited to
claims for personal injury or injury to health, and from all and against all
costs, attorneys' fees, expenses and liabilities incurred in or about any such
claim or any action or proceeding brought thereon. In any case, if an action or
proceeding be brought against Landlord by reason of any such claim, Tenant upon
notice from Landlord shall defend the same at Tenant's expense by counsel
reasonably satisfactory to Landlord.
8. LIABILITY INSURANCE. Paragraph 16 of the Lease is hereby amended to
provide that Tenant shall obtain and maintain comprehensive general liability
insurance on an occurrence basis with limits of liability in an amount not less
than $2,000,000 (Two Million Dollars) combined single limit for each occurrence.
The comprehensive general liability policy shall include contractual liability
which includes the provisions of Paragraph 14 of the Lease (it is the parties'
intent to provide coverage to the maximum extent possible of Tenant's
indemnification obligations under this Lease; however, it is understood that the
insurance requirements are independent of Tenant's exculpation, indemnification
and other obligations under this Lease and shall not be construed or interpreted
in any way to restrict, limit or modify Tenant's exculpation, indemnification
and other obligations or to limit Tenant's liability under this Lease). Tenant
shall furnish to Landlord certificates of insurance and copies of the policies
evidencing the aforesaid insurance coverage, including naming Landlord as an
additional insured. Renewal certificates must be furnished to Landlord at least
thirty (30) days prior to the expiration date of such insurance policies showing
the above coverage to be in full force and effect. Tenant's liability coverage
shall include all of the coverages typically provided by the Broad Form
Comprehensive General Liability Endorsement, including broad form property
damage coverage (which shall include coverage for completed operations).
Tenant's liability coverage shall further include premises-operations coverage,
products-completed operations coverage and owners and contractors protective
coverage (when reasonably required by Landlord). Tenant's general liability
policies shall be endorsed as needed to provide cross-liability coverage for
Tenant, Landlord and any lender of Landlord of which Tenant has been notified
and to provide severability of interests. Said liability policies shall be
endorsed as needed to provide that the insurance afforded by the policies to the
additional insureds relating to the Premises is primary and that all insurance
carried by Landlord is strictly excess and secondary and shall not contribute
with Tenant's liability insurance. The coverage afforded to Landlord and any
lender of Landlord by Tenant must be at least as broad as that afforded to
Tenant and may not contain any terms, conditions, exclusions or limitations
applicable to Landlord or any lender of Landlord that do not apply to Tenant.
9. CROSS-DEFAULT, RIGHTS. Concurrently with entering into this Second
Lease Amendment, Tenant has entered into the First Sublease Amendment with
Sublessor. Landlord and Tenant hereby agree that it shall be an additional
covenant of this Lease that Tenant perform all covenants and pay all rent due
the Sublease. Landlord further agrees that the additional covenants contained in
this Lease as to parking and the satellite dishes shall be equally available to
Tenant under the terms of the Sublease.
5.
<PAGE> 28
10. OPTIONS TO EXTEND TERM. Tenant shall have the right to be exercised
as hereinafter provided, to extend the term of the Lease for the following
additional periods: (a) the first option, if exercised, shall extend the term of
the Lease for the period from April 1, 2006 through December 31, 2010, and (b)
the second option, if exercised, shall extend the term of the Lease for the
period from January 1, 2011 through December 31, 2015. Said extensions shall be
upon all of the terms and conditions of the Lease, except as modified by the
following terms and conditions:
(a) That Tenant is not then in default under any of the terms,
covenants, conditions, provisions or agreements of this Lease or the Sublease;
(b) Tenant shall exercise its right to extend the term of the
Lease by notifying Landlord not less than one (1) year prior to the termination
of the original term (or previously extended term) of the Lease of Tenant's
election to exercise such right, otherwise said option (including any options
for further extensions of the term) shall be null and void; and
(c) The new rental shall be subject to the mutual agreement of
both Landlord and Tenant but in no event shall the rental be less than the then
fair market value of the Leased Premises. The parties shall have thirty (30)
days after Landlord receives Tenant's notice in which to agree on the new rental
for the extended term. If Landlord and Tenant are unable to agree on the new
rental for the extended term within said 30-day period, then, within ten (10)
days thereafter, Landlord and Tenant will each choose an appraiser to determine
the fair market rental value of the Leased Premises by giving notice to the
other party of the identity of the appraiser it selected.
If a party does not appoint an appraiser within such ten day period, the
single appraiser appointed shall be the sole appraiser and shall set the new
base rental for the extended term. If the two appraisers are appointed by the
parties as stated in this paragraph, they shall meet promptly and attempt to set
the new rental for the extended term. If they are unable to agree within twenty
(20) days after the second appraiser has been appointed, they shall select a
third impartial appraiser meeting the qualifications stated in this paragraph
within five (5) days after the aforesaid twenty (20) day period; if the two
appraisers are unable to agree upon the third appraiser, either party may apply
to the Presiding Judge of the San Francisco Superior Court for appointment of
the third appraiser meeting the qualifications described below. Each of the
parties shall bear one-half of the cost of appointing the third appraiser and of
paying the third appraiser's fee. The third appraiser shall be a person who has
not previously acted in any capacity for either party. All of the appraisers
shall be California licensed real estate brokers with at least ten (10) years
experience leasing office space in San Francisco.
Within fifteen (15) days after the selection of the third appraiser, a
majority of the appraisers shall set the new rental for the extended term. If a
majority of the appraisers are unable to set the rental within the stipulated
period of time, the three appraisals shall be added together and their total
divided by three; the resulting quotient shall be the rental for the Leased
Premises during the extended term. After the new rental for the extended term
has been set, the appraisers shall immediately notify the parties and Landlord
and Tenant shall promptly enter into an amendment of the Sublease setting forth
said new rental.
6.
<PAGE> 29
11. REAL ESTATE BROKERS. Except for the Brokers (as defined below),
Landlord and Tenant each agrees to protect, defend, indemnify and hold the other
harmless from any and all claims, loss, cost, damage and/or expense (including,
without limitation, reasonable attorneys' fees and court costs) by any real
estate broker or salesperson or other entity or party ("Other Broker") for a
commission or finder's fee as a result of such other party's dealings with such
Other Broker. Landlord represents and warrants that on all matters concerning
this Lease and the Sublease Landlord has had Whitney Cressman Limited
("Whitney") as its exclusive agent. Tenant represents and warrants that Tenant
has retained Triton Commercial Real Estate, Inc. ("Triton") as its exclusive
agent. Whitney and Triton are defined herein as the "Brokers." Landlord shall be
responsible for the payment of all compensation to the Brokers (totaling
approximately $179,000) be paid one-half to Whitney and one-half to Triton
($109,134.00 for this Second Lease Amendment). Tenant further agrees to protect,
defend, indemnify and hold Landlord and Whitney harmless from any and all
claims, loss, cost, damage and/or expense (including, without limitation,
reasonable attorneys' fees and court costs) by Cushman & Wakefield for a
commission or finder's fee as a result of such Tenant's dealings with Cushman &
Wakefield. Notwithstanding and in addition to the foregoing indemnity, hold
harmless and defense provisions, should Landlord believe in good faith that
Cushman may assert a claim for leasing commissions or other compensation in
connection with these transactions, Landlord shall be entitled to withhold an
equitable amount of Triton's leasing commission until such claim is resolved;
provided, however, that if no such claim is filed by Cushman within thirty (30)
days after the date hereof, Landlord shall release any amount then due so
withheld.
12. RIGHT OF FIRST OPPORTUNITY TO LEASE ADDITIONAL SPACE. Landlord and
Tenant hereby amend Paragraph 32 of the Lease to provide that, notwithstanding
anything contained in the Lease to the contrary, that certain Penthouse known as
Suite 400R, containing approximately 1505 sq. ft., shall be excluded from the
provisions of Paragraph 32 of the Lease and Tenant's "right of first
opportunity" unless otherwise expressly agreed to in writing by Landlord.
13. RATIFICATION. Landlord and Tenant hereby ratify, confirm and readopt
all of the terms and provisions of the Lease, as amended by this Second Lease
Amendment.
7.
<PAGE> 30
IN WITNESS WHEREOF, Landlord and Tenant have executed this Second Lease
Amendment as of the date first above written.
LANDLORD
BRANNAN STREET PARTNERS,
a California limited partnership
By /s/ WILLIAM LANEY THORNTON
--------------------------------------
William Laney Thornton,
General Partner
TENANT
QUOKKA SPORTS, INC.,
a Delaware corporation
By /s/ SIGNATURE
--------------------------------------
General Counsel
By /s/ SIGNATURE
--------------------------------------
Executive Vice President and Chief
Financial Officer
<PAGE> 1
EXHIBIT 10.12
SUBLEASE
THIS SUBLEASE (hereinafter referred to as the "Lease"), dated for
reference purposes only June 23, 1998, is made by and between SAN FRANCISCO
MERCANTILE COMPANY, INC., a California corporation (herein called "Landlord"),
and QUOKKA SPORTS, INC., a Delaware corporation (herein called "Tenant").
1. RECITALS.
(a) BRANNAN STREET PARTNERS, a California limited partnership, as
Landlord ("Master Lessor"), and SAN FRANCISCO MERCANTILE COMPANY, INC., a
California corporation, as Tenant ("Landlord"), are parties to that certain
Lease dated December 1, 1985, as amended ("Master Lease"), pursuant to which
Landlord has leased from Master Lessor those certain Premises (as hereinafter
defined) for a term ending on December 14, 2005, and otherwise upon the terms
and conditions set forth in the Master Lease.
(b) Landlord desires to sublease the Premises to Tenant pursuant to the
terms and conditions of this Lease.
(c) By its signature to this Lease, Master Lessor hereby consents to
this Lease, agrees to contribute the consideration referred to in par. 3 below
and agrees to assume and perform all of the terms and condition of this Lease to
be performed by Landlord hereunder in the event of termination of the Master
Lease while this Lease is still in full force and effect.
(d) Landlord agrees that, to the extent that the Lease requires Master
Lessor to perform any obligations in connection with the Premises, Tenant shall
have direct privity with Master Lessor in order to enforce Tenant's rights
hereunder.
(e) Upon any termination of the Master Lease, this Lease shall also
terminate; provided, however, that to the extent the Master Lease grants
Landlord any discretionary rights to terminate the Master Lease, whether due to
casualty, cancellation, or otherwise, Landlord shall not exercise such right
without the consent of Tenant, which consent may be granted or withhold in
Tenant's sole discretion. In addition, Landlord shall not amend or modify the
Master Lease in any manner without the prior written consent of Tenant, which
may be granted or withheld in Tenant's sole discretion.
(f) In the event that, without the fault of Tenant, Landlord shall
default under the Master Lease and Master Lessor shall terminate this Lease,
Master Lessor shall enter into a direct lease with Tenant the remainder of the
term of this Lease upon the same terms and conditions as set forth herein.
[Signature] [Signature]
- ----------------------------- ----------------------------------
Landlord's Initials Tenant's Initials
1
<PAGE> 2
(g) Landlord certifies and acknowledges the following: as of the date
hereof, (i) the master Lease, a copy of which is attached hereto as Exhibit "A",
is in full force and effect, has not been terminated, and is enforceable in
accordance with its terms, (ii) neither Landlord, nor, to Landlord's knowledge,
Master Lessor, is in default under any of the terms, covenants or conditions of
the Master Lease, and (iii) Landlord has not received from Master Lessor any
notice of any outstanding default as of the date hereof.
2. PREMISES. Landlord does hereby lease to Tenant and Tenant hereby leases from
Landlord that certain office space (herein called "Premises") indicated on
Exhibit "A-1" attached hereto and hereby reference thereto made a part hereof,
said Premises being agreed, for the purpose of this Lease, to have an area of
Seven Thousand Eight Hundred Twenty-Four (7,824) rentable sq. ft. on the Second
Floor of that certain Building known as 525 Brannan Street, San Francisco,
California ("Building").
Said Lease is subject to the terms, covenants and conditions herein set
forth and the Tenant covenants as a material part of the consideration for this
Lease to keep and perform each and all of said terms, covenants and conditions
by it to be kept and performed and that this Lease is made upon the condition of
said performance.
3. TERM. The term of this Lease shall commence fifteen (15) days following
written notice from Landlord to Tenant of Landlord's substantial completion of
Landlord's Work as described below and shall expire on March 31, 2002, subject
to Tenant's option to terminate as provided in paragraph 31 below. Following
commencement, Landlord and Tenant shall execute a Memorandum to be attached
hereto confirming the occupancy date.
LANDLORD'S WORK. As partial consideration for this Lease, Master Lessor
agrees to provide and pay for tenant improvements to the Premises up to the
total sum of ONE HUNDRED THOUSAND AND NO/HUNDREDTHS DOLLARS ($100,000.00)
("Landlord's Work") pursuant to plans and specifications mutually agreed upon
between Master Lessor and Tenant. In addition, upon such date specified by
Tenant (which date shall not be later than 60 days from June 12, 1998), Master
Lessor shall purchase 33,333 shares of Series B Preferred Stock, par value
$0.0001 per share, of Tenant, for an aggregate purchase price of FORTY-NINE
THOUSAND NINE HUNDRED NINETY-NINE AND 50/HUNDREDTHS DOLLARS ($49,999.50)
pursuant to the terms of that certain Series B Preferred Stock Purchase
Agreement dated June 12, 1998, among Tenant and certain purchasers of Tenant's
Series B Preferred Stock. The foregoing shall constitute Master Lessor's and
Landlord's total responsibility concerning improvement of the Premises. Master
Lessor shall pay amounts constituting Landlord's Work as such costs are
incurred. After Master Lessor's contribution, Tenant shall pay any and all costs
of improvement of the Premises, as such costs are incurred.
2
<PAGE> 3
Landlord's Work shall include, but not be limited to, the costs of all
labor and materials, architectural, design, permits, fees and costs of
construction of Tenant's improvements. Master Lessor and Tenant shall diligently
pursue the preparation of all plans and specifications for all improvements to
the Premises, whether Landlord's Work or Tenant's Work. All such plans and
specifications shall have the approval of both Master Lessor and Tenant, which
approval shall not be unreasonably withheld by either party. Upon execution of
this Lease, Tenant, at its expense, shall have provided Master Lessor's
architect with instructions sufficient to enable Master Lessor's architect to
prepare complete plans and specifications for Landlord's Work. Such plans and
specifications and a cost estimate for Landlord's Work shall also have been
prepared by Master Lessor's architect and submitted to Master Lessor and Tenant
for preliminary approval within ten (10) business days from the date of
execution of this Lease. When the plans, specifications and cost estimate are so
approved by Master Lessor and Tenant, Master Lessor shall obtain from its
general contractor a quotation of the cost of Landlord's Work under Master
Lessor's construction contract and, if Master Lessor approves such quotation, it
shall submit the same to Tenant for approval. If Tenant disagrees with the
quotation from Master Lessor's general contractor, Tenant may obtain its own
quotation for Master Lessor's approval. If Master Lessor and Tenant are unable
to agree upon a quotation for the cost of Landlord's Work and the contractor to
do Landlord's Work, the parties agree to submit the dispute to arbitration under
the Construction Arbitration Rules of the American Arbitration Association. One
arbitrator shall be Master Lessor's architect; one arbitrator shall be appointed
by Tenant and the third arbitrator shall be appointed by the two arbitrators or,
lacking agreement, the Presiding Judge of the Superior Court of the City and
County of San Francisco. The arbitrators shall be appointed within ten (10) days
of the parties' disagreement and there shall be a hearing and decision within
twenty (20) days' of the arbitrators' appointment. Upon written approval by
Tenant or determination by arbitration, Master Lessor and Tenant shall be deemed
to have given final approval to the plans and specifications on the basis of
which the quotation was made, or cost determined, and Master Lessor shall be
authorized to proceed with Landlord's Work to the Premises in accordance with
such plans and specifications. Tenant shall bear the cost of any changes in the
work requested by Tenant after final approval of plans and specifications.
All work, labor, materials and supplies furnished to the Premises other
than Landlord's Work shall be furnished and installed at Tenant's sole cost and
expense ("Tenant's Work"). All of Tenant's Work shall be subject to the terms
and conditions of par. 10 of this Lease and shall be coordinated with Landlord's
Work if undertaken at the same time. All of Tenant's Work shall comply with all
state, Federal and local laws and regulations, with the standards of the
National Board of Fire Underwriters (NBFU), the National Electrical Code (NEC)
, the American Gas Association (AGA), and the American Society of Heating and
Ventilating Engineers (ASHVE), and shall conform to the following: Tenant's
Work shall be performed in a first-class, workmanlike manner and prosecuted
diligently to completion, free of defects in workmanship and materials. All
contracts for Tenant's Work shall require that the contractor repair or replace
in a first-class, workmanlike manner, without additional charge, all defective
work done under such contract whether by the contractor or its subcontractors,
for a period which shall not be less than one year following recording notice of
3
<PAGE> 4
completion. Tenant's Work shall be performed by licensed Contractors and
licensed subcontractors who will work harmoniously with each other and with
Master Lessor and its contractors and subcontractors, and who shall be capable
of providing a completion and a mechanics' and materialmen's lien bond to Tenant
for such work.
Upon Landlord's fifteen (15)-day notice to Tenant, Tenant shall have
access to the Premises for cabling and move-in, provided Tenant does not
interfere with Master Lessor's contractor. Tenant shall not be required to pay
any rent during such fifteen (15)-day period.
4. POSSESSION.
4.a. Master Lessor, and Master Lessor's agents and contractors, shall
use their best efforts and diligence to complete Landlord's Work and deliver
possession of the Premises to Tenant on or before October 1, 1998. If the
Landlord, for any reason whatsoever, cannot deliver possession of the said
Premises to the Tenant at the commencement of the term hereof, this Lease shall
not be void or voidable, nor shall Landlord be liable to Tenant for any loss or
damage resulting therefrom, nor shall the expiration date of the above term be
in any way extended, but in that event, all rent shall be abated under this
Lease during the period between the commencement of said term and the time when
Landlord delivers possession. Notwithstanding the provisions of this paragraph,
if Landlord has not delivered the Premises to Tenant in the condition required
under this Lease on or before December 1, 1998, Tenant shall have the right to
cancel this Lease. Upon such cancellation, Landlord shall return to Tenant all
sums theretofore deposited by Tenant with Landlord, and both parties shall be
released from all further liability under this Lease.
4.b. In the event that Landlord shall permit Tenant to occupy the
Premises prior to the commencement date of the term, such occupancy shall be
subject to all the provisions of this Lease, except for payment of rent. Said
early possession shall not advance the termination date hereinabove provided.
5. RENT. Tenant agrees to pay to Landlord as rental, without prior notice or
demand, for the Premises the sum of EIGHTEEN THOUSAND FIVE HUNDRED EIGHTY-TWO
AND NO/HUNDREDTHS DOLLARS ($18,582.00) per month on or before the first day of
the first full calendar month of the term hereof and a like sum on or before the
first day of each and every successive calendar month thereafter during the term
hereof, except that the first month's rent shall be paid upon the execution
hereof Rent for any period during the term hereof which is for less than one (1)
month shall be a prorated portion of the monthly installment herein, based upon
a thirty (30)-day month. Said rental shall be paid to Landlord without
deduction or offset in lawful money of the United States of America, which shall
be legal tender at the time of payment at the office of the Building, or to such
other person or at such other place as Landlord may from time to time designate
in writing.
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6. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum of THIRTY-SEVEN
THOUSAND ONE HUNDRED SIXTY-FOUR AND NO/HUNDREDTHS DOLLARS ($317,164.00), which
sum and shall be held by Landlord as security for the faithful performance by
Tenant of all the terms, covenants, and conditions of this Lease to be kept and
performed by Tenant during the term hereof. If Tenant defaults with respect to
any provision of this Lease, including, but not limited to the provisions
relating to the payment of rent, Landlord may (but shall not be required to)
use, apply or retain all or any part of this security deposit for the payment of
any rent or any other sum in default, or for the payment of any amount which
Landlord may spend or become obligated to spend by reason of Tenant's default,
or to compensate Landlord for any other loss or damage which Landlord may suffer
by reason of Tenant's default. If any portion of said deposit is so used or
applied, Tenant shall within seven (7) business days after written demand
therefor, deposit cash with Landlord in an amount sufficient to restore the
security deposit to its original amount and Tenant's failure to do so shall be a
material breach of this Lease. Landlord shall not be required to keep this
security deposit separate from its general funds, and Tenant shall not be
entitled to interest on such deposit. If Tenant shall fully and faithfully
perform every provision of this Lease to be performed by it, the security
deposit or any balance thereof shall be returned to Tenant (or, at Landlord's
option, to the last assignee of Tenant's interest hereunder) at the expiration
of the Lease term. In the event of termination of Landlord's interest in this
Lease, Landlord shall transfer said deposit to Landlord's successor in interest.
7. OPERATING EXPENSE ADJUSTMENTS. [DELETED]
8. USE. Tenant shall use the Premises for general office purposes, software
development, multimedia studio, occasional special events for the "trade" and
related uses, and shall not use or permit the Premises to be used for any other
purpose without the prior written consent of Landlord.
Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will in any way increase the
existing rate of or affect any fire or other insurance upon the Building or any
of its contents, or cause cancellation of any insurance policy covering said
Building or any part thereof or any of its contents. Tenant shall not do or
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building or injure or annoy them or use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause,
maintain or permit any nuisance in, or about the Premises. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises.
9. COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit anything to
be done in or about the Premises which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force, or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense,
promptly comply with all laws, statutes, ordinances and governmental rules,
regulations or requirement snow in force or which may hereafter be in force, and
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with the requirements of any board of fire insurance underwriters or other
similar bodies now or hereafter constituted, relating to, or affecting Tenant's
use or occupancy of the Premises, excluding structural changes not related to or
affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord be a party thereto or not, that Tenant has violated any law,
statute, ordinance or governmental rule, regulation or requirement, shall be
conclusive of that fact as between the Landlord and Tenant.
10. ALTERATIONS AND ADDITIONS. Tenant shall not make or suffer to be made any
alterations, additions or improvements to or of the Premises, or any part
thereof, in excess of a value of $5,000.00 without the written consent of
Landlord first had and obtained and any alterations, additions or improvements
to or of said Premises, including, but not limited to, wall covering, paneling
and built-in cabinet work, but excepting movable furniture and trade fixtures,
shall on the expiration of the term become a part of the realty and belong to
the Landlord and shall be surrendered with the Premises. In the event Landlord
consents to the making of any alterations, additions or improvements to the
Premises by Tenant, the same shall be made by Tenant at Tenant's sole cost and
expense, and any contractor or person selected by Tenant to make the same must
first be approved of in writing by the Landlord. Tenant shall provide Landlord
with written notice of the value and description of alterations, additions or
improvements with a value of $2,000 to $5,000.00. Upon the expiration or sooner
termination of the term hereof, Tenant shall, upon written demand by Landlord,
given at least thirty (30) days prior to the end of the term, at Tenant's sole
cost and expense, forthwith and with all due diligence remove any alterations,
additions, or improvements made by Tenant, designated by Landlord to be removed
by written notice to Tenant at the time of Landlord's granting approval for such
addition, alteration or improvement (or Landlord's receiving notice from Tenant
if the value is $2,000.00 to $5,000.00) and Tenant shall, forthwith and with all
due diligence at its sole cost and expense, repair any damage to the Premises
caused by such removal.
11. REPAIRS.
11.a. By taking possession of the Premises, Tenant shall be deemed to
have accepted the Premises as being in good, sanitary order, condition and
repair. Tenant shall, at Tenant's sole cost and expense, keep the Premises and
every part thereof in good condition and repair, damage thereto from causes
beyond the reasonable control of Tenant and ordinary wear and tear excepted.
Tenant shall upon the expiration or sooner termination of this Lease hereof
surrender the Premises to the Landlord in good condition, ordinary wear and tear
and damage from causes beyond the reasonable control of Tenant excepted. Except
as specifically provided in an addendum, if any, to this Lease, Landlord shall
have no obligation whatsoever to alter, remodel, improve, repair, decorate or
paint the Premises or any part thereof and the parties hereto affirm that
Landlord has made no representations to Tenant respecting the condition of the
Premises or the Building except as specifically herein set forth.
11.b. Notwithstanding the provisions of par. 11.a. hereinabove, Landlord
shall repair and maintain the structural portions of the Building, including the
basic plumbing, air conditioning, heating, and electrical systems, installed or
furnished by Landlord, unless such maintenance and repairs are
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caused in part or in whole by the act, neglect, fault or omission of any duty by
the Tenant, its agents, servants, employees or invitees in which case Tenant
shall pay to Landlord the reasonable cost of Tenant's share of such maintenance
and repairs. Landlord shall not be liable for any failure to make any such
repairs or to perform any maintenance unless such failure shall persist for an
unreasonable time after written notice of the need of such repairs or
maintenance is given to Landlord by Tenant. Except as provided in par. 22
hereof, there shall be no abatement of rent and no liability of Landlord by
reason of any injury to or interference with Tenant's business arising from the
making of any repairs, alterations or improvements in or to any portion of the
Building or the Premises or in or to fixtures, appurtenances and equipment
therein. Tenant waives the right to make repairs at Landlord's expense under any
law, statute or ordinance now or hereafter in effect.
11.c. Notwithstanding any provision of this Lease, Landlord warrants to
Tenant that on the commencement of the term hereof, the Premises and any
improvements to be constructed by Landlord (a) shall be free from material
structural defects and (b) shall comply with all applicable covenants and
restrictions of record, statutes, ordinances, codes, rules, regulations, orders,
and requirements, including Title 24 of the California Administrative Code and
the Americans with Disabilities Act. In the event of a breach of the foregoing
warranties, Landlord shall promptly rectify such breach at its sole cost and
expense. Landlord also shall protect, indemnify, defend, and hold Tenant
harmless from an against any and all liability, loss, suits, claims, actions,
costs, and expense (including, without limitation, attorneys' fees) arising from
any breach of the foregoing warranties. The provisions of this section shall
survive the termination of this Lease.
12. LIENS. Tenant shall keep the Premises and the property in which the Premises
are situated free from any liens arising out of any work performed, materials
furnished or obligations incurred by Tenant. Landlord may require, at Landlord's
sole option, that Tenant shall provide to Landlord, at Tenant's sole cost and
expense, a lien and completion bond in an amount equal to one and one-half
(1-1/2) times any and all estimated costs of any improvements, additions, or
alterations in the Premises, to insure Landlord against any liability for
mechanics' and materialmen's liens and to insure completion of the work.
13. ASSIGNMENT AND SUBLETTING. Except as set forth in this paragraph 13, Tenant
shall not either voluntarily or by operation of law, assign, transfer, mortgage,
pledge, hypothecate or encumber this Lease or any interest therein, and shall
not sublet the said Premises or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person (the employees, agents, servants
and invitees of Tenant excepted) to occupy or use the said Premises, or any
portion thereof, without the written consent of Landlord first had and obtained,
which consent shall not be unreasonably withheld, and a consent to one
assignment, subletting, occupation or use by any other person shall not be
deemed to be a consent to any subsequent assignment, subletting, occupation or
use by another person. Any such assignment or subletting without such consent
shall be void, and shall, at the option of the Landlord, constitute a default
under this Lease. An assignment or subletting shall include, but not be limited
to, a merger or a sale or exchange of more than 50% of Tenant's stock or assets.
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(a) If at any time or from time to time during the term of this Lease
Tenant desires to sublet all or any part of the Premises, including any
expansion space, Tenant shall give notice to Landlord setting forth the terms of
the proposed subletting and the space so proposed to be sublet. Landlord shall
have the option, exercisable by notice given to Tenant within twenty (20) days
after Tenant's notice is given, either to sublet from Tenant such space at the
rental and other terms set forth in Tenant's notice, or, if the proposed
subletting is for the entire Premises for the balance of the term of this Lease,
to terminate this Lease; provided, however, that should Landlord so notify
Tenant, Tenant shall have the right to withdraw its request within twenty (20)
days after receiving Landlord's notice. If Landlord does not exercise such
option, Tenant shall be free to sublet such space to any third party subject to
the following conditions:
(1) The sublease shall be on the same terms set forth in the
notice given to Landlord;
(2) No sublease shall be made without the prior written consent
of Landlord, which consent Landlord agrees will not unreasonably be withheld or
delayed;
(3) No sublease shall be valid and not subtenant shall take
possession of the Premises sublease until an executed counterpart of such
sublease has been delivered to Landlord;
(4) No subtenant shall have a right further to sublet; and
(5) Any sums or other economic consideration received by Tenant
as a result of such subletting (except all out-of-pocket costs incurred in
connection with such subletting or assignment ((including, without limitation,
leasing commissions, advertising costs, rental concessions and legal fees) ) and
rental or other payments received which are attributable to the amortization of
the cost of leasehold improvements, other than building standard tenant
improvements, made to the sublet portion of the Premises by Landlord) whether
denominated rentals under the sublease or otherwise, which exceed, in the
aggregate, the total sums which Tenant is obligated to pay Landlord under this
Lease (prorated to reflect obligations allocable to that portion of the Premises
subject to such sublease) shall be payable to Landlord as additional rental
under this Lease without affecting or reducing any other obligation of Tenant
hereunder.
(b) Notwithstanding the provisions of paragraphs 13 and 31(a) above,
Tenant may "go public" under the Securities Act of 1933 (even if it involves
trading in excess of 50% of the Company's stock) or assign this Lease or sublet
the Premises or any portion thereof, including any expansion space, without
Landlord's consent and without extending any option to Landlord, to any
corporation which controls, is controlled by or is under common control with
Tenant, or to any corporation resulting from the merger or consolidation with
Tenant or to any person or entity which acquires all the assets of Tenant as a
going concern of the business that is being conducted on the Premises, provided
that said assignee has substantially the same or better financial condition then
Tenant and assumes, in full, the obligations of Tenant under this Lease.
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(c) Regardless of Landlord's consent, no subletting or assignment shall
release Tenant of Tenant's obligation or alter the primary liability of Tenant
to pay the rental and to perform all other obligations to be performed by Tenant
hereunder. The acceptance of rental by Landlord from any other person shall not
be deemed to be a waiver by Landlord of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by any assignee of Tenant or
any successor of Tenant in the performance of any of the terms hereof, Landlord
may proceed directly against Tenant without the necessity of exhausting remedies
against such assignee or successor.
(d) In the event Tenant shall assign or sublet the Premises or request
the consent of Landlord to any assignment or subletting or if Tenant shall
request the consent of Landlord for any act that Tenant proposes to do, then
Tenant shall pay Landlord's reasonable attorneys' fees (not to exceed $500.00
per request) incurred in connection therewith.
14. HOLD HARMLESS. Tenant shall indemnify and hold harmless Landlord against and
from any and all claims arising from Tenant's use of the Premises for the
conduct of its business or from any activity, work, or other thing done or
permitted by the Tenant in or about the Building (or suffered by Tenant in the
Premises), and shall further indemnify and hold harmless Landlord against and
from any and all claims arising from any breach or default in the performance of
any obligation on Tenant's part to be performed under the terms of this Lease,
or arising from any willful misconduct or negligence of the Tenant, or any
officer, agent, employee, guest, or invitee of Tenant, and from all and against
all costs, attorneys' fees, expenses and liabilities incurred in or about any
such claim or any action or proceeding brought thereon, and, in any case, action
or proceeding be brought against Landlord by reason of any such claim, Tenant
upon notice from Landlord shall defend the same at Tenant's expense by counsel
reasonably satisfactory to Landlord. Tenant as a material part of the
consideration to Landlord hereby assumes all risk of damage to property or
injury to persons, in, upon or about the Premises, from any cause other than
negligence or willful misconduct of Landlord or its agents and Tenant hereby
waives all claims in respect thereof against Landlord. Landlord or its agents
shall not be liable for any damage to property entrusted to employees of the
Building, nor for loss or damage to any property by theft or otherwise, nor for
any injury to or damage to persons or property resulting from fire, explosion,
falling plaster, steam, gas, electricity, water or rain which may leak from any
part of the Building or from the pipes, appliances or plumbing works therein or
from the roof, street or subsurface or from any other place resulting from
dampness or any other cause whatsoever, unless caused by or due to the
negligence or willful misconduct of Landlord, its agents, servants or employees.
Landlord or its agents shall not be liable for interference with the light or
other incorporeal hereditaments, loss of business by Tenant, nor shall Landlord
be liable for any latent defect in the Premises or in the Building unless known
to Landlord or its agents. Tenant shall give prompt notice to Landlord in case
of fire or accidents in the Premises or in the Building or of defects therein or
in the fixtures or equipment.
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Landlord hereby indemnifies and holds harmless Tenant and its agents,
employees and successors and assignees against any and all liability, loss:
suits, claims, actions, costs and expense arising from (i) Landlord's or
Landlord's agents' breach of this Lease and (ii) the negligence or willful
misconduct of Landlord or its agents.
15. SUBROGATION. As long as their respective insurers so permit, Landlord and
Tenant hereby mutually waive their respective rights of recovery against each
other for any loss insured by fire, extended coverage and other property
insurance policies existing for the benefit of the respective parties. Each
party shall obtain any special endorsements, if required by their insurer, to
evidence compliance with the aforementioned waiver.
16. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
force during the term of this Lease a policy of comprehensive public liability
insurance insuring Landlord and Tenant against any liability arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. The limit of said insurance shall not, however, limit the
liability of the Tenant hereunder. Tenant may carry said insurance under a
blanket policy, providing, however, said insurance by Tenant shall have a
Landlord's protective liability endorsement attached thereto. If Tenant shall to
procure and maintain said insurance, Landlord may, but shall not be required to,
procure and maintain same, but at the expense of Tenant. Insurance required
hereunder, shall be in companies rated A+ AAA or better in "Best's Insurance
Guide". Tenant shall deliver to Landlord prior to occupancy of the Premises
copies of policies of liability insurance required herein or certificates
evidencing the existence and amounts of such insurance with loss payable clauses
satisfactory to Landlord. No policy shall be cancellable or subject to reduction
of coverage except after ten (10) days' prior written notice to Landlord.
17. SERVICES AND UTILITIES. Provided that Tenant is not in default hereunder,
Landlord agree to furnish to the Premises during reasonable hours of generally
recognized business days, to be determined by Landlord at its reasonable
discretion (minimum 8:00 a.m. - 6:00 p.m. Monday through Friday) and subject to
the rules and regulations of the Building of which the Premises are a part,
electricity for normal lighting and fractional horsepower office machines, heat
and air conditioning required in Landlord's judgment for the comfortable use and
occupation of the Premises and janitorial service. Landlord shall also maintain
and keep lighted the common stairs, common entries and toilet rooms in the
Building of which the Premises are a part. Landlord shall not be liable for, and
Tenant shall not be entitled to, any reduction of rental by reason of Landlord's
failure to furnish any of the foregoing when such failure is caused by accident
breakage, repairs, strikes, lockouts or other labor disturbances or labor
disputes of any character, or by any other cause, similar or dissimilar, beyond
the reasonable control of Landlord. Landlord shall not be liable under any
circumstances for a loss of or injury to property, however occurring, through or
in connection with or incidental to failure to furnish any of the foregoing
unless such loss or injury is caused by the negligence or willful misconduct of
Landlord or Landlord's agents. Wherever heat generating machines or equipment
are used in the
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Premises which affect the temperature otherwise maintained by the air
conditioning system, Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
installation, and the cost of operation and maintenance thereof shall be paid by
Tenant to Landlord upon demand by Landlord.
Tenant will not, without written consent of Landlord, use any apparatus
or device in the Premises, including, but without limitation thereto, electronic
data processing machines, punch card machines, and machines using in excess of
120 volts, which will in any way materially increase the amount of electricity
usually furnished or supplied for the use of the Premises as general office
space; nor connect with electric current except through existing electrical
outlets in the Premises, any apparatus or device, for the purpose of using
electric current. If Tenant shall require water or electric current in excess of
that usually furnished or supplied for the use of the Premises as general office
space, Tenant shall first procure the written consent of Landlord, to the use
thereof and Landlord may cause a water meter or electrical current meter to be
installed in the Premises, so as to measure the amount of water and electric
current consumed for any such use, or otherwise charge Tenant the reasonably
estimated cost thereof. The cost of any such meters and of installation,
maintenance and repair thereof shall be paid for by the Tenant and Tenant agrees
to pay to Landlord promptly upon demand therefor by Landlord for all such water
and electric current consumed as shown by said meters or estimate, at the rates
charged for such services by the local public utility furnishing the same, plus
any additional expense incurred in keeping account of the water and electric
current so consumed. If a separate meter is not installed, such excess cost for
such water and electric current will be established by an estimate made by a
utility company or electrical engineer.
18. PROPERTY TAXES. Tenant shall pay, or cause to be paid, before delinquency,
any and all taxes levied or assessed and which become payable during the term
hereof upon all Tenant's leasehold improvements, equipment, furniture, fixtures
and personal property located in the Premises; except that which has been paid
for by Landlord and is the standard of the Building. In the event any or all of
the Tenant's leasehold improvements, equipment, furniture, fixtures and personal
property shall be assessed and taxed with the Building, Tenant shall pay to
Landlord its share of such taxes within ten (10) days after delivery to Tenant
by Landlord of a statement in writing setting forth the amount of such taxes
applicable to Tenant's property.
19. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the
rules and regulations that Landlord shall from time to time promulgate. Landlord
reserves the right from time to time to make all reasonable modifications to
said rules, provided any such modifications do not unreasonably interfere with
Tenant's use of, or access to, the Premises. The additions and modifications to
those rules shall be binding upon Tenant upon delivery of a copy of them to
Tenant.
20. HOLDING OVER. If Tenant remains in possession of the Premises or any part
thereof after the expiration of the term hereof, with the express written
consent of Landlord, such occupancy
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shall be a tenancy from month to month at a rental in the amount of the last
monthly rental, plus all other charges payable hereunder, and upon all the terms
hereof applicable to a month to month tenancy.
21. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times have the
right (upon reasonable notice to Tenant except in cases of emergency) to enter
the Premises, inspect the same, supply janitorial service and other service to
be provided by Landlord to Tenant hereunder, to submit said Premises to
prospective purchasers or tenants, to post notices of non-responsibility, and to
alter, improve or repair the Premises and any portion of the Building of which
the Premises are a part that Landlord may deem necessary or desirable, without
abatement of rent and may for that purpose erect scaffolding any other necessary
structures where reasonably required by the character of the work to be
performed, always providing that the entrance to the Premises shall not be
blocked thereby, and further providing that the business of the Tenant shall not
be interfered with unreasonably. Tenant hereby waives any claim for damages or
for any injury or inconvenience to or interference with Tenant's business, any
loss of occupancy or quiet enjoyment of the Premises, and any other loss
occasioned thereby, unless caused by the negligence or willful misconduct of
Landlord or its agents. For each of the aforesaid purposes, Landlord shall at
all times have and retain a key with which to unlock all of the doors in, upon
and about the Premises, excluding Tenant's vaults, safes and files, and Landlord
shall have the right to use any and all means which Landlord may deem proper to
open said doors in an emergency, in order to obtain entry to the Premises
without liability to Tenant except for any failure to exercise due care for
Tenant's property. Any entry to the Premises obtained by Landlord by any of said
means, or otherwise shall not under any circumstances be construed or deemed to
be a forceable or unlawful entry into, or a detainer of, the Premises, or an
eviction of Tenant from the Premises or any portion thereof.
22. RECONSTRUCTION. In the event the Premises or the Building of which the
Premises are a part are damaged by fire or other perils covered by extended
coverage insurance, Landlord agrees to forthwith repair the same; and this Lease
shall remain in full force and effect, except that Tenant shall be entitled to a
proportionate reduction of the rent while such repairs are being made, such
proportionate reduction to be based upon the extent to which the making of such
repairs shall materially interfere with the business carried on by the Tenant in
the Premises. If the damage is due to the fault or neglect of Tenant or its
employees, there shall be no abatement of rent.
In the event the Premises or the Building of which the Premises are a
part are damaged as a result of any cause other than the perils covered by fire
and extended coverage insurance, then Landlord shall forthwith repair the same,
provided the extent of the destruction be less than twenty-five percent (25%) of
the then full replacement cost of the Premises or the Building of which the
Premises are a part. In the event the destruction of the Premises or the
Building is to an extent greater than twenty-five percent (25%) of the full
replacement cost, then Landlord shall have the option: (1) to repair or restore
such damage within forty-five (45) days (if Landlord is unable to do so, Tenant
shall have the right to terminate this Lease upon written notice to Landlord) ,
this Lease continuing in full force and effect, but the rent to be
proportionately reduced as hereinabove in this Article provided; or
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(2) give notice to Tenant at any time within twenty (20) days after such damage
terminating this Lease as of the date specified in such notice, which date shall
be thirty (30) days after the giving of such notice. In the event of giving such
notice, this Lease shall expire and all interest of the Tenant in the Premises
shall terminate on the date so specified in such notice and the Rent reduced by
a proportionate amount, based upon the extent if any, to which such damage
materially interfered with the business carried on by the Tenant in the
Premises, shall be paid up to date of said such termination.
Notwithstanding anything to the contrary in this Article, Landlord shall
not have any obligation whatsoever to repair, reconstruct or restore the
Premises when the damage resulting from any casualty covered under this Article
occurs during the last nine (9) months of the term of this Lease or any
extension thereof.
Landlord shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacements of any panels, decoration,
office fixtures, railings, floor covering, partitions, or any other property
installed in the Premises by Tenant unless such damage or injury is caused by
the negligence or willful misconduct of Landlord or Landlord's agents.
Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the premises, Tenant's
personal property or any inconvenience or annoyance occasioned by such damage,
repair, reconstruction or restoration unless caused by the negligence or willful
misconduct of Landlord or Landlord's agents.
23. DEFAULT. The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant.
23.a. The vacating or abandonment of the Premises by Tenant.
23.b. The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder, as and when due, where such
failure shall continue for a period of five (5) business days after written
notice thereof by Landlord to Tenant.
23.c. The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Tenant, other than described in par. 23.b. above, where such failure shall
continue for a period of thirty (30) days after written notice thereof by
Landlord to Tenant; provided, however, that if the nature of Tenant's default is
such that more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant commences such cure within
said thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
23.d. The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; or the filing by or against Tenant of
a petition to have Tenant adjudged a bankrupt, or a
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petition or reorganization or arrangement under any law relating to bankruptcy
(unless, in the case of a petition filed against Tenant, the same is dismissed
within sixty (60) days) ; or the appointment of a trustee or a receiver to take
possession of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where possession is not restored to Tenant
within thirty (30) days; or the attachment, execution or other judicial seizure
of substantially all of Tenant's assets located at the Premises or of Tenant's
interests in this Lease, where such seizure is not discharged in thirty (30)
days.
24. REMEDIES IN DEFAULT. In the event of any such material default or breach by
Tenant, Landlord may at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of a right or remedy which
Landlord may have by reason of such default or breach:
24.a. Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
any real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Tenant proves could be reasonably avoided;
that portion of the leasing commission paid by Landlord and applicable to the
unexpired term of this Lease. Unpaid installments of rent or other sums shall
bear interest from the date due at the rate of ten (10%) per cent per annum. In
the event Tenant shall have abandoned the Premises, Landlord shall have the
option of (a) taking possession of the Premises and recovering from Tenant the
amount specified in this paragraph, or (b) proceeding under the provisions of
the following par. 24.b.
24.b. Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant shall have abandoned the
Premises. In such event Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
24.c. Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decision of the State in which the Premises are
located.
25. EMINENT DOMAIN. If more than twenty-five (25%) per cent of the Premises
shall be taken or appropriated by any public or quasi-public authority under the
power of eminent domain, either party hereto shall have the right, at its
option, to terminate this Lease, and Landlord shall be entitled to any and all
income, rent, award, or any interest therein whatsoever which may be paid or
made in connection with such public or quasi-public use or purpose, and Tenant
shall have no claim against Landlord for the value of any unexpired term of this
Lease. If either less than or more than twenty-five (25%) per cent of the
Premises is taken and neither party elects to terminate as herein
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provided, the rental thereafter to be paid shall be equitably reduced based upon
the proportion of the Premises taken. If more than fifty percent (50%) of the
Building other than the Premises may be so taken or appropriated, Landlord shall
have the right at its option to terminate this Lease and shall be entitled to
the entire award as above provided. Notwithstanding any of the foregoing in the
event that any taking under the power of eminent domain shall affect the
Premises in such a manner that, in Tenant's reasonable opinion, such damage
materially and adversely interferes with the conduct of Tenant's business,
Tenant shall have the right to terminate this Lease upon written notice thereof
to Landlord. Notwithstanding the foregoing, Tenant shall be entitled to that
portion of any award which is separately stated which compensates Tenant for
Tenant's relocation expenses and loss of fixtures, equipment and personal
property.
26. OFFSET STATEMENT. [DELETED]
27. PARKING. [DELETED]
28. AUTHORITY OF PARTIES.
28.a. CORPORATE AUTHORITY. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance with a duly adopted resolution of the board of
directors of said corporation or in accordance with the by-laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
28.b. LIMITED PARTNERSHIPS. If the Landlord herein is a limited
partnership, it is understood and agreed that any claims by Tenant on Landlord
shall be limited to the assets of the limited partnership, and furthermore,
Tenant expressly waives any and all rights to proceed against the individual
partners or the officers, directors or shareholders of any corporate partner,
except to the extent of their interest in said limited partnership.
29. GENERAL PROVISIONS.
(i) PLATS AND RIDERS. Clauses, plats and riders, if any, signed by the
Landlord and the Tenant and endorsed on or affixed to this Lease are a part
hereof.
(ii) WAIVER. The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of the
Tenant to pay
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<PAGE> 16
the particular rental so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of the acceptance of such rent.
(iii) NOTICES. All notices and demands which may or are to be required
or permitted to be given by either party to the other hereunder shall be in
writing. All notices and demands by the Landlord to the Tenant shall be sent by
United States Mail, postage-prepaid or overnight courier, addressed to the
Tenant at the Premises, or to such other place as Tenant may from time to time
designate in a notice to the Landlord. All notices and demands by the Tenant to
the Landlord shall be sent by United States Mail, postage prepaid or overnight
courier, addressed to the Landlord at the office of the Building, or to such
other person or place as the Landlord may from time to time designate in a
notice to the Tenant.
(iv) JOINT OBLIGATIONS. If there be more than one Tenant the obligations
hereunder imposed upon Tenants shall be joint and several.
(v) MARGINAL HEADINGS. The marginal headings and paragraph titles to the
paragraphs of this Lease are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.
(vi) TIME. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
(vii) SUCCESSORS AND ASSIGNS. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
(viii) RECORDATION. Neither Landlord nor Tenant shall record this Lease
or a short form memorandum hereof without the prior written consent of the other
party.
(ix) QUITE POSSESSION. Upon Tenant paying the rent reserved hereunder
and observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease.
(x) LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent or other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Landlord by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or of a sum due from Tenant shall not be
received by Landlord or Landlord's
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designee within ten (10) days after Tenant's receipt of written notice that said
amount is past due, then Tenant shall pay toe Landlord a late charge equal to
seven (7%) per cent of such overdue amount. The parties hereby agree that such
late charges represent a fair and reasonable estimate of the cost that Landlord
will incur by reason of the late payment by Tenant. Acceptance of such later
charges by the Landlord shall in no event constitute a waiver of Tenant's
default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder.
(xi) PRIOR AGREEMENTS. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreements or understanding pertaining to any such matters shall be
effective for any purpose. No provision of this Lease may be amended or added to
except by an agreement in writing signed by the parties hereto or their
respective successors in interest. This Lease shall not be effective or binding
on any party until fully executed by both parties hereto.
(xii) INABILITY TO PERFORM. This Lease and the obligations of the Tenant
and Landlord hereunder shall not be affected, or impaired because either party
is unable to fulfill any of its obligations hereunder or is delayed in doing so,
if such inability or delay is caused by reason of strike, labor troubles, acts
of God, or any other cause beyond the reasonable control of such party. This
provision shall not excuse or extend performance of Tenant's rental payment
obligation hereunder.
(xiii) ATTORNEYS' FEES. In the event of any action or proceeding brought
by either party against the other under this Lease the prevailing party shall be
entitled to recover all costs and expenses including the fees of its attorneys
in such action or proceeding in such amount as the court may adjudge reasonable
as attorneys' fees.
(xiv) SALE OF PREMISES BY LANDLORD. In the event of any sale of the
Building, after delivery to the purchaser of Tenant's security deposit and any
other funds of Tenant held by Landlord on account of Tenant's obligations
hereunder, Landlord shall be and is hereby entirely freed and relieved of all
liability under any and all of its covenants and obligations contained in or
derived from this Lease arising out of any act, occurrence or omission occurring
after the consummation of such sale; and the purchaser, at such sale or any
subsequent sale of the Premises shall be deemed, without any further agreement
between the parties or their successors in interest or between the parties and
any such purchaser, to have assumed and agreed to carry out any and all of the
covenants and obligations of the Landlord under this Lease.
(xv) SUBORDINATION, ATTORNMENT. Upon request of the Landlord, Tenant
will in writing subordinate its rights hereunder to the lien of any first
mortgage, or first deed of trust to any bank, insurance company or other lending
institution, now or hereafter in force against the land and Building of which
the Premises are a part, and upon any buildings hereafter placed upon the land
of which the Premises are a part, and to all advances made or hereafter to be
made upon the security thereof,
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<PAGE> 18
provided that such bank, insurance company or other lending institution delivers
to Tenant a non-disturbance agreement reasonably satisfactory to Tenant.
In the event any proceedings are brought for foreclosure, or in the
event of the exercise of the power of sale under any mortgage or deed of trust
made by the Landlord covering the Premises, the Tenant shall attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser as the
Landlord under this Lease, provided that such bank, insurance company or other
lending institution delivers to Tenant a non-disturbance agreement reasonably
satisfactory to Tenant.
The provisions of this Article to the contrary notwithstanding, and so
long as Tenant is not in default hereunder, this Lease shall remain in full
force and effect for the full term hereof.
Within 30 days of execution of this Lease, Landlord shall deliver to
Tenant a non-disturbance agreement in a form reasonably satisfactory to Tenant
executed by each beneficiary or mortgagee holding a lien on the Premises.
(xvi) NAME. Tenant shall not use the name of the Building or of the
development in which the Building is situated for any purpose other than as an
address of the business to be conducted by the Tenant in the Premises.
(xvii) SEPARABILITY. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof and such other provision shall remain in full force and effect.
(xviii) CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
(xix) CHOICE OF LAW. This Lease shall be governed by the laws of the
State in which the Premises are located.
(xx) SIGNS AND AUCTIONS. Tenant shall not place any sip upon the
Premises or Building or conduct any auction thereon without Landlord's prior
written consent, which shall not be unreasonably withheld or delayed. Landlord,
at its sole cost and expense, shall provide building directory signage for
Tenant in the first floor lobby. Tenant shall have the right to install exterior
Building signage both in the front and back of the Building, with the design to
be mutually agreed upon by Landlord and Tenant. Said design is to be tasteful
and fully integrated into the design of the Building.
30. BROKERS. Tenant warrants that it has had no dealings with any real estate
broker or agents in connection with the negotiation of this Lease excepting only
Whitney Cressman Limited (for Landlord)
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and Cushman & Wakefield (for Tenant) and it knows of no other real estate broker
or agent who is entitled to a commission in connection with this Lease.
31. OPTION TO TERMINATE. On or after December 1, 1999, if Landlord is unable to
accommodate Tenant's expansion needs, Tenant shall have the option to terminate
this Lease by providing Landlord one hundred twenty (120) days' advanced written
notice to Landlord and paying Landlord all current rent and performing all
covenants and conditions of this Lease to the effective date of termination. In,
addition, in the event Tenant exercises its option to terminate, as
consideration, Tenant shall pay to Master Lessor one-half (1/2) of the
unamortized (i.e. assuming a commencement date of October 1, 1998, 42 months
less the period commencing October 1, 1998, to the date of termination divided
by 42 months) portion of (a) Master Lessor's contribution to tenant improvements
of $100,000.00 and (b) leasing commissions of $45,711.72 with respect to the
Premises.
32. REASONABLE CONSENT OR APPROVAL. When any provision of this Lease, or the
accompanying Rules and Regulations, calls for a party's consent or approval,
Landlord and Tenant each agree that such consent or approval shall not be
unreasonably withheld or delayed.
33. ESTOPPEL CERTIFICATE. Tenant shall at any time and from time to time upon
not less than ten (10) business days' prior notice from Landlord execute,
acknowledge and deliver to Landlord a statement in writing, which may be in the
form specified by Landlord, which shall certify: (a) that the Premises have been
completed to the satisfaction of Tenant and accepted and possessed by Tenant,
(b) the date the term of Lease commenced, the term of the Lease, any portions to
renew or extend, the amount of any security deposit and the date to which rental
and any other charges are paid in advance, (c) that the Lease is in full force
and effect and unmodified (or if there have been modifications, stating the
nature of the modifications and certifying that the Lease so modified is in full
force and effect), (d) that no notice has been received by Tenant of any
default of Tenant which has not been cured (or specifying such notices), (e)
that there are no uncured defaults on the part of Landlord (or specifying such
defaults if any are claimed), off-sets, counterclaims or credits against the
rents, obligations or stipulations due or to become due or required, (f) that
Tenant has no knowledge of any prior assignment, hypothecation or pledge of
rents and (g) such other matters as may be reasonably requested by Landlord. Any
such certificate may be relied upon by any prospective purchase of all or any
portion of the real property of which the Premises are a part.
34. SUBORDINATION. This Lease shall be subject and subordinated at all times to
(a) all ground or underlying leases which may hereafter be executed affecting
the real property of which the Premises are a part, and (b) the lien of all
mortgages and deeds of trust in any amount or amounts whatsoever now or
hereafter placed on or against said real property or on or against Landlord's
interest or estate therein or on or against all such ground or underlying
leases, all without the necessity of having further instruments executed on the
part of Tenant to effectuate such subordination. Notwithstanding the foregoing,
(1) in the event of termination for any reason whatsoever of any such
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<PAGE> 20
ground or underlying lease, this Lease shall not then be barred, terminated, cut
off or foreclosed nor shall the rights and possession of Tenant hereunder be
disturbed if Tenant shall not then be in default in the payment of rental or
other sums or be otherwise in default under the terms of this Lease and Tenant
shall attorn to Landlord of any such ground or underlying lease, or, if
requested, enter into a new lease for the balance of the original or extended
term hereof then remaining upon the same terms and provisions as are in this
Lease contained; (2) in the event of a foreclosure of any such mortgage or deed
of trust or of any other action or proceeding of the enforcement thereof, or of
any sale thereunder, this Lease will not be barred, terminated, cut off or
foreclosed nor will the rights and possession of Tenant thereunder be disturbed
if Tenant shall not then be in default in the payment of rental or other sums or
be otherwise in default under the terms of this Lease and Tenant shall attorn to
the purchaser at such foreclosure, sale or other action or proceeding; and (3)
Tenant agrees to execute and deliver upon demand such further instrument
evidencing such subordination of this Lease to said deed, to such ground or
underlying leases, and to the lien of any such mortgages or deeds of trust as
may reasonably be required by Landlord. Tenant's covenant to subordinate this
Lease to ground or underlying leases and/or mortgages or deeds of trust
hereafter executed is conditioned upon each such senior instrument containing
the commitments specified in the preceding clauses (1) and (2) .
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE AND ON THE
DATES SPECIFIED IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTIONS RELATING
THERETO.
DATED: June 23, 1998 SAN FRANCISCO MERCANTILE
COMPANY, INC., a California
corporation
Address: 525 Brannan Street, Suite 300 By /s/ W. LANEY THORNTON
San Francisco, CA 94105 ----------------------------------
Attn: Diana E. Lees W. Laney Thornton, Chairman
By /s/ DIANA E. LEES
----------------------------------
Diana E. Lees,
Secretary-Treasurer
"LANDLORD"
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DATED: June 23, 1998. QUOKKA SPORTS, INC., a Delaware
corporation
Address: 525 Brannan Street, Suite 300 By [Signature]
San Francisco, CA 94105 ----------------------------------
Attn: President
By [Signature]
----------------------------------
Secretary
"TENANT"
[Signature] [Signature]
- -------------------------- ----------------------------------
Landlord's Initials Tenant's Initials
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The undersigned, as Master Lessor under that certain Lease dated
December 1, 1985, as amended ("Master Lease"), hereby consents to the foregoing
Sublease, agrees to contribute the consideration referred to in par. 3 of the
foregoing Sublease and agrees to assume and perform all of the terms and
conditions of the Sublease to be performed by Landlord thereunder in the event
of termination of the Master Lease while the Sublease is still in full force and
effect.
DATED: June 23, 1998. BRANNAN STREET PARTNERS, a
California limited partnership
By /s/ W. LANEY THORNTON
----------------------------------
W. Laney Thornton, General Partner
22
<PAGE> 23
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the
outside or inside of the Building (excluding the interior of the
Premises) without the written consent of Landlord first had and obtained
and Landlord shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the
expense of Tenant.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by any of the tenants or used by them
for any purpose other than for ingress and egress from their respective
Premises.
3. Tenant shall not alter any lock or install any new or additional locks
or any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown therein and
the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose
employees or invitees shall have caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. No heavy or large volume of furniture, freight or equipment of any kind
shall be brought into the Building without the prior notice to Landlord
and all moving of the same into or out of the Building shall be done at
a reasonable time and manner as Landlord shall designate. Landlord shall
have the right to prescribe the weight, size and position of all safes
and other heavy equipment brought into the Building and also the times
and manner of moving the same in and out of the Building Safes or other
heavy objects shall, if considered necessary by Landlord, stand on
supports of such thickness as is necessary to properly distribute the
weight. Landlord will not be responsible for loss of or damage to any
such safe or property from any cause and all damage done to the Building
by moving or maintaining any such safe or other property shall be
repaired at the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable
to the Landlord or other occupants of the Building by reason of noise,
odors and/or vibrations, or interfere in any way with other tenants or
those having business therein, nor shall any animals or birds be brought
in or kept in or about the Premises or the Building.
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<PAGE> 24
8. No cooking shall be done or permitted by any Tenant on the Premises, nor
shall the Premises be used for the storage of merchandise, for washing
clothes, for lodging, or for any improper, objectionable or immoral
purposes.
9. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material or
use any method of heating or air conditioning other than that supplied
by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires
will be allowed without the consent of the Landlord. The location of
telephones, call boxes and other office equipment affixed to the
Premises shall be subject to the approval of Landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 P.M. and 8:00 A.M. the following day, access to the
Building, or to the halls, corridors, elevators or stairways in the
Building, or to the Premises may be refused unless the person seeking
access is known to the person or employee of the Building in charge and
has a pass or is properly identified. The Landlord shall in no case be
liable for damages for any error with regard to the admission to or
exclusion from the Building of any person. In case of invasion, mob,
riot, public excitement, or other commotion, the Landlord reserves the
right to prevent access to the Building during the continuance of the
same by closing of the doors or otherwise, for the safety of the tenants
and protection of property in the Building and the Building.
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the Building.
13. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of
the Landlord.
14. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the
Building of which the Premises are a part.
15. Tenant shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name
of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
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17. Landlord shall have the right to control and operate the public portions
of the Building, and the public facilities, and heating and air
conditioning, as well as facilities furnished for the common use of the
tenants, in such manner as it deems best for the benefit of the tenants
generally.
18. All entrance doors in the Premises shall be left locked when the
Premises are not in use, and all doors opening to public corridors shall
be kept closed except for normal ingress and egress from the Premises.
19. Except for seeing eye dogs, no animals shall be allowed in the Building
at any time.
20. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular Tenant or Tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in
favor of any other Tenant or Tenants, nor prevent Landlord from
thereafter enforcing any such Rules and Regulations against any or all
of the Tenants of the Building.
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EXHIBIT A
AMENDMENT TO LEASE
This Amendment to Lease (this "Amendment") dated as of April 1, 1997, is
entered into by and between BRANNAN STREET PARTNERS, a California limited
partnership ("Brannan"), and THE SAN FRANCISCO MERCANTILE COMPANY, INC., a
California corporation ("Mercantile"), in accordance with the following facts:
A. Brannan and Mercantile are landlord and tenant, respectively, under a
lease dated December 1, 1985 (the "Lease") for premises at 525 Brannan Street,
San Francisco, California (the "Premises").
B. Pursuant to a lease amendment effective October 1, 1986, the Premises
were expanded to include the front portion of the third floor of the building.
As a result of such expansion, the size of the Premises increased from 27,306
square feet to 29,298 square feet and the monthly rent increased from
$__________ to $__________.
C. Pursuant to a lease amendment effective December 15, 1987, the
monthly rent increased by five percent, from $_________ to $_________ per month.
D. Pursuant to a lease amendment effective October 1, 1994, the Premises
were reduced in size to exclude the front portions of the second and third
floors of the building. As a result of such reduction in space, the size of the
Premises decreased from 29,298 square feet to 25,184 square feet and the monthly
rent decreased from $_________ to $________.
E. Pursuant to a lease amendment effective June 1, 1996, the Premises
were reduced in size to exclude the first floor of the building. This space
reduction occurred to accommodate a new tenant (Quokka Sports) which desired to
lease the first floor of the building. As a result of such reduction in space,
the size of the Premises decreased from 25,184 square feet to 15,954 square feet
and the monthly rent decreased from $________ pursuant to a two-step process:
(1) upon Mercantile's relinquishment of the first floor space, Brannan reduced
the monthly rent to $_________ and (2) Brannan agreed to further reduce the
monthly rent upon the date Quokka Sports became obligated to remit monthly rent
to Brannan for use of the first floor, as provided below.
F. Pursuant to a lease amendment effective September 1, 1996, the
Premises were reduced in size to exclude a portion of the second floor of the
building, which is now known as suite 203. As a result of such reduction in
space, the size of the Premises decreased from 15,954 square feet to 14,442
square feet and the monthly rent decreased from $_________ to $________.
<PAGE> 27
G. Quokka Sports is obligated to being ________________ April 1, 1997.
The parties intend by this Amendment to clarify Mercantile's new monthly rent as
a result of such event.
NOW, THEREFORE, in consideration of the mutual covenants expressed in
this Amendment , the parties agree as follows:
1. NEW RENT. Commencing on April 1, 1997, Mercantile's monthly rent for
the Premises shall be $___________.
2. NO OTHER CHANGES. The Lease, as modified by this Amendment, remains
in full force and effect.
Executed at San Francisco, California, as of the date first written
above.
"LANDLORD" "TENANT"
BRANNAN STREET PARTNERS, THE SAN FRANCISCO MERCANTILE COMPANY,
a California limited Partnership INC., a California corporation
By /s/ WILLIAM LANEY THORNTON By /s/ AILEEN WESTERBEKE
--------------------------------- ------------------------------------
General Partner Its President
---------------------
- 2 -
<PAGE> 28
EXHIBIT A
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE ("Amendment") is made and entered into this 23rd
day of June, 1998, by and between BRANNAN STREET PARTNERS, a California limited
partnership ("Landlord") and SAN FRANCISCO MERCANTILE COMPANY, INC., a
California corporation ("Tenant").
RECITALS
WHEREAS, Landlord and Tenant have made and entered into that certain
Lease dated December 1, 1985, as amended April 1, 1997 (collectively, "Lease"),
for the lease and improvement by Landlord to Tenant of certain premises located
in the building commonly known as 525 Brannan Street, San Francisco, California,
as more particularly described in the Lease ("Premises");
WHEREAS, Landlord and Tenant desire to amend the Lease to adjust the
Premises and rent and agree upon certain other and related matters upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and conditions hereinafter set forth, Landlord and Tenant agree to
amend the Lease as follows:
1. PREMISES. The lease amendment effective September 1, 1996, is
cancelled and that certain space known as Suite 203 is added back to the
Premises. The Premises now consist of a total of 17,747 rentable square feet.
2. RENT. Effective October 1, 1998, the monthly rent for the Premises
shall be in the amount of __________________________ AND _____/HUNDREDTHS
DOLLARS ($_______) per month, payable on or before the first day of the first
full calendar month of the term hereof and a like sum on or before the first day
of each and every successive calendar month thereafter during the term hereof.
Concurrently herewith, Tenant is entering into a Sublease of a portion of the
Second Floor of the Premises to Quokka Sports, Inc. Commencing with the
commencement of the term of the Sublease, and continuing so long as the Sublease
1
<PAGE> 29
remains in full force and effect, the total rental for the Premises shall be
increased to the total sum of _________________________ AND ____/HUNDREDTHS
DOLLARS ($___________) per month. Rent for any period during the term hereof
which is for less than one month shall be a prorated portion of the monthly
installment, based upon a thirty-day month. Paragraph 35 of the Lease is deleted
in its entirely.
3. SERVICES AND UTILITIES. In consideration for this Amendment, par. 37
of the Lease is deleted and Landlord confirms its agreement to provide
janitorial service and utilities pursuant to paragraph 17 of the Lease,
including to Quokka Sports, Inc. pursuant to paragraph 17 of the sublease.
4. RATIFICATION. Landlord and Tenant hereby ratify, confirm and readopt
all of the terms and provisions of the Lease, as amended.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as
of the date first above written.
"LANDLORD" "TENANT"
BRANNAN STREET PARTNERS, THE SAN FRANCISCO MERCANTILE COMPANY,
a California limited Partnership INC., a California corporation
By By
--------------------------------- --------------------------------------
William Laney Thornton Aileen Westerbeke, President
General Partner
<PAGE> 30
[FLOOR PLAN]
<PAGE> 31
EXHIBIT A
RULES AND REGULATIONS
1. No sign, placard, pictures, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside or
inside of the Building without the written consent of Landlord first had and
obtained and Landlord shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the expense of
Tenant.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises; provided, however, that Landlord may furnish and install
a Building standard window covering at all exterior windows. Tenant shall not
without prior written consent of Landlord cause or otherwise sunscreen any
window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any purpose
other than for ingress and egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the Tenant who, or whose employees or invitees
shall have caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into the
Building without the prior notice to Landlord and all moving of the same into
or out of the Building shall be done at such time and in such manner as
Landlord shall designate. Landlord shall have the right to prescribe the
weight, size and position of all safes and other heavy equipment brought into
the Building and also the times and manner of moving the same in and out of the
Building. Safes or other heavy objects shall, if considered necessary by
Landlord, stand on supports of such thickness as is necessary to properly
distribute the weight. Landlord will not be responsible for loss of or damage
to any such safe or property from any cause and all damage done to the Building
by moving or maintaining any such safe or other property shall be repaired at
the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to
be occupied or used in a manner offensive or objectionable to the Landlord or
other occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or
the Building.
8. No cooking shall be done or permitted by any Tenant on the Premises, nor
shall the Premises be used for the storage of merchandise, for washing clothes,
for lodging, or for any improper, objectionable or immoral purposes.
9. Tenant shall not use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any method of
heating or air conditioning other than that supplied by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of the Landlord. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject to
the approval of Landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 P.M. and 8:00 A.M. the following day, access to the Building, or
to the halls, corridors, elevators or stairways in the Building, or to the
Premises may be refused unless the person seeking access is known to the person
or employee of the Building in charge and has a pass or is properly
identified. The Landlord shall in no case be liable for damages for any error
with regard to the admission to or exclusion from the Building of any person.
In case of invasion, mob, riot, public excitement, or other commotion, the
Landlord reserves the right to prevent access to the Building during the
continuance of the same by closing of the doors or otherwise, for the safety of
the tenants and protection of property in the Building and the Building.
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any
of the rules and regulations of the Building.
13. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of the
Landlord.
14. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building of
which the Premises are a part.
15. Tenant shall not disturb, solicit, or canvass any occupant of the Building
and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the business of
Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public portions
of the Building, and the public facilities, and heating and air conditioning,
as well as facilities furnished for the common use of the tenants, in such
manner as it deems best for the benefit of the tenants generally.
18. All entrance doors in the Premises shall be left locked when the Premises
are not in use, and all doors opening to public corridors shall be kept closed
except for normal ingress and egress from the Premises.
19. Except for seeing eye dogs, no animals shall be allowed in the Building at
any time.
20. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular Tenant or Tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other Tenant or Tenants, nor prevent Landlord from thereafter enforcing any
such Rules and Regulations against any or all of the Tenants of the Building.
(PAGE 5 - OFF. BLDG.)
<PAGE> 32
EXHIBIT A
L E A S E
1. PARTIES. This Lease, dated for reference purposes only, December 1, 1985,
is made by and between BRANNAN STREET PARTNERS (herein called "Landlord") and
SAN FRANCISCO MERCANTILE COMPANY, INC. (herein called "Tenant").
2. PREMISES. Landlord does hereby lease to Tenant and Tenant hereby leases
from Landlord that certain space (herein called "Premises") listed on Exhibit
"A" attached hereto and hereby reference thereto made a part hereof, said
Premises being agreed, for the purpose of this Lease, to be an area of
approximately 27,306 square feet and being situated on various floors of that
certain building known as 525 Brannan Street, San Francisco, California. Said
Lease is subject to the terms, covenants and conditions herein set forth and
the Tenant covenants as a material part of the consideration for this lease to
keep and perform each and all of said terms, covenants and conditions by it to
be kept and performed and that this Lease is made upon the condition of said
performance.
3. TERM. The term of this Lease shall be for 20 years, commencing on the 15th
day of December, 1985, and ending on the 14th day of December, 2005.
4. POSSESSION.
4.a. If the Landlord, for any reason whatsoever, cannot deliver
possession of the said Premises to the Tenant at the commencement of the term
rent, this Lease shall not be void or voidable, nor shall Landlord be liable to
Tenant for any loss or damage resulting therefrom, nor shall the expiration date
of the above term be in any way extended, but in that event, all rent shall be
abated during the period between the commencement of said term and the time when
Landlord delivers possession.
4.b. In the event that Landlord shall permit Tenant to occupy the
Premises prior to the commencement date of the term, such occupancy shall be
subject to all the provisions of this Lease. Said early possession shall not
advance the termination date hereinabove provided.
5. RENT. Tenant agrees to pay to Landlord as rental, without prior notice or
demand, for the Premises, the sum of: _________________________________________
($_____________) Dollars, on or before the first day of the first full calendar
month of the term hereof and a like sum on or before the first day of each and
every successive calendar month thereafter during the term hereof, except that
the first month's rent shall be paid upon the execution hereof. Rent for any
period during the term hereof which is for less than one (1) month shall be a
prorated portion of the monthly installment herein, based upon a thirty (30) day
month. Said rental shall be paid to Landlord without deduction or xxxxxxx in
lawful money of the United States of America, which shall be legal tender at
the time of payment at the Office of the Building, or to such other person or
at such other place as Landlord may from time to time designate in writing.
6. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum of -0-
Dollars. Said sum shall be held by Landlord as security for the faithful
performance by Tenant of all the terms, covenants, and provisions of this Lease
to be kept and performed by Tenant during the term hereof. If Tenant defaults
with respect to any provision of this Lease, including, but not limited to the
provisions relating to the payment of rent, Landlord may (but shall not be
required to) use, apply or retain all or any part of this security deposit for
the payment of any rent or any other sum in default, or for the payment of any
amount which Landlord may spend or become obligated to spend by reason of
Tenant's default, or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of said
deposit is so used or applied, Tenant shall within five (5) days after written
demand therefor, deposit cash with Landlord in an amount sufficient to restore
the security deposit to its original amount and Tenant's failure to do so shall
be a material breach of this Lease. Landlord shall not be required to keep this
security deposit separate from its general funds, and Tenant shall not be
entitled to interest on such deposit. Tenant shall fully and faithfully perform
every provision of this Lease to be performed by it, the security deposit or any
balance thereof shall be returned to Tenant (or at Landlord's option, to the
last assignee of Tenant's interest hereunder) at the expiration of the Lease
term. In the event of termination of Landlord's interest in this Lease, Landlord
shall transfer said deposit to Landlord's successor in interest.
<PAGE> 33
7. [DELETED]
8. USE. Tenant shall use the Premises for general garment manufacturing and
related purposes and shall not use or permit the Premises to be used for any
other purpose without the prior written consent of Landlord.
Tenant shall not do or permit anything to be done in or about the Premises
nor bring or keep anything therein which will in any way increase the existing
rate of or affect any fire or other insurance upon the Building or any of its
contents, or cause cancellation of any insurance policy covering said Building
or any part thereof or any of its contents. Tenant shall not do or permit
anything to be done in or about the Premises which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Building or
injure or annoy them or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises. Tenant shall not commit or
suffer to be committed any waste in or upon the Premises.
9. COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit
anything to be done in or about the Premises which will in any way conflict with
any law, statute, ordinance or government rule or regulation now in force or
which may hereafter be enacted or promulgated. Tenant shall, at his sole cost
and expense, promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force, and with the requirements of any board of fire insurance
underwriters or other similar bodies now or hereafter constituted, relating to,
or affecting the condition, use or occupancy of the Premises, excluding
structural changes not related to or affected by Tenant's improvements or acts.
The judgment of any court of competent jurisdiction or the admission of Tenant
in any action against Tenant, whether Landlord be a party therein or note, that
Tenant has violated any law, statute, ordinance or governmental rule, regulation
or requirement, shall be conclusive of that fact as between the Landlord and
Tenant.
10. ALTERATIONS AND ADDITIONS. Tenant shall not make or suffer to be made any
alterations, additions or improvements to or of the Premises or any part thereof
without the written consent of Landlord first had and obtained any alterations,
additions or improvements to or of said Premises, including, but not limited to,
wall covering, paneling and built-in cabinet work, but excepting moveable
furniture and trade fixtures, shall on the expiration of the term become a part
of the realty and belong to the Landlord and shall be surrendered with the
Premises. In the event Landlord consents to the making of any alterations,
additions or improvements to the Premises by Tenant, the same shall be made by
Tenant of Tenant's sole costs and expense, and any contractor or person selected
by Tenant to make the same must first be approved of in writing by the Landlord.
Upon the expiration or sooner termination of the term hereof, Tenant shall, upon
written demand by Landlord, given at least thirty (30) days prior to the end of
the term, at Tenant's sole cost and expense, forthwith and with all due
diligence remove any alternations, additions, or improvements made by Tenant,
designated by Landlord to be removed, and Tenant shall, forthwith and with all
due diligence at its sole costs and expense, repair any damage to the Premises
caused by such removal.
11. REPAIRS.
11.a. By taking possession of the Premises, Tenant shall be deemed to have
accepted the Premises as being in good, sanitary order, condition and repair.
Tenant shall, at Tenant's sole cost and expense, keep the Premises and every
part thereof in good condition and repair, damage thereto from causes beyond the
reasonable control of Tenant and ordinary wear and tear excepted. Tenant shall
upon the expiration or sooner termination of this Lease hereof surrender the
Premises to the Landlord in good condition, ordinary wear and tear and damage
from causes beyond the reasonable control of Tenant excepted. Except as
specifically provided in an addendum, if any, to this Lease, Landlord shall have
no obligation whatsoever to alter, remodel, improve, repair, decorate or paint
the Premises or any part thereof and the parties hereto affirm that landlord has
made no representation to Tenant respecting the condition of the Premises or the
Building except as specifically herein set forth.
11.b. Notwithstanding the provisions of Article 11.a. hereinabove,
Landlord shall repair and maintain the structural portions of the Building,
including the basic plumbing, air conditioning, heating, and electrical systems,
installed or furnished by Landlord, unless such maintenance and repairs are
caused in part or in whole by the act, neglect, fault or omission of any duty by
the Tenant, its agents, servants, employees or invites, in which case Tenant
shall pay to Landlord the reasonable cost of such maintenance and repairs.
Landlord shall not be liable for any failure to make any such repairs or to
perform any maintenance unless such failure shall persist for an unreasonable
time after written notice of the need of such repairs or maintenance is given to
Landlord by Tenant. Except as provided in Article 22 hereof, there shall be no
abatement of rent and no liability by Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the Premises
or in or to fixtures, appurtenances and equipment therein. Tenant waives the
right to make repairs at Landlord's expense under any law, statute or ordinance
now or hereafter in effect.
12. LIENS. Tenant shall keep the Premises and the property in which the
Premises are situated free from any liens arising out of any work performed,
materials furnished or obligations incurred by Tenant. Landlord may require, at
Landlord's sole option, that Tenant shall provide to Landlord, as Tenant's sole
cost and expense, a lien and completion bond in an amount equal to one and
one-half (1 1/2)) times any and all estimated cost of any improvements,
additions, or alterations in the Premises, to insure Landlord against any
liability for mechanics' and materialmen's liens and to insure completion of the
work.
13. [DELETED]
14. HOLD HARMLESS. Tenant shall indemnify and hold harmless Landlord against
and from any and all claims arising from Tenant's use of the Premises for the
conduct of its business or from any activity, work, or other thing done,
permitted or suffered by the Tenant in or about the Building, and shall further
indemnify and hold harmless Landlord against and from any and all claims arising
from any breach or default in the performance of any obligation on Tenant's part
to be performed under the terms of this Lease, or arising from any act or
negligence of the Tenant, or any officer, agent, employee, guest, or invitee of
Tenant, and from all and against all cost, attorney's fees, expenses and
liabilities incurred in or about any such claim or any action or proceeding
brought thereon, and, in any case, action or proceeding be brought against
Landlord by reason of any such claim. Tenant upon notice from Landlord shall
defend the same at Tenant's expense by counsel satisfactory to Landlord. Tenant
as a material part of the consideration to Landlord hereby assumes all risk of
damage to property or injury to persons, in, upon or about the Premises, from
any cause other than Landlord's negligence, and Tenant hereby waives all claims
in respect thereof against Landlord.
Landlord or his agents shall not be liable for any damage to property
entrusted to employees of the Building, nor for loss or damage to any property
by theft or otherwise, nor for any injury to or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak from any part of the Building or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
from any other place resulting from dampness or any other cause whatsoever,
unless caused by or due to the negligence of Landlord, its agents, servants or
employees. Landlord or its agents shall not be liable for interference with the
light or other incorporeal hereditaments, loss of business by Tenant, nor shall
Landlord be liable for any latent defects in the Premises or in the Building.
Tenant shall give prompt notice to Landlord in case of fire or accidents in the
Premises or in the Building or of defects therein or in the fixtures or
equipment.
15. SUBROGATION. As long as their respective insurers so permit, Landlord and
Tenant hereby mutually waive their respective rights of recovery against each
other for any loss insured by fire, extended coverage and other property
insurance policies existing for the benefit of the respective parties. Each
party shall obtain any special endorsements, if required by their insurer in
evidence compliance with the aforementioned waiver.
16. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
force during the term of this Lease a policy of comprehensive public liability
insurance insuring Landlord and Tenant against any liability arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. The limit of said insurance shall not, however, limit the
liability of the Tenant hereunder. Tenant may carry said insurance under a
blanket policy, providing, however, said insurance by Tenant shall have a
Landlord's protective liability endorsement attached thereto. If Tenant shall
fail to process and maintain said insurance, Landlord may, but shall not be
required to, procure and maintain same, but at the expense of Tenant. Insurance
required hereunder, shall be in companies rated A+ or better in "Best's
Insurance Guide". Tenant shall deliver to Landlord prior to occupancy of the
Premises copies of policies of liability insurance required herein or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Landlord. No policy shall be cancellable or
subject to reduction of coverage except after ten (10) day's prior written
notice to Landlord.
17. SERVICES AND UTILITIES. Provided that Tenant is not in default hereunder,
Landlord agrees to furnish to the Premises during reasonable hours of generally
recognized business days, to be determined by Landlord at his sole discretion,
and subject to the rules and regulations of the Building of which the Premises
are a part, electricity for normal lighting and functional horsepower office
machines, heat and air conditioning required in Landlord's judgment for the
comfortable use and occupation of the Premises, and janitorial service. Landlord
shall also maintain and keep lighted the common stairs, common entities and
toilet rooms in the Building of which the Premises are a part. Landlord shall
not be liable for, and Tenant shall not be entitled to, any reduction of rental
by reason of Landlord's failure to furnish any of the foregoing when such
failure is caused by accident, breakage, repairs, strikes, lockouts or other
labor disturbances or labor disputes of any character, or by any other cause,
similar or dissimilar, beyond the reasonable control of
SEE ADDENDUM
(PAGE 2)
<PAGE> 34
Landlord. Landlord shall not be liable under any circumstances for a loss of or
injury to property, however occurring, through or in connection with or
incidental to failure to furnish any of the foregoing. Whereever heat
generating machines or equipment are used in the Premises which affect the
temperature otherwise maintained by the air conditioning system, Landlord
reserves the right to install supplementary air conditioning units in the
Premises and the cost thereof, including the cost of installation, and the cost
of operation and maintenance thereof shall be paid by Tenant to Landlord upon
demand by Landlord.
Tenant will not, without written consent of Landlord, use any apparatus or
device in the Premises, including, but without limitation thereto, electronic
data processing machines, punch card machines, and machines using in excess of
120 volts, which will in any way increase the amount of electricity usually
furnished or supplied for the use of the Premises as general office space; nor
connect with electric current except through existing electrical outlets in the
Premises, any apparatus or device, for the purpose of using electric current.
If Tenant shall require water or electric current in excess of that usually
furnished or supplied for the use of the Premises as general office space,
Tenant shall first procure the written consent of Landlord, which Landlord may
refuse, to the use thereof and Landlord may cause a water meter or electrical
current meter to be installed in the Premises, so as to measure the amount of
water and electric current consumed for any such use. The cost of any such
meters and of installation, maintenance and repair thereof shall be paid for
the Tenant and Tenant agrees to pay to Landlord promptly upon demand
therefor by Landlord for all such water and electric current consumed as shown
by said meters, at the rates charged for such service by the local public
utility furnishing the same, plus any additional expense incurred in keeping
account of the water and electric current so consumed. If a separate meter is
not installed, such excess cost for such water and electric current will be
established by an estimate made by a utility company or electrical engineer.
18. PROPERTY TAXES. Tenant shall pay, or cause to be paid, before
delinquency, any and all taxes levied or assessed and which become payable
during the term hereof upon all Tenant's leasehold improvements, equipment,
furniture, fixtures and personal property located in the Premises; except that
which has been paid for by Landlord, and is the standard of the Building. In
the event any or all of the Tenant's leasehold improvements, equipment,
furniture, fixtures and personal property shall be assessed and taxed with the
building, Tenant shall pay to Landlord his share of such taxes within ten (10)
days after delivery to Tenant by Landlord of a statement in writing setting
forth the amount of such taxes applicable to Tenant's property.
19. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with
the rules and regulations that Landlord shall from time to time promulgate.
Landlord reserves the right from time to time to make all reasonable
modifications to said rules. The addition and modifications to those rules
shall be binding upon Tenant upon delivery of a copy of them to Tenant.
Landlord shall not be responsible to Tenant for the nonperformance of any said
rules by any other tenants or occupants.
20. HOLDING OVER. If Tenant remains in possession of the Premises or any part
thereof after the expiration of the term hereof, with the express written
consent of Landlord, such occupancy shall be tenancy from month to month at a
rental in the amount of the last monthly rental, plus all other charges payable
hereunder, and upon all the terms hereof applicable to a month to month tenancy.
21. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times have
the right to enter the Premises, inspect the same, supply janitorial service and
any other service to be provided by Landlord to Tenant hereunder, to submit said
Premises to prospective purchasers or tenants, to post notices of
non-responsibility, and to alter, improve or repair the Premise and any portion
of the Building of which the Premises are a part that Landlord may deem
necessary or desirable, without abatement of rent and may for the purpose erect
scaffolding and other necessary structures where reasonable required by the
character of the work to be performed, always providing that the entrance to the
Premises shall not be blocked thereby, and further providing that the business
of the Tenant shall not be interfered with unreasonably. Tenant hereby waives
any claim for damages or for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and
any other loss occasioned thereby. For each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors
in, upon and about the Premises, excluding Tenant's vaults, safes and files, and
Landlord shall have the right to use any and all means which Landlord may deem
proper to open said doors in an emergency, in order to obtain entry to the
Premises without liability to Tenant except for any failure to exercise due care
for Tenant's property. Any entry to the Premises obtained by Landlord by any of
said means, or otherwise shall not under any circumstances be construed or
deemed to be a or unlawful entry into, or a detainer of, the Premises, or an
eviction of Tenant from the Premises or any portion thereof.
22. RECONSTRUCTION. In the event the Premises or the Building of which the
Premises are a part are damaged by fire or other perils covered by extended
coverage insurance, Landlord agrees to forthwith repair the same; and this
Lease shall remain in full force and affect, except that Tenant shall be
entitled to a proportionate reduction of the rent while such repairs are being
made, such proportionate reduction to be based upon the extent to which the
making of such repairs shall materially interfere with the business carried on
by the Tenant in the Premises. If the damage is due to the fault or neglect of
Tenant or its employees, there shall be no abatement of rent.
In the event the Premises or the Building of which the Premises are a part
are damaged as a result of any cause other than the perils covered by fire and
extended coverage insurance, then Landlord shall forthwith repair the same,
provided the extent of the destruction be less than ten (10%) per cent of the
then full replacement cost of the Premises or the Building of which the
Premises are a part. In the event the destruction of the Premises or the
Building is to an extent greater than ten (10%) per cent of the full
replacement cost, then Landlord shall have the option: (1) to repair or restore
such damage, this Lease continuing in full force and effect, but the rent to be
proportionately reduced as hereinabove in this Article provided; or (2) give
notice to Tenant at any time within sixty (60) days after such damage
terminating this Lease as of the date specified in such notice, which date
shall be no less than thirty (30) and no more than sixty (60) days after the
giving of such notice. In the event of giving such notice, this Lease shall
expire and all interest of the Tenant in the Premises shall terminate on the
date so specified in such notice and the Rent, reduced by a proportionate
amount, based upon the extent, if any, to which such damage materially
interfered with the business carried on by the Tenant in the Premises, shall be
paid up to date of said such termination.
Notwithstanding anything to the contrary in this Article, Landlord shall not
have any obligation whatsoever to repair, reconstruct or restore the Premises
when the damage resulting from any casualty covered under this Article occurs
during the last twelve (12) months of the term of this Lease or any extension
thereof.
Landlord shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacements of any panels, decoration,
office fixtures, railings, floor covering, partitions, or any other property
installed in the Premises by Tenant.
The Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the premises, Tenant's
personal property or any inconvenience or annoyance occasioned by such damage,
repair, reconstruction or restoration.
23. DEFAULT. The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant.
23.a. The vacating or abandonment of the Premises by Tenant.
23.b. The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof by Landlord to Tenant.
23.c. The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Tenant, other than described in Article 23.b above, where such failure shall
continue for a period of thirty (30) days after written notice thereof by
Landlord to Tenant; provided, however, that if the nature of Tenant's default
is such that more than thirty (30) days are reasonably required for its cure,
then Tenant shall not be deemed to be in default. If Tenant commences such cure
within said thirty (30) day period and thereafter diligently prosecutes such
cure to completion.
23.d. The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; or the filing by or against Tenant of
a petition to have Tenant adjudged a bankrupt, or a petition or reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days);
or the appointment of a trustee or a receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within
thirty (30) days; or the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged in thirty (30)
days.
24. REMEDIES IN DEFAULT. In the event of any such material default or breach
by Tenant, Landlord may at any time thereafter, with or without notice or
demand and without limiting Landlord in the exercise of a right or remedy which
Landlord may have by reason of such default or breach:
24a. Terminate Tenant's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason
of Tenant's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, any real
estate commission actually paid; the worth at the time of award by the court
having jurisdiction thereof of the amount of which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Tenant proves could be reasonably avoided;
that portion of the leasing commission paid by Landlord and applicable to the
unexpired term of this Lease. Unpaid installments of rent or other items shall
bear interest from the date due at the rate of ten (10%) per cent per annum. In
the event Tenant shall have abandoned the Premises, Landlord shall have the
option of (a) taking possession of the Premises and recovering from Tenant the
amount specified in this paragraph, or the proceeding under the provisions of
the following Article 24.4.
24.b. Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant shall have abandoned the
Premises. In such event Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover the rent
(PAGE 3)
<PAGE> 35
as it becomes due hereunder.
24c. Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decision of the State in which the Premises are located.
25. EMINENT DOMAIN. If more than twenty-five (25%) per cent of the Premises
shall be taken or appropriated by any public or quasi-public authority under
the power of eminent domain, either party hereto shall have the right, at its
option, to terminate this Lease, and Landlord shall be entitled to any and all
income, rent, award, or any interest therein whatsoever which may be paid or
made in connection with such public or quasi-public use or purpose, and Tenant
shall have no claim against Landlord for the value of any unexpired term of
this Lease. If either less than or more than twenty-five (25%) per cent of the
Premises is taken, and neither party elects to terminate as herein provided,
the rental thereafter to be paid shall be equitably reduced. If any part of the
Building other than the Premises may be so taken or appropriated, Landlord
shall have the right at its option to terminate this Lease and shall be
entitled to the entire award as above provided.
26. OFFSET STATEMENT. Tenant shall at any time and from time to time upon not
less than ten (10) days' prior written notice from Landlord execute,
acknowledge and deliver to Landlord a statement in writing, (a) certifying that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification and certifying that this Lease as so modified,
is in full force and effect), and the date to which the rental and other
charges are paid in advance, if any, and (b) acknowledging that there are not,
to Tenant's knowledge, any uncured defaults on the part of the Landlord
hereunder, or specifying such defaults if any are claimed. Any such statement
may be relied upon by any prospective purchaser or encumbrancer of all or any
portion of the real property of which the Premises are a part.
27. PARKING. Tenant shall have the right to use in common with other tenants
or occupants of the Building the parking facilities of the Building, if any,
subject to the monthly rates, rules and regulations, and any other charges of
Landlord for such parking facilities which may be established or altered by
Landlord at any time or from time to time during the term hereof.
28. AUTHORITY OF PARTIES.
28a. Corporate Authority. If Tenant is a corporation, such individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance with a duly adopted resolution of the board of
directors of said corporation or in accordance with the by-laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
28b. Limited Partnerships. If the Landlord herein is a limited
partnership, it is understood and agreed that any claims by Tenant on Landlord
shall be limited to the assets of the limited partnership, and furthermore,
Tenant expressly waives any and all rights to proceed against the individual
partners or the officers, directors or shareholders of any corporate partner,
except to the extent of their interest in said limited partnership.
29. GENERAL PROVISIONS.
(i) Plats and Riders. Clauses, plats and riders, if any, signed by the
Landlord and the Tenant and endorsed on or affixed to this Lease are a part
hereof.
(ii) Waiver. The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant
of any term, covenant or condition of this Lease, other than the failure of the
Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of the acceptance of such rent.
(iii) Notices. All notices and demands which may or are to be required or
permitted to be given by either party to the other hereunder shall be in
writing. All notices and demands by the Landlord to the Tenant shall be sent by
United States Mail, postage prepaid, addressed to the Tenant at the Premises,
or to such other place as Tenant may from time to time designate in a notice to
the Landlord. All notices and demands by the Tenant to the Landlord shall be
sent by United States Mail, postage prepaid, addressed to the Landlord at the
Office of the Building, or to such other person or place as the Landlord may
from time to time designate in a notice to the Tenant.
(iv) Joint Obligation. If there be more than one Tenant the obligations
hereunder imposed upon Tenants shall be joint and several.
(v) Marginal Headings. The marginal headings and Article titles to the
Articles of this Lease are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.
(vi) Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
(vii) Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
(viii) Recordation. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the prior written consent of the other
party.
(ix) Quiet Possession. Upon Tenant paying the rent reserved hereunder and
observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease.
(x) Late Charges. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent or other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Landlord by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or of a sum due from Tenant shall not
be received by Landlord or Landlord's designee within ten (10) days after
written notice that said amount is past due, then Tenant shall pay to Landlord
a late charge equal to ten (10%) per cent of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the cost that Landlord will incur by reason of the late payment by Tenant.
Acceptance of such late charges by the Landlord shall in no event constitute a
waiver of Tenant's default with respect to such overdue amount, nor prevent
Landlord from exercising any of the other rights and remedies granted hereunder.
(xi) Prior Agreements. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreements or understanding pertaining to any such matters shall
be effective for any purpose. No provision of this Lease may be amended or
added to except by an agreement in writing signed by the parties hereto
or their respective successors in interest. This Lease shall not be effective
or binding on any party until fully executed by both parties hereto.
(xii) Inability to Perform. This Lease and the obligations of the Tenant
hereunder shall not be affected or impaired because the Landlord is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike, labor troubles, acts of God,
or any other cause beyond the reasonable control of the Landlord.
(xiii) Attorneys' Fees. In the event of any action or proceeding brought by
either party against the other under this Lease the prevailing party shall be
entitled to recover all costs and expenses including the fees of its attorneys
in such action or proceeding in such amount as the court may adjudge reasonable
as attorneys' fees.
(xiv) Sale of Premises by Landlord. In the event of any sale of the
Building, Landlord shall be and is hereby entirely freed and relieved of all
liability under any and all of its covenants and obligations contained in or
derived from this Lease arising out of any act, occurrence or omission
occurring after the consummation of such sale; and the purchaser, at such sale
or any subsequent sale of the Premises shall be deemed, without any further
agreement between the parties or their successors in interest or between the
parties and any such purchaser, to have assumed and agreed to carry out any and
all of the covenants and obligations of the Landlord under this Lease.
(xv) Subordination, Attornment. Upon request of the Landlord, Tenant will
in writing subordinate its rights hereunder to the lien of any first mortgage,
or that deed of trust to any bank, insurance company or other lending
institution, now or hereafter in force against the land and Building of which
the Premises are a part, and upon any buildings hereafter placed upon the land
of which Premises are a part, and to all advances made or hereafter to be made
upon the security thereof.
In the event any proceedings are brought for foreclosure, or in the event
of the exercise of the power of sale under any mortgage or deed of trust made
by the Landlord covering the Premises, the Tenant shall attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Landlord
under this Lease.
The provisions of this Article to the contrary notwithstanding, and so
long as Tenant is not in default hereunder, this Lease shall remain in full
force and effect for the full term hereof.
(xvi) Name. Tenant shall not use the name of the Building or of the
development in which the Building is situated for any purpose other than as an
address of the business to be conducted by the Tenant in the Premises.
(xvii) Separability. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof and such other provision shall remain in full force and effect.
(xviii) Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
(xix) Choice of Law. This Lease shall be governed by the laws of the State
in which the Premises are located.
(xx) Signs and Auctions. Tenant shall not place any sign upon the Premises
or Building or conduct any auction thereon without Landlord's prior written
consent.
(PAGE 4)
<PAGE> 36
EXHIBIT A
30. BROKERS. Tenant warrants that it has had no dealings with any real estate
broker or agents in connection with the negotiation of this Lease excepting
only ___________________________________________________________________________
and it knows of no other real estate broker or agent who is entitled to a
commission in connection with this Lease.
31. ASSIGNMENT AND SUBLETTING. (a) If at any time or from time to time during
the term of this Lease Tenant desires to sublet all or any part of the Premises,
Tenant shall give notice to Landlord setting forth the terms of the proposed
subletting and the space so proposed to be sublet. Landlord shall have the
option, exercisable by notice given to Tenant within twenty (20) days after
Tenant's notice is given, either to sublet from Tenant such space at the rental
and other terms set forth in Tenant's notice, or, if the proposed subletting is
for the entire Premises for the balance of the terms of this Lease, to terminate
this Lease. If Landlord does not exercise such option, Tenant shall be free to
sublet such space to any third party subject to the following conditions:
(1) The sublease shall be on the same terms set forth in the
notice given to Landlord;
(2) No sublease shall be made without the prior written consent of
Landlord, which consent Landlord agrees will not unreasonably be withheld as to
a subletting of the entire Premises;
(3) No sublease shall be valid and no subtenant shall take
possession of the Premises subleased until an executed counterpart of such
sublease has been delivered to Landlord;
(4) No subtenant shall have a right further to sublet; and
(5) Any sums or other economic consideration received by Tenant as a
result of such subletting (except rental or other payments received which are
attributable to the amortization of the cost of leasehold improvements, other
than building standard tenant improvements, made to the public portion of the
Premises by Landlord) whether denominated rentals under the sublease or
otherwise, which exceed, in the aggregate, the total sums which Tenant is
obligated to pay Landlord under this Lease (prorated to reflect obligations
allocable to that portion of the Premises subject to such sublease) shall be
payable to Landlord as additional rental under this Lease without affecting or
reducing any other obligation of Tenant hereunder.
(b) Notwithstanding the provisions of paragraph 13 and 31(a) above,
Tenant may assign this Lease or sublet the Premises or any portion thereof,
without Landlord's consent and without extending any option to Landlord, to any
corporation which controls, is controlled by or is under common control with
Tenant, or to any corporation resulting from the merger or consolidation with
Tenant, or to any person or entity which acquires all the assets of Tenant as a
going concern of the business that is being conducted on the Premises, provided
that said assignee has substantially the same or better financial condition
than Tenant and assumes, in full, the obligations of Tenant under this Lease.
(c) Regardless of Landlord's consent, no subletting or assignment
shall release Tenant of Tenant's obligation or alter the primary liability of
Tenant to pay the rental and to perform all other obligations to be performed
by Tenant hereunder. The acceptance of rental by Landlord from any other person
shall not be deemed to be a waiver by Landlord of any provision hereof. Consent
to one assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by any assignee of Tenant or
any successor of Tenant in the performance of any of the terms hereof, Landlord
may proceed directly against Tenant without the necessity of exhausting
remedies against such assignee or successor. Landlord may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignee of Tenant's, without notifying Tenant, or any successor of
Tenant, and without obtaining its or their consent thereto and such action
shall not relieve Tenant of liability under this Lease.
(d) In the event Tenant shall assign or sublet the Premises or
request the consent of Landlord to any assignment or subletting or if Tenant
shall request the consent of Landlord for any act that Tenant proposes to do,
then Tenant shall pay Landlord's reasonable attorneys' fees incurred in
connection therewith.
32. ESTOPPEL CERTIFICATE. Tenant shall at any time and from time to time upon
not less than five (5) days prior notice from Landlord execute, acknowledge and
deliver to Landlord a statement in writing, which may be in the form specified
by Landlord, which shall certify: (a) that the Premises have been completed to
the satisfaction of Tenant and accepted and possessed by Tenant, (b) the date
the term of Lease commenced, the term of the Lease, any portions to renew or
extend, the amount of any security deposit and the date to which rental and any
other charges are paid in advance, (c) that the Lease is in full force and
effect and unmodified (or if there have been modifications, stating the nature
of the modifications and certifying that the Lease so modified is in full force
and effect), (d) that no notice has been received by Tenant of any default of
Tenant which has not been cured (or specifying such notices), (e) that there
are no uncured defaults on the part of Landlord (or specifying such defaults if
any are claimed), off-sets, counterclaims or credits against the rents,
obligations or stipulations due or to become due or required, (f) that Tenant
has no knowledge of any prior assignment, hypothecation or pledge of rents and
(g) such other matters as may be reasonably requested by Landlord. Any such
certificate may be relied upon by any prospective purchaser of all or any
portion of the real property of which the Premises are a part.
33. SUBORDINATION. This Lease shall be subject and subordinated at all
times to (a) all ground or underlying leases which may hereafter be executed
affecting the real property of which the Premises are a part, and (b) the lien
of all mortgages and deeds of trust in any amount or amounts whatsoever now or
hereafter placed on or against said real property or on or against Landlord's
interest or estate therein or on or against all such ground or underlying
leases, all without the necessity of having further instruments executed on the
part of Tenant to effectuate such subordination. Notwithstanding the foregoing,
(1) in the event of termination for any reason whatsoever of any such ground or
underlying lease, this Lease shall not then be barred, terminated, cut off or
foreclosed nor shall the rights and possession of Tenant hereunder be disturbed
if Tenant shall not then be in default in the payment of rental or other sums or
be otherwise in default under the terms of this Lease and Tenant shall attorn to
Landlord of any such ground or underlying lease, or, if requested, enter into a
new lease for the balance of the original or extended term hereof then remaining
upon the same terms and provisions as are in this Lease contained; (2) in the
event of a foreclosure of any such mortgage or deed of trust or of any other
action or proceeding of the enforcement thereof, or of any sale thereunder, this
Lease will not be barred, terminated, cut off or foreclosed nor will the rights
and possession of Tenant thereunder be disturbed if Tenant shall not then be in
default in the payment of rental or other sums or be otherwise in default under
the terms of this Lease and Tenant shall attorn to the purchaser at such
foreclosure, sale or other action or proceeding; and (3) Tenant agrees to
execute and deliver upon demand such further instruments evidencing such
subordination of this Lease to said deed, to such ground or underlying leases,
and to the lien of any such mortgages or deeds of trust as may reasonably be
required by Landlord. Tenant's covenant to subordinate this Lease to ground or
underlying leases and/or mortgages or deeds of trust hereafter executed is
conditioned upon each such senior instrument containing the commitments
specified in the preceding clauses (1) and (2).
34. ADJUSTMENTS TO RENT. Commencing with the third year of the term of
this Lease, the monthly rent to be paid Landlord by Tenant shall be increased
annually effective on the anniversary of the commencement date of this Lease by
a percentage equal to the annual percentage increase in the Consumer Price
Index. As used herein, the term "Consumer Price Index" shall mean the United
States Department of Labor Statistics' Consumer Price Index, All Union
Consumers, All Items, San Francisco/Oakland, California (1967-1(I)), or the
successor of such index. The lease of the index for computation of the increase,
if any, shall be the month in which this Lease commences. If no publication is
made for the month in which this Lease commences, the Lease shall be the last
prevailing month for which publication is made. The index for the same month
shall be compared annually to determine the percentage increase and the
resulting percentage shall be applied to the monthly rental rate then in effect
to determine the monthly rent to be paid the ensuing year. Landlord shall notify
Tenant of any increase in the monthly rental rate resulting from such
computation and Tenant shall pay Landlord the amount of such increase
retroactively to the effective date thereof. In no event shall the rate of
increase exceed seven percent (7%) per annum. In the case of the initial rental
adjustment, its rate of increase shall not exceed fourteen percent (14%).
35. OPTION TO EXTEND. Tenant shall have the option to extend the term of
this Lease for an additional period of ten (10) years at a rental equal to the
then current fair market rate in the area of the Premises. Such option may be
exercised by written notice to Landlord given not less than ninety (90) days
prior to the expiration of the Lease term.
36. UTILITIES. All utilities provided to the Premises shall be separately
metered if possible. If not Landlord shall pro-rate utility costs for the
Premises and bill Tenant for them monthly. Tenant shall pay all such utility
bills promptly upon receipt.
The parties hereto have executed this Lease at the place and on the dates
specified immediately adjacent to their respective signatures.
If this Lease has been filled in, it has been prepared for submission to
your attorney for his approval. No representation or recommendation is made by
the real estate broker or its agents or employees as to the legal sufficiency,
legal effect, or tax consequences of this Lease or the transactions relating
thereto.
BRANNAN STREET PARTNERS
Address By /s/ [Signature Illegible]
--------------------------- -------------------------------------
General Partner
- -----------------------------------
"LANDLORD"
San Francisco Mercantile Company, Inc.
By
-------------------------------------
Address By
--------------------------- -------------------------------------
- ----------------------------------- "TENANT"
(PAGE 5)
<PAGE> 37
FIRST AMENDMENT TO SUBLEASE
THIS FIRST AMENDMENT TO SUBLEASE ("First Sublease Amendment") is made and
entered into this 12th day of June, 1999, by and between SAN FRANCISCO
MERCANTILE COMPANY, INC., a California corporation (herein called "Sublessor"),
QUOKKA SPORTS, INC., a Delaware corporation (herein called "Sublessee"), and
BRANNAN STREET PARTNERS, a California limited partnership ("Master Lessor").
RECITALS
WHEREAS, Master Lessor, as Landlord, and Sublessor, as Tenant, have made
and entered into that certain Lease dated December 1, 1985, as amended April 1,
1997 and June 23, 1998 (collectively, the "Master Lease"), relating to certain
premises consisting of 27,306 square feet of the Building (the "Building")
commonly known as 525 Brannan Street, San Francisco, California, as more
particularly described in the Master Lease (the "Master Leased Premises");
WHEREAS, Sublessor and Sublessee, have made and entered into that certain
Sublease dated June 23, 1998 ("Sublease"), with the consent of Master Lessor,
for the sublease by Sublessee of those certain premises consisting of 7,824
rentable square feet on the second floor of the Building, as more particularly
described in the Sublease (the "Subleased Premises");
WHEREAS, Master Lessor and Sublessee have made and entered into: (a) that
certain Lease (the "Original Lease") dated October 1, 1996, for the lease by
Sublessee of those certain premises (the "Leased Premises") consisting of
approximately 10,000 rentable square feet on the ground floor of the Building,
and (b) that certain First Amendment to Lease dated August 17, 1998, adding a
portion (consisting of 1,352 square feet) of the second floor of the Building to
the Leased Premises (the "First Lease Amendment"), and, concurrently herewith
are entering into a Second Amendment to Lease, adding portions of the second,
third, and fourth floors of the Building (consisting of 13,297 square feet) to
the Leased Premises, extending the term of the Lease, and agreeing on other
matters consistent with this First Sublease Amendment (the "Second Lease
Amendment"). The Original Lease, the First Lease Amendment, and the Second Lease
Amendment are sometimes referred to collectively hereinafter as the "Lease;"
WHEREAS, Sublessor and Sublessee desire to enter into this First Sublease
Amendment to amend the Sublease to add to the Subleased Premises additional
portions of the third floor of the Building, to extend the term of the Sublease,
to increase the rental under the Sublease, to provide for a contribution by
Master Lessor to a tenant improvement allowance under the Sublease, to provide
for options to extend the term of the Sublease, and to agree upon certain other
and related matters upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and conditions hereinafter set forth, Sublessor and Sublessee agree to amend the
Sublease further as follows:
1. ADDITIONAL SUBLEASED PREMISES. Paragraph 2 of the Sublease is hereby
amended to add to the Subleased Premises 8,418 rentable square feet on the third
floor of the Building, as
1.
<PAGE> 38
shown on EXHIBIT A attached hereto, sometimes known as Suite 300 (the foregoing
shall be sometimes hereinafter specifically referred to as the "Additional
Subleased Premises").
2. COMMENCEMENT OF RENT FOR THE ADDITIONAL SUBLEASED PREMISES. The
obligation to pay rent for the Additional Subleased Premises shall commence
thirty (30) days following the date Sublessor delivers physical possession of
the Additional Subleased Premises to Sublessee, "as-is," in broom-clean
condition (the "Additional Rent Commencement Date"). Sublessor agrees to use its
best efforts to deliver physical possession of all of the suites constituting
the Additional Subleased Premises, on or before September 15, 1999. Upon the
taking of physical possession, Sublessee shall deliver to Sublessor amended
certificates of liability insurance pursuant to Paragraph 16 of the Sublease and
Paragraph 8 of this First Sublease Amendment below.
Sublessor and Sublessee agree that the expiration of the initial term of
the Sublease is hereby extended to March 31, 2006.
Sublessor and Sublessee agree that Paragraph 31 of the Sublease, entitled
"OPTION TO TERMINATE", is hereby deleted in its entirety and declared null and
void and of no further force and effect.
3. CONDITION OF THE ADDITIONAL SUBLEASED PREMISES; TENANT ALLOWANCE.
Sublessee acknowledges that it has had an opportunity to inspect and investigate
the condition of the Additional Subleased Premises and Sublessee accepts the
Additional Subleased Premises in its present condition, "as-is," subject only to
being delivered physically vacant and "broom-clean" by Sublessor, except in all
cases subject to latent defects which severely impair Sublessee's ability to use
the Additional Subleased Premises for their intended purpose and which are not
reasonably discoverable by Sublessee at this time; provided that Sublessee's
sole remedy in such event shall be to terminate the Sublease as to the portion
of the Subleased Premises affected by such defect. Any changes or alterations to
the Subleased Premises (including the Additional Subleased Premises) shall be
made pursuant to paragraph 10 of the Sublease and shall be subject to
Sublessor's prior written consent, which consent shall not be unreasonably
withheld.
Master Lessor agrees to pay Sublessee the following sums as tenant
allowances for improvements to be made to the Subleased Premises pursuant to
Paragraph 10 of the Sublease (said payments to be made on invoices presented to,
and approved by, Master Lessor, which approval shall not be unreasonably
withheld:
(a) For the original 7,824 square feet of Subleased Premises, the
sum of $3.87 per square feet, or the total sum of $30,278.88; provided, however,
upon the request of Sublessee, Master Lessor agrees to loan Sublessee an
additional sum up to $7.50 per square foot ($58,680.00), said sum to be
amortized as additional rent over the period from the Additional Rent
Commencement Date through March 31, 2002, together with interest at 10% per
annum on the unpaid balance.
(b) For the Additional Subleased Premises, the sum of $11.37 per
square feet, or the total sum of $95,712.67.
2.
<PAGE> 39
4. RENT. Paragraph 5 of the Sublease is hereby amended, with respect to
rent due for the periods after the Additional Rent Commencement Date, to provide
that Sublessee agrees to pay to Sublessor as rental, without prior notice or
demand, the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PORTION OF SUBLEASED PREMISES PERIOD MONTHLY RENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2nd Floor, 7,824 sq. ft. Additional Rent Commencement Date through 3/31/2002 $18,582.00/mo.
4/1/2002 - 3/31/2006 22,820.00/mo.
- ----------------------------------------------------------------------------------------------------------------------
Additional Subleased Premises, 8418 sq. ft. Additional Rent Commencement Date through 3/31/2006 24,552.50/mo.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
5. SECURITY DEPOSIT. Sublessee's present security deposit pursuant to
the Sublease is in the sum of Thirty-Seven Thousand One Hundred Sixty-Four and
No/Hundredths Dollars ($37,164.00), which represents two months' rent for 7,824
square feet of the Subleased Premises. Upon execution hereof, the foregoing sum
shall be increased to $37,500.00, and Sublessee shall make an additional deposit
in the form of a Letter of Credit (in the form attached hereto as EXHIBIT B) in
the total sum of $112,500 as an additional security deposit for Sublessee's
performance of all of the terms and conditions of the Sublease (the "Letter of
Credit"). The Security Deposit shall be governed by the terms of paragraph 6 of
the Sublease; provided, however, that at such time as Sublessee has had an
initial public offering and has demonstrated that it has earned net profits
after taxes from its business operations as shown on published or certified
financial statements for at least two (2) calendar quarters, said Letter of
Credit shall be reduced to an amount which, together with the cash portion of
the Security Deposit, shall equal one (1) month's base rent under the Sublease,
to be held by Sublessor pursuant to paragaph 6 of the Sublease for the entire
term of the Sublease
6. PARKING. Sublessor, Sublessee and Master Lessor agree that the
tenant under the Lease may elect in its sole discretion to allow Sublessee to
use parking spaces pursuant to such tenant's rights under and on the terms set
forth in the Lease, and in such event there shall be no charge by Sublessor or
Landlord for the same, the only charge therefor being the charge specifically
set forth in the Lease to be paid by the tenant.
7. SATELLITE DISHES. Sublessor, Sublessee and Master Lessor agree that
the tenant under the Lease may elect in its sole discretion to allow Sublessee
to use satellite dishes pursuant to such tenant's rights under and on the terms
set forth in the Lease, and in such event there shall be no charge by Sublessor
or Landlord for the same, the only charge therefor being the charge specifically
set forth in the Lease to be paid by the tenant.
8. LIABILITY INSURANCE. Paragraph 16 of the Sublease is hereby amended
to provide that Sublessee shall obtain and maintain comprehensive general
liability insurance on an occurrence basis with limits of liability in an amount
not less than Two Million Dollars ($2,000,000) combined single limit for each
occurrence. The comprehensive general liability
3.
<PAGE> 40
policy shall include contractual liability which includes the provisions of
Paragraph 14 of the Sublease (it is the parties' intent to provide coverage to
the maximum extent possible of Sublessee's indemnification obligations under the
Sublease; however, it is understood that the insurance requirements are
independent of Sublessee's exculpation, indemnification and other obligations
under the Sublease and shall not be construed or interpreted in any way to
restrict, limit or modify Sublessee's exculpation, indemnification and other
obligations or to limit Sublessee's liability under the Sublease). Sublessee
shall furnish to Sublessor certificates of insurance and copies of the policies
evidencing the aforesaid insurance coverage, including naming Sublessor as an
additional insured. Renewal certificates must be furnished to Sublessor at least
thirty (30) days prior to the expiration date of such insurance policies showing
the above coverage to be in full force and effect. Sublessee's liability
coverage shall include all of the coverages typically provided by the Broad Form
Comprehensive General Liability Endorsement, including broad form property
damage coverage (which shall include coverage for completed operations).
Sublessee's liability coverage shall further include premises-operations
coverage, products-completed operations coverage and owners and contractors
protective coverage (when reasonably required by Sublessor). Sublessee's general
liability policies shall be endorsed as needed to provide cross-liability
coverage for Sublessee, Sublessor and any lender of Sublessor of which Sublessee
has been notified and to provide severability of interests. Said liability
policies shall be endorsed as needed to provide that the insurance afforded by
the policies to the additional insureds relating to the Subleased Premises is
primary and that all insurance carried by Sublessor is strictly excess and
secondary and shall not contribute with Sublessee's liability insurance. The
coverage afforded to Sublessor and any lender of Sublessor by Sublessee must be
at least as broad was that afforded to Sublessee and may not contain any terms,
conditions, exclusions or limitations applicable to Sublessor or any lender of
Sublessor that do not apply to Sublessee.
9. CROSS-DEFAULT, RIGHTS. Concurrently with entering into this First
Sublease Amendment, Sublessee has entered into the Second Lease Amendment for
additional portions of the second, third, and fourth floors of the Building.
Sublessor and Sublessee hereby agree that it shall be an additional covenant of
the Sublease that Sublessee perform all covenants and pay all rent due and to
become due under the Lease. Sublessor further agrees that the additional
covenants contained in the Sublease as to parking and the satellite dishes shall
be equally available to Sublessee under the terms of the Lease.
10. OPTIONS TO EXTEND TERM. Sublessee shall have the right, to be
exercised as hereinafter provided, to convert the Sublease to a direct lease
with Master Lessor (the "Converted Sublease"), such conversion to be effective
from and after the expiration of the original term of the Sublease, and
simultaneously with such conversion to extend the term of the Converted Sublease
for the following additional periods: (a) the first option, if exercised, shall
extend the term of the Converted Sublease for the period from April 1, 2006
through December 31, 2010, and (b) the second option, if exercised, shall extend
the term of the Converted Sublease for the period from January 1, 2011 through
December 31, 2015. Said extensions shall be upon all of the terms and conditions
of the Sublease, except as modified by the following terms and conditions:
(a) That Sublessee is not then in default under any of the terms,
covenants, conditions, provisions or agreements of the Sublease or the Lease;
4.
<PAGE> 41
(b) Sublessee shall exercise its right to extend term by notifying
Master Lessor not less than one (1) year prior to the termination of the
original term (or previously extended term) hereof of its election to exercise
such right, otherwise said option (including any options for further extensions
of the term) shall be null and void; and
(c) The new rental shall be subject to the mutual agreement of
both Master Lessor and Sublessee but in no event shall the rental be less than
the then fair market value of the Subleased Premises. The parties shall have
thirty (30) days after Master Lessor receives Sublessee's notice in which to
agree on the new rental for the extended term. If Master Lessor and Sublessee
are unable to agree on the new rental for the extended term within said 30-day
period, then, within ten (10) days thereafter, Master Lessor and Sublessee will
each choose an appraiser to determine the fair market rental value of the
Subleased Premises by giving notice to the other party of the identity of the
appraiser it selected.
If a party does not appoint an appraiser within such ten day period, the
single appraiser appointed shall be the sole appraiser and shall set the new
base rental for the extended term. If the two appraisers are appointed by the
parties as stated in this paragraph, they shall meet promptly and attempt to set
the new rental for the extended term. If they are unable to agree within twenty
(20) days after the second appraiser has been appointed, they shall select a
third impartial appraiser meeting the qualifications stated in this paragraph
within five (5) days after the aforesaid twenty (20) day period; if the two
appraisers are unable to agree upon the third appraiser, either party may apply
to the Presiding Judge of the San Francisco Superior Court for appointment of
the third appraiser meeting the qualifications described below. Each of the
parties shall bear one-half of the cost of appointing the third appraiser and of
paying the third appraiser's fee. The third appraiser shall be a person who has
not previously acted in any capacity for either party. All of the appraisers
shall be California licensed real estate brokers with at least ten (10) years
experience leasing office space in San Francisco.
Within fifteen (15) days after the selection of the third appraiser, a
majority of the appraisers shall set the new rental for the extended term. If a
majority of the appraisers are unable to set the rental within the stipulated
period of time, the three appraisals shall be added together and their total
divided by three; the resulting quotient shall be the rental for the Subleased
Premises during the extended term. After the new rental for the extended term
has been set, the appraisers shall immediately notify the parties and Master
Lessor and Sublessee shall promptly enter into an amendment of the Sublease
setting forth said new rental.
11. REAL ESTATE BROKERS. Any real estate commission or other
compensation to be paid to any real estate brokers or others in connection with
this First Sublease Amendment shall be determined in accordance with, and be
subject to, the terms and provisions of Paragraph 11 of the Second Lease
Amendment ($70,365.00 for this First Sublease Amendment).
12. RATIFICATION. Sublessor and Sublessee hereby ratify, confirm and
readopt all of the terms and provisions of the Sublease, as amended by this
First Sublease Amendment.
5.
<PAGE> 42
IN WITNESS WHEREOF, Sublessor and Sublessee have executed this First
Sublease Amendment as of the date first above written.
<TABLE>
<S> <C>
Dated: June 12, 1999 SAN FRANCISCO MERCANTILE COMPANY, INC.,
a California Corporation
Address: 525 Brannan Street, Suite 300 By: /s/ W. LANEY THORNTON
San Francisco, CA 94105 --------------------------------------
Attn: Diana E. Lees W. Laney Thornton, Chairman
By: /s/ DIANA E. LEES
--------------------------------------
Diana E. Lees, Secretary-Treasurer
"SUBLESSOR"
Dated: June 12, 1999 BRANNAN STREET PARTNERS,
a California limited partnership
Address: 525 Brannan Street, Suite 300 By: /s/ W. LANEY THORNTON
San Francisco, CA 94105 --------------------------------------
Attn: Diana E. Lees W. Laney Thornton, General Partner
"MASTER LESSOR"
Dated: June 12, 1999 QUOKKA SPORTS, INC.,
a Delaware corporation
Address: 525 Brannan Street, Ground Floor By: /s/ ALAN RAMADAN
San Francisco, CA 94105 --------------------------------------
Attn: Alan Ramadan, President
By: /s/ LES SCHMIDT
--------------------------------------
Les Schmidt, Secretary
"SUBLESSEE"
</TABLE>
6.
<PAGE> 1
Exhibit 10.14
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES ACT OF 1933. A COMPLETE
COPY OF THIS EXHIBIT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
MASTER VENTURE AGREEMENT
THIS MASTER VENTURE AGREEMENT (the "Agreement") is entered into as of February
9, 1999 (the "Effective Date") by and among QUOKKA SPORTS, INC., a Delaware
corporation with its principal place of business at 525 Brannan Street, Ground
Floor, San Francisco, CA 94107 ("Quokka"); NBC OLYMPICS, INC., a Delaware
corporation with its principal place of business at 30 Rockefeller Plaza, New
York, NY 10112 ("NBC"); and NBC/QUOKKA VENTURES, LLC, a Delaware limited
liability company with its principal place of business at 30 Rockefeller Plaza,
New York, NY 10112 ("NQV").
RECITALS
WHEREAS, Quokka is a digital sports media company specializing in the
development of technology for and the production of coverage of international
sporting events via the Internet and other digital media;
WHEREAS, NBC is a subsidiary of a leading television company with a major
broadcast television network, several cable television networks, and television
production facilities;
WHEREAS, NBC has acquired from the International Olympic Committee ("IOC") the
U.S. rights to broadcast the Olympic Games in 2000 and 2004, and the Winter
Olympic Games in 2002;
WHEREAS, NBC and Quokka have formed NQV for the purpose of utilizing their
respective capabilities in the creation and operation of interactive media
coverage of the Events (as defined below) via the Internet and other digital
media; and
WHEREAS, the parties desire to memorialize their obligations and undertakings in
connection with the organization and operation of NQV.
NOW THEREFORE, the parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS
The following terms used in this Agreement will have the following
meanings:
1.1. "CHANNEL" shall mean the specific Site (as defined below)
developed by NQV hereunder which may include, among other
things, Highlight Video and Other Material (as defined in the
NBC Rights and Services Terms).
1.2. "CURRENT CONTENT PLAN" shall have the meaning specified in the
Operating Agreement.
1.3. "EVENTS" shall mean the Games and all events (i) the Interactive
Media rights to which are owned or otherwise controlled by a
U.S. National Governing Body that has
1.
<PAGE> 2
controlling jurisdiction over the selection of the participants
from a sport in an Olympic Games and (ii) which occur during the
term of this Agreement to which NBC has broadcast television and
Internet Medium rights (as hereinafter defined).
1.4. "EXPIRATION DATE" shall mean the date occurring on the
expiration of the Extension Negotiation Period (as defined in
Section 7.1 of this Agreement) unless the parties agree to
extend the Agreement during such Extension Negotiation Period.
1.5. "GAMES" shall mean each of the international sporting events
commonly known as the Olympic Games currently planned to be held
in Sydney, Australia in 2000; Salt Lake City, USA in 2002;
Athens, Greece in 2004; and such other succeeding Olympic Games
as the parties may agree pursuant to Section 7.1.
1.6. "GAMES PERIOD" shall mean, with respect to each Games other than
the 2000 Games, the period commencing sixty (60) days after the
conclusion of the prior Games and continuing through the period
ending sixty (60) days after the conclusion of such Games. For
the 2000 Games, the Games Period shall commence upon the
Effective Date and continue through the period ending sixty (60)
days after the conclusion of such Games.
1.7. "INITIAL CONTENT PLAN" shall mean the first Content Plan
developed with respect to the first Games.
1.8. "INTERNET MEDIUM" shall include: (i) the Internet and World Wide
Web as are in existence as of the Effective Date and their
successor or related networks; (ii) any Internet Protocol-based
methods of transmission and/or delivery or any Internet
protocol-based networks and their successors; and (iii) any
medium involving the delivery of content (e.g., text, computer
code, still images, audio, motion video, tactile, olfactory or
other sensory impressions) for use by an end user by means of a
monitor, television screen, viewing screen or other display
device where delivery of such content occurs by any transmission
modality (e.g., copper wire, fiber optic or coaxial cable,
satellite or terrestrial wireless transmission systems) now or
hereafter devised, provided that the end user has the capacity
to manipulate the content during its use to enhance, change
delete or otherwise alter the specific content that is being
provided. In applying the foregoing definition, if content is
disseminated by means of any two or more media that are intended
primarily to be displayed to the end user concurrently and in an
integrated way through a single display device, the two or more
media will be considered in the aggregate as a single medium,
which will be considered Internet Medium if the combined media
in the aggregate satisfy the above definition.
1.9. "LIMITED ACTIVITIES" shall mean those areas of activity set
forth on the Limited Activity List delivered contemporaneously
herewith, as it may be updated from time to time in accordance
with Section 3.2.
1.10. "NBC COMPETITOR" shall have the meaning specified in the
Operating Agreement.
1.11. "NBC RIGHTS AND SERVICES TERMS" shall mean the terms set forth
in Exhibit A.
2.
<PAGE> 3
1.12. "OPERATING AGREEMENT" shall mean that certain Operating
Agreement of NQV between NBC and Quokka of even date herewith,
as such may be amended from time to time.
1.13. PRINCIPLES OF COMPENSATION" shall mean the terms set forth in
the Principles of Compensation delivered contemporaneously
herewith, as such may be amended from time to time.
1.14. "QUOKKA RIGHTS AND SERVICES TERMS" shall mean the terms set
forth in Exhibit B.
1.15. "QUOKKA WARRANTS" shall mean the warrants to purchase stock in
Quokka in the form delivered by Quokka to NBC.
1.16. "REDUCED SPENDING PLAN" shall have the meaning specified in the
Operating Agreement.
1.17. "SITE" shall mean any collection of content which may include
data, text, graphics, sound, video, images, photographs,
animation or any form of content hereafter developed which is
delivered for use by an end user to a monitor, television
screen, viewing screen or other display device via any
transmission modality now known or hereafter developed
(including the Internet Medium) and which provides the end user
with the capacity to manipulate the content during its use to
enhance, change, delete or otherwise alter the specific content
that is being provided.
1.18. "TERMINATION DATE" shall mean the effective date of any
termination of the either the NBC Rights and Services Terms or
the Quokka Rights and Services Terms.
2. ADDITIONAL VENTURE AGREEMENTS
Upon execution of this Agreement, NBC and Quokka will enter into the
Operating Agreement. NBC and Quokka shall have the further obligation to
negotiate in good faith to develop, for approval by a Supermajority of
the Directors, an Initial Content Plan and the Principles of
Compensation no later than the Drop-Dead Date (as defined in the
Operating Agreement). When such Principles of Compensation are agreed
upon, they shall be deemed adopted contemporaneously with this
Agreement. In the event a Mutual Termination Event (as defined in
Section 11.4) occurs and this Agreement, including without limitation
Exhibits A and B, is terminated by NBC, then NBC shall reimburse Quokka
for one half (1/2) of the reasonable costs of the services of Paul
Gudelis, Tom Feuer, Lisa Rubarth, Kent Schacht, Bill Murray, Joe
McQueeney and Robert Vermeolen in preparing the Content Plan and other
work solely associated with the Channel, in each case, as conducted from
January 1, 1999 through the Drop-Dead Date.
3. OPERATIONS OF NQV
3.
<PAGE> 4
3.1. NQV will, at its sole cost and expense, except as provided for
herein, create, develop, produce, host, maintain and market the
Channel at all times in accordance with the Current Content Plan
with respect to such Games, as approved in accordance with the
terms of the Operating Agreement.
3.2. NQV will not participate or engage in the Limited Activities
unless NBC and Quokka mutually agree in writing to permit NQV to
do so. Subsequent to the Effective Date, either NBC or Quokka
may add Limited Activities to the Limited Activity List
delivered contemporaneously herewith; provided, however, that
neither NBC nor Quokka may add Limited Activities that would
prevent NQV from participating in any activity reasonably
related to exercising its rights or carrying out its obligations
as set forth in this Agreement, the NBC Rights and Services
Terms or the Quokka Rights and Services Terms.
4. PROCEDURES FOR SALES OF ADVERTISEMENTS AND SPONSORSHIPS
NQV will be entitled to sell advertisements or sponsorships on the
Channel (collectively "Advertising") only in accordance with, and subject to the
limitations set forth in, the Advertising Sales Procedures delivered
contemporaneously herewith. Moreover, NBC and Quokka shall only be entitled to
sell Advertising in accordance with such Advertising Sales Procedures.
5. GRANT OF QUOKKA WARRANTS.
Concurrently with the execution and delivery of this Agreement, Quokka
shall issue to NQV the Quokka Warrants and each of Quokka, NBC and NQV shall
execute and deliver a Warrant Issuance Agreement in such form as shall be agreed
among the parties.
6. INVOLVEMENT OF OTHER PARTIES
6.1. For the 2000 Games only, to the extent that NQV determines to
enter into any transaction [ * ], NQV shall make the first
approach to [ * ] with respect to the right to enter into such
transaction, and shall, if [ * ] is interested in such a
transaction, negotiate exclusively with [ * ] for a period of
[ * ] days after making such offer.
6.2. The parties acknowledge and agree that it would be desirable for
the [ * ] to have its websites located within the Channel and
that NBC has entered into an agreement with [ * ] to provide
certain hosting, design and marketing services, a copy of the
pertinent provisions of which has been delivered to Quokka. NQV
agrees to assume at its cost all obligations of NBC with respect
to such hosting, design and marketing as contained in such
agreement.
7. RIGHTS OF FIRST NEGOTIATION
7.1. [ * ] NQV shall have a Right of First Negotiation with respect
to continuation of the NBC Rights and Services Terms for the
[ * ] Confidential Treatment Requested
4.
<PAGE> 5
Games Periods after the 2004 Games (and for all Events during
such Games Periods) for which NBC has acquired Internet Medium
rights as of the Effective Date. The "Right of First
Negotiation" means that prior to negotiating with any third
party with respect to rights identical to those that NBC has
granted to NQV pursuant to the NBC Rights and Services Terms,
NBC shall first negotiate in good faith exclusively with NQV for
a period of [ * ] days (the "Extension Negotiating
Period"). Thereafter, NBC shall have no further obligation to
NQV or Quokka with respect to such rights unless the parties
shall otherwise agree in writing.
7.2. No later than June 1, 1999, NBC shall have a right of first
negotiation with respect to conventional broadcast rights (to
the extent Quokka secures such rights) for competitive
"adventure" sporting events covered by Quokka, and Quokka will
negotiate exclusively with NBC with respect to such rights for a
period of sixty (60) days thereafter. Thereafter, Quokka shall
have no further obligation to NBC with respect to such rights
unless the parties shall otherwise agree in writing.
8. BRANDING
The parties acknowledge that one of the goals of this venture is to
maximize the revenue of NQV. The parties also acknowledge that the
Channel will be the official and exclusive location for NBC's Site
coverage of the Games and will, accordingly, bear the composite
NBC/Olympic branding, subject in each case to the restrictions contained
in the NBC Rights and Services Terms, the terms of which are
incorporated herein by reference. Furthermore, any brands, marks and
logos licensed to NQV pursuant to the Quokka Rights and Services Terms,
the terms of which are incorporated herein by reference, shall be used
to add value to NQV in a manner to be mutually determined in accordance
with the Current Content Plan.
9. CONFIDENTIALITY AND NON-DISCLOSURE
9.1. Each party agrees that during the term of this Agreement that
such party may come into possession of Confidential Information
of the other party(ies). For the purposes of this Agreement,
"Confidential Information" means any information which the party
disclosing the information (the "Discloser") identifies orally,
visually or in writing as confidential or which the party
receiving the information (the "Receiver") knows or has reason
to know is confidential to the Discloser. The terms and
conditions of this Agreement, the Operating Agreement, the NBC
Rights and Services Terms, the Quokka Rights and Services Terms,
the Warrants and the Warrant Issuance Agreement shall be
considered Confidential Information of each party. Confidential
Information does not include information which is: (a) already
known by the Receiver at time of disclosure; (b) is or becomes,
through no act or fault of Receiver, publicly known; (c)
received by Receiver from a third party without a restriction on
disclosure or use; (d) independently developed by Receiver
without reference to Discloser's Confidential Information; or
(e) required or reasonably necessary to comply with laws,
statutes, regulations, orders, and other governmental rules,
including, without limitation, any voluntary filing under the
Securities Act of 1933, as amended, or the Securities and
Exchange Act of 1934, as
[ * ] Confidential Treatment Requested
5.
<PAGE> 6
amended. The foregoing notwithstanding, prior to making any
filing under either the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, which discloses
the existence or terms of this Agreement, the Operating
Agreement, the NBC Rights and Services Terms, the Quokka Rights
and Services Terms, the Warrants or the Warrant Issuance
Agreement, Quokka shall, to the extent permitted by law,
disclose to NBC in advance any portion of such anticipated
filing and shall provide NBC a reasonable opportunity to review
and comment on such portion of any such anticipated filing.
9.2. The Receiver shall hold the Confidential Information in
confidence and shall not disclose the Confidential Information
to third parties nor use the Confidential Information for any
purpose other than as permitted in this Agreement and the other
agreements executed contemporaneously herewith. The Receiver
shall not, at any time during or after the term of this
Agreement, disclose the Confidential Information to any person
except its employees, consultants and other agents who have a
need to know such Confidential Information and who have agreed
to be bound by terms and conditions substantially similar to,
and no less restrictive with respect to limitations on use and
disclosure than, those of this Agreement. Notwithstanding the
foregoing, Quokka may disclose the terms of Agreement to
bankers, investment counselors and potential investors or
acquirors in connection with any potential investment in or
acquisition of Quokka, provided that prior to receiving such
information such entities have agreed to limit access to only
those persons within their organization who have a need to know
such Confidential Information for the purpose of evaluating such
potential investment or acquisition or similar transaction and
who have agreed to be bound by terms and conditions
substantially similar to, and no less restrictive with respect
to limitations on use and disclosure than, those of this
Agreement. Furthermore, notwithstanding the foregoing, NBC may
disclose the terms of the Agreement to [ * ] in connection with
[ * ] in connection with the potential acquisition of up to
[ * ] of NBC's economic interest in the Class B Interests,
provided that prior to receiving such information such entity
has agreed to limit access to only those persons within their
organization who have a need to know such Confidential
Information for the purpose of evaluating such potential
investment or acquisition or similar transaction and who have
agreed to be bound by terms and conditions substantially similar
to, and no less restrictive with respect to limitations on use
and disclosure than, those of this Agreement.
9.3. Upon termination or expiration of this Agreement for any reason,
at Discloser's direction, a Receiver shall return or destroy all
copies of Confidential Information in its possession that is
received exclusively from the other party.
9.4. NBC and Quokka agree to issue a mutually agreeable press release
relating to the creation of NQV promptly as practicable after
the Effective Date.
[ * ] Confidential Treatment Requested
6.
<PAGE> 7
10. LIMITATIONS OF LIABILITY
EXCEPT TO THE EXTENT EXPRESSLY SET FORTH IN EITHER THE NBC RIGHTS AND
SERVICES TERMS OR THE QUOKKA RIGHTS AND SERVICES TERMS, AS APPLICABLE, IN NO
EVENT SHALL ANY PARTY BE LIABLE TO ANY OTHER FOR ANY CONSEQUENTIAL, SPECIAL,
INDIRECT OR INCIDENTAL DAMAGES ARISING FROM OR RELATING TO THIS AGREEMENT,
INCLUDING ITS EXHIBITS. THE FOREGOING IS NOT INTENDED TO LIMIT NQV'S
INDEMNIFICATION OBLIGATIONS AS SET FORTH IN ARTICLE 8 OF THE OPERATING
AGREEMENT.
11. TERM AND TERMINATION
11.1. This Agreement, including without limitation Exhibits A and B,
shall continue in effect from the Effective Date until the
earlier of the Termination Date or the Expiration Date unless
terminated earlier in accordance with Section 11.2, 11.3 or 11.4
11.2. This Agreement, including without limitation Exhibits A and B,
may be terminated by: (1) either party upon the dissolution of
NQV; (2) either NBC or Quokka due to a material breach of the
Operating Agreement, Warrants or Warrant Issuance Agreement by
the other party which has not been cured by such party within
thirty (30) days of the receipt of written notice of such
breach; (3) by NQV or Quokka due to a material breach by NBC of
the terms hereof, including without limitations Exhibits A and
B, which has not been cured by NBC within thirty (30) days of
the receipt of written notice of such breach by NBC; (4) by NQV
or NBC due to a material breach by Quokka of the terms hereof,
including without limitation Exhibits A and B, which has not
been cured by Quokka within thirty (30) days of the receipt of
written notice of such breach by Quokka; or (5) by Quokka
(solely in the case where there are two Class A Directors) or
NBC due to a material breach by NQV of the terms hereof or of
the Operating Agreement which has not been cured by NQV within
thirty (30) days of the receipt of written notice of such breach
by NQV. The foregoing notwithstanding, in each of cases (2) -
(5) above, in the event that the breach in question is not
curable, then the breaching party shall only be entitled to a
forty-eight (48) hour notice period prior to termination by the
other party.
11.3. NBC shall have thirty (30) days from the date it receive notice
of approval of a Reduced Spending Plan to terminate this
Agreement, including without limitation Exhibits A and B. Notice
of approval of a Reduced Spending Plan shall be deemed to have
been received by NBC on the date of approval of a Reduced
Spending Plan if any Class B Director is present at the vote on
approval of a Reduced Spending Plan.
11.4. Either NBC or Quokka shall have the right to terminate this
Agreement, including without limitation Exhibits A and B, at any
time within ten (10) days after a Mutual Termination Occasion. A
"Mutual Termination Occasion" arises under either of the
following circumstances: (i) in the event that a Supermajority
of the Directors fails to approve an Initial Content Plan by the
Drop-Dead Date; or (ii) in the event that a Supermajority of the
Directors fails to approve Principles of Compensation by the
Drop
7.
<PAGE> 8
Dead Date. Termination of this Agreement, including without
limitation Exhibits A and B, pursuant to the terms of this
Section 11.4 by either NBC or Quokka shall be deemed a "Mutual
Termination Event."
12. GENERAL PROVISIONS
12.1. This Master Venture Agreement, and the application of
interpretation hereof, shall be governed exclusively by its
terms and by the laws of the State of Delaware (without giving
effect to principles of conflicts of laws).
12.2. If any provision of this Master Venture Agreement or the
application thereof to any person or circumstance shall be held
to be invalid, illegal or unenforceable to any extent, the
remainder of this Master Venture Agreement and the application
thereof shall not be affected and shall be enforceable to the
fullest extent permitted by law.
12.3. The headings in this Master Venture Agreement are inserted for
convenience only and in no way intended to describe, interpret,
define, or limit the scope, extent or intent of this Master
Venture Agreement or any provision hereof.
12.4. Any notice, demand or communication required or permitted to be
given by any provision of this Master Venture Agreement shall be
in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by
confirmed telex or facsimile if sent during normal business
hours of the recipient; if not, then on the next business day,
(iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, (iv)
one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification
of receipt, or (v) if earlier, upon receipt. All communications
shall be delivered to the Company's address or facsimile number
as such appears in the Company's records as of the date hereof
or to such other address or facsimile number as the Company may
designate by ten (10) days advance written notice to the other
parties hereto.
12.5. Each party hereby agrees to execute such other and further
instruments necessary to comply with any laws, rules or
regulations or in connection with perfecting or protecting or
enforcing any provision of this Agreement including assignments
or rights granted to such party hereunder.
12.6. This Agreement may not be assigned in whole or in part by any
party without the other parties' prior written consents or as
set forth in the Operating Agreement.
12.7. Whenever the singular number is used in this Master Venture
Agreement and when required by the context, the same shall
include the plural, and the masculine gender shall include the
feminine and neuter genders and vice versa. This Master Venture
Agreement is prepared and executed in the English language only
and any translation of this Master Venture Agreement into any
other language shall have no effect.
8.
<PAGE> 9
12.8. The failure of any party to seek redress for violation of or to
insist upon the strict performance of any covenant or condition
of this Master Venture Agreement shall not prevent a subsequent
act, which would have originally constituted a violation, from
having the effect of an original violation.
12.9. The rights and remedies provided by this Master Venture
Agreement are cumulative, and the use of any one right or remedy
by any party shall not preclude or waive the right to use any or
all other remedies. Such rights and remedies are given in
addition to any other rights the parties may have by law,
statute, ordinance or otherwise.
12.10. Except for the Operating Agreement for this venture, the Warrant
Issuance Agreement, the Warrants, the NBC Rights and Services
Terms and the Quokka Rights and Services Terms and such other
documents referenced herein, this Agreement and the Exhibits
attached hereto set forth the entire and exclusive understanding
and agreement of the parties as to the subject matter hereof,
and supersede any and all prior or contemporaneous oral or
written agreements or understandings among the parties as to the
subject matter of this Agreement. This Agreement may be changed
only by a document in writing signed by both parties. Waiver by
any party of a breach of any provision contained herein must be
in writing, and no such waiver shall be construed as a waiver of
any succeeding breach of such provision or a waiver of the
provision itself.
12.11. This Master Venture Agreement may be executed in counterparts,
each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
9.
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Master Venture
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
QUOKKA SPORTS, INC
By: /s/ LES SCHMIDT
-------------------------------------
Name: Les Schmidt
Title: Chief Financial Officer
NBC OLYMPICS, INC.
By: /s/ RANDEL FALCO
-------------------------------------
Name: Randel Falco
Title: President
NQV/QUOKKA VENTURES, LLC
By: /s/ G. MICHAEL NOVELLY
-------------------------------------
Name: G. Michael Novelly
Title: Chief Financial Officer
10.
<PAGE> 11
EXHIBIT A
NBC RIGHTS AND SERVICES AGREEMENT
Unless otherwise defined herein, capitalized terms have the meaning ascribed to
them in the Master Venture Agreement.
1. DEFINITIONS:
"Event Video" shall mean moving video and accompanying synchronous audio
of the Events, including Opening and Closing Ceremonies, whether derived from
the NBC Television Network feed, the host feed, or any other feeds ("Other
Feeds") available to NBC at the Events, provided that NQV shall reimburse NBC
for any additional costs associated with obtaining such Other Feeds.
"Highlight Video" shall mean moving video clips and accompanying
synchronous audio of the Events, including Opening and Closing Ceremonies, which
do not exceed in the aggregate: (i) for any individual match, round of
competition, race or game substantively broadcast (i.e., more than a [*] second
clip) by the NBC Television Network in Primetime (as defined hereafter), the
lesser of [*] minutes or [*] of the duration of the particular individual match,
round of competition, race or game being reported upon; (ii) for any individual
match, round of competition, race or game substantively broadcast (i.e., more
than a [*] second clip) by NBC Television in any time period that is not
Primetime, the lesser of [*] minutes or [*] of the duration of the particular
individual match, round of competition, race or game being reported upon; and
(iii) for any individual match, round of competition, race or game not broadcast
in any substantive part (i.e., more than a [*] second clip) by NBC Television,
the lesser of [*] minutes or [*] of the duration of the particular individual
match, round of competition, race or game being reported upon; provided, that
notwithstanding the foregoing, no single clip of such video shall be more than
[*] seconds in length; and, provided, further, that NQV may not aggregate such
clips, or provide a means for end users to aggregate such clips, from any single
event in a manner which would avoid the limitations contained in this paragraph.
"NBC Television" shall mean the NBC Television Network, CNBC, MSNBC or any
other NBC-produced coverage on a network broadcast, cable or DBS service.
"Other Video" shall mean historical Event footage as well as any
non-competition video consisting of segments, features and other programming
(e.g., "Up Close and Personal") related to the Events, whether occurring prior
to, during or after the Events.
"Primetime" shall mean the hours of 7 p.m. to 12 a.m. in each U.S. time
zone.
"United States Broadcast Territory" shall mean the United States and its
territories and possessions, excluding Puerto Rico.
[*] Confidential Treatment Requested
1.
<PAGE> 12
2. GUIDING PRINCIPLES REGARDING EVENT VIDEO
a) NBC represents and warrants that it has been granted a license for the
exclusive Internet Medium rights in the United States Broadcast
Territory in and to the Games for at least [*] and that it has been
granted a license for the exclusive broadcast, cable and Internet
Medium rights in the United States Broadcast Territory in and to each
associated U.S. Olympic Trials to which NBC has the broadcast rights
for at least [*] and the [*] day period following each such Games. NBC
shall use commercially reasonable efforts to extend the duration of
the foregoing rights on either an exclusive or non-exclusive basis.
Quokka acknowledges and agrees that notwithstanding anything to the
contrary contained herein or in any other document or agreement
contemplated hereby, no rights with respect to Event Video are
conveyed herein to Quokka or NQV other than as expressly set forth in
Sections 3 hereof, and that all rights to Event Video owned or held by
NBC shall remain NBC's except as otherwise granted.
b) Quokka further acknowledges and agrees that NBC may use, promote,
market, sell, display, perform, distribute, incorporate interactive
elements in its broadcast signal for distribution by broadcast, cable
or DBS and otherwise exploit the Event Video, or sell, license or
otherwise transfer such rights to third parties other than NQV, in
any medium (including the Internet Medium) via any transmission
modality now known or hereafter developed, subject to the constraints
of Section 2(c) hereof. Quokka further acknowledges that NBC will
have the right to incorporate interactive elements within its
broadcast video signal for distribution through normal broadcast,
cable or DBS channels.
c) In order to protect the rights granted to NQV herein, NBC represents
and warrants that it has not and shall not use or distribute, nor
shall it license the use or distribution of, Event Video, for use
either in whole or in part whether including Other Material and still
photographs taken from Event Video or not, over the Internet Medium
except in such circumstance where such Event Video is used and/or
available to the end user solely by itself, or with limited value
added elements "Value Added Elements", such that the Value Added
Elements would be [*]
3. RIGHTS GRANTED TO NQV
a) NBC grants to NQV an exclusive non-transferable license to produce,
distribute, promote and market the Channel as the "official" and
exclusive location for NBC's Site coverage of the Events.
b) Subject to Sections 2(b) and 2(c), NBC grants to NQV for use in the
creation and operation of the Channel the exclusive, non-transferable
license to incorporate
[*] Confidential Treatment Requested
2.
<PAGE> 13
into the Channel and distribute by means of the Internet Medium throughout
the United States Broadcast Territory Highlight Video from all Event Video
owned by NBC or licensed to NBC where NBC has the right to sublicense such
rights to the Event Video. To the extent that during the Term NBC is
granted a license or is otherwise permitted to distribute by means of the
Internet Medium Highlight Video outside the United States Broadcast
Territory, then the license granted hereunder shall automatically expand to
match such corresponding territory. Subject to Sections 2(b) and 2(c), NBC
further grants to NQV for use in the creation and operation of the Channel
the exclusive, non-transferable license to incorporate into the Channel and
distribute by means of the Internet Medium throughout the world still
photographs and sequential still photographs taken from Highlight Video
from all Event Video owned by NBC or licensed to NBC where NBC has the
right to sublicense such rights to the Event Video. Notwithstanding the
foregoing, NQV's rights hereunder with respect to the Event Video
(including still photographs therefrom) shall be subject to the right of
NBC, in its sole discretion, to impose restrictions on the display or other
use of Event Video (including still photographs therefrom) due to: (i)
NBC's inability to grant such rights to NQV as a result of contractual
limitations or restrictions imposed by, or conflicts with any legal rights
held by the IOC or any other person or entity possessing intellectual
property or other rights in such Event Video; (ii) any conflicts with NBC's
current sponsors or advertisers or the IOC's, United States Olympic
Committee's ("USOC"), Sydney Organizing Committee of the Olympic games
("SOCOG"), Salt Lake Olympic Organizing Committee's ("SLOOC"), the 2004
Games Organizing Committee's sponsors or advertisers; (iii) transactions by
NQV or Quokka with NBC Competitors; (iv) competition with NBC's broadcast,
cable or direct broadcast satellite ("DBS") coverage; or (v) violations of
NBC's, NBC Sports', the IOC's, the USOC's or other Olympic organizations'
editorial policies and practices. In the event that NBC shall be obligated
to pay any non de minimis amounts to third parties (other than the IOC,
USOC or any U.S. NGB with respect to the Games and U.S. Olympic Trials) by
reason of the licensing or use of any Event Video to or by NQV, then NBC
shall, to the extent practicable, promptly notify NQV of such amounts, and
if NQV elects to use (or has used) such Event Video, then it shall be
solely responsible for any such charges. NBC will use commercially
reasonable efforts to make all Event Video available to NQV regardless of
whether NBC uses such Event Video in any broadcast coverage of Events. NBC
will provide NQV with reasonable and timely means of technical access to
all Event Video, but in no event by a quality of method and/or timeliness
no less than the quality of method and/or timeliness provided to NBC's
local affiliates and any company which may license any Internet Medium
rights to the Event Video.
(c) NBC grants to NQV for use in the creation and operation of the Channel the
non-exclusive, non-transferable license to incorporate into the Channel and
distribute by means of the Internet Medium throughout the United States
Broadcast Territory all Other Video owned by NBC or licensed to NBC where
NBC has the right to sublicense such rights to the Other Video. NBC grants
to NQV for use in
3.
<PAGE> 14
the creation and operation of the Channel the non-exclusive,
non-transferable license to incorporate into the Channel and distribute by
means of the Internet Medium throughout the world all research and other
materials whether text, audio, video, still footage, written or fixed in
any other medium owned by NBC or licensed to NBC (collectively with the
Other Video sometimes referred to herein as the "Other Material") where NBC
has the right to sublicense such rights to the Other Material. To the
extent that during the Term NBC is granted a license or is otherwise
permitted to distribute by means of the Internet Medium the Other Video
outside the United States Broadcast Territory, then the license granted
hereunder shall automatically expand to match such corresponding territory.
Subject to Sections 2(b) and 2(c), NBC further grants to NQV for use in the
creation and operation of the Channel the exclusive, non-transferable
license to incorporate into the Channel and distribute by means of the
Internet Medium throughout the world still photographs and sequential still
photographs taken from Other Material owned by NBC or licensed to NBC where
NBC has the right to sublicense such rights to the Other Material.
Notwithstanding the foregoing, NQV's rights hereunder with respect to the
Other Material (including still photographs therefrom) shall be subject to
the right of NBC, in its sole discretion, to impose restrictions on the
display or other use of Other Material (including still photographs
therefrom) due to: (i) NBC's inability to grant such rights to NQV as a
result of contractual limitations or restrictions imposed by, or conflicts
with any legal rights held by the IOC or any other person or entity
possessing intellectual property or other rights in such Other Material;
(ii) any conflicts with NBC's current sponsors or advertisers or the IOC's,
USOC's, SOCOG's, SLOOC's, the 2004 Games Organizing Committee's sponsors or
advertisers; (iii) transactions by NQV or Quokka with NBC Competitors; (iv)
competition with NBC's broadcast, cable or DBS coverage; or (v) violations
of NBC's, NBC Sports', the IOC's, the USOC's or other Olympic
organizations' editorial policies and practices. In the event that NBC
shall be obligated to pay any non de minimis amounts to third parties
(other than for the specific Event rights granted by the IOC, USOC or any
U.S. NGB) by reason of the licensing or use of any Other Material to or by
NQV, then NBC shall, to the extent practicable, promptly notify NQV of such
amounts, and if NQV elects to use or has used such Other Material, then it
shall be solely responsible for any such charges. NBC will use commercially
reasonable efforts to make all Other Material available to NQV regardless
of whether NBC uses such Other Material in any broadcast coverage of
Events. NBC will provide NQV with reasonable and timely means of technical
access to all Other Material, but in no event by a quality of method and/or
timeliness no less than the quality of method and/or timeliness provided to
NBC's local affiliates and any company which may license any Internet
Medium rights to the Event Video.
d) Recognizing the priority of its broadcast needs, NBC shall use reasonable
commercial efforts to provide at no additional cost to NQV the following:
4.
<PAGE> 15
(i) Reasonable access on a twenty-four hour basis to NBC's television
production, transmission archive and storage facilities, wherever
located, for purposes of retrieving the Event Video and Other
Material in a timely manner for the Channel, subject to NBC's
reasonable rules and policies regarding such access and
availability of space;
(ii) Reasonable and timely access to the Commentator Information
System (CIS);
(iii) Access to and timely assistance from such production personnel as
shall be reasonably necessary to facilitate the retrieval of
Event Video and Other Material for the Channel;
(iv) The participation of a reasonable variety of on-air personnel,
selected by NBC in its sole discretion, during the Games and from
time to time prior to and after the Games, such participation to
include appearances on the Channel on a live or delayed basis;
(v) Reasonable access to venues, athletes, coaches, Event officials
and spectators (to the extent NBC is able to facilitate the
same), for appearances on the Channel.
(e) NBC grants to NQV a non-exclusive, non-transferable license during the
term of the Master Venture Agreement to use the composite NBC/Olympic
logo on the Channel in connection with the production, operation,
promotion, marketing and distribution of the Channel pursuant to the
Master Venture Agreement, in all media in connection with all third
party promotion, advertising and sponsorship of the Channel and in
connection with Derivative Products (as herein defined). The rights
granted herein are solely for the use of the NBC/Olympic logo and do
not include any right to use the NBC mark (in any variation) or the
Olympic mark (in any variation) standing alone. Notwithstanding the
foregoing, the use of the composite NBC/Olympic logo shall be subject
to the right of NBC, in its sole discretion, to impose restrictions
due to: (i) NBC's inability to grant such rights to NQV as a result of
contractual limitations or restrictions imposed by, or conflict with
any legal rights held by the IOC, the USOC or any other person or
entity possessing intellectual property or other rights in the
composite NBC/Olympic logo; (ii) any conflicts, as may be applicable,
with NBC's current sponsors or advertisers or the IOC's, USOC's,
SOCOG's, SLOOC's, the 2004 Games Organizing Committee's sponsors or
advertisers; (iii) transactions by NQV or Quokka with NBC Competitors;
(iv) competition with NBC's broadcast, cable or DBS coverage; or (v)
violations of NBC's, NBC Sports', the IOC's, the USOC's or other
Olympic organizations' editorial policies and practices. NQV
acknowledges that this is a license and that no ownership interest in
and to the NBC/Olympic logo is transferred, and that the NBC/Olympic
logo used alone or with other elements together with the goodwill
of the entities symbolized thereby shall remain the property of NBC
and the IOC, respectively. To the extent that any
5.
<PAGE> 16
goodwill is generated by the activities of NQV with respect to the
composite NBC/Olympic logo, the parties agree that all such goodwill shall
accrue to and be owned by NBC and the IOC. NQV agrees not to challenge or
contest NBC or the IOC's ownership interest respectively, in the NBC and
Olympic marks, the rights of NBC and the IOC in the NBC/Olympic logo, the
validity of the NBC and Olympic marks and the NBC/Olympic logo, and agrees
that it will do nothing inconsistent with such ownership and all use of the
NBC/Olympic logo shall accrue to and benefit and be on behalf of NBC and
the IOC. NQV agrees that it will not set up any adverse claim against NBC
or the IOC, their parents, affiliates or subsidiaries, as a result of the
use of the NBC/Olympic logo and that it will fully cooperate with NBC in
any and all activities necessary to maintain NBC's and IOC's rights in the
NBC/Olympic logo, including cooperating with NBC in recording this
agreement with appropriate governmental entities, where necessary. NQV
shall comply with all applicable laws and regulations and shall not
authorize use by third parties of the NBC/Olympic logo without NBC's
permission. NQV is subject to all the restrictions imposed on the use of
the NBC/Olympic logo mark by agreements between NBC and third parties,
including but not limited to the IOC, the USOC, SOCOG, SLOOC, the 2004
Games Organizing Committee or NBC's current sponsors or advertisers. All
rights to the NBC/Olympic logo not expressly granted are hereby reserved by
NBC. NQV's use of the composite NBC/Olympic logo will be subject to the
prior written approval of NBC, which approval shall not be unreasonably
withheld or delayed. NQV agrees to maintain the quality of the Channel at a
level that meets or exceeds industry standards and is at least commensurate
with the quality of NBC's interactive services. NQV agrees to supply NBC
with specimens of all uses of the NBC/Olympic logo. NQV agrees to correct
promptly, to the extent practicable, all deficiencies in its use of the
NBC/Olympic logo and to take measures reasonably designed to correct
objective defects in the availability and delivery of the NBC/Olympic logo
on the Channel. NQV shall comply with all guidelines provided by NBC with
respect to the reproduction and use of the composite NBC/Olympic logo
including conformance with NBC's various trademark and logo guidelines
provided to NQV which may be amended from time to time, including if
required by the use of said guidelines use of appropriate trademark symbols
after the first and most prominent use of the marks on each page or panel
of materials, and inclusion of NBC's standard trademark attribution legends
in all such materials. This license cannot be sub-licensed, assigned or
otherwise transferred by NQV to any third person without the prior written
consent of NBC. The license granted by NBC hereunder shall automatically
and immediately terminate upon the expiration or termination of the Master
Venture Agreement or this agreement, as it may be extended, provided
however that with respect to Derivative Products only, the license granted
by NBC hereunder shall automatically and immediately terminate on the
earlier of the sale of the last of the remaining Derivative Products
inventory or six (6) months after the expiration or termination of the
Master Venture Agreement.
6.
<PAGE> 17
f) In addition, in order to protect the rights granted to NQV herein, NBC
represents and warrants that it has not and shall not license a
substantial portion of the rights set forth in Section 3(c) to any
entity for use in connection with the Internet Medium.
g) Subject to the reservation of rights to NBC set forth in Section 2
hereof, NBC hereby grants to NQV an exclusive right to produce,
promote, market, sell and distribute Derivative Products as well as a
non-exclusive, non-transferable license to use Highlight Video as well
as the Other Material in connection with production, marketing,
promotion, and distribution of any Derivative Products; provided, that
prior to engaging in any such activities, NQV must provide a notice to
NBC describing any such Derivative Products and any marketing,
promotion or distribution plans therefor in reasonable detail and
obtain the prior written consent of NBC. "Derivative Products" shall
mean goods or services derived specifically from the Channel or any
portion thereof to which NQV can, in NBC's reasonable judgment,
provide significant added value. In the event that NBC intends to use
Highlight Video in any product to which NBC, in its reasonable
judgment believes, NQV can add significant value, NBC will notify the
Operating Venture and will discuss in good faith the possibility of
NQV producing and distributing any such product. Nothing contained in
this Section 3(g) shall be construed to preclude NBC from using Event
Video or Other Material in the production, marketing or sale of
products by NBC, provided that NBC does not use portions of the Event
Video or Other Material that actually incorporate enhancements made by
the Operating Entity.
4. SERVICES TO BE PROVIDED BY NBC TO NQV
a) As set forth in the promotion commitment delivered by NBC to NQV, NBC
will provide meaningful on-air promotion for the Channel on its
broadcast and cable television networks (e.g., NBC, CNBC, MSNBC), and
to the extent that it engages in promotional efforts on behalf of its
broadcast or cable coverage, NBC shall use commercially reasonable
efforts to incorporate into such promotional efforts meaningful
promotion for the Channel other than on-air promotion which may
include each of the following elements (to such extent as NBC shall
determine in good faith):
(i) print advertisements;
(ii) radio promotions;
(iii) preparation of promotional materials through NBC's
Affiliate Promotion Services Department;
(iv) promotion through NBC's Press Department, which may, at
NBC's sole discretion, include satellite feeds,
appearances on THE TODAY SHOW or other NBC programs.
7.
<PAGE> 18
b) In addition to the personnel covered by Section 3(d) hereof, NBC will
provide reasonable access to NBC personnel to provide services as
reasonably requested by NQV. In keeping with the Principles of
Compensation which are attached to the Master Venture Document as
Exhibit D, NBC will charge NQV for such personnel providing services to
NQV, and will be reimbursed for reasonable expenses of such personnel
incurred in connection with providing services to NQV. Such amounts
will be invoiced monthly and will be payable 30 days after receipt of
invoice by NQV.
c) To the extent that NBC has any such relationships, NBC will use
commercially reasonable efforts to provide access to NQV to its
strategic partners and others with whom it has business relationships
[ * ] or editorial relationships (writers, newspapers, etc.) for the
purposes of furthering possible relationships or promotional
opportunities between NQV and such other entities or individuals.
d) NBC will use reasonable commercial efforts to assist in the
coordination and integration of programming between its broadcast and
cable properties' coverage of Events and the Channel.
e) NBC will use reasonable commercial efforts to assist NQV with all
Events-related operational needs and logistics at the sites of the
Events, including but not limited to, office and work space, wiring and
communications, transportation, housing, accreditation, clothing and
hospitality, it being understood that NQV will be responsible for any
incremental costs incurred in connection therewith.
5. OTHER TERMS AND CONDITIONS
a) These NBC Rights and Services Terms ("Terms") will remain in effect
until the earlier of the Expiration Date and the Termination Date (as
such terms are defined in the Master Venture Agreement) unless earlier
terminated by any party in accordance with Sections 11.2, 11.3 or 11.4
of the Master Venture Agreement.
b) NBC warrants and represents that it has the right to grant the licenses
granted herein, subject to all restrictions contained herein, in the
Master Venture Agreement and in the Operating Agreement. Except with
respect to any music, NBC will defend, indemnify and hold harmless NQV
and Quokka, and their respective affiliates, officers, directors,
employees and agents from and against any and all third party claims,
actions, suits or proceedings, as well as any and all losses,
liabilities, damages, costs and expenses (including, without
limitation, reasonable attorneys fees) arising out of or accruing from:
(i) with respect to Event Video only, the exercise of any of the rights
granted hereunder by NBC to NQV infringes the copyright, trademark or
other proprietary rights of any third party in any jurisdiction; (ii)
the use or distribution of any Event Video is defamatory or libelous,
or violates the rights of privacy or publicity of any third
[ * ] Confidential Treatment Requested
8.
<PAGE> 19
party; or (iii) relating to the breach of any warranty or representation
contained herein. Upon the assertion of any claim or the commencement of any
suit or proceeding against NQV or Quokka by any third party that may give rise
to liability of NBC hereunder, NQV and/or Quokka, as the case may be, shall
promptly notify NBC of the existence of such claim and shall give NBC reasonable
opportunity to defend and/or settle the claim at its own expense and with the
counsel of its own selection. NQV and/or Quokka shall cooperate with NBC and
shall at all times have the right to participate in, but not control, such
defense and/or settlement with its own counsel and at its own expense.
9.
<PAGE> 20
EXHIBIT B
QUOKKA RIGHTS AND SERVICES AGREEMENT
Unless otherwise defined herein, capitalized terms have the meaning ascribed to
them in the Master Venture Agreement and the NBC Rights and Services Terms.
1. RIGHTS GRANTED BY QUOKKA TO NQV
a) Quokka grants to NQV a worldwide, royalty free, non-exclusive,
non-transferable license to promote, and use in connection with
Channel, all Quokka Technology (as defined herein) and Quokka
Technology Improvements (as defined herein) owned by Quokka and/or
licensed to Quokka (where Quokka has the right to relicense without
payment of more than de minimis amounts to third parties); provided,
that Quokka shall not license any Quokka Technology or Quokka
Technology Improvements to any other person or entity for use in
connection with such portion of any Site which contains content
relating to the Games and which is promoted to a United States
audience. For purposes of clarification, the foregoing proviso shall
not apply to any portion of a Site which does not include content
related to the Games (i.e., NBA or NFL content) or which is targeted
to a non-United States audience and not promoted in the United States
(i.e., Yahoo U.K.). The term "Quokka Technology" shall mean any
technology now or hereafter developed, purchased, or licensed or
otherwise acquired by Quokka (including without limitation any idea,
concept, invention, device, design, research, apparatus, machine,
practice, process, method, product, improvement, formula, algorithm,
technical development or plan, production technique, schematic, block
diagram, flow chart, test procedure, mask work, software (including
all of the written materials prepared by or for Quokka for any such
software, including, but not limited to user manuals), software
systems, codes (including HTML formatting code, source code, object
code), utilities, design processes, program logic, interactive
program structures, retrieval software systems, user interface
designs, and any other procedures and methods or operation) which can
be or may be used in connection with the development and/or delivery
of content to an end user by means of the Internet Medium. In
connection with such right and license, Quokka shall provide at no
charge NQV with copies of all tangible materials other than hardware
constituting or relating to Quokka Technology necessary in order to
exploit such Quokka Technology.
b) Quokka hereby grants to NQV a non-exclusive, non-transferable license
to use Quokka Technology in connection with the production,
marketing, promotion and distribution of Derivative Products.
c) All improvements, alterations, and other changes to the Quokka
Technology made by or under the authority of Quokka ("Quokka
Technology Improvements"), shall be deemed assigned to and inure to
the sole benefit of Quokka; provided, that
1
<PAGE> 21
notwithstanding the foregoing, any improvements, alterations, and
other changes to the Quokka Technology made by NQV ("Operating Entity
Technology Improvements"), shall be deemed assigned to and inure to
the sole benefit of NQV. NQV shall grant Quokka a non-exclusive,
royalty free license to use NQV Technology Improvements during the
term of the Master Venture Agreement.
(d) Quokka grants to NQV a non-exclusive, non-transferable license during
the term of the Master Venture Agreement to use the Quokka logo on
the Channel in connection with the production, operation, promotion,
marketing and distribution of the Channel pursuant to the Master
Venture Agreement, in all media in connection with all promotion,
advertising and sponsorship of the Channel including by authorized
third parties and in connection with Derivative Products (as herein
defined). NQV acknowledges that this is a license and that no
ownership interest in and to the Quokka logo is transferred, and that
the Quokka logo used alone or with other elements together with the
goodwill of the entity symbolized thereby shall remain the property
of Quokka. To the extent that any goodwill is generated by the
activities of NQV in the Quokka logo, the parties agree that all such
goodwill shall accrue to and be owned by Quokka. NQV agrees not to
challenge or contest Quokka's ownership interest in the mark, the
rights of Quokka in the Quokka logo, the validity of the Quokka mark
and the Quokka logo, and agrees that it will do nothing inconsistent
with such ownership and all use of the Quokka logo shall accrue to
and benefit and be on behalf of Quokka. NQV agrees that it will not
set up any adverse claim against Quokka, its parents, affiliates or
subsidiaries, as a result of the use of the Quokka logo and that it
will fully cooperate with Quokka in any and all activities necessary
to maintain Quokka's rights in the Quokka logo, including cooperating
with Quokka in recording this agreement with appropriate governmental
entities, where necessary. NQV shall comply with all applicable laws
and regulations and shall not authorize use by third parties of the
Quokka logo without Quokka's permission. All rights to the Quokka
logo not expressly granted are hereby reserved by Quokka. NQV is
subject to all the restrictions imposed on the use of the Quokka logo
mark by agreements between Quokka and third parties. NQV's use of the
Quokka logo will be subject to the prior written approval of Quokka,
which approval shall not be unreasonably withheld or delayed. NQV
agrees to supply Quokka with specimens of all uses of the Quokka logo
upon request. NQV agrees to correct promptly, to the extent
practicable, all deficiencies in its use of the Quokka logo and to
take measures reasonably designed to correct objective defects in the
availability and delivery of the Quokka logo on the Channel. NQV
shall comply with all guidelines provided by Quokka with respect to
the reproduction and use of the Quokka logo including conformance
with Quokka's various trademark and logo guidelines provided to NQV
which may be amended from time to time, including if required by the
use of said guidelines use of appropriate trademark symbols after the
first and most prominent use of the marks on each page or panel of
materials, and inclusion of Quokka's standard trademark attribution
legends in all such materials. This license cannot be sub-licensed,
assigned or otherwise transferred by NQV to any third person without
2
<PAGE> 22
the prior written consent of Quokka. The license granted by Quokka
hereunder shall automatically and immediately terminate upon the
expiration or termination of the Master Venture Agreement or this
agreement, as it may be extended, provided however that with respect
to Derivative Products only, the license granted by Quokka hereunder
shall automatically and immediately terminate on the earlier of the
sale of the last of the remaining Derivative Products inventory or six
(6) months after the expiration or termination of the Master Venture
Agreement.
e) Any content created by Quokka related to the Events which is
customarily viewed directly by the end-user (i.e., not Quokka
Technology or Quokka Technology Improvements), including without
limitation, text, graphics, and photos, shall be owned and retained by
NQV.
2. SERVICES TO BE PROVIDED BY QUOKKA TO NQV
a) Quokka will provide all personnel necessary to create, develop,
operate, host and maintain the Channel in accordance with the Current
Content Plan and NQV's annual budget, as well as all related support
for NQV. In keeping with the "Principles of Compensation", Quokka will
charge NQV for such personnel providing services to NQV, and will be
reimbursed in accordance with NQV's annual budget for reasonable
expenses of such personnel incurred in connection with providing
services to NQV. Such amounts will be invoiced monthly and will be
payable 30 days after receipt of invoice by NQV.
b) For a period of at least fourteen (14) days prior to and during the
period of the Games, Quokka will provide meaningful Internet promotion
for the Channel through its principal website.
c) To the extent that Quokka has any such relationships, Quokka will use
commercially reasonable efforts to provide access to NQV to its
strategic partners and others with whom it has business relationships
or editorial relationships for the purposes of furthering possible
relationships or promotional opportunities between NQV and such other
entities or individuals.
3. OTHER TERMS AND CONDITIONS
a) These Quokka Rights and Services Terms ("Terms") will remain in effect
until the earlier of the Expiration Date and the Termination Date
unless earlier terminated by any party in accordance with Sections
11.2, 11.3 or 11.4 of the Master Venture Agreement.
b) Quokka warrants and represents that it has the right to grant the
rights granted herein. Quokka will defend, indemnify and hold harmless
NQV and NBC, and their respective affiliates, officers, directors,
employees and agents from and
3
<PAGE> 23
against any and all third party claims, actions, suits or proceedings, as well
as any and all losses, liabilities, damages, costs and expenses (including,
without limitation, reasonable attorneys fees) arising out of or accruing from
breach of any warranty or representation made by Quokka herein. Quokka will
defend, indemnify and hold harmless NQV and NBC, and their respective
affiliates, officers, directors, employees and agents from and against any and
all third party claims, actions, suits or proceedings, as well as any and all
losses, liabilities, damages, costs and expenses (including, without
limitation, reasonable attorneys fees) arising out of any claim, suit, action
or proceeding alleging that any Quokka Technology or Quokka Technology
Improvements infringe any copyright, trademark, trade secret, trade dress,
patent or other intellectual property right or proprietary right of any third
party. In the event that some or all of the Quokka Technology or Quokka
Technology Improvements are held by a court of competent jurisdiction to
infringe, then Quokka shall have the option, at its expense, to (i) modify such
Quokka Technology or Quokka Technology Improvements to be non-infringing , or
(ii) obtain for NQV a license to continue using such Quokka Technology or
Quokka Technology Improvements. Upon the assertion of any claim or the
commencement of any suit or proceeding against NQV or NBC by any third party
that may give rise to liability of Quokka hereunder, NQV and/or NBC, as the
case may be, shall promptly notify Quokka of the existence of such claim and
shall give Quokka reasonable opportunity to defend and/or settle the claim at
its own expense and with the counsel of its own selection. NQV and/or NBC shall
cooperate with Quokka and shall at all times have the right to participate in,
but not control, such defense and/or settlement with its own counsel and at its
own expense.
4
<PAGE> 1
Exhibit 10.15
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES ACT OF 1933. A COMPLETE
COPY OF THIS EXHIBIT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of January 1, 1999 (the
"Effective Date") by and between CHAMPIONSHIP AUTO RACING TEAMS, INC., a
corporation organized under the laws of Delaware, with principal offices at 755
West Big Beaver Road, Suite 800, Troy, Michigan 48084 (hereinafter referred to
as "CART") and CART DIGITAL MEDIA ENTERPRISES, LLC, a limited liability company
organized under the laws of Delaware, with principal offices at 525 Brannan
Street, San Francisco, CA. 94107 (hereinafter referred to as "CDME").
RECITALS
WHEREAS, CART, through its subsidiary CART, Inc. is the sanctioning body
of prestigious auto racing events and series currently known as the FedEx
Championship Series, the PPG Dayton Indy Lights Championship and the Kool Toyota
Atlantic Championship (hereinafter all races, practice and qualifying sessions
and all related activities and meetings thereto being collectively referred to
as the "Events");
WHEREAS, CDME was formed by Quokka Sports, Inc. and Forsythe Racing,
Inc. to provide digital media coverage for the Events;
WHEREAS, CART wishes to appoint CDME and CDME agrees to be appointed to
develop, construct and operate the exclusive official Site (as hereinafter
defined) in accordance with the terms and conditions of this Agreement;
WHEREAS, CART wishes to grant to CDME Digital Media rights and various
other rights pertaining to the Events in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS.
As used in this Agreement:
"CONTENT" means the articles, stories, statistics, data, photographs,
drawings, visualizations, video, audio, and other digital assets (including any
assets in an analog format) gathered or supplied by CART in connection with the
Events, including content currently in existence on CART.com.
"DERIVATIVE PRODUCTS" means goods or services derived from the Site (as
hereafter defined) or any portion thereof which are approved by CART, in its
reasonable discretion. In order for a product to be approved as a "derivative
product", at the time of development, CART must not offer or have licensed a
directly competing product or service, and CDME, through the use of digital
assets, must be able to provide significant added value to such product (e.g.,
screen savers and posters utilizing digital assets and books about the digital
coverage of CART). For purposes of definition, significant added value means any
product which uses Original Content as its primary source. Derivative products
do not include home videos or other products which merely make use of existing
CART assets, such as video and photographs.
<PAGE> 2
"DIGITAL MEDIA" means any communications medium as to which all of the
following are true:
(i) The principal means by which information is transmitted from
the provider to the end user is the delivery of digitally-encoded data,
regardless of the nature of the data transmitted (e.g., text, computer code,
still images, audio, motion video) or the transmission modality or modalities
employed (e.g., copper wire, fiber optic or coaxial cable, satellite or
terrestrial wireless transmission systems);
(ii) The principal means by which information transmitted by the
provider is displayed to the end user is transitory images, sounds or other
experiences the persistence of which requires a power source at the display
device (e.g., images and sounds displayed through intelligent or dumb terminals
(including monitors and/or television sets) but not printed pages created by the
provider or the end user); and
(iii) The medium enables the end user to manipulate the specific
information being displayed to that end user at any particular moment to the
extent (e.g., frequency, immediacy, ease, cost) at least as great as the extent
to which present-day (as of the Effective Date) end users are able to manipulate
the information displayed to them via World Wide Web pages or push media
transmitted over the Internet.
In applying the foregoing definition, if a provider disseminates
information by means of any two or more media-that are intended primarily to be
displayed to the end user concurrently and in an integrated way through a single
display device, the two or more media will be considered in the aggregate as a
single medium, which will be considered Digital Media only if the combined media
in aggregate satisfy the applicable tests.
"EVENT DATA" means real-time and historical Event-related data, which
may be provided by CART for use on the Site, subject to its agreements with
third parties, or which is provided by an entity other than CART to CDME,
subject to agreements between CDME and such entity. It is anticipated that such
Event Data shall include results (e.g., times of competitors and standings),
rulings, timing data, instrument and positional data, team radio communications,
text, e-mail, audio, still photographs, video and other relevant material
collected from teams, participants, suppliers, licensees, statisticians or
officials participating in the Event or available from any other source, and any
text or written material from any official or authorized print publication or
statistical supplier. Event Data may also include all participant information,
as well as historical data containing race results and timing data and other
statistical, anecdotal and archival materials, such as timing data, results,
photos, video, e-mail, documents, etc., relating to previous Events. Exhibit A
contains those items listed above which will be made available to CDME at this
time and for the duration of this Agreement and shall be maintained in
accordance with CART's obligations hereunder.
"INTERFACE" means the graphical user interface ("GUI") for the Site,
including without limitation the "look and feel" of the GUI and the software
programs implementing the GUI (e.g., HTML code, Java scripting and programs
created with other Web authoring tools or tools related to the use of Digital
Media).
"INTERNET" means the global network of computer networks commonly known
as and currently understood and including the so-called "world wide web" of
computer link-ups and communications systems through which end-users can access
and communicate with other
2.
<PAGE> 3
computer users, file servers and domains and including any upgrades,
enhancements and successors thereto.
"MARKS" means all trademarks, trade names, service marks, logos, designs
and trade dress of the Events which are owned or controlled by CART whether
registered or unregistered, set forth in the attached Exhibit B which is
incorporated herein by reference.
"ORIGINAL CONTENT" means any material or work created by CDME or its
agent(s) for CDME, whether in analog or digital format, in which copyright,
design, (registered or unregistered) trade mark, service mark, or other similar
rights subsist or will subsist and which is incorporated into or synchronized
with or otherwise forms part of or is used in or in connection with the Site and
which is not the Interface or the Software (e.g., narrative text, graphs,
visualizations, still photos, video, etc.).
"SITE" means coverage of the Events hereunder by CDME consisting of
analog and digital assets, Event Data, Original Content, and Content, as well as
historical and background data and information, which are distributed via a host
site on the Internet and/or via Digital Media. The Site shall include language
substantially similar to that contained in Exhibit C.
"SOFTWARE" means the executable software programs relating to the Site
and any part thereof other than the Interface.
"TERM" means the term of this Agreement as defined in Section 4.
2. GRANT OF RIGHTS.
2.1 CART hereby grants to CDME during the Term the exclusive worldwide
Digital Media rights to the Events as well as any additional properties, events
or series owned and sanctioned by CART during the Term. Any rights for any
additional properties, events, or series owned and sanctioned by CART during the
Term shall be subject to any pre-existing agreements such properties, events, or
series may have. All other rights granted by this Agreement shall be subject to
CART's pre-existing agreements with third parties, which agreements are
referenced herein. Notwithstanding the foregoing, this Agreement [*] In the
event that CART makes available to CDME the rights to any additional properties,
events or series, CDME shall cover such events in accordance with all the terms
and obligations hereof. CART further appoints and CDME accepts the appointment
to develop, construct and operate during the Term the exclusive officially
authorized Site for Digital Media coverage of the Events on the terms and
conditions of this Agreement. Notwithstanding the foregoing, the exclusive
rights to the PPG Dayton Indy Lights Championship and the Kool Toyota Atlantic
Championship shall commence on the date of expiration (without extension) of
their current agreements for coverage on the Internet, which date shall be no
later than December 31, 1999. In connection with such appointment and grant,
CART hereby grants to CDME the exclusive worldwide rights and license to:
2.1.1 Use, reproduce and exploit during the Term the Marks on the
Internet, via Digital Media and in connection with the Site, as well as the
rights to use, reproduce and exploit the
[*] Confidential Treatment Requested.
3.
<PAGE> 4
Marks in any medium in connection with the promotion, marketing, advertisement
or publicity of the Site. Notwithstanding the foregoing, CDME shall not register
the name "CART Digital Media Enterprises" for trademark protection or other
similar registration. CDME shall enter into a royalty-free license agreement
with CART for the use of the mark "CART" in connection with its company name,
"CART Digital Media Enterprises". All use of the aforementioned name, and any
other name or any mark or logo utilizing the Marks shall inure to the exclusive
benefit of CART. Nothing herein shall prevent CDME from changing its company
name.
2.1.2 Subject to the restrictions in Section 2.1.9, use,
reproduce and exploit during the term the Marks on any Derivative Products, as
well as the rights to use, reproduce and exploit the marks in any medium in
connection with the promotion, marketing, advertisement or publicity of any
Derivative Product. Notwithstanding the foregoing, in connection with the sale
of any Derivative Product, it is understood that CDME shall bear any additional
third party costs of repurposing third party photographs, videotape or other
material.
2.1.3 Use for the Site Event Data and Content, whether owned,
licensed or sanctioned by CART, on a real time or other basis on the Internet,
and/or via Digital Media. All use of Event Data and Content as it relates to
site structure, architecture, navigation and branding issues shall be approved
in advance by CART, or if such approval is not practicable, shall be subject to
CART's editorial policies existing at the time of use. Content may also be used
in connection with the promotion, marketing, advertisement or publicity of the
Site or any Derivative Product.
2.1.4 CART and CDME shall work together to establish editorial
standards for the Site which are consistent with the highest standards of
journalistic integrity, and CART shall have full editorial control over the
Site.
2.1.5 Subject to Section 9 below, sell commercial partnerships
and advertising opportunities in connection with the Site.
2.1.6 Sell official Event merchandise and other e-commerce
products and services (subject to the execution of such individual promoter
agreements as may be necessary) to third parties on the Site via the Internet
and/or via Digital Media. CART agrees to use reasonable efforts to facilitate
the execution of such promoter agreements.
2.1.7 Syndicate Content and Original Content to third parties for
promotional use. All agreements for syndication must be approved in advance, in
writing, by CART. Such approval will include the right and license to use some
or all of the Marks, and shall not be unreasonably withheld, or withheld in a
manner which would result in the frustration of the purposes of this Agreement.
Nothing in this paragraph shall preclude CDME from receiving compensation for
such syndication, with such compensation to be subject to the terms of this
Agreement.
2.1.8 Sell official Event photographs to third parties via the
Internet and/or via Digital Media. It is understood by the parties that the sale
to the public of any official Event photographs shall be subject to agreement
and payment of a fee to Allsport Photography or CART's then existing Official
Photographer.
2.1.9 Create, advertise, sell and distribute through any channels
or mediums any Derivative Product. Notwithstanding the foregoing, all derivative
products (including the use of any Marks in connection therewith) must be
licensed by CART Licensed Products to CDME in a separate licensing agreement.
CART agrees not to treat CDME any differently than similarly
4.
<PAGE> 5
situated CART Licensed Product Licensees with respect to each such product.
CDME's right to distribute, advertise and sell Derivative Products shall expire
180 days after the expiration or termination of this Agreement unless otherwise
provided in the Licensing Agreement for such Derivative Product(s).
2.1.10 Sell official CART and CART Licensed Products
merchandise, products, and services to third parties on the Site via the
Internet and/or via Digital Media through December 31, 1999 subject to a license
agreement to be executed with CART Licensed Products, Inc. where a sliding scale
commission shall be paid by CART Licensed Products to CDME as set forth in
attached Exhibit D. CDME will work with CART Licensed Products to identify and
implement a phased approach to incorporate CART Licensed Products merchandise
into the site. CART Licensed Products shall promote and market the CART.com
store as the place to purchase CART associated merchandise in CART Licensed
Product's marketing activities. CART and CDME agree to work together to develop
a long term plan for handling e-commerce, it being understood and agreed that
CDME shall be included in any plan. To that end, by September 1, 1999, the
parties shall work together to develop such plan and business model, including
the addition of third party(ies), if any, as part of such long term plan.
2.1.11 Include branding and promotion for Quokka Sports, Inc. in
connection with the Site substantially equivalent to that utilized by ESPN in
connection with its broadcast coverage of sporting events, provided that any
branding shall be subject to CART's prior written approval, which approval shall
not be unreasonably delayed or withheld.
2.2 As between CDME and CART, CART shall retain all rights to the domain
name CART.com. Notwithstanding the foregoing, promptly upon execution of this
Agreement and during the Term CART shall cause control of the aforementioned
domain to be transferred to CDME, and CDME shall maintain the domain and all
corresponding domain entries. If CART ceases to have rights to the domain
CART.com (for instance, following a registration dispute), the parties will use
their best efforts to provide a new address and cooperate to ensure that there
shall be minimal interruption in service for the Site.
3. CONTRIBUTIONS OF THE PARTIES.
3.1 CDME agrees to utilize the following technology, intellectual
property, and hardware and software resources in connection with coverage of the
Events: Quokka Sports Immersion(TM) tools, technologies, rights, and know-how
including, but not limited to, the Quokka Replication System, race viewers,
Quokka Sports Feed, and production processes. CART shall have no rights to use
the foregoing for any purpose, nor shall CART acquire any rights in the
foregoing, and all rights therein shall remain with CDME or Quokka Sports, Inc.
3.2 CDME shall be responsible for constructing at its own expense and
risk the Site, including the design of the Interface, construction of the Site
infrastructure and production of Original Content. A delivery schedule is
attached as Exhibit E. If the Site has not been launched by April 1, 1999, CDME
shall pay all expenses for CART to continue its current contract for CART.com
with U.N. Productions from April 1, 1999 through the date of launch.
3.2.1 Subject to Section 2.1.3 and 2.1.4, CDME shall maintain
responsibility for all editorial, design and content aspects of the Site and
CDME shall utilize the best efforts of its creative, editorial, engineering,
technical, operations and production staff to improve the level of the current
CART digital interactive media coverage from its present state so as to remain a
5.
<PAGE> 6
leader in digital interactive media involving the Internet as well as successor
or future interactive networks.
3.2.2 As a part of the Site, CDME will provide a corporate
relations section as well as a restricted access section for press relations.
Upon request of CART, additional non-revenue generating sections will also be
added, which may result in a charge to CART. Such charge, if any, shall be based
upon actual costs to CDME. CDME shall provide to CART a quote for the provision
of such services. If CART finds a third party which will provide such services
at less cost, then CART may contract with such third party, except that prior to
such contract, CDME shall be given the opportunity to match the offer from the
third party. In the event that CDME matches the third party pricing, CART shall
use CDME for the provision of such service. The parties shall mutually agree to
the overall image for the website which in all cases shall be consistent with
CART's overall marketing strategies, branding characteristics and creative look
in the marketplace.
3.2.3 CDME will provide its QSI infrastructure (including
interfaces into the venue management system for results and scoring, remote
publishing, telemetry, QSI information system, etc.) in connection with the
Site.
3.2.4 CDME will provide full and complete management of and
operations of hosting infrastructure (T3, hardware, software, 24X7 support,
etc.) for the Site. At CDME's request, CART shall continue its current contract
with U.N. Productions with respect to CART.com from January 1, 1999 to March 31,
1999. CDME shall reimburse CART for such expense at a total sum for such period
not to exceed $[*] per month.
3.2.5 CDME will provide all customer service functions (web
master, etc.) associated with the Site, except for corporate relations, press
customer service functions, and other requested non-revenue generation section
functions which will be handled directly by CART and for which CART shall
generate all content. CDME will provide templates, remote publishing tools and
support for CART to manage these areas expeditiously and autonomously. CDME
shall perform all functions in conjunction with its role as host server for the
Site, consistent with those services normally provided by web Site servers. CDME
will use its best efforts to provide continuous, uninterrupted operation of the
Site. CDME will provide comprehensive Site maintenance, changes, additions and
any other steps reasonably necessary to maintain the integrity, quality and
performance of the Site. All major changes to the Site shall be made in a timely
manner pursuant to an agreed upon review process, before being made available to
the general public.
3.2.6 CDME will specify and manage all traffic verification as
well as analysis and research services for the Site through I-Pro, or such other
recognized independent verification group as the parties may agree upon, with
respect to mutually agreed upon audience metrics.
3.2.7 CDME will use best efforts to integrate into the Site
reciprocal links between the Site and the web sites of the racing teams,
drivers, Events and CART official sponsors (e.g. Omega and Federal Express), and
all reasonable efforts related to other major motorsport sites.
3.2.8 CDME will provide on-line Site promotion and marketing
subject to CART approval, which shall not be unreasonably withheld or delayed,
and will work closely with CART Marketing. CDME shall provide to CART the
details for such proposed efforts, it being understood that these efforts shall
be commensurate with the activities undertaken in conjunction
[*] Confidential Treatment Requested.
6.
<PAGE> 7
with the Whitbread Race Around the World or the Around Alone Race, whichever
shall be greater.
3.2.9 CART shall provide a full-time liaison, based at the CART
office, to coordinate with CART, at CDME's expense. The liaison shall be subject
to the parties' periodic mutual approval. The amount CDME shall provide under
this paragraph shall not exceed $[*] annually, plus annual increases not to
exceed [*] per annum.
3.2.10 CDME agrees to consider providing on the Site an
additional section covering the 29th Car Concept. In connection therewith, CDME
shall study such concept and present a proposal to CART no later than September
30, 1999 with respect to inclusion of such concept in the Site during the 2000
season. In the event that CDME, in its reasonable judgment, determines that any
such section is not technically feasible or financially sustainable for 2000,
then the parties shall mutually agree upon a plan for reconsidering the concept.
Any revenues from such concept shall be included within Gross Revenues
hereunder. In addition to the [*] percent [*] set forth in Section 6.1, an
additional [*] percent [*] of any subscription revenues [*] shall be paid to
CART, [*].
3.2.11 CDME also agrees to consider providing on the Site
additional sections suggested by CART. Any revenues from such sections shall be
included within Gross Revenues hereunder. In the event that CDME, in its
reasonable judgment, determines that any such section is technically feasible
and financially sustainable, but nevertheless elects not to undertake such
section, then CART shall be free to pursue such project with any third party or
in its own name, provided (1) that CDME is the systems integrator and takes
primary responsibility for integrating such section into the Site and (2) that
there shall be no use of Original Content without the payment of a mutually
acceptable sum to CDME which shall be comparable to then-existing industry
charges, but at a minimum will cover all actual costs to CDME.
3.3 As between CDME and CART, CDME shall retain all rights to the
technology, intellectual property, and resources contributed solely by CDME as
well as any Software, Interface and Original Content developed by it or its
agent(s) for CDME in connection with the Events.
3.4 Each party shall provide the other during the Term a non-exclusive,
royalty free license to use and access all content developed by it as well as
all third party content licensed by it, to the extent permitted by such third
parties, solely for use in connection with any publicity and promotion of the
Events or Site.
3.5 In connection with CDME's efforts hereunder, to the extent such
rights are available for CART to provide, CART shall provide the following at no
cost to CDME:
3.5.1 Real-time access and ability to use all audio feeds and
communications associated with the Events (e.g., CART Radio Network; driver/pit
crew; and track announcer).
3.5.2 Subject to Section 5.2.3 below, real-time access and
ability to use real-time results, timing and scoring systems and feeds. During
1999, and as long as Omega/Swiss Timing is CART's official timekeeper, access to
timing and scoring feeds [*] Omega/Swiss Timing and [*] Omega/Swiss Timing
receiving appropriate branding recognition on the Site. Thereafter, any
successor CART timing and scoring provider
[*] Confidential Treatment Requested.
7.
<PAGE> 8
shall receive appropriate branding recognition on the Site, which shall be
comparable to that provided as of the effective date of this Agreement.
3.5.3 Real-time access and ability to use official CART/Event
photographs in connection with the Site and for promotion purposes only, it
being understood that any specific sale of such photographs shall be subject to
Section 2.1.8.
3.5.4 Reasonable efforts with Event participants (e.g. teams,
drivers, crews) to provide Event Data which CART does not own, control, or have
the rights to utilize. CART may include in future participant agreements various
additional assets to be made available to CDME for the Site.
3.5.5 Access to and ability to use all historical and other
relevant information, photographs, video, audio, statistics and data under the
control or license of CART.
3.5.6 Reasonable efforts to promote the Site URL to the widest
extent possible, such reasonable efforts to include placement of the URL in TV
and radio advertisements and in broadcasts on the CART Radio Network and in
broadcasts outside the United States and placement of the URL on the starter
vest, letterhead, business cards, advertisements and other forms of printed
matter, electronic material, or broadcast material distributed by CART. CART
will also use reasonable efforts to assist CDME to secure placement of banners
or signs with the URL on high visibility spots (for spectators and broadcast
cameras) at the venues and in such other locations as may be mutually agreed, it
being understood that such additional exposure may be at an incremental cost to
CDME.
3.5.7 Subject to CART's existing agreement [*], CART will
exercise reasonable efforts with [*] to permit CDME access to and use of [*] on
the Site and for promotion of the URL. To the extent that [*] are available,
CART will use reasonable efforts to provide access to [*]. CDME recognizes that
there may be some restrictions on the use of such assets.
3.5.8 Reasonable efforts to assist CDME in obtaining a reasonable
number of preferred venue credentials, Event tickets, parking passes and
hospitality access passes (to the extent available) for its employees, sponsors
and guests, at the expense of CDME.
3.5.9 Annual all access credentials for working CDME personnel
and will exercise reasonable efforts to provide parking passes for such CDME
personnel, subject to availability.
3.5.10 Reasonable efforts to assist CDME in meeting its logistics
and venue operations needs, it being understood that, depending on the size and
amount of equipment to be utilized, a fee, in certain circumstances, may be
payable to the event promoter. CART shall use reasonable efforts to assist CDME
in its negotiations of such fees with the promoter. At least ten (10) days prior
to an Event, CDME shall provide details regarding its proposed requirements.
3.5.11 Unrestricted access to CART venues with cameras,
microphones and other equipment as necessary for CDME to acquire digital assets
and set up venue operations, subject to the provisions and restrictions in this
Agreement, including but not limited to CART's existing contractual obligations
to [*].
[*] Confidential Treatment Requested.
8.
<PAGE> 9
3.5.12 Reasonable access to CART's current on-line database, fan
club database and affinity database as well as all marketing demographics,
surveys, television ratings, and other information which may assist CDME in its
marketing and sales efforts hereunder.
4. TERM.
The Term of this Agreement shall commence on January 1, 1999, and shall
continue through and until December 31, 2003, unless extended as set forth
herein. The parties shall negotiate in good faith for the extension of this
Agreement, such negotiations to commence on or around July 1, 2002, and to
continue for at least ninety (90) days thereafter or until an agreement is
reached if sooner. If the parties are unable to reach an agreement for such an
extension, CART shall be free to enter into negotiations with third parties
regarding the rights which are the subject of this Agreement, [*].
5. RIGHT TO TERMINATE.
5.1 CART shall have the right to terminate this Agreement for the
reasons set forth below:
5.1.1 If CDME fails to maintain state of the art quality and
technological enhancements, subject to notice and an opportunity to cure as set
forth below. CART shall notify CDME in writing with respect to any alleged
failure and the parties shall meet within one (1) week thereafter to discuss
such notification. Thereafter, CDME shall have thirty (30) days in which to cure
any failure. If the default cannot be cured within thirty (30) days, but
reasonable good faith efforts have been undertaken to cure the default within
that time period, a reasonable extension of time in which to cure the default
shall be given and agreed upon between the parties.
5.1.2 If CDME fails to attain the minimum Site traffic level in
any quarter as set forth in the attached Exhibit F, subject to notice and an
opportunity to cure as set forth below. CART shall notify CDME in writing with
respect to any such failure and the parties shall meet within one (1) week
thereafter to discuss such notification. Thereafter, CDME shall have ninety (90)
days in which to increase traffic to the Site to the required level. If the Site
traffic cannot be restored within ninety (90) days, but reasonable good faith
efforts have been undertaken to cure the default within that time period, a
reasonable extension of time in which to increase the Site traffic to levels as
required by Exhibit F shall be given and agreed upon between the parties.
5.1.3 In the event that CDME or Quokka Sports, Inc. provides
similar services to an open wheel professional auto racing sanctioning body,
league or series currently domiciled in the United States which promotes
products or services competitive with those of CART.
5.1.4 If more than forty nine percent (49%) of the ownership or
other beneficial interest in CDME or Quokka Sports, Inc. is transferred, sold,
or otherwise assigned, either voluntarily or by operation of law, in one or more
transactions, to an individual or entity whose products or services are
competitive or in conflict with those of CART. Such right of termination shall
be exercised, if at all, by CART within thirty (30) days of such change in
ownership.
[*] Confidential Treatment Requested.
9.
<PAGE> 10
5.2 CDME shall have the right to terminate this Agreement for the
reasons set forth below:
5.2.1 The failure of the parties to reach a mutually acceptable
manner in which to incorporate e-commerce revenue opportunities within the Site
following the conclusion of the discussions provided for in Section 2.1.10
above.
5.2.2 If more than forty nine percent (49%) of the ownership or
other beneficial interest in CART is transferred, sold, or otherwise assigned,
either voluntarily or by operation of law, in one or more transactions, to an
individual or entity whose products or services are competitive or in conflict
with those of CDME or Quokka Sports, Inc. Such right of termination shall be
exercised, if at all, by CDME within thirty (30) days of such change in
ownership.
5.2.3 [*].
5.3 Either party shall have the right to terminate this Agreement upon
the material breach of any term of this Agreement which is not cured within
sixty (60) days after notice of such breach to the other party.
5.4 Upon termination or expiration of this Agreement, all intellectual
property rights shall revert to their owners, as determined by this Agreement.
5.4.1 Upon the request of CART, CDME shall ensure that the Site
shall remain active and be serviced by CDME for up to 180 days following
termination or expiration of this Agreement, which shall allow CART sufficient
time to obtain another provider. Upon the expiration of 180 days, or CART's
notice to CDME, servicing of the Site by CDME shall cease. If CART opts to
exercise this option, a fee payment from CART to CDME shall be mutually agreed
upon.
6. REVENUES.
6.1 As a license fee for all rights and services herein, CDME shall pay
to CART [*] percent [*] of all Gross Receipts generated hereunder over the Term
with a minimum guarantee of [*], which minimum guarantee shall be payable as
follows: Year 1-$[*] shall be payable upon execution of this Agreement; Year
2-$[*]; Year 3-$[*]; Year 4-$[*]; and Year 5-$[*]. The guaranteed sums for years
2, 3, 4 and 5 shall be paid in two (2) equal installments, not later January 1
and July 1 of each such year. Gross Receipts shall mean all revenue (including
value in-kind) actually received by CDME, including, but not limited to revenue
from [*], and [*]. Gross receipts shall not include any sums received by CDME
which are returned for any reason at law or equity. Value in-kind will be valued
based upon best customer pricing, as determined by the applicable vendor. No
commercial partnerships or advertising shall be sold by CDME in conjunction with
other Quokka Sports' projects unless the following procedure has transpired. All
sales shall be subject to the restrictions of Section 7. At any time, CDME or
CART may [*]. CART shall have the right for a period of twenty one (21) days
thereafter to [*]
[*] Confidential Treatment Requested.
10.
<PAGE> 11
[*]. Having purchased a category, CART or Quokka Sports would be free to resell
such packages at a higher price if it so chooses without any duty to account for
or otherwise share revenues over and above the agreed price.
6.2 In addition to the sums set forth in Section 6.1, CDME shall also
pay a Referral Fee of [*] percent [*] of the first years' Net Sales Price (as
defined below) to CART, the CART racing teams, the CART drivers or CART event
promoters, as the case may be, for the successful referral of any commercial
partner to CDME for the Site for the first year of any deal. Thereafter, in the
case of any multi-year deal, the Referral Fee shall be [*] percent [*] of the
Net Sales Price for each such additional year of such agreement, including any
option periods exercised as provided for in such agreement. Net Sales Price
shall mean the gross sales price of the contract less any applicable agency
commission or fee. For an entity or person to qualify for a Referral Fee, that
person or entity must have provided substantial and material assistance and
ongoing support in obtaining a binding contract. Substantial and material
assistance shall mean the introduction of CDME to the person who ultimately
agrees to the binding contract or an employee of the contracting company, or an
agent who was involved in the sales process. For a Referral Fee to be paid to a
person or entity, a commercial partner must enter into a binding contract with
CDME. Only one Referral Fee shall be payable on any contract. Any Referral Fee
shall only be computed on a quarterly basis and shall be due and payable only on
any sums actually received in connection with such contract.
6.3 CDME shall compute its Gross Receipts on a quarterly basis in
accordance with generally accepted accounting principles and shall distribute to
CART any excess sums due over and above the minimum guaranteed license fee with
a statement thereof within ninety (90) days after the conclusion of each
calendar year. CART shall have the right to examine CDME's books and records
with respect to any statements rendered. Except as stated below, such
examination shall be at CART's sole expense and shall be commenced not earlier
than ten (10) days after the date of such notice by any independent accountant
designated by CART provided any such person shall sign a standard
confidentiality agreement reasonably acceptable to CDME. If the examination
reveals that CDME failed to account for and properly pay fees due to CART
hereunder in an amount exceeding five percent (5%) of the fees actually paid and
accounted for, then CDME shall pay CART such past due amounts with interest at
the Prime Rate as determined by the Wall Street Journal, and reimburse CART for
the total cost of the examination. Such examinations shall be made during CDME's
usual business hours and CDME shall make available to CART for inspection any
and all books and records reasonably requested in the format maintained with
respect to such statements. CART shall have the right to audit CDME's books and
records no more than once in any twelve (12) month period. CART agrees that it
shall not have any right to audit any item more than two (2) years old and may
not seek information on or dispute any items not included within the audit
period.
7. COMMERCIAL PARTNERSHIPS AND SITE ADVERTISING.
CDME will provide for all [*] in connection with the Site, subject to
the terms and conditions contained in this Agreement. In connection with the
sale of commercial partnership opportunities and advertising on the Site,[*]:
(1) [*]
[*] Confidential Treatment Requested.
11.
<PAGE> 12
[*]; (2) [*], which approval would not be unreasonably withheld; (3) [*], which
approval would not be unreasonably withheld; (4) [*] would meet on such regular
basis as is necessary in order to ensure that there is substantial communication
and continuity between the parties with respect to their individual endeavors to
secure [*] and [*]; it is understood that the parties will work together in good
faith to assist each other in [*], and if necessary, the parties will each agree
to [*]; and (5) [*]. All commercial partnership and advertising sales shall, to
CART's reasonable satisfaction, be in good taste.
8. EQUITY CONSIDERATION.
Concurrently with the execution and delivery of this Agreement, CDME
will cause Quokka Sports, Inc. to issue to CART the Quokka Warrants as set forth
in Exhibit G.
9. CART SPONSOR PROTECTION.
CDME will provide for all advertising and commercial partnership sales
in connection with the Site, subject to the following conditions: (i) CART will
identify a limited number of categories where CDME will only approach one
company designated by CART about a commercial partnership. These companies shall
be designated in a list of current CART official sponsors to be appended hereto
as Exhibit K such list to identify the expiration dates of such Sponsor
relationships. Once a current CART sponsor agreement expires, then such company
will be handled in accordance with the procedures set forth in subsection (iii)
hereof If CDME were unable to sell such company any commercial partnership
packages, then CDME will not approach any competitors; (ii) CART will use all
appropriate efforts to introduce the CDME sales team to key personnel at the
companies designated under (i) above; (iii) As to other important CART
customers, CDME will negotiate first with such companies for such packages. If
CDME is unable to reach an agreement with such companies, then CDME is free to
approach and sell a package to any competitor; (iv) CART and CDME shall have the
opportunity to purchase one or more of the categories at a predetermined price.
Having purchased a category, CDME or CART is free to resell such packages at a
higher price if it so chooses without any duty to account for or otherwise share
revenues with the other party; and (v) Notwithstanding the foregoing, it is
understood that as to sponsor negotiations currently in progress by CART,
website involvement already committed by CART shall be honored and shall not be
considered as advertising and commercial partnership sales for purposes of this
Agreement. Subject to the terms stated above, CART releases all categories of
commercial partnership to CDME (except for tobacco and subject to the other
constraints described in this Agreement) for the duration of this Agreement.
CDME will agree not to sell site commercial partnerships competitive with CART
sponsors identified in Exhibit H until the current respective agreement
terminates, at which time the specific category would be released by CART to
CDME, as provided above. Prior to the release of the category, CDME will agree
to continue all applicable brand identification on the site in no less
prominence than currently exists.
[*] Confidential Treatment Requested.
12.
<PAGE> 13
10. SANCTIONING.
CART warrants that the Events are CART sanctioned and will be conducted
in accordance with all applicable rules and regulations and all international,
foreign, federal, state, and local laws.
11. NAME AND LIKENESS.
To the extent that CART owns or licenses such rights, CDME and any of
its licensees shall have the right and, to the extent provided for in this
Agreement, may grant to others the right to reproduce, print, publish or
disseminate in any medium the names, likenesses, voice and biographical material
of CART, the participants in the Events, including their sponsors, or any person
appearing in or connected with the Events as news or information, for use on the
Site or for Site advertising purposes (including without limitation
institutional advertising) and including but not limited to the advertising and
promotion of the coverage hereunder and in connection therewith the products or
services of any advertiser or commercial partner thereof, provided, however,
that there shall be no direct or implied endorsement by any such persons of any
product or service without such person's prior written consent.
12. WARRANTIES OF CART.
CART warrants, represents and undertakes to CDME as follows:
12.1 that it is a company duly incorporated under the laws of the State
of Delaware and that it has the power and authority to enter into and to perform
all obligations under this Agreement;
12.2 that nothing in the Event Data, the Marks, the Content or the
other data and information which is provided to CDME hereunder by CART shall
infringe the copyright, trade marks or other intellectual property rights of any
person or entity;
12.3 that CART has the right to grant to CDME all of the rights granted
in this Agreement, that CART is not presently a party to any Agreement which
conflicts with the rights and terms hereof and that CART will not grant any
rights which might interfere or derogate the rights granted herein;
12.4 that CART shall conduct a minimum of 18 Events pursuant to an
annually published schedule;
12.5 that the participants in the Events shall be of comparable ability
to those participating in previous versions of the Events;
12.6 that all representations to CDME by CART and all representations
made by CART to third parties about any and all elements of the Events are and
shall be accurate and true in every respect.
12.7 that all publicity which it issues or disseminates or otherwise
makes available concerning all elements of the Events will be accurate and true
in all respects, to the best of CART's own knowledge.
13.
<PAGE> 14
13. WARRANTIES OF CDME.
CDME warrants, represents and undertakes to CART as follows:
13.1 that it is a company duly organized under the laws of the state of
Delaware and that it has the power and authority to enter into and to perform
all obligations under this Agreement;
13.2 that nothing generated by CDME with respect to coverage of the
Events shall infringe the copyright, trade marks or other intellectual property
right of any person or entity.
13.3 that all representations to CART by CDME and all representations
made by CDME to third parties about any and all elements of the Site are and
shall be accurate and true in every respect.
14. DISCLAIMER.
THE WARRANTIES SET FORTH IN SECTIONS 12 AND 13 OF THIS AGREEMENT ARE THE
SOLE AND EXCLUSIVE WARRANTIES OF THE PARTIES HERETO IN CONNECTION WITH THIS
AGREEMENT, AND THE PARTIES HEREBY EXPRESSLY DISCLAIM ANY OTHER WARRANTIES
WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT, LIMITATION THE WARRANTIES OF
TITLE,, NON-INFRINGEMENT, FITNESS FOR A PARTICULAR PURPOSE AND MERCHANTABILITY.
15. INDEMNIFICATION.
15.1 CART shall indemnify and hold harmless CDME, its members and
employees and any person, firm or corporation deriving rights from CDME from and
against any and all claims, damages, liabilities, costs and expenses (including
reasonable counsel fees), arising out of (1) any use of the coverage as
permitted hereunder (including without limitation the Event Data); and (2) a
breach of any warranty, representation or undertaking made by or undertaken by
CART herein. CDME shall promptly notify CART of any claim to which the above
indemnity applies and CART shall defend the same at its own expense. CDME will
cooperate in the defense of any such claim at the reasonable request and at the
expense of CART. Notwithstanding the foregoing, CART shall not indemnify CDME to
the extent that the foregoing would not have occurred but for the actions of
CDME.
15.2 CDME shall indemnify and hold harmless CART and its employees and
any person, firm or corporation deriving rights from CART from and against any
and all claims, damages, liabilities, costs and expenses (including reasonable
counsel fees), arising out of (1) CDME's actual coverage of the Events; or (2) a
breach of any warranty, representation or undertaking made by or undertaken by
CDME herein. CART shall promptly notify CDME of any claim to which the above
indemnity applies and CDME shall defend the same at its own expense. CART will
cooperate in the defense of any such claim at the reasonable request and at the
expense of CDME. Notwithstanding the foregoing, CDME shall not indemnify CART to
the extent that the foregoing would not have occurred but for the actions of
CART.
14.
<PAGE> 15
16. COPYRIGHT AND OTHER RIGHTS.
16.1 Each Party shall own all worldwide copyright and other intellectual
property interests in the content it has provided to the Site; i.e., CDME shall
retain its rights in all Original Content, Interfaces and Software as stated in
Section 3.3 above, and CART shall retain its rights in all Content. Each party
shall have the unrestricted and unencumbered right to use and reuse or to
assign, license, sell or otherwise exploit, the copyright and other property
right interests which it owns hereunder except as otherwise provided in this
Agreement. The copyright notice on the Site shall include the following
notation: "(C) (year) CART Digital Media Enterprises, L.L.C.; Material provided
by CART (C) (year) Championship Auto Racing Teams, Inc.," with a link to a page
which will describe in reasonable detail the copyrighted and other contributions
of the parties.
16.2 CDME shall own all rights to the information about and access to
the people who visit or register with the Site, to the extent that it may
lawfully own such rights. Notwithstanding the foregoing, certain information as
listed hereafter shall be jointly owned by CDME and CART. Such jointly owned
information shall consist solely of information sent to or coming through
[email protected] <mailto:[email protected]>, [email protected] <mailto:[email protected]>,
subscriber information with respect to the CART Newsletter, CART Winners Circle
Club, CART Kids Coloring Contest, individuals purchasing through the CART Store
and such other areas of the Site as may be mutually agreed, as well as mutually
agreed Site traffic information. Such Site traffic information may be published
by CART. All other information provided by CDME to CART is for internal CART use
and may only be distributed with the prior written approval of CDME. Any usage
of subscriber information shall be subject to the limitations of the Site's
Privacy Policy which shall be mutually agreed upon by the parties.
16.3 Unless otherwise agreed, CART and CDMEs' suppliers and providers will
retain all worldwide copyright and other intellectual property interest in the
content they provide to the Site and CDME shall include an appropriate notice.
17. FORCE MAJEURE.
17.1 If CDME's coverage of any of the Events is prevented or omitted in
its entirety because of acts of God; accident; fire; lockout; strike or other
labor dispute; riot or civil commotion; act of public enemy; enactment, rule,
order or act of any government or any governmental authority or instrumentality
(whether federal, state, local or foreign); failure of technical facilities
beyond the reasonable control of CDME; or other cause of a similar or different
nature beyond CDME's control ("Force Majeure Event"); it shall not be, and shall
not be deemed to be, a breach of this Agreement by CDME to perform its
obligations hereunder during the duration of a Force Majeure Event, and
performance of CDME's obligations in connection with the affected Events shall
be excused for the duration of the Force Majeure Event and for a reasonable
period thereafter; provided that CDME shall use reasonable efforts to minimize
the extent of the delay in performance caused by the Force Majeure Event.
17.2 Notwithstanding anything to the contrary in Section 17.1, if for
any reason beyond CART's control (including without limitation adverse weather
conditions) any of the Events are not held on the scheduled dates, CART shall
immediately notify CDME of the rescheduled date(s) of the Events, if any, and
CDME, at its sole election, shall have the right either (i) to continue with
coverage of the Events on the rescheduled date(s) pursuant to the terms and
conditions hereof, or (ii) to choose not to cover any such delayed Event. In the
event that CDME
15.
<PAGE> 16
chooses option (ii) above, such choice shall not be, and shall not be deemed to
be, a breach of this Agreement, and the terms and conditions of this Agreement
otherwise shall remain in full force and effect.
18. INDEPENDENT CONTRACTORS.
Nothing herein contained shall constitute or be construed as the
creation of any agency, partnership or joint venture relationship between the
parties hereto. Neither party shall have the right to obligate or bind the other
in any manner whatsoever, and nothing herein contained shall give or is intended
to give any rights of any kind to any third persons. The relationship of the
parties shall be as independent contractors.
19. CONFIDENTIALITY.
The parties acknowledge that this Agreement and its terms shall be
confidential, except as required or reasonably necessary to comply with laws,
statutes, regulations, orders, and other governmental rules, including, without
limitation, any voluntary filing under the Securities Act of 1933, as amended,
or the Securities and Exchange Act of 1934, as amended. The parties further
acknowledge that, in the course of performing duties under this Agreement, each
party may obtain from the other party data or information of a confidential or
proprietary nature, including know-how and trade secrets, relating to the
business, the affairs, the development projects, or current or future products
or services of such party ("Confidential Information"). Confidential Information
may be disclosed to a party in writing, in other tangible form (including
e-mails), orally, or visually. Neither party will at any time either ~i)
publish, disclose or otherwise divulge any of the other party's Confidential
Information to any person, except its officers and employees under a contractual
duty to maintain the confidentiality of such information consistent with the
obligations imposed hereunder; or (ii) permit its officers or employees to
divulge any of the other party's Confidential Information without the express
prior written consent of the other party. Neither party shall use the other
party's Confidential Information except in the course of performing its duties
under this Agreement. Upon the other party's request or expiration or
termination of this Agreement for any reason, each party will immediately return
to the other party all of the other party's Confidential Information in its
possession, custody or control. The foregoing obligations will not apply to any
Confidential Information that (1) is already known to the receiving party; (2)
is or becomes publicly known through no wrongful act of the receiving party; (3)
is independently developed by the receiving party without use or benefit of the
disclosing party's Confidential Information or personnel who had access to the
same; (4) is received from a third party without similar restriction and without
breach of any obligation of confidentiality; or (5) is required to be disclosed
pursuant to a statutory or regulatory provision or court order, to the demanding
body and to the extent of such required disclosure only following notification
by the receiving party to the disclosing party of the request and notification
to the court or regulatory body of the confidential nature of the information.
Additionally, neither party shall be prohibited from disclosing the terms and
conditions of this agreement for any financing purposes if such is subject to
confidentiality agreements as protective as this Section 19. This paragraph
shall survive the termination or expiration of this Agreement.
20. NOTICE.
All notices, approvals, consents, waivers, and other communications
intended to have legal effect with regard to this Agreement must be given in
writing and delivered to the other party at the address set forth below by (a)
postage pre-paid, certified mail (return receipt requested); (b) Federal
Express; or (c)facsimile transmission (receipt confirmed, with a copy sent by
postage pre-
16.
<PAGE> 17
paid, certified mail), and will be effective upon receipt. Each party
may change its address for receipt of notices by giving notice of the new
address to the other party.
21. FURTHER ASSURANCES.
Each party agrees to execute and provide all such assurances, acts,
documents and things (including, without limitation, further or other legal or
beneficial assignments, transfers, grants, charges, copyright registrations and
any formalities required by any jurisdiction in any part of the universe) in
such location and such manner as the other party may from time to time
reasonably require in connection with perfecting or protecting or enforcing any
provision of this Agreement including assignments or rights granted to such
party hereunder.
22. LIMITATION IN LIABILITY; REMEDIES.
Neither party shall be liable to the other party for any incidental,
indirect, consequential, special, or punitive damages of any kind or nature
arising under or relating to this Agreement, whether such liability is asserted
on the basis of contract, tort (including negligence or strict liability), or
otherwise, even if either party has warned or been warned of the possibility of
any such loss or damage. This Section 22 is not intended to limit the
indemnification obligation of the parties with respect to third party claims
pursuant to Section 15 hereof.
23. GENERAL PROVISIONS.
23.1 This Agreement is the entire agreement of the parties. All prior
understandings, oral or written, if any, including but not limited to that
certain Letter of Agreement executed by the parties on January 4, 1999, have
been merged herein, or, if not merged, are hereby canceled. No representations
have been made except those expressly set forth herein.
23.2 Any amendment or discharge of this Agreement must be in writing and
signed by an officer of the party.
23.3 This Agreement may not be assigned in whole nor in part by either
party without the other party's prior written consent, which consent shall not
be unreasonably withheld. This agreement shall be binding upon both CART and
CDME and their successors and permitted assignees.
23.4 Nothing in this Agreement shall be construed so as to require the
commission of any act contrary to law, and whenever there is any conflict
between any provision of this Agreement and any material statute, law,
ordinance, rule or regulation, the latter shall prevail, but in such event, any
provisions of this Agreement so affected shall be curtailed and limited only to
the extent necessary to bring them within the applicable requirements, and the
remainder of this Agreement shall continue in full force and effect. The parties
hereby agree that they shall comply with the requirements of the U.S. Foreign
Corrupt Practices Act (the "Act") and shall refrain from any payments to third
parties which would cause either party to violate the Act.
23.5 Any dispute arising under this Agreement shall be promptly
submitted to and heard and determined by the American Arbitration Association
pursuant to its commercial arbitration rules in effect at the time of any
dispute. The determination of the arbitrator shall be binding on the parties,
shall not be appealable, and judgment on the award rendered may be entered in
any court having jurisdiction on the matter. The prevailing party (as determined
by the
17.
<PAGE> 18
arbitrator) shall be entitled to recover from the other party all costs
and expenses (including but not limited to attorney fees) incurred in enforcing
its rights under the arbitration process.
23.6 A waiver by either party of any term or condition of this Agreement
in any instance shall not be deemed or construed as a waiver of such term or
condition for the future or any subsequent breach thereof. All rights, remedies,
undertakings, obligations and agreements contained in this Agreement shall be
cumulative and none of them shall be in limitation of any other right, remedy,
undertaking, obligation or agreement of either party.
23.7 The headings hereunder are for ease of reference only and are not
part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement this
20th day of March 1999.
CHAMPIONSHIP AUTO RACING TEAMS, INC.
By: [SIGNATURE ILLEGIBLE]
---------------------------------
Name: ILLEGIBLE
------------------------------
Title: Chairman and CEO
-----------------------------
CART DIGITAL MEDIA
ENTERPRISES, LLC, by its
members:
By: /s/ R. H. WILLIAMS
---------------------------------
R. H. Williams, Manager
Dated: 3-20-99
------------------------------
By: /s/ GERALD R. FORSYTHE
---------------------------------
Gerald R. Forsythe, Manager
Dated: 3-20-99
-----------------------------
18.
<PAGE> 19
EXHIBIT A
LIST OF ASSETS TO BE PROVIDED AS EVENT DATA
(subject to editorial guidelines)
Official Radio Broadcaster Audio (subject to CART Radio Network Agreement)
Pace Car Communications (CDME shall be responsible for compliance with all
applicable laws, rules and regulations, including FCC compliance)
Driver/Pit Crew (Team Radio) Communications (subject to agreement with each
team; CDME shall be responsible for compliance with all applicable laws, rules
and regulations, including FCC compliance)
Track Announcer Audio (subject to informing and agreement by CART's race
promoters)
Results and Scoring Feeds and Data [*]
Timing Data in its final form
Statistical Data
Historical Information, Data, and Statistics (including Photographs, video and
audio) related to the events and the racers
Official Rulings
Circuit Data
Official Still Photographs [*]
Written materials in which CART owns the copyright
Participant Biographical Information
Event Access
[*] Confidential Treatment Requested.
<PAGE> 20
EXHIBIT B
TRADEMARKS
CART - name & logo
FEDEX CHAMPIONSHIP SERIES - name & logo
INDY LIGHTS SERIES - name & logo
TOYOTA ATLANTIC SERIES - name & logo
CART KIDS - name & logo
CART WINNER'S CIRCLE CLUB - name & logo
CHAMP CARS
CHAMPIONSHIP CARS
FEEL THE SPEED
Future Event-related marks will be provided subject to mutual agreement.
<PAGE> 21
EXHIBIT C
COPYRIGHT AND TRADEMARK NOTICES
All contents of this Web site are: (C)1999 CART Digital Media Enterprises, LLC;
Material provided by CART (C)1999 Championship Auto Racing Teams, Inc. All
rights reserved.
[list from exhibit] are trademarks or registered trademarks of Championship Auto
Racing Teams, Inc. Other product and company names mentioned herein may be the
trademarks of their respective owners.
USE LIMITATIONS
This Web Site is for the User's personal, non-commercial use. User may not
modify, copy, distribute, transmit, display, perform, reproduce, publish,
license, create derivative works from, transfer, or sell any information,
software, products or services obtained from this Web Site. As a condition of
use of this Web Site, User warrants to CDME and CART that User will not use this
Web Site for any purpose that is unlawful or prohibited by these terms,
conditions, and notices.
LIABILITY DISCLAIMER
THE INFORMATION SOFTWARE, PRODUCTS, AND SERVICES PUBLISHED ON THIS WEB SITE MAY
INCLUDE INACCURACIES OR TYPOGRAPHICAL ERRORS. CHANGES ARE PERIODICALLY ADDED TO
THE INFORMATION HEREIN. CART DIGITAL MEDIA ENTERPRISES, LLC (CDME) AND
CHAMPIONSHIP AUTO RACING TEAMS, INC. (CART) MAY MAKE IMPROVEMENTS AND/OR CHANGES
IN THIS WEB SITE AT ANY TIME.
CDME AND CART MAKE NO REPRESENTATIONS ABOUT THE SUITABILITY OF THE INFORMATION,
SOFTWARE, PRODUCTS, AND SERVICES CONTAINED ON THIS WEB SITE FOR ANY PURPOSE. ALL
SUCH INFORMATION, SOFTWARE, PRODUCTS, AND SERVICES ARE PROVIDED "AS IS" WITHOUT
WARRANTY OF ANY KIND. CDME AND CART HEREBY DISCLAIM ALL WARRANTIES AND
CONDITIONS WITH REGARD TO THIS INFORMATION, SOFTWARE, PRODUCTS, AND SERVICES,
INCLUDING ALL IMPLIED WARRANTIES AND CONDITIONS OF MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE, TITLE AND NON-INFRINGEMENT. IN NO EVENT SHALL CDME OR CART
BE LIABLE FOR AND DIRECT, INDIRECT, PUNITIVE, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE USE OF
THIS WEB SITE OR WITH THE DELAY OR INABILITY TO USE THIS WEB SITE, OR OTHERWISE
ARISING OUT OF THE USE OF THIS WEB SITE, WHETHER BASED ON CONTRACT, TORT, STRICT
LIABILITY, OR OTHERWISE, EVEN IF CDME OR CART HAS BEEN ADVISED OF THE
POSSIBILITY OF DAMAGES. BECAUSE SOME STATES/JURISDICTIONS DO NOT ALLOW THE
EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES,
THE ABOVE LIMITATION MAY NOT APPLY TO YOU.
[privacy policy to be added]
<PAGE> 22
EXHIBIT D
CART LICENSED PRODUCTS
SLIDING SCALE COMMISSION FOR 1999
[*] Base -- $[*]
<TABLE>
<CAPTION>
If Gross Sales Exceed the Base by Commission to be paid on all Gross
Sales shall be
<S> <C>
0-50%...................................... [*]
51%-100%................................... [*]
101% - 150% ............................... [*]
151% - 200%................................ [*]
201%+ ..................................... [*]
</TABLE>
Commissions shall be paid on a quarterly basis. Based upon the annual Gross
Sales figures, CART Licensed Products shall provide any incremental commission
payment to CDME by February 2000.
[*] Confidential Treatment Requested.
<PAGE> 23
EXHIBIT E
DELIVERY SCHEDULE
cart.com Phase I
*Basic site
*Key QSI elements
*CART business section
Assemble Team December, 1998
Start Production January 1, 1999
Initial Creative Complete January 15, 1999
Alpha Site February 15, 1999
Beta/Preview Site March 3, 1999
Go Live March 16, 1999
<PAGE> 24
EXHIBIT F
SITE TRAFFIC
<TABLE>
<CAPTION>
YEAR 1998 1999 2000 2001 2002 2003
- --------------- ------------- ------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Visits [*] [*] [*] [*] [*] [*]
(millions)
% Change year Approx. [*] [*] [*] [*] [*]
on year [*]
</TABLE>
[*] Confidential Treatment Requested.
<PAGE> 25
WARRANTS
<PAGE> 26
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE [*] SHARES
OF SERIES C PREFERRED STOCK OF
QUOKKA SPORTS, INC.
(Void after March 19, 2004)
This certifies that CHAMPIONSHIP AUTO RACING TEAMS, INC. or its assigns (the
"Holder"), for value received, is entitled to purchase from QUOKKA SPORTS, INC.,
a Delaware corporation (the "Company") having a place of business at 525 Brannan
Street, San Francisco, California, a maximum of [*] fully paid and nonassessable
shares of Warrant Stock (as defined below) for cash at such time(s) as set forth
below and at a purchase price of $[*] per share (the "Stock Purchase Price")
up to and including 5:00 p.m. (Pacific time) on the date five (5) years from the
date of this Warrant, such date being referred to herein as the "Expiration
Date," upon surrender to the Company at its principal office (or at such other
location as the Company may advise the Holder in writing) of this Warrant
properly endorsed with the Form of Subscription attached hereto duly filled in
and signed and, if applicable, upon payment in cash or by check of the aggregate
Stock Purchase Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Stock
Purchase Price and the number of shares purchasable hereunder are subject to
adjustment as provided in Section 3 of this Warrant. The term "Warrant Stock"
refers to the Company's Series C Preferred Stock and any other securities at any
time receivable or issuable upon exercise of this Warrant.
Notwithstanding anything contained herein to the contrary, in the event the
Agreement (the "Agreement"), dated effective as of January 1, 1999, between the
Holder and CART DIGITAL MEDIA ENTERPRISES, LLC ("CDME"), or any other agreement
entered into among the Holder, the Company and CDME (or any combination thereof)
pursuant to the Agreement, is terminated, either by the Company or CDME as a
result of uncured material breach by Holder or by Holder for other than an
uncured material breach by the Company or CDME, such an event (the "Termination
Event") will cause this Warrant to become immediately void and the date of such
Termination Event (the "Termination Date") will be deemed the "Expiration Date"
for purposes hereof. Notwithstanding anything contained herein to the contrary
however, upon a Termination Event, the Holder will have ninety (90) days from
the Termination Date to exercise this Warrant to the extent of the Vested
Portion as of the Termination Date (as determined under Section 1.1 below).
[*] Confidential Treatment Requested.
<PAGE> 27
This Warrant is subject to the following terms and conditions:
1. VESTING; EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 VESTING. The portion of this Warrant that is exercisable at any
given time is determined by the chart below and is referred to as the "Vested
Portion."
<TABLE>
<CAPTION>
VESTING DATE:
DATE SHARES ARE STOCK
VESTED PORTION FIRST EXERCISABLE PURCHASE PRICE
-------------- ----------------- --------------
<S> <C> <C>
[*] [*] [*]
</TABLE>
1.2 EXERCISE. The Vested Portion of this Warrant is exercisable at
the option of the Holder, at any time or from time to time up to the Expiration
Date for all or any part of the shares of Warrant Stock (but not for a fraction
of a share) which may be purchased hereunder. The Company agrees that the
shares of Warrant Stock purchased under this Warrant shall be and are deemed to
be issued to the Holder hereof as the record owner of such shares as of the
close of business of the date on which this Warrant shall have been surrendered,
properly endorsed, the completed, executed Form of Subscription delivered and
payment made for such shares. Certificates for the shares of Warrant Stock so
purchased; together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense within a reasonable time after the
rights represented by this Warrant have been so exercised. In case of a
purchase of less than all the shares which may be purchased under this Warrant,
the Company shall cancel this Warrant and execute and deliver a new Warrant or
Warrants of like tenor for the balance of the shares purchasable under the
Warrant surrendered upon such purchase to the Holder hereof within a reasonable
time. Each stock certificate so delivered shall be in such denominations of
Warrant Stock as may be requested by the Holder hereof and shall be registered
in the name of such Holder.
1.3 NET ISSUE EXERCISE. Notwithstanding any provisions herein to
the contrary, if the fair market value of one share of the Company's Warrant
Stock is greater than the Stock Purchase Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at
the principal office of the Company together with the properly endorsed Form of
Subscription and notice of such election in which event the Company shall issue
to the Holder a number of shares of Warrant Stock computed using the following
formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Warrant Stock to be issued to
the Holder
[*] Confidential Treatment Requested.
2.
<PAGE> 28
Y = the number of shares of Warrant Stock purchasable under the
Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled (at
the date of such calculation)
A = the fair market value of one share of the Company's Warrant
Stock (at the date of such calculation)
B = Stock Purchase Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, fair market value of one share of Warrant
Stock shall be determined by the Company's Board of Directors in good faith;
provided, however, that in the event the Company makes an initial public
offering of its Common Stock (the "Initial Public Offering") the fair market
value per share shall be the product of (i) the per share offering price to the
public of the Initial Public Offering if the exercise occurs upon the closing of
the Company's Initial Public Offering or, if later, the closing price of the
Company's Common Stock on the date of exercise, and (ii) the number of shares of
Common Stock into which each share of Warrant Stock is convertible at the time
of such exercise.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all shares of Warrant Stock which may be issued upon the
exercise of the rights represented by this Warrant (and shares of its Common
Stock for issuance on conversion of such Warrant Stock) will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Warrant Stock and Common Stock, or other securities and property, when
and as required to provide for the exercise of the rights represented by this
Warrant. The Company will take all such action as may be necessary to assure
that such shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Warrant Stock or Common Stock may be listed; provided,
however, that the Company shall not be required to effect a registration under
Federal or State securities laws with respect to such exercise. The Company will
not take any action which would result in any adjustment of the Stock Purchase
Price (as set forth in Section 3 hereof) (i) if the total number of shares of
Warrant Stock issuable after such action upon exercise of all outstanding
warrants, together with all shares of Warrant Stock then outstanding and all
shares of Warrant Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of Warrant Stock then authorized by the Company's
Certificate of Incorporation, or (ii) if the total number of shares of Common
Stock issuable after such action upon the conversion of all such shares of
Warrant Stock, together with all shares of Common Stock then issuable upon
exercise of all options and upon the conversion of all such shares of Warrant
Stock, together with
3.
<PAGE> 29
all shares of Common Stock then outstanding and all shares of Common Stock then
issuable upon exercise of all options and upon the conversion of all
convertible securities then outstanding would exceed the total number of shares
of Common Stock then authorized by the Company's Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase (subject to the other provisions hereof), at the Stock Purchase Price
resulting from such adjustment, the number of shares obtained by multiplying
the Stock Purchase Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment, and dividing the product thereof by the Stock Purchase Price
resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Warrant Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Warrant Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 DIVIDENDS IN WARRANT STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holders of Warrant
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Warrant Stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or exchangeable
for Warrant Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other distribution,
(b) any cash paid or payable otherwise than as a cash dividend,
or
(c) Warrant Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares of similar corporate rearrangement, (other than shares of
Warrant Stock issued as a stock split or adjustments in respect of which shall
be covered by the terms of Section 3.1 above), then and in each such case, the
Holder hereof shall, upon the exercise of this Warrant, be entitled to receive,
in addition to the number of shares of Warrant Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of stock
and other securities and property (including cash in the cases referred to in
clause (b) above and this clause (c)) which such Holder would hold on the date
of such exercise had he been the holder of record of such Warrant Stock as of
the date on which holders of Warrant Stock received or became entitled to
receive such shares of all other additional stock and other securities and
property.
4.
<PAGE> 30
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If
any recapitalization, reclassification or reorganization of the capital stock of
the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets or other
transaction shall be effected in such a way that holders of Warrant Stock shall
be entitled to receive stock, securities, or other assets or property (an
"Organic Change"), then, as a condition of such Organic Change, lawful and
adequate provisions shall be made by the Company whereby the Holder hereof shall
thereafter (subject to the other provisions hereof) have the right to purchase
and receive (in lieu of the shares of the Warrant Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby) such shares of stock, securities or other assets or
property as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Warrant Stock equal to the number of shares of
such stock immediately theretofore purchasable and receivable upon the exercise
of the rights represented hereby; provided, however, that in the event the value
of the stock, securities or other assets or property (determined in good faith
by the Board of Directors of the Company) issuable or payable with respect to
one share of the Warrant Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby is
in excess of the Stock Purchase Price hereof effective at the time of a merger
and securities received in such reorganization, if any, are publicly traded,
then this Warrant shall expire unless exercised prior to such Organic Change. In
the event of any Organic Change, appropriate provision shall be made by the
Company with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof (including, without limitation, provisions
for adjustments of the Stock Purchase Price and of the number of shares
purchasable and receivable upon the exercise of this Warrant) shall thereafter
be applicable, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company will not effect any
such consolidation, merger or sale unless, prior to the consummation thereof,
the successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by written
instrument reasonably satisfactory in form and substance to the Holders of a
majority of the warrants to purchase Warrant Stock then outstanding, executed
and mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver to
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase.
3.4 CONVERSION OF WARRANT STOCK. In case all or any portion of the
authorized and outstanding shares of Warrant Stock of the Company are redeemed
or converted or reclassified into other securities or property pursuant to the
Company's Certificate of Incorporation or otherwise, or the Warrant Stock
otherwise ceases to exist, then, in such case, the Holder of this Warrant, upon
exercise hereof at any time after the date on which the Warrant Stock is so
redeemed or converted, reclassified or ceases to exist (the "Triggering Date"),
shall receive, in lieu of the number of shares of Warrant Stock that would have
been issuable upon such exercise immediately prior to the Triggering Date, the
shares of Common Stock of the Company that would have been received if this
Warrant had been exercised in full and the Warrant Stock received thereupon had
been simultaneously converted immediately prior to the Triggering Date, all
subject to further adjustment as provided in this Warrant. Additionally, the
Stock Purchase Price shall be immediately adjusted to equal the quotient
obtained by dividing (x)
5.
<PAGE> 31
the aggregate Stock Purchase Price of the maximum number of shares of Warrant
Stock for which this Warrant was exercisable immediately prior to the Triggering
Date by (y) the number of shares of Common Stock of the Company for which this
Warrant is exercisable immediately after the Triggering Date, all subject to
further adjustment as provided herein.
3.5 CERTAIN EVENTS. If any change in the outstanding Warrant Stock of
the Company or any other event occurs as to which the other provisions of this
Section 3 are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Holder of the Warrant in accordance with such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number and class of shares available under the Warrant, the Stock
Purchase Price or the application of such provisions, so as to protect such
purchase rights as aforesaid. The adjustment shall be such as will give the
Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price
the total number, class and kind of shares as he would have owned had the
Warrant been exercised prior to the event and had he continued to hold such
shares until after the event requiring adjustment.
3.6 NOTICES OF CHANGES. Immediately upon any adjustment in the number
or class of shares subject to this Warrant and of the Stock Purchase Price, the
Company shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
4. ISSUE TAX. The issuance of certificates for shares of Warrant Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of any warrant or of any shares of Warrant Stock issued or
issuable upon the exercise of any warrant in any manner which interferes with
the timely exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
holder to purchase shares of Warrant Stock, and no mere enumeration herein of
the rights or privileges of the holder hereof, shall give rise to any liability
of such Holder for the Stock Purchase Price or as a shareholder of the Company,
whether such liability is asserted by the Company or by its creditors.
7. TRANSFER. Subject to compliance with applicable federal and state
securities laws, this Warrant and all rights hereunder are transferable, in
whole or in part, without charge to the holder hereof (except for transfer
taxes), upon surrender of this Warrant properly endorsed.
6.
<PAGE> 32
Each taker and holder of this Warrant, by taking or holding the same, consents
and agrees that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall have been so
endorsed, may be treated by the Company, at the Company's option, and all other
persons dealing with this Warrant as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Company any notice to the
contrary notwithstanding; but until such transfer on such books, the Company may
treat the registered owner hereof as the owner for all purposes.
The Holder, by acceptance hereof, agrees that, absent an effective registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "1933 Act"), covering the disposition or sale of
this Warrant or the Warrant Stock, and registration or qualification under
applicable state securities laws, such Holder will not sell, transfer, pledge or
hypothecate any or all such Warrants or Warrant Stock, unless either (i) the
Company has received an opinion of counsel, in form and substance reasonably
satisfactory to the Company, to the effect that such registration is not
required in connection with such disposition or (ii) the sale of such securities
is made pursuant to Rule 144 of the 1993 Act. Notwithstanding the foregoing, the
Company hereby confirms its intent, after delivery of the opinion described
above, to consent to the sale, transfer, pledge or hypothecation of this Warrant
to holders of membership interest in the Holder.
The Holder, by acceptance hereof, agrees that, it will not transfer or dispose
of any Warrant Stock or Common Stock (or other securities) that it may acquire
upon exercise of rights under this Warrant for a period specified by the
representatives of the underwriters of Common Stock (or other securities) of the
Company not to exceed one hundred eighty (180) days following the effective date
of the Company's Initial Public Offering.
8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Warrant Stock, shall survive the exercise of this Warrant.
9. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or permitted
to be given or delivered to the holder hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
11. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Warrant Stock issuable upon the exercise of this Warrant
shall survive the exercise and
7.
<PAGE> 33
termination of this Warrant. All of the covenants and agreements of the Company
shall inure to the benefit of the successors and assigns of the holder hereof.
12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.
13. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
14. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
15. INVESTORS' RIGHTS AGREEMENT. Promptly following the date hereof, the
Company shall seek the necessary stockholder approval to amend and restate the
Amended and Restated Investors' Rights Agreement dated December 23, 1998 (the
"Investors' Rights Agreement") to include this Warrant (and any other Warrants
issued to Holder) as a Warrant (as such term is defined in the Investors' Rights
Agreement) (such amendment and restatement being referred to hereinafter as the
"Amended and Restated Investors' Rights Agreement"). Promptly following such
stockholder approval, each of the Company and the Holder shall execute and
deliver to the other an Amended and Restated Investors' Rights Agreement.
8.
<PAGE> 34
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its officers, thereunto duly authorized this 20th day of March, 1999.
QUOKKA SPORTS, INC.
a Delaware corporation
By: /s/ R. H. WILLIAMS
---------------------------
Name: R. H. Williams
-------------------------
Title: Chairman
------------------------
ATTEST:
/s/ [Signature Illegible]
- --------------------------------
Secretary
<PAGE> 35
EXHIBIT A
SUBSCRIPTION FORM
Date:__________, 19__
Quokka Sports, Inc.
525 Brannan Street
Ground Floor
San Francisco, CA 94107
Attn: President
Ladies and Gentlemen:
[ ] The undersigned hereby elects to exercise Warrant No. PWC-8 (the "Warrant")
issued to it by Quokka Sports, Inc. (the "Company") and dated ___________,
1999 and to purchase thereunder _____________ shares of the Warrant Stock
of the Company (the "Shares") at a purchase price of _____________ per
Share or an aggregate purchase price of ___________________________ Dollars
($________) (the "Purchase Price").
[ ] The undersigned hereby elects to convert __________________________ percent
(______%) of the value of the Warrant pursuant to the provisions of Section
1.3 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
Very truly yours,
CHAMPIONSHIP AUTO RACING TEAMS, INC.
By: __________________________________
Name: ________________________________
Title: _______________________________
<PAGE> 36
NO. PWC-9
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE [*] SHARES
OF SERIES C PREFERRED STOCK OF
QUOKKA SPORTS, INC.
(VOID AFTER MARCH 19, 2004)
This certifies that CHAMPIONSHIP AUTO RACING TEAMS, INC. or its assigns (the
"Holder"), for value received, is entitled to purchase from QUOKKA SPORTS, INC.,
a Delaware corporation (the "Company") having a place of business at 525 Brannan
Street, San Francisco, California, a maximum of [*] fully paid and nonassessable
shares of Warrant Stock (as defined below) for cash at such time(s) as set forth
below and at a purchase price of $[*] per share (the "Stock Purchase Price") up
to and including 5:00 p.m. (Pacific time) on the date five (5) years from the
date of this Warrant, such date being referred to herein as the "Expiration
Date," upon surrender to the Company at its principal office (or at such other
location as the Company may advise the Holder in writing) of this Warrant
properly endorsed with the Form of Subscription attached hereto duly filled in
and signed and, if applicable, upon payment in cash or by check of the aggregate
Stock Purchase Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Stock
Purchase Price and the number of shares purchasable hereunder are subject to
adjustment as provided in Section 3 of this Warrant. The term "Warrant Stock"
refers to the Company's Series C Preferred Stock and any other securities at any
time receivable or issuable upon exercise of this Warrant.
Notwithstanding anything contained herein to the contrary, in the event the
Agreement (the "Agreement"), dated effective as of January 1, 1999, between the
Holder and CART DIGITAL MEDIA ENTERPRISES, LLC ("CDME"), or any other agreement
entered into among the Holder, the Company and CDME (or any combination
thereof) pursuant to the Agreement, is terminated, either by the Company or
CDME as a result of uncured material breach by Holder or by Holder for other
than an uncured material breach by the Company or CDME, such an event (the
"Termination Event") will cause this Warrant to become immediately void and the
date of such Termination Event (the "Termination Date") will be deemed the
"Expiration Date" for purposes hereof. Notwithstanding anything contained
herein to the contrary however, upon a Termination Event, the Holder will have
ninety (90) days from the Termination Date to exercise this Warrant to the
extent of the Vested Portion as of the Termination Date (as determined under
Section 1.1 below).
[*] Confidential Treatment Requested.
<PAGE> 37
This Warrant is subject to the following terms and conditions:
1. VESTING; EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 VESTING. The portion of this Warrant that is exercisable at any
given time is determined by the chart below and is referred to as the "Vested
Portion."
<TABLE>
<CAPTION>
<S> <C> <C>
Vesting Date:
Vested Portion Date Shares are First Exercisable Stock Purchase Price
-------------- --------------------------------- --------------------
[*] [*] [*]
</TABLE>
1.2 EXERCISE. The Vested Portion of this Warrant is exercisable at
the option of the Holder, at any time or from time to time up to the Expiration
Date for all or any part of the shares of Warrant Stock (but not for a fraction
of a share) which may be purchased hereunder. The Company agrees that the shares
of Warrant Stock purchased under this Warrant shall be and are deemed to be
issued to the Holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed, executed Form of Subscription delivered and
payment made for such shares. Certificates for the shares of Warrant Stock so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense within a reasonable time after the
rights represented by this Warrant have been so exercised. In case of a purchase
of less than all the shares which may be purchased under this Warrant, the
Company shall cancel this Warrant and execute and deliver a new Warrant or
Warrants of like tenor for the balance of the shares purchasable under the
Warrant surrendered upon such purchase to the Holder hereof within a reasonable
time. Each stock certificate so delivered shall be in such denominations of
Warrant Stock as may be requested by the Holder hereof and shall be registered
in the name of such Holder.
1.3 NET ISSUE EXERCISE. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Warrant Stock
is greater than the Stock Purchase Price (at the date of calculation as set
forth below), in lieu of exercising this Warrant for cash, the Holder may elect
to receive shares equal to the value (as determined below) of this Warrant (or
the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Form of
Subscription and notice of such election in which event the company shall issue
to the Holder a number of shares of Warrant Stock computed using the following
formula;
X=Y(A-B)
------
A
Where X= the number of shares of Warrant Stock to be issued to
the Holder
[*] Confidential Treatment Requested.
2.
<PAGE> 38
Y= the number of shares of Warrant Stock purchasable under
the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being
canceled (at the date of such calculation)
A= the fair market value of one share of the Company's
Warrant Stock (at the date of such calculation)
B= Stock Purchase Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, fair market value of one share of
Warrant Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, that in the event the Company makes an initial public
offering of its Common Stock (the "Initial Public Offering") the fair market
value per share shall be the product of (i) the per share offering price to the
public of the Initial Public Offering if the exercise occurs upon the closing
of the Company's Initial Public Offering or, if later, the closing price of the
Company's Common Stock on the date of exercise, and (ii) the number of shares
of Common Stock into which each share of Warrant Stock is convertible at the
time of such exercise.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all shares of Warrant Stock which may be issued upon the
exercise of the rights represented by this Warrant (and shares of its Common
Stock for issuance on conversion of such Warrant Stock) will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Warrant Stock and Common Stock, or other securities and property, when
and as required to provide for the exercise of the rights represented by this
Warrant. The Company will take all such action as may be necessary to assure
that such shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Warrant Stock or Common Stock may be listed; provided,
however, that the Company shall not be required to effect a registration under
Federal or State securities laws with respect to such exercise. The Company will
not take any action which would result in any adjustment of the Stock Purchase
Price (as set forth in Section 3 hereof) (i) if the total number of shares of
Warrant Stock issuable after such action upon exercise of all outstanding
warrants, together with all shares of Warrant Stock then outstanding and all
shares of Warrant Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of Warrant Stock then authorized by the Company's
Certificate of Incorporation, or (ii) if the total number of shares of Common
Stock issuable after such action upon the conversion of all such shares of
Warrant Stock, together with all shares of Common Stock then issuable upon
exercise of all options and upon the conversion of all such shares of Warrant
Stock, together with
3.
<PAGE> 39
all shares of Common Stock then outstanding and all shares of Common Stock then
issuable upon exercise of all options and upon the conversion of all
convertible securities then outstanding would exceed the total number of shares
of Common Stock then authorized by the Company's Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase (subject to the other provisions hereof), at the Stock Purchase Price
resulting from such adjustment, the number of shares obtained by multiplying
the Stock Purchase Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment, and dividing the product thereof by the Stock Purchase Price
resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Warrant Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Warrant Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 DIVIDENDS IN WARRANT STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holders of Warrant
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to
receive, without payment therefor.
(a) Warrant Stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or exchangeable
for Warrant Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other distribution,
(b) any cash paid or payable otherwise than as a cash dividend,
or
(c) Warrant Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares of
Warrant Stock issued as a stock split or adjustments in respect of which shall
be covered by the terms of Section 3.1 above), then and in each such case, the
Holder hereof shall, upon the exercise of this Warrant, be entitled to receive,
in addition to the number of shares of Warrant Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of stock
and other securities and property (including cash in the cases referred to in
clause (b) above and this clause (c)) which such Holder would hold on the date
of such exercise had he been the holder of record of such Warrant Stock as of
the date on which holders of Warrant Stock received or became entitled to
receive such shares or all other additional stock and other securities and
property.
4.
<PAGE> 40
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any recapitalization, reclassification or reorganization of the
capital stock of the Company, or any consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its assets
or other transaction shall be effected in such a way that holders of Warrant
Stock shall be entitled to receive stock, securities, or other assets or
property (an "Organic Change"), then, as a condition of such Organic Change,
lawful and adequate provisions shall be made by the Company whereby the Holder
hereof shall thereafter (subject to the other provisions hereof) have the right
to purchase and receive (in lieu of the shares of the Warrant Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby) such shares of stock, securities or other assets
or property as may be issued or payable with respect to or in exchange for a
number of outstanding shares of such Warrant Stock equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby; provided, however, that in the
event the value of the stock, securities or other assets or property
(determined in good faith by the Board of Directors of the Company) issuable
or payable with respect to one share of the Warrant Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby is in excess of the Stock Purchase Price hereof
effective at the time of a merger and securities received in such
reorganization, if any, are publicly traded, then this Warrant shall expire
unless exercised prior to such Organic Change. In the event of any Organic
Change, appropriate provision shall be made by the Company with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Stock Purchase Price and of the number of shares purchasable and receivable
upon the exercise of this Warrant) shall thereafter be applicable, in relation
to any shares of stock, securities or assets thereafter deliverable upon the
exercise hereof. The Company will not effect any such consolidation, merger or
sale unless, prior to the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or the corporation
purchasing such assets shall assume by written instrument reasonably
satisfactory in form and substance to the Holders of a majority of the warrants
to purchase Warrant Stock then outstanding, executed and mailed or delivered to
the registered Holder hereof at the last address of such Holder appearing on
the books of the Company, the obligation to deliver to such Holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase.
3.4 CONVERSION OF WARRANT STOCK. In case all or any portion of the
authorized and outstanding shares of Warrant Stock of the Company are redeemed
or converted or reclassified into other securities or property pursuant to the
Company's Certificate of Incorporation or otherwise, or the Warrant Stock
otherwise ceases to exist, then, in such case, the Holder of this Warrant, upon
exercise hereof at any time after the date on which the Warrant Stock is so
redeemed or converted, reclassified or ceases to exist (the "Triggering Date"),
shall receive, in lieu of the number of shares of Warrant Stock that would have
been issuable upon such exercise immediately prior to the Triggering Date, the
shares of Common Stock of the Company that would have been received if this
Warrant had been exercised in full and the Warrant Stock received thereupon had
been simultaneously converted immediately prior to the Triggering Date, all
subject to further adjustment as provided in this Warrant. Additionally, the
Stock Purchase Price shall be immediately adjusted to equal the quotient
obtained by dividing (x)
5.
<PAGE> 41
the aggregate Stock Purchase Price of the maximum number of shares of Warrant
Stock for which this Warrant was exercisable immediately prior to the
Triggering Date by (y) the number of shares of Common Stock of the Company for
which this Warrant is exercisable immediately after the Triggering Date, all
subject to further adjustments as provided herein.
3.5 CERTAIN EVENTS. If any change in the outstanding Warrant Stock
of the Company or any other event occurs as to which the other provisions of
this Section 3 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with such provisions, then the Board of Directors of the Company shall make an
adjustment in the number and class of shares available under the Warrant, the
Stock Purchase Price or the application of such provisions, so as to protect
such purchase rights as aforesaid. The adjustment shall be such as will give
the Holder of the Warrant upon exercise for the same aggregate Stock Purchase
Price the total number, class and kind of shares as he would have owned had the
Warrant been exercised prior to the event and had he continued to hold such
shares until after the event requiring adjustment.
3.6 NOTICES OF CHANGE. Immediately upon any adjustment in the
number or class of shares subject to this Warrant and of the Stock Purchase
Price, the Company shall give written notice thereof to the Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
4. ISSUE TAX. The issuance of certificates for shares of Warrant Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Warrant Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to receive notice as a shareholder of the Company
or any other matters or any rights whatsoever as a shareholder of the Company.
No dividends or interest shall be payable or accrued in respect of this Warrant
or the interest represented hereby or the shares purchasable hereunder until,
and only to the extent that, this Warrant shall have been exercised. No
provisions hereof, in the absence of affirmative action by the holder to
purchase shares of Warrant Stock, and no mere enumeration herein of the rights
or privileges of the holder hereof, shall give rise to any liability of such
Holder for the Stock Purchase Price or as a shareholder of the Company, whether
such liability is asserted by the Company or by its creditors.
7. TRANSFER. Subject to compliance with applicable federal and state
securities laws, this Warrant and all rights hereunder are transferable, in
whole or in part, without charge to the holder hereof (except for transfer
taxes), upon surrender of this Warrant properly endorsed.
6.
<PAGE> 42
Each taker and holder of this Warrant, by taking or holding the same, consents
and agrees that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall have been so
endorsed, may be treated by the Company, at the Company's option, and all other
persons dealing with this Warrant as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.
The Holder, by acceptance hereof, agrees that, absent an effective registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "1993 Act"), covering the disposition or sale of
this Warrant or the Warrant Stock, and registration or qualification under
applicable state securities laws, such Holder will not sell, transfer, pledge or
hypothecate any or all such Warrants or Warrant Stock, unless either (i) the
Company has received an opinion of counsel, in form and substance reasonably
satisfactory to the Company, to the effect that such registration is not
required in connection with such disposition or (ii) the sale of such securities
is made pursuant to Rule 144 of the 1933 Act. Notwithstanding the foregoing, the
Company hereby confirms its intent, after delivery of the opinion described
above, to consent to the sale, transfer, pledge or hypothecation of this Warrant
to holders of membership interests in the Holder.
The Holder, by acceptance hereof, agrees that, it will not transfer or dispose
of any Warrant Stock or Common Stock (or other securities) that it may acquire
upon exercise of rights under this Warrant for a period specified by the
representatives of the underwriters of Common Stock (or other securities) of
the Company not to exceed one hundred eighty (180) days following the effective
date of the Company's Initial Public Offering.
8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Warrant Stock, shall survive the exercise of this Warrant.
9. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or permitted
to be given or delivered to the holder hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
11. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Warrant Stock issuable upon the exercise of this
Warrant shall survive the exercise and
7.
<PAGE> 43
termination of this Warrant. All of the covenants and agreements of the Company
shall inure to the benefit of the successors and assigns of the holder hereof.
12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
13. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
14. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share,
pay the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
15. INVESTORS' RIGHTS AGREEMENT. Promptly following the date hereof, the
Company shall seek the necessary stockholder approval to amend and restate the
Amended and Restated Investors; Rights Agreement dated December 23, 1998 (the
"Investors' Rights Agreement") to include this Warrant (and any other Warrants
issued to Holder) as a Warrant (as such term is defined in the Investors'
Rights Agreement) (such amendment and restatement being referred to hereinafter
as the "Amended and Restated Investors' Rights Agreement"). Promptly following
such stockholder approval, each of the Company and the Holder shall execute and
deliver to the other an Amended and Restated Investors' Rights Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8.
<PAGE> 44
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 20th day of March,
1999.
QUOKKA SPORTS, INC.
a Delaware corporation
By: /s/ R. H. WILLIAMS
--------------------------------
Name: R. H. Williams
--------------------------------
Title: Chairman
--------------------------------
ATTEST:
/s/ [Signature Illegible]
- ---------------------------
Secretary
<PAGE> 45
EXHIBIT A
SUBSCRIPTION FORM
Date: __________, 19__
Quokka Sports, Inc.
525 Brannan Street
Ground Floor
San Francisco, CA 94107
Attn: President
Ladies and Gentlemen:
[ ] The undersigned hereby elects to exercise Warrant No. PWC-9 (the "Warrant")
issued to it by Quokka Sports, Inc. (the "Company") and dated __________,
1999 and to purchase thereunder ________________ shares of the Warrant
Stock of the Company (the "Shares") at a purchase price of
_____________________ per Share or an aggregate purchase price of
__________ Dollars ($ __________) (the "Purchase Price").
[ ] The undersigned hereby elects to convert ____________ percent (____%) of
the value of the Warrant pursuant to the provisions of Section 1.3 of the
Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the Purchase
Price herewith in full in cash or by certified check or wire transfer.
Very truly yours,
CHAMPIONSHIP AUTO RACING TEAMS, INC.
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
<PAGE> 46
No. PWC-10
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE [*] SHARES
OF SERIES C PREFERRED STOCK OF
QUOKKA SPORTS, INC.
(Void after March 19, 2004)
This certifies that CHAMPIONSHIP AUTO RACING TEAMS, INC. or its assigns (the
"Holder"), for value received, is entitled to purchase from QUOKKA SPORTS, INC.,
a Delaware corporation (the "Company") having a place of business at 525 Brannan
Street, San Francisco, California, a maximum of [*] fully paid and nonassessable
shares of Warrant Stock (as defined below) for cash at such time(s) as set forth
below and a purchase price of $[*] per share (the "Stock Purchase Price") up to
and including 5:00 p.m. (Pacific time) on the date five (5) years from the date
of this Warrant, such date being referred to herein as the "Expiration Date,"
upon surrender to the Company at its principal office (or at such other location
as the Company may advise the Holder in writing) of this Warrant properly
endorsed with the Form of Subscription attached hereto duly filled in and signed
and, if applicable, upon payment in cash or by check of the aggregate Stock
Purchase Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Stock
Purchase Price and the number of shares purchasable hereunder are subject to
adjustment as provided in Section 3 of this Warrant. The term "Warrant Stock"
refers to the Company's Series C Preferred Stock and any other securities at any
time receivable or issuable upon exercise of this Warrant.
Notwithstanding anything contained herein to the contrary, in the event the
Agreement (the "Agreement"), dated effective as of January 1, 1999, between the
Holder and CART DIGITAL MEDIA ENTERPRISES, LLC ("CDME"), or any other agreement
entered into among the Holder, the Company and CDME (or any combination thereof)
pursuant to the Agreement, is terminated, either by the Company or CDME as a
result of uncured material breach by Holder or by Holder for other than an
uncured material breach by the Company or CDME, such an event (the "Termination
Event") will cause this Warrant to become immediately void and the date of such
Termination Event (the "Termination Date") will be deemed the "Expiration Date"
for purposes hereof. Notwithstanding anything contained herein to the contrary
however, upon a Termination Event, the Holder will have ninety (90) days from
the Termination Date to exercise this Warrant to the extent of the Vested
Portion as of the Termination Date (as determined under Section 1.1 below).
[*] Confidential Treatment Requested.
<PAGE> 47
This Warrant is subject to the following terms and conditions:
1. VESTING; EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 VESTING. The portion of this Warrant that is exercisable at any
given time is determined by the chart below and is referred to as the "Vested
Portion."
<TABLE>
<CAPTION>
VESTING DATE:
DATE SHARES AND STOCK
VESTED PORTION FIRST EXERCISABLE PURCHASE PRICE
-------------- ----------------- --------------
<S> <C> <C>
[*] [*] [*]
</TABLE>
1.2 EXERCISE. The Vested Portion of this Warrant is exercisable at
the option of the Holder, at any time or from time to time up to the Expiration
Date for all or any part of the shares of Warrant Stock (but not for a fraction
of a share) which may be purchased hereunder. The company agrees that the
shares of Warrant Stock purchased under this Warrant shall be and are deemed to
be issued to the Holder hereof as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been
surrendered, properly endorsed, the completed, executed Form of Subscription
delivered and payment made for such shares. Certificates for the shares of
Warrant Stock so purchased, together with any other securities or property to
which the Holder hereof is entitled upon such exercise, shall be delivered to
the Holder hereof by the Company at the Company's expense within a reasonable
time after the rights represented by this Warrant have been so exercised. In
case of a purchase of less than all the shares which may be purchased under
this Warrant, the Company shall cancel this Warrant and execute and deliver a
new Warrant or Warrants of like tenor for the balance of the shares purchasable
under the Warrant surrendered upon such purchase to the Holder hereof within a
reasonable time. Each stock certificate so delivered shall be in such
denominations of Warrant Stock as may be requested by the Holder hereof and
shall be registered in the name of such Holder.
1.3 NET ISSUE EXERCISE. Notwithstanding any provisions herein to
the contrary, if the fair market value of one share of the Company's Warrant
Stock is greater than the Stock Purchase Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this Warrant
(or the portion thereof being canceled) by surrender of this Warrant at the
principal office of the company together with the properly endorsed Form of
Subscription and notice of such election in which event the Company shall issue
to the Holder a number of shares of Warrant Stock computed using the following
formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Warrant Stock to be issued to
the Holder
[*] Confidential Treatment Requested.
2.
<PAGE> 48
Y = the number of shares of Warrant Stock purchasable
under the Warrant or, if only a portion of the
Warrant is being exercised, the portion of the
Warrant being canceled (at the date of such
calculation)
A = the fair market value of one share of the
Company's Warrant Stock (at the date of such
calculation)
B = Stock Purchase Price (as adjusted to the date of
such calculation)
For purposed of the above calculation, fair market value of one share of
Warrant Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, that in the event the Company makes an initial
public offering of its Common Stock (the "Initial Public Offering") the fair
market value per share shall be the product of (i) the per share offering price
to the public of the Initial Public Offering if the exercise occurs upon the
closing of the Company's Initial Public Offering or, if later, the closing
price of the Company's Common Stock on the date of exercise, and (ii) the
number of shares of Common Stock into which each share of Warrant Stock is
convertible at the time of such exercise.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Warrant Stock which may be issued upon
the exercise of the rights represented by this Warrant (and shares of its
Common Stock for issuance on conversion of such Warrant Stock) will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable and
free from all preemptive rights of any shareholder and free of all taxes, liens
and charges with respect to the issue thereof. The Company further covenants
and agrees that, during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares of
authorized but unissued Warrant Stock and Common Stock, or other securities and
property, when and as required to provide for the exercise of the rights
represented by this Warrant. The Company will take all such action as may be
necessary to assure that such shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of any
domestic securities exchange upon which the Warrant Stock or Common Stock may
be listed; provided, however, that the Company shall not be required to effect
a registration under Federal or State securities laws with respect to such
exercise. The Company will not take any action which would result in any
adjustment of the Stock Purchase Price (as set forth in Section 3 hereof) (i)
if the total number of shares of Warrant Stock issuable after such action upon
exercise of all outstanding warrants, together with all shares of Warrant Stock
then outstanding and all shares of Warrant Stock then issuable upon exercise of
all options and upon the conversion of all convertible securities then
outstanding, would exceed the total number of shares of Warrant Stock then
authorized by the Company's Certificate of Incorporation, or (ii) if the total
number of shares of Common Stock issuable after such action upon the conversion
of all such shares of Warrant Stock, together with all shares of Common Stock
then issuable upon exercise of all options and upon the conversion of all such
shares of Warrant Stock, together with
3.
<PAGE> 49
all shares of Common Stock then outstanding and all shares of Common Stock then
issuable upon exercise of all options and upon the conversion of all convertible
securities then outstanding would exceed the total number of shares of Common
Stock then authorized by the Company's Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase (subject to the other provisions hereof), at the Stock Purchase Price
resulting from such adjustment, the number of shares obtained by multiplying the
Stock Purchase Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment, and dividing the product thereof by the Stock Purchase Price
resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Warrant Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Warrant Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 DIVIDENDS IN WARRANT STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holders of Warrant
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Warrant Stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or exchangeable
for Warrant Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other distribution,
(b) any cash paid or payable otherwise than as a cash dividend,
or
(c) Warrant Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares of
Warrant Stock issued as a stock split or adjustments in respect of which shall
be covered by the terms of Section 3.1 above), then and in each such case, the
Holder hereof shall, upon the exercise of this Warrant, be entitled to receive,
in addition to the number of shares of Warrant Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of stock
and other securities and property (including cash in the cases referred to in
clause (b) above and this clause (c)) which such Holder would hold on the date
of such exercise had he been the holder of record of such Warrant Stock as of
the date on which holders of Warrant Stock received or became entitled to
receive such shares or all other additional stock and other securities and
property.
4.
<PAGE> 50
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OF SALE.
If any recapitalization, reclassification or reorganization of the capital stock
of the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets or other
transaction shall be effected in such a way that holders of Warrant Stock shall
be entitled to receive stock, securities, or other assets or property (an
"Organic Change"), then, as a condition of such Organic Change, lawful and
adequate provisions shall be made by the Company whereby the Holder hereof
shall thereafter (subject to the other provisions hereof) have the right to
purchase and receive (in lieu of the shares of the Warrant Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby) such shares of stock, securities or other assets or
property as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Warrant Stock equal to the number of shares of
such stock immediately theretofore purchasable and receivable upon the exercise
of the rights represented hereby; provided, however, that in the event the value
of the stock, securities or other assets or property (determined in good faith
by the Board of Directors of the Company) issuable or payable with respect to
one share of the Warrant Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby is
in excess of the Stock Purchase Price hereof effective at the time of a merger
and securities received in such reorganization, if any, are publicly traded,
then this Warrant shall expire unless exercised prior to such Organic Change. In
the event of any Organic Change, appropriate provision shall be made by the
Company with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof (including, without limitation, provisions
for adjustments of the Stock Purchase Price and of the number of shares
purchasable and receivable upon the exercise of this Warrant) shall thereafter
be applicable, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company will not effect any
such consolidation, merger or sale unless, prior to the consummation thereof,
the successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by written
instrument reasonably satisfactory in form and substance to the Holders of a
majority of the warrants to purchase Warrant Stock then outstanding, executed
and mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver to
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase.
3.4 CONVERSION OF WARRANT STOCK. In case all or any portion of the
authorized and outstanding shares of Warrant Stock of the Company are redeemed
or converted or reclassified into other securities or property pursuant to the
Company's Certificate of Incorporation or otherwise, or the Warrant Stock
otherwise ceases to exist, then, in such case, the Holder of this Warrant, upon
exercise hereof at any time after the date on which the Warrant Stock is so
redeemed or converted, reclassified or ceases to exist (the "Triggering Date"),
shall receive, in lieu of the number of shares of Warrant Stock that would have
been issuable upon such exercise immediately prior to the Triggering Date, the
shares of Common Stock of the Company that would have been received if this
Warrant had been exercised in full and the Warrant Stock received thereupon had
been simultaneously converted immediately prior to the Triggering Date, all
subject to further adjustment as provided in this Warrant. Additionally, the
Stock Purchase Price shall be immediately adjusted to equal the quotient
obtained by dividing (x)
5.
<PAGE> 51
the aggregate Stock Purchase Price of the maximum number of shares of Warrant
Stock for which this Warrant was exercisable immediately prior to the
Triggering Date by (y) the number of shares of Common Stock of the Company for
which this Warrant is exercisable immediately after the Triggering Date, all
subject to further adjustment as provided herein.
3.5 CERTAIN EVENTS. If any change in the outstanding Warrant Stock
of the Company or any other event occurs as to which the other provisions of
this Section 3 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with such provisions, then the Board of Directors of the Company shall make an
adjustment in the number and class of shares available under the Warrant, the
Stock Purchase Price or the application of such provisions, so as to protect
such purchase rights as aforesaid. The adjustment shall be such as will give
the Holder of the Warrant upon exercise for the same aggregate Stock Purchase
Price the total number, class and kind of shares as he would have owned had the
Warrant been exercised prior to the event and had he continued to hold such
shares until after the event requiring adjustment.
3.6 NOTICES OF CHANGE. Immediately upon any adjustment in the
number or class of shares subject to this Warrant and of the Stock Purchase
Price, the Company shall give written notice thereof to the Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
4. ISSUE TAX. The issuance of certificates for shares of Warrant Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Warrant Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS, LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder the
Company or any other matters or any rights whatsoever as a shareholder of the
Company. No dividends or interest shall be payable or accrued in respect of this
Warrant or the interest represented hereby or the shares purchasable hereunder
until, and only to the extent that, this Warrant shall have been exercised. No
provisions hereof, in the absence of affirmative action by the holder to
purchase shares of Warrant Stock, and no mere enumeration herein of the rights
or privileges of the holder hereof, shall give rise to any liability of such
Holder for the Stock Purchase Price or as a shareholder of the Company, whether
such liability is asserted by the Company or by its creditors.
7. TRANSFER. Subject to compliance with applicable federal and state
securities laws, this Warrant and all rights hereunder are transferable, in
whole or in part, without charge to the holder hereof (except for transfer
taxes), upon surrender of this Warrant properly endorsed.
6.
<PAGE> 52
Each taker and holder of this Warrant, by taking or holding the same, consents
and agrees that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall have been so
endorsed, may be treated by the Company, at the Company's option, and all other
persons dealing with this Warrant as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.
The Holder, by acceptance hereof, agrees that, absent an effective registration
statement filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act"), covering the disposition
or sale of this Warrant or the Warrant Stock, and registration or qualification
under applicable state securities laws, such Holder will not sell, transfer,
pledge or hypothecate any or all such Warrants or Warrant Stock, unless either
(i) the Company has received an opinion of counsel, in form and substance
reasonably satisfactory to the Company, to the effect that such registration is
not required in connection with such disposition or (ii) the sale of such
securities is made pursuant to Rule 144 of the 1933 Act. Notwithstanding the
foregoing, the Company hereby confirms its intent, after delivery of the
opinion described above, to consent to the sale, transfer, pledge or
hypothecation of this Warrant to holders of membership interests in the Holder.
The Holder, by acceptance hereof, agrees that, it will not transfer or dispose
of any Warrant Stock or Common Stock (or other securities) that it may acquire
upon exercise of rights under this Warrant for a period specified by the
representatives of the underwriters of Common Stock (or other securities) of
the Company not to exceed one hundred eighty (180) days following the effective
date of the Company's Initial Public Offering.
8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Warrant Stock, shall survive the exercise of this Warrant.
9. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or permitted
to be given or delivered to the holder hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
11. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Warrant Stock issuable upon the exercise of this
Warrant shall survive the exercise and
7.
<PAGE> 53
termination of this Warrant. All of the covenants and agreements of the Company
shall inure to the benefit of the successors and assigns of the holders hereof.
12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description of headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
13. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
14. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share,
pay the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
15. INVESTORS' RIGHTS AGREEMENT. Promptly following the date hereof, the
Company shall seek the necessary stockholder approval to amend and restate the
Amended and Restated Investors' Rights Agreement dated December 23, 1998 (the
"Investors' Rights Agreement") to include this Warrant (and any other Warrants
issued to a Holder) as a Warrant (as such term is defined in the Investors'
Rights Agreement) (such amendment and restatement being referred to hereinafter
as the "Amended and Restated Investors' Rights Agreement"). Promptly following
such stockholder approval, each of the Company and the Holder shall execute and
deliver to the other an Amended and Restated Investors' Rights Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8.
<PAGE> 54
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its officers, thereunto duly authorized this 20th day of March, 1999.
QUOKKA SPORTS, INC.
a Delaware corporation
By: /s/ R. H. Williams
---------------------------
Name: R. H. Williams
-------------------------
Title: Chairman
------------------------
ATTEST:
[signature illegible]
- --------------------------------
Secretary
<PAGE> 55
EXHIBIT A
SUBSCRIPTION FORM
Date:__________, 19__
Quokka Sports, Inc.
525 Brannan Street
Ground Floor
San Francisco, CA 94107
Attn: President
Ladies and Gentlemen:
[ ] The undersigned hereby elects to exercise Warrant No. PWC-10 (the
"Warrant") issued to it by Quokka Sports, Inc. (the "Company") and
dated ___________, 1999 and to purchase thereunder _____________ shares
of the Warrant Stock of the Company (the "Shares") at a purchase price of
_____________ per Share or an aggregate purchase price of
___________________________ dollars ($________) (the "Purchase Price").
[ ] The undersigned hereby elects to convert __________________________ percent
(______%) of the value of the Warrant pursuant to the provisions of Section
1.3 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire
transfer.
Very truly yours,
CHAMPIONSHIP AUTO RACING TEAMS, INC.
By: __________________________
Name: ________________________
Title: _______________________
<PAGE> 56
NO. PWC-11
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE [*] SHARES
OF SERIES C PREFERRED STOCK OF
QUOKKA SPORTS, INC.
(VOID AFTER MARCH 19, 2004)
This certifies that CHAMPIONSHIP AUTO RACING TEAMS, INC. or its assigns (the
"Holder"), for value received, is entitled to purchase from QUOKKA SPORTS, INC.,
a Delaware corporation (the "Company") having a place of business at 525 Brannan
Street, San Francisco, California, a maximum of [*] fully paid and nonassessable
shares of Warrant Stock (as defined below) for cash at such time(s) as set forth
below and at a purchase price of $[*] per share (the "Stock Purchase Price") up
to and including 5:00 p.m. (Pacific time) on the date five (5) years from the
date of this Warrant, such date being referred to herein as the "Expiration
Date," upon surrender to the Company at its principal office (or at such other
location as the Company may advise the Holder in writing) of this Warrant
properly endorsed with the Form of Subscription attached hereto duly filled in
and signed and, if applicable, upon payment in cash or by check of the aggregate
Stock Purchase Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Stock
Purchase Price and the number of shares purchasable hereunder are subject to
adjustment as provided in Section 3 of this Warrant. The term "Warrant Stock"
refers to the Company's Series C Preferred Stock and any other securities at any
time receivable or issuable upon exercise of this Warrant.
Notwithstanding anything contained herein to the contrary, in the event the
Agreement (the "Agreement"), dated effective as of January 1, 1999, between the
Holder and CART DIGITAL MEDIA ENTERPRISES, LLC ("CDME"), or any other agreement
entered into among the Holder, the Company and CDME (or any combination thereof)
pursuant to the Agreement, is terminated, either by the Company or CDME as a
result of uncured material breach by Holder or by Holder for other than an
uncured material breach by the Company or CDME, such an event (the "Termination
Event") will cause this Warrant to become immediately void and the date of such
Termination Event (the "Termination Date") will be deemed the "Expiration Date"
for purposes hereof. Notwithstanding anything contained herein to the contrary
however, upon a Termination Event, the Holder will have ninety (90) days from
the Termination Date to exercise this Warrant to the extent of the Vested
Portion as of the Termination Date (as determined under Section 1.1 below).
[*] Confidential Treatment Requested.
<PAGE> 57
This Warrant is subject to the following terms and conditions:
1. VESTING; EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 VESTING. The portion of this Warrant that is exercisable at any
given time is determined by the chart below and is referred to as the "Vested
Portion."
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
VESTING DATE:
VESTED PORTION DATE SHARES ARE FIRST EXERCISABLE STOCK PURCHASE PRICE
-------------------------------------------------------------------------
<S> <C> <C>
[*] [*] [*]
-------------------------------------------------------------------------
</TABLE>
1.2 EXERCISE. The Vested Portion of this Warrant is exercisable at the
option of the Holder, at any time or from time to time up to the Expiration Date
for all or any part of the shares of Warrant Stock (but not for a fraction of a
share) which may be purchased hereunder. The Company agrees that the shares of
Warrant Stock purchased under this Warrant shall be and are deemed to be issued
to the Holder hereof as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered, properly
endorsed, the completed, executed Form of Subscription delivered and payment
made for such shares. Certificates for the shares of Warrant Stock so purchased,
together with any other securities or property to which the Holder hereof is
entitled upon such exercise, shall be delivered to the Holder hereof by the
Company at the Company's expense within a reasonable time after the rights
represented by this Warrant have been so exercised. In case of a purchase of
less than all the shares which may be purchased under this Warrant, the Company
shall cancel this Warrant and execute and deliver a new Warrant or Warrants of
like tenor for the balance of the shares purchasable under the Warrant
surrendered upon such purchase to the Holder hereof within a reasonable time.
Each stock certificate so delivered shall be in such denominations of Warrant
Stock as may be requested by the Holder hereof and shall be registered in the
name of such Holder.
1.3 NET ISSUE EXERCISE. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Warrant Stock
is greater than the Stock Purchase Price (at the date of calculation as set
forth below), in lieu of exercising this Warrant for cash, the Holder may elect
to receive shares equal to the value (as determined below) of this Warrant (or
the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Form of
Subscription and notice of such election in which event the Company shall issue
to the Holder a number of shares of Warrant Stock computed using the following
formula:
X = Y(A-B)
------
A
Where X = the number of shares of Warrant Stock to be issued to
the Holder
[*] Confidential Treatment Requested.
2.
<PAGE> 58
Y = the number of shares of Warrant Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised,
the portion of the Warrant being canceled (at the date of such
calculation)
A = the fair market value of one share of the Company's Warrant Stock
(at the date of such calculation)
B = Stock Purchase Price (as adjusted to the date of such calculation)
For purposes of the above calculation, fair market value of one share of Warrant
Stock shall be determined by the Company's Board of Directors in good faith;
provided, however, that in the event the Company makes an initial public
offering of its Common Stock (the "Initial Public Offering") the fair market
value per share shall be the product of (i) the per share offering price to the
public of the Initial Public Offering if the exercise occurs upon the closing of
the Company's Initial Public Offering or, if later, the closing price of the
Company's Common Stock on the date of exercise, and (ii) the number of shares of
Common Stock into which each share of Warrant Stock is convertible at the time
of such exercise.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all shares of Warrant Stock which may be issued upon the
exercise of the rights represented by this Warrant (and shares of its Common
Stock for issuance on conversion of such Warrant Stock) will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Warrant Stock and Common Stock, or other securities and property, when
and as required to provide for the exercise of the rights represented by this
Warrant. The Company will take all such action as may be necessary to assure
that such shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Warrant Stock or Common Stock may be listed; provided,
however, that the Company shall not be required to effect a registration under
Federal or State securities laws with respect to such exercise. The Company will
not take any action which would result in any adjustment of the Stock Purchase
Price (as set forth in Section 3 hereof) (i) if the total number of shares of
Warrant Stock issuable after such action upon exercise of all outstanding
warrants, together with all shares of Warrant Stock then outstanding and all
shares of Warrant Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of Warrant Stock then authorized by the Company's
Certificate of Incorporation, or (ii) if the total number of shares of Common
Stock issuable after such action upon the conversion of all such shares of
Warrant Stock, together with all shares of Common Stock then issuable upon
exercise of all options and upon the conversion of all such shares of Warrant
Stock, together with
3.
<PAGE> 59
all shares of Common Stock then outstanding and all shares of Common Stock then
issuable upon exercise of all options and upon the conversion of all
convertible securities then outstanding would exceed the total number of shares
of Common Stock then authorized by the Company's Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase (subject to the other provisions hereof), at the Stock Purchase Price
resulting from such adjustment, the number of shares obtained by multiplying
the Stock Purchase Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment, and dividing the product thereof by the Stock Purchase Price
resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Warrant Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Warrant Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 DIVIDENDS IN WARRANT STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holders of Warrant
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to
receive, without payment therefor.
(a) Warrant Stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or exchangeable
for Warrant Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other distribution,
(b) any cash paid or payable otherwise than as a cash dividend,
or
(c) Warrant Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares of
Warrant Stock issued as a stock split or adjustments in respect of which shall
be covered by the terms of Section 3.1 above), then and in each such case, the
Holder hereof shall, upon the exercise of this Warrant, be entitled to receive,
in addition to the number of shares of Warrant Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of stock
and other securities and property (including cash in the cases referred to in
clause (b) above and this clause (c)) which such Holder would hold on the date
of such exercise had he been the holder of record of such Warrant Stock as of
the date on which holders of Warrant Stock received or became entitled to
receive such shares or all other additional stock and other securities and
property.
4.
<PAGE> 60
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any recapitalization, reclassification or reorganization of the
capital stock of the Company, or any consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its assets
or other transaction shall be effected in such a way that holders of Warrant
Stock shall be entitled to receive stock, securities, or other assets or
property (an "Organic Change"), then, as a condition of such Organic Change,
lawful and adequate provisions shall be made by the Company whereby the Holder
hereof shall thereafter (subject to the other provisions hereof) have the right
to purchase and receive (in lieu of the shares of the Warrant Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby) such shares of stock, securities or other assets
or property as may be issued or payable with respect to or in exchange for a
number of outstanding shares of such Warrant Stock equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby; provided, however, that in the
event the value of the stock, securities or other assets or property
(determined in good faith by the Board of Directors of the Company) issuable
or payable with respect to one share of the Warrant Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby is in excess of the Stock Purchase Price hereof
effective at the time of a merger and securities received in such
reorganization, if any, are publicly traded, then this Warrant shall expire
unless exercised prior to such Organic Change. In the event of any Organic
Change, appropriate provision shall be made by the Company with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Stock Purchase Price and of the number of shares purchasable and receivable
upon the exercise of this Warrant) shall thereafter be applicable, in relation
to any shares of stock, securities or assets thereafter deliverable upon the
exercise hereof. The Company will not effect any such consolidation, merger or
sale unless, prior to the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or the corporation
purchasing such assets shall assume by written instrument reasonably
satisfactory in form and substance to the Holders of a majority of the warrants
to purchase Warrant Stock then outstanding, executed and mailed or delivered to
the registered Holder hereof at the last address of such Holder appearing on
the books of the Company, the obligation to deliver to such Holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase.
3.4 CONVERSION OF WARRANT STOCK. In case all or any portion of the
authorized and outstanding shares of Warrant Stock of the Company are redeemed
or converted or reclassified into other securities or property pursuant to the
Company's Certificate of Incorporation or otherwise, or the Warrant Stock
otherwise ceases to exist, then, in such case, the Holder of this Warrant, upon
exercise hereof at any time after the date on which the Warrant Stock is so
redeemed or converted, reclassified or ceases to exist (the "Triggering Date"),
shall receive, in lieu of the number of shares of Warrant Stock that would have
been issuable upon such exercise immediately prior to the Triggering Date, the
shares of Common Stock of the Company that would have been received if this
Warrant had been exercised in full and the Warrant Stock received thereupon had
been simultaneously converted immediately prior to the Triggering Date, all
subject to further adjustment as provided in this Warrant. Additionally, the
Stock Purchase Price shall be immediately adjusted to equal the quotient
obtained by dividing (x)
5.
<PAGE> 61
the aggregate Stock Purchase Price of the maximum number of shares of Warrant
Stock for which this Warrant was exercisable immediately prior to the
Triggering Date by (y) the number of shares of Common Stock of the Company for
which this Warrant is exercisable immediately after the Triggering Date, all
subject to further adjustment as provided herein.
3.5 CERTAIN EVENTS. If any change in the outstanding Warrant Stock
of the Company or any other event occurs as to which the other provisions of
this Section 3 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with such provisions, then the Board of Directors of the Company shall make an
adjustment in the number and class of shares available under the Warrant, the
Stock Purchase Price or the application of such provisions, so as to project
such purchase rights as aforesaid. The adjustment shall be such as will give the
Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price
the total number, class and kind of shares as he would have owned had the
Warrant been exercised prior to the event and had he continued to hold such
shares until after the event requiring adjustment.
3.6 NOTICES OF CHANGE. Immediately upon any adjustment in the number
or class of shares subject to this Warrant and of the Stock Purchase Price, the
Company shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
4. ISSUE TAX. the issuance of certificates for shares of Warrant Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Warrant Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
holder to purchase shares of Warrant Stock, and no mere enumeration herein of
the rights or privileges of the holder hereof, shall give rise to any liability
of such Holder for the Stock Purchase Price or as a shareholder of the Company,
whether such liability is asserted by the Company or by its creditors.
7. TRANSFER. Subject to compliance with applicable federal and state
securities laws, this Warrant and all rights hereunder are transferable, in
whole or in part, without charge to the holder hereof (except for transfer
taxes), upon surrender of this Warrant properly endorsed.
6.
<PAGE> 62
Each taker and holder of this Warrant, by taking or holding the same, consents
and agrees that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall have been so
endorsed, may be treated by the Company, at the Company's option, and all other
persons dealing with this Warrant as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Company any notice to the
contrary notwithstanding; but until such transfer on such books, the Company
may treat the registered owner hereof as the owner for all purposes.
The Holder, by acceptance hereof, agrees that, absent an effective registration
statement filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1993 Act"), covering the disposition
or sale of this Warrant or the Warrant Stock, and registration or qualification
under applicable state securities laws, such Holder will not sell, transfer,
pledge or hypothecate any or all such Warrants or Warrant Stock, unless either
(i) the Company has received an opinion of counsel, in form and substance
reasonably satisfactory to the Company, to the effect that such registration is
not required in connection with such disposition or (ii) the sale of such
securities is made pursuant to Rule 144 of the 1933 Act. Notwithstanding the
foregoing, the Company hereby confirms its intent, after delivery of the
opinion described above, to consent to the sale, transfer, pledge or
hypothecation of this Warrant to holders of membership interests in the Holder.
The Holder, by acceptance hereof, agrees that, it will not transfer or dispose
of any Warrant Stock or Common Stock (or other securities) that it may acquire
upon exercise of rights under this Warrant for a period specified by the
representatives of the underwriters of Common Stock (or other securities) of
the Company not to exceed one hundred eighty (180) days following the effective
date of the Company's Initial Public Offering.
8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Warrant Stock, shall survive the exercise of this Warrant.
9. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or permitted
to be given or delivered to the holder hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
11. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Warrant Stock issuable upon the exercise of this
Warrant shall survive the exercise and
7.
<PAGE> 63
termination of this Warrant. All of the covenants and agreements of the Company
shall inure to the benefit of the successors and assigns of the holder hereof.
12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
13. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
14. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share,
pay the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
15. INVESTORS' RIGHTS AGREEMENT. Promptly following the date hereof, the
Company shall seek the necessary stockholder approval to amend and restate the
Amended and Restated Investors' Rights Agreement dated December 23, 1998 (the
"Investors' Rights Agreement") to include this Warrant (and any other Warrants
issued to Holder) as a Warrant (as such term is defined in the Investors'
Rights Agreement) (such amendment and restatement being referred to hereinafter
as the "Amended and Restated Investors' Rights Agreement"). Promptly following
such stockholder approval, each of the Company and the Holder shall execute and
deliver to the other an Amended and Restated Investors' Rights Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8.
<PAGE> 64
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its officers, thereunto duly authorized this 20th day of March, 1999.
QUOKKA SPORTS, INC.
a Delaware corporation
By: /s/ R. H. WILLIAMS
---------------------------
Name: R. H. Williams
-------------------------
Title: Chairman
------------------------
ATTEST:
[signature illegible]
- --------------------------------
Secretary
<PAGE> 65
EXHIBIT A
SUBSCRIPTION FORM
Date:__________, 19__
Quokka Sports, Inc.
525 Brannan Street
Ground Floor
San Francisco, CA 94107
Attn: President
Ladies and Gentlemen:
[ ] The undersigned hereby elects to exercise Warrant No. PWC-11 (the
"Warrant") issued to it by Quokka Sports, Inc. (the "Company") and dated
___________, 1999 and to purchase thereunder _____________ shares of the
Warrant Stock of the Company (the "Shares") at a purchase price of
_____________ per Share or an aggregate purchase price of
___________________________ dollars ($________) (the "Purchase Price").
[ ] The undersigned hereby elects to convert __________________________ percent
(______%) of the value of the Warrant pursuant to the provisions of Section
1.3 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire
transfer.
Very truly yours,
CHAMPIONSHIP AUTO RACING TEAMS, INC.
By: __________________________
Name: ________________________
Title: _______________________
<PAGE> 66
No. PWC-12
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE [*] SHARES
OF SERIES C PREFERRED STOCK OF
QUOKKA SPORTS, INC.
(VOID AFTER MARCH 19, 2004)
This certifies that CHAMPIONSHIP AUTO RACING TEAMS, INC. or its assigns (the
"Holder"), for value received, is entitled to purchase from QUOKKA SPORTS, INC.,
a Delaware corporation (the "Company") having a place of business at 525 Brannan
Street, San Francisco, California, a maximum of [*] fully paid and nonassessable
shares of Warrant Stock (as defined below) for cash at such time(s) as set forth
below and a purchase price of $[*] per share (the "Stock Purchase Price") up to
and including 5:00 p.m. (Pacific time) on the date five (5) years from the date
of this Warrant, such date being referred to herein as the "Expiration Date,"
upon surrender to the Company at its principal office (or at such other location
as the Company may advise the Holder in writing) of this Warrant properly
endorsed with the Form of Subscription attached hereto duly filled in and signed
and, if applicable, upon payment in cash or by check of the aggregate Stock
Purchase Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Stock
Purchase Price and the number of shares purchasable hereunder are subject to
adjustment as provided in Section 3 of this Warrant. The term "Warrant Stock"
refers to the Company's Series C Preferred Stock and any other securities at any
time receivable or issuable upon exercise of this Warrant.
Notwithstanding anything contained herein to the contrary, in the event the
Agreement (the "Agreement"), dated effective as of January 1, 1999, between the
Holder and CART DIGITAL MEDIA ENTERPRISES, LLC ("CDME"), or any other agreement
entered into among the Holder, the Company and CDME (or any combination thereof)
pursuant to the Agreement, is terminated, either by the Company or CDME as a
result of uncured material breach by Holder or by Holder for other than an
uncured material breach by the Company or CDME, such an event (the "Termination
Event") will cause this Warrant to become immediately void and the date of such
Termination Event (the "Termination Date") will be deemed the "Expiration Date"
for purposes hereof. Notwithstanding anything contained herein to the contrary
however, upon a Termination Event, the Holder will have ninety (90) days from
the Termination Date to exercise this Warrant to the extent of the Vested
Portion as of the Termination Date (as determined under Section 1.1 below).
[*] Confidential Treatment Requested.
<PAGE> 67
This Warrant is subject to the following terms and conditions:
1. VESTING; EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 VESTING. The portion of this Warrant that is exercisable at any
given time is determined by the chart below and is referred to as the "Vested
Portion."
<TABLE>
<CAPTION>
VESTING DATE:
VESTED PORTION DATE SHARES ARE FIRST EXERCISABLE STOCK PURCHASE PRICE
-------------- --------------------------------- --------------------
<S> <C> <C>
[*] [*] [*]
</TABLE>
1.2 EXERCISE. The Vested Portion of this Warrant is exercisable at
the option of the Holder, at any time or from time to time up to the Expiration
Date for all or any part of the shares of Warrant Stock (but not for a fraction
of a share) which may be purchased hereunder. The Company agrees that the shares
of Warrant Stock purchased under this Warrant shall be and are deemed to be
issued to the Holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed, executed Form of Subscription delivered and
payment made for such shares. Certificates for the shares of Warrant Stock so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense within a reasonable time after the
rights represented by this Warrant have been so exercised. In case of a purchase
of less than all the shares which may be purchased under this Warrant, the
Company shall cancel this Warrant and execute and deliver a new Warrant or
Warrants of like tenor for the balance of the shares purchasable under the
Warrant surrendered upon such purchase to the Holder hereof within a reasonable
time. Each stock certificate so delivered shall be in such denominations of
Warrant Stock as may be requested by the Holder hereof and shall be registered
in the name of such Holder.
1.3 NET ISSUE EXERCISE. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Warrant Stock
is greater than the Stock Purchase Price (at the date of calculation as set
forth below), in lieu of exercising this Warrant for cash, the Holder may elect
to receive shares equal to the value (as determined below) of this Warrant (or
the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Form of
Subscription and notice of such election in which event the Company shall issue
to the Holder a number of shares of Warrant Stock computed using the following
formula:
X=Y(A-B)
------
A
Where X= the number of shares of Warrant Stock to be issued to
the Holder
[*] Confidential Treatment Requested.
2.
<PAGE> 68
Y= the number of shares of Warrant Stock purchasable under
the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being
canceled (at the date of such calculation)
A= the fair market value of one share of the Company's
Warrant Stock (at the date of such calculation)
B= Stock Purchase Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, fair market value of one share of
Warrant Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, that in the event the Company makes an initial public
offering of its Common Stock (the "Initial Public Offering") the fair market
value per share shall be the product of (i) the per share offering price to the
public of the Initial Public Offering if the exercise occurs upon the closing
of the Company's Initial Public Offering or, if later, the closing price of the
Company's Common Stock on the date of exercise, and (ii) the number of shares
of Common Stock into which each share of Warrant Stock is convertible at the
time of such exercise.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all shares of Warrant Stock which may be issued upon the
exercise of the rights represented by this Warrant (and shares of its Common
Stock for issuance on conversion of such Warrant Stock) will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Warrant Stock and Common Stock, or other securities and property, when
and as required to provide for the exercise of the rights represented by this
Warrant. The Company will take all such action as may be necessary to assure
that such shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Warrant Stock or Common Stock may be listed; provided,
however, that the Company shall not be required to effect a registration under
Federal or State securities laws with respect to such exercise. The Company will
not take any action which would result in any adjustment of the Stock Purchase
Price (as set forth in Section 3 hereof) (i) if the total number of shares of
Warrant Stock issuable after such action upon exercise of all outstanding
warrants, together with all shares of Warrant Stock then outstanding and all
shares of Warrant Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of the total number of shares of Warrant Stock then authorized by
the Company's Certificate of Incorporation, or (ii) if the total number of
shares of Common Stock issuable after such action upon the conversion of all
such shares of Warrant Stock, together with all shares of Common Stock then
issuable upon exercise of all options and upon the conversion of all such shares
of Warrant Stock, together with
3.
<PAGE> 69
all shares of Common Stock then outstanding and all shares of Common Stock then
issuable upon exercise of all options and upon the conversion of all
convertible securities then outstanding would exceed the total number of shares
of Common Stock then authorized by the Company's Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase (subject to the other provisions hereof), at the Stock Purchase Price
resulting from such adjustment, the number of shares obtained by multiplying
the Stock Purchase Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment, and dividing the product thereof by the Stock Purchase Price
resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Warrant Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Warrant Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 DIVIDENDS IN WARRANT STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holders of Warrant
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to
receive, without payment therefor,
(a) Warrant Stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or exchangeable
for Warrant Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other distribution,
(b) any cash paid or payable otherwise than as a cash dividend,
or
(c) Warrant Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares of
Warrant Stock issued as a stock split or adjustments in respect of which shall
be covered by the terms of Section 3.1 above), then and in each such case, the
Holder hereof shall, upon the exercise of this Warrant, be entitled to receive,
in addition to the number of shares of Warrant Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of stock
and other securities and property (including cash in the cases referred to in
clause (b) above and this clause (c)) which such Holder would hold on the date
of such exercise had he been the holder of record of such Warrant Stock as of
the date on which holders of Warrant Stock received or became entitled to
receive such shares or all other additional stock and other securities and
property.
4.
<PAGE> 70
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any recapitalization, reclassification or reorganization of the
capital stock of the Company, or any consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its assets
or other transaction shall be effected in such a way that holders of Warrant
Stock shall be entitled to receive stock, securities, or other assets or
property (an "Organic Change"), then, as a condition of such Organic Change,
lawful and adequate provisions shall be made by the Company whereby the Holder
hereof shall thereafter (subject to the other provisions hereof) have the right
to purchase and receive (in lieu of the shares of the Warrant Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby) such shares of stock, securities or other assets
or property as may be issued or payable with respect to or in exchange for a
number of outstanding shares of such Warrant Stock equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby; provided, however, that in the
event the value of the stock, securities or other assets or property
(determined in good faith by the Board of Directors of the Company) issuable
or payable with respect to one share of the Warrant Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby is in excess of the Stock Purchase Price hereof
effective at the time of a merger and securities received in such
reorganization, if any, are publicly traded, then this Warrant shall expire
unless exercised prior to such Organic Change. In the event of any Organic
Change, appropriate provision shall be made by the Company with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Stock Purchase Price and of the number of shares purchasable and receivable
upon the exercise of this Warrant) shall thereafter be applicable, in relation
to any shares of stock, securities or assets thereafter deliverable upon the
exercise hereof. The Company will not effect any such consolidation, merger or
sale unless, prior to the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or the corporation
purchasing such assets shall assume by written instrument reasonably
satisfactory in form and substance to the Holders of a majority of the warrants
to purchase Warrant Stock then outstanding, executed and mailed or delivered to
the registered Holder hereof at the last address of such Holder appearing on
the books of the Company, the obligation to deliver to such Holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase.
3.4 CONVERSION OF WARRANT STOCK. In case all or any portion of the
authorized and outstanding shares of Warrant Stock of the Company are redeemed
or converted or reclassified into other securities or property pursuant to the
Company's Certificate of Incorporation or otherwise, or the Warrant Stock
otherwise ceases to exist, then, in such case, the Holder of this Warrant, upon
exercise hereof at any time after the date on which the Warrant Stock is so
redeemed or converted, reclassified or ceases to exist (the "Triggering Date"),
shall receive, in lieu of the number of shares of Warrant Stock that would have
been issuable upon such exercise immediately prior to the Triggering Date, the
shares of Common Stock of the Company that would have been received if this
Warrant had been exercised in full and the Warrant Stock received thereupon had
been simultaneously converted immediately prior to the Triggering Date, all
subject to further adjustment as provided in this Warrant. Additionally, the
Stock Purchase Price shall be immediately adjusted to equal the quotient
obtained by dividing (x)
5.
<PAGE> 71
the aggregate Stock Purchase Price of the maximum number of shares of Warrant
Stock for which this Warrant was exercisable immediately prior to the
Triggering Date by (y) the number of shares of Common Stock of the Company for
which this Warrant is exercisable immediately after the Triggering Date, all
subject to further adjustment as provided herein.
3.5 CERTAIN EVENTS. If any change in the outstanding Warrant Stock
of the Company or any other event occurs as to which the other provisions of
this Section 3 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with such provisions, then the Board of Directors of the Company shall make an
adjustment in the number and class of shares available under the Warrant, the
Stock Purchase Price or the application of such provisions, so as to protect
such purchase rights as aforesaid. The adjustment shall be such as will give the
Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price
the total number, class and kind of shares as he would have owned had the
Warrant been exercised prior to the event and had he continued to hold such
shares until after the event requiring adjustment.
3.6 NOTICES OF CHANGE. Immediately upon any adjustment in the
number or class of shares subject to this Warrant and of the Stock Purchase
Price, the Company shall give written notice thereof to the Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
4. ISSUE TAX. The issuance of certificates for shares of Warrant Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Warrant Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
Holder to purchase shares of Warrant Stock, and no mere enumeration herein of
the rights or privileges of the holder hereof, shall give rise to any liability
of such Holder for the Stock Purchase Price or as a shareholder of the Company,
whether such liability is asserted by the Company or by its creditors.
7. TRANSFER. Subject to compliance with applicable federal and state
securities laws, this Warrant and all rights hereunder are transferable, in
whole or in part, without charge to the holder hereof (except for transfer
taxes), upon surrender of this Warrant properly endorsed.
6.
<PAGE> 72
Each taker and holder of this Warrant, by taking or holding the same, consents
and agrees that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall have been so
endorsed, may be treated by the Company, at the Company's option, and all other
persons dealing with this Warrant as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.
The Holder, by acceptance hereof, agrees that, absent an effective registration
statement filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act"), covering the disposition
or sale of this Warrant or the Warrant Stock, and registration or qualification
under applicable state securities laws, such Holder will not sell, transfer,
pledge or hypothecate any or all such Warrants or Warrant Stock, unless either
(i) the Company has received an opinion of counsel, in form and substance
reasonably satisfactory to the Company, to the effect that such registration is
not required in connection with such disposition or (ii) the sale of such
securities is made pursuant to Rule 144 of the 1933 Act. Notwithstanding the
foregoing, the Company hereby confirms its intent, after delivery of the
opinion described above, to consent to the sale, transfer, pledge or
hypothecation of this Warrant to holders of membership interests in the Holder.
The Holder, by acceptance hereof, agrees that, it will not transfer or dispose
of any Warrant Stock or Common Stock (or other securities) that it may acquire
upon exercise of rights under this Warrant for a period specified by the
representatives of the underwriters of Common Stock (or other securities) of
the Company not to exceed one hundred eighty (180) days following the effective
date of the Company's Initial Public Offering.
8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Warrant Stock, shall survive the exercise of this Warrant.
9. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or permitted
to be given or delivered to the holder hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
11. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Warrant Stock issuable upon the exercise of this
Warrant shall survive the exercise and
7.
<PAGE> 73
termination of this Warrant. All of the covenants and agreements of the Company
shall inure to the benefit of the successors and assigns of the holder hereof.
12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
13. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost stolen,
destroyed or mutilated Warrant.
14. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
15. INVESTORS' RIGHTS AGREEMENT. Promptly following the date hereof, the
Company shall seek the necessary stockholder approval to amend and restate the
Amended and Restated Investors' Rights Agreement dated December 23, 1998 (the
"Investors' Rights Agreement") to include this Warrant) and any other Warrants
issued to Holder) as a Warrant (as such term is defined in the Investors' Rights
Agreement) (such amendment and restatement being referred to hereinafter as the
"Amended and Restated Investors' Rights Agreement"). Promptly following such
stockholder approval, each of the Company and the Holder shall execute and
deliver to the other an Amended and Restated Investors' Rights Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8.
<PAGE> 74
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its officers, thereunto duly authorized this 20th day of March, 1999.
QUOKKA SPORTS, INC.
a Delaware corporation
By: /s/ R. H. WILLIAMS
---------------------------
Name: R. H. Williams
-------------------------
Title: Chairman
------------------------
ATTEST:
[signature illegible]
- --------------------------------
Secretary
<PAGE> 75
EXHIBIT A
SUBSCRIPTION FORM
Date:__________, 19__
Quokka Sports, Inc.
525 Brannan Street
Ground Floor
San Francisco, CA 94107
Attn: President
Ladies and Gentlemen:
[ ] The undersigned hereby elects to exercise Warrant No. PWC-12 (the
"Warrant") issued to it by Quokka Sports, Inc. (the "Company") and
dated ___________, 1999 and to purchase thereunder _____________ shares
of the Warrant Stock of the Company (the "Shares") at a purchase price
of _____________ per Share or an aggregate purchase price of
___________________________ dollars ($________) (the "Purchase Price").
[ ] The undersigned hereby elects to convert __________________________ percent
(______%) of the value of the Warrant pursuant to the provisions of Section
1.3 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire
transfer.
Very truly yours,
CHAMPIONSHIP AUTO RACING TEAMS, INC.
By: __________________________
Name: ________________________
Title: _______________________
<PAGE> 76
SPONSORSHIP CATEGORIES
<TABLE>
<CAPTION>
YEARS OF CONTRACT
----------------------------------------------------------------
OFFICIAL SPONSOR 1998 1999 2000 2001 2002 CATEGORY
- ---------------- ---- ---- -------- -------- ---- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Anheuser-Busch Official Beer
Sears Craftsman* Official Tools and Battery
Featherlite Official Trailer & Coach
Federal Express (1)
Ford SVO Official Safety
Technological Supplier
Holmatro
Honda* Official
Motorcycle/Power
[*] Equipment
K&K Insurance*
MCI Official Communications
Company(2)
Mercedes-Benz Official Car
Racing Radios/Motorola* Official Two Way Radio
Communications Provider
Swiss Timing/Omega Official Timekeeper
PPG Co-Series Sponsor or Co-
Title Sponsor
Toyota* Official Truck
Valvoline Official Fuel
Supplier/Motor Oil
</TABLE>
[*]
- -------------
(1) Sponsor category means the movement of packages, documents and freight,
utilizing logistics, electronic and integrated air/ground networks, [*] when
such companies may associate with race teams competing in the series. [*]
(2) Official communications company encompasses long distance calling services;
local calling services; calling cards; prepaid calling cards; and wireless
services (including cellular and paging services), and is subject to CART's
agreement [*].
26
[*] Confidential Treatment Requested.
<PAGE> 1
OPERATING AGREEMENT Exhibit 10.16
OF
NBC/QUOKKA VENTURES, LLC
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES ACT OF 1933. A COMPLETE
COPY OF THIS EXHIBIT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
ARTICLE 1 DEFINITIONS................................................................1
1.1 Definitions...................................................................1
ARTICLE 2 FORMATION OF COMPANY.......................................................8
2.1 Formation.....................................................................9
2.2 Name..........................................................................9
2.3 Principal Place of Business...................................................9
2.4 Registered Office and Registered Agent........................................9
2.5 Term..........................................................................9
ARTICLE 3 PURPOSES OF COMPANY........................................................9
3.1 Company Purposes..............................................................9
ARTICLE 4 MANAGEMENT OF COMPANY......................................................9
4.1 Generally.....................................................................9
4.2 Number of Directors; Classification of Directors.............................10
4.3 Tenure, Election and Qualifications..........................................10
4.4 Resignation..................................................................10
4.5 Removal......................................................................10
4.6 Vacancies....................................................................11
4.7 Meetings.....................................................................11
4.8 Quorum and Transaction of Business...........................................12
4.9 Directors Have No Exclusive Duty to Company..................................12
4.10 Salaries.....................................................................12
ARTICLE 5 POWERS OF AND RESTRICTIONS ON THE DIRECTORS...............................12
5.1 Management...................................................................12
5.2 Adherence to Current Content Plan............................................13
5.3 Content Plan, Long-term Strategic Plan and Annual Operating Plan.............13
5.4 Additional Capital...........................................................14
5.5 Actions Requiring Simple Majority Approval...................................15
5.6 Actions Requiring Supermajority Approval.....................................16
5.7 Actions Requiring Approval of Only One Class of Directors....................18
5.8 Certain Powers of Directors..................................................19
5.9 Reports to Members ..........................................................20
i
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
5.10 Independent Public Accountants...............................................20
5.11 Litigation...................................................................20
ARTICLE 6 OFFICERS; COMMITTEES......................................................20
6.1 Appointment of Officers......................................................20
6.2 Tenure and Duties of Officers................................................21
ARTICLE 7 RIGHTS AND OBLIGATIONS OF MEMBERS.........................................22
7.1 Limitation of Liability......................................................22
7.2 Nature of Rights and Obligations.............................................22
7.3 Member Access to Records.....................................................22
7.4 Certain Actions Requiring Special Approval...................................22
7.5 Outside Activities...........................................................23
ARTICLE 8 CERTAIN MATTERS CONCERNING MEMBERS, DIRECTORS AND EXECUTIVE OFFICERS......23
8.1 Liability of Directors and Officers; Indemnification.........................23
8.2 Other Matters Concerning the Directors and Officers of the Company...........24
ARTICLE 9 MEETINGS OF MEMBERS.......................................................25
9.1 Annual and Special Meetings..................................................25
9.2 Place of Meetings............................................................25
9.3 Notice of Meetings...........................................................25
9.4 Meeting of all Members.......................................................25
9.5 Record Date..................................................................25
9.6 Quorum.......................................................................26
9.7 Manner of Acting.............................................................26
9.8 Proxies......................................................................26
9.9 Action by Members Without a Meeting..........................................26
9.10 Waiver of Notice.............................................................27
ARTICLE 10 CONTRIBUTIONS TO THE COMPANY, CAPITAL UNITS AND CAPITAL ACCOUNTS..........27
10.1 Capital Contributions........................................................27
10.2 Units........................................................................27
10.3 Capital Accounts ............................................................27
ii.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
10.4 Withdrawal or Reduction of Members, Contributions to Capital.................27
10.5 Unit Certificates............................................................28
ARTICLE 11 ALLOCATIONS, INCOME TAX, ELECTIONS AND REPORTS............................28
11.1 Allocation of Profits and Losses from Operations.............................28
11.2 Special Allocations..........................................................29
11.3 Distributions................................................................30
11.4 Limitation Upon Distributions................................................32
11.5 Accounting Principles........................................................32
11.6 Interest on and Return of Capital Contributions..............................32
11.7 Records and Reports..........................................................32
11.8 Returns and Other Elections..................................................33
11.9 Tax Matters Partner..........................................................33
ARTICLE 12 TRANSFERABILITY...........................................................33
12.1 Restrictions on Transferability..............................................34
12.2 No Effect to Transfers in Violation of Operating Agreement...................34
Article 13 Additional And Substitute Members.........................................34
13.1 Admission of Additional Members and Substitute Members.......................34
13.2 Allocations to Additional Members and Substitute Members.....................35
13.3 Effect of Transfer...........................................................35
ARTICLE 14 DISSOLUTION AND TERMINATION...............................................35
14.1 Dissolution..................................................................35
14.2 Effect of Filing of Certificate of Cancellation..............................35
14.3 Distribution of Assets Upon Dissolution......................................35
14.4 Winding Up...................................................................36
14.5 Filing of Certificate of Cancellation........................................36
ARTICLE 15 MERGER OR CONSOLIDATION...................................................36
15.1 Merger or Consolidation......................................................36
15.2 Vote Relating to Merger or Consolidation.....................................37
15.3 Exchange Relating to Merger or Consolidation.................................37
15.4 Filing and Effect of Certificate of Merger or Consolidation..................37
15.5 Amendment of Old or Adoption of New Operating Agreement .....................37
iii.
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
15.6 Assumption of Assets and Liabilities.........................................37
ARTICLE 16 MISCELLANEOUS PROVISIONS..................................................37
16.1 Notices......................................................................37
16.2 Application of Delaware Law..................................................38
16.3 Waiver of Action for Partition...............................................38
16.4 Amendments...................................................................38
16.5 Execution of Additional Instruments..........................................38
16.6 Construction.................................................................38
16.7 Headings.....................................................................38
16.8 Waivers......................................................................38
16.9 Rights and Remedies Cumulative...............................................38
16.10 Severability.................................................................38
16.11 Heirs, Successors and Assigns................................................39
16.12 Creditors....................................................................39
16.13 Counterparts.................................................................39
16.14 No Third Party Beneficiaries.................................................39
iv.
</TABLE>
<PAGE> 6
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES ACT OF 1933. A COMPLETE
COPY OF THIS EXHIBIT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
NBC/QUOKKA VENTURES, LLC
OPERATING AGREEMENT
THIS OPERATING AGREEMENT is made as of the 9th day of February 1999 (the
"Effective Date"), by and between NBC OLYMPICS, INC., a Delaware corporation
("NBC"), and QUOKKA SPORTS, INC., a Delaware corporation ("Quokka"), with
respect to the operation of NBC/QUOKKA VENTURES, LLC, a Delaware limited
liability company (the "Company").
WHEREAS, the Company was formed under the name "NBC/QUOKKA VENTURES,
LLC" pursuant to the provisions of the Delaware Limited Liability Company Act,
upon the filing of a certificate of formation (the "Certificate of Formation")
with the Delaware Secretary of State on February 5, 1999; and
WHEREAS, NBC and Quokka (together, the "Initial Members") desire to set
forth their respective ownership interests in the Company and the principles by
which the Company will be operated and governed;
NOW, THEREFORE, in consideration of mutual covenants and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. The following terms used in this Operating Agreement
shall have the following meanings (unless otherwise expressly provided herein):
(a) "ACCOUNTING PERIOD" shall be (i) the Company's Fiscal Year if
there are no changes in the Members' respective interests in Company income,
gain, loss or deductions during such Fiscal Year except on the first day
thereof, or (ii) any other period beginning on the first day of a Fiscal Year,
or any other day during a Fiscal Year, upon which occurs a change in such
respective interests, and ending on the last day of a Fiscal Year, or on the day
preceding an earlier day upon which any change in such respective interest shall
occur.
(b) "ADDITIONAL MEMBER" shall mean any Person who or which is
admitted to the Company as an Additional Member pursuant to Article 13 hereof.
(c) "ADJUSTED ASSET VALUE" with respect to any asset shall be the
asset's adjusted basis for federal income tax purposes, except as follows:
(1) The initial Adjusted Asset Value of any asset (other
than money) contributed by a Member to the Company shall be the gross fair
market value of such asset at the time of contribution, as determined by the
contributing Member and a Supermajority of the Directors; provided, however,
that the initial Adjusted Asset Value (which is the initial fair value as agreed
by the Members) of the assets contributed by the Members to the Company shall be
as set forth on Schedule A attached hereto.
1.
<PAGE> 7
(2) The Adjusted Asset Values of all Company assets
shall be adjusted to equal their respective gross fair market values, as
determined by a Supermajority of the Directors, and the resulting unrecognized
profit or loss allocated to the Capital Accounts of the Members pursuant to
Articles 10 and 11, as of the following times: (i) the acquisition of an
additional interest in the Company by any new or existing Member in exchange for
more than a de minimis capital contribution; (ii) the distribution by the
Company to a Member of more than a de minimis amount of Company assets, unless
all Members receive simultaneous distributions of either undivided interests in
the distributed property or identical Company assets in proportion to their
interests in Company distributions as provided in Section 11.3; and (iii) the
liquidation of the Company within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(g).
(d) "ADVERTISER CATEGORY" shall have the meaning specified in the
Master Venture Agreement.
(e) "AFFILIATE" with respect to any Person other than an entity
subject to the reporting requirements of the Security Exchange Act of 1934, as
amended, shall mean (i) any Person which beneficially holds, directly or
indirectly, or otherwise controls, ten percent (10%) or more of such Person's
outstanding securities, (ii) any Person, ten percent (10%) or more of which
Person's outstanding securities are beneficially held, directly or indirectly,
or are otherwise controlled, by such a Person and (iii) any Person, ten percent
(10%) or more of which Person's outstanding securities are beneficially held,
directly or indirectly, or are otherwise controlled, by a Person described in
(i) above. "Affiliate" with respect to any entity subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, shall mean (i)
any Person which beneficially holds, directly or indirectly, or otherwise
controls, fifteen percent (15%) or more of such entity's outstanding securities,
(ii) any Person, fifteen percent (15%) or more of which Person's outstanding
securities are beneficially held, directly or indirectly, or are otherwise
controlled, by such an entity and (iii) any Person, fifteen percent (15%) or
more of which Person's outstanding securities are beneficially held, directly or
indirectly, or are otherwise controlled, by a Person described in (i) above.
(f) "ANNUAL OPERATING PLAN" shall have the meaning specified in
Section 5.3(c).
(g) "BANKRUPTCY" of a Person shall mean (i) the filing by a
Person of a voluntary petition seeking liquidation, reorganization, arrangement
or readjustment, in any form, of its debts under the U.S. Bankruptcy Code (or
corresponding provisions of future laws) or any other federal, state or foreign
insolvency law, or a Person's filing an answer consenting to or acquiescing in
any such petition; (ii) the making by a Person of any assignment for the benefit
of its creditors or the admission by a Person of its inability to pay its debts
as they mature; or (iii) the expiration of 60 days after the filing of an
involuntary petition under the Bankruptcy Code (or corresponding provisions of
future laws) seeking an application for the appointment of a receiver for the
assets of a Person, or an involuntary petition seeking liquidation,
reorganization, arrangement or readjustment of its debts under any other
federal, state or foreign insolvency law, unless the same shall have been
vacated, set aside or stayed within such 60-day period.
(h) "BOARD OF DIRECTORS" shall have the meaning specified in
Section 4.1.
2.
<PAGE> 8
(i) "CAPITAL ACCOUNT" as of any given date shall mean, with
respect to any Member, the account maintained for such Member in accordance with
the provisions of Section 10.3.
(j) "CAPITAL CONTRIBUTION" shall mean the amount of money and the
initial Adjusted Asset Value of any property contributed to the Company by a
Member whenever made. Any reference to a capital contribution of a Member shall
include the Capital Contribution made by a predecessor holder of any Units held
by such Member with respect to such Units.
(k) "CAUSE" shall mean, with respect to any Person, fraud, gross
negligence, willful misconduct, embezzlement or a material breach of such
Person's obligations under this Operating Agreement or any contract between such
Person and the Company.
(l) "CHAIRMAN OF THE BOARD" shall mean that director who is
elected by the other members of the Board of Directors to serve as Chairman of
the Board of Directors of the Company.
(m) "CHANNEL" shall have the meaning specified in the Master
Venture Agreement.
(n) "CLASS A ACQUISITION DATE" shall mean the date on which any
Person, or any group of Persons that are Affiliated with each other, (i)
acquires or otherwise beneficially holds or controls fifty percent (50%) or more
of the outstanding voting securities of any Class A Member; (ii) acquires or
otherwise beneficially holds or controls thirty percent (30%) or more of the
outstanding voting securities of any Class A Member that is subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, where
such 30% or greater voting block represents the largest voting block held by
stockholders of such Class A Member; (iii) controls the appointment of a
majority of the members of the board of directors of such Class A Member; (iv)
acquires all or substantially all the assets of any Class A Member; or (v)
merges or otherwise consolidates with any Class A Member in a transaction where
the Class A Member is not the surviving entity.
(o) "CLASS A INTEREST" shall mean the proportion that a Class A
Member's Class A Units bear to the aggregate outstanding Class A Units of all
Class A Members.
(p) "CLASS A DIRECTOR" shall mean any Director classified as a
"Class A Director" and elected or designated by the Class A Members in
accordance with Section 4.3(a) of this Operating Agreement.
(q) "CLASS A MEMBER" shall mean any Member holding Class A Units.
(r) "CLASS A TRIGGER DATE" shall mean the date on which any NBC
Competitor (i) merges or otherwise consolidates with any Class A Member in a
transaction where the Class A Member is not the surviving entity, (ii) shall
have become the beneficial owner (as defined in the Securities Exchange Act of
1934) of fifteen percent (15%) or more of the outstanding equity securities of a
Class A Member, (iii) becomes entitled to elect, appoint or replace a member or
members of the board of directors of a Class A Member unless NBC shall also be
granted the same right to elect, appoint or replace a member or members of the
board of directors of such Class A Member or (iv) acquires all or substantially
all the assets of a Class A Member.
3.
<PAGE> 9
(s) "CLASS A UNIT" shall mean any Unit denominated "Class A."
(t) "CLASS B INTEREST" shall mean the proportion that a Class B
Member's Class B Units bear to the aggregate outstanding Class B Units of all
Class B Members.
(u) "CLASS B DIRECTOR" shall mean any Director classified as a
"Class B Director" and elected or designated by the Class B Members in
accordance with Section 4.3(b) of this Operating Agreement.
(v) "CLASS B MEMBER" shall mean any Member holding Class B Units.
(w) "CLASS B TRIGGER DATE" shall mean the date on which any
Quokka Competitor (i) merges with any Class B Member in a transaction where the
Class B Member is not the surviving entity, (ii) shall have become the
beneficial owner (as defined in the Securities Exchange Act of 1934) of fifteen
percent (15%) or more of the outstanding equity securities of a Class B Member,
(iii) becomes entitled to elect a member or members of the board of directors of
a Class B Member unless Quokka shall also be granted the same right to elect,
appoint or replace a member or members of the board of directors of such Class B
Member or (iv) acquires all or substantially all the assets of a Class B Member.
(x) "CLASS B UNIT" shall mean any Unit denominated "Class B."
(y) "CODE" shall mean the Internal Revenue Code of 1986, as
amended, or corresponding provisions of subsequent superseding federal revenue
laws.
(z) "COMPANY PROPERTY" means any tangible and intangible personal
property now owned or hereafter acquired by the Company, including, without
limitation, all cash, cash equivalents, deposits, accounts receivable,
work-in-progress, inventory, equipment, materials, supplies, prototypes,
vehicles, real property, fixtures, permits, approvals, licenses, patents,
consents, contracts, agreements, applications for permits, approvals, licenses,
development rights, development agreements, trade names and warranties, or any
other property.
(aa) "CONTENT PLAN" shall mean with respect to the first Games
the Initial Content Plan and with respect to the later Games the content plan
developed in accordance with Section 5.3(a).
(bb) "CONTENT PLAN DEADLINE" shall mean the date one hundred
twenty (120) days following the conclusion of the Games prior to the Games with
respect to which such Content Plan applies.
(cc) "CURRENT CONTENT PLAN" shall have the meaning specified in
Section 5.2.
(dd) "DELAWARE ACT" shall mean the Delaware Limited Liability
Company Act at 6 Del. C. Sections 18-101, et seq., as amended.
(ee) "DIRECTORS" shall mean the directors designated or elected
by the Members pursuant to the terms of this Operating Agreement. For purposes
of the Delaware Limited Liability Company Act and for all other purposes, the
term "Director" as used in this Operating Agreement shall mean "manager."
Consequently the parties intend that any restriction
4.
<PAGE> 10
on the authority of a Director set forth in this Operating Agreement shall also
be read as a restriction on such person's authority as a manager.
(ff) "DISTRIBUTABLE CASH" shall mean for any period the Operating
Cash Flow (as defined below) for such period plus depreciation and amortization
to the extent reflected in Operating Cash Flow for such period minus (i) the
capital expenditures of the Company for such period determined in accordance
with U.S. generally accepted accounting principles, (ii) any net working capital
requirements to be met from Operating Cash Flow for such period as determined by
the Board of Directors and (iii) all amounts distributed by the Company pursuant
to Section 11.3(a) of this Operating Agreement; and where "Operating Cash Flow"
shall mean for any period the gross revenues of the Company for such period less
all operating and nonoperating expenses of the Company for such period,
including all charges of a proper character (including provision for taxes, if
any, which charges shall be limited to current taxes, and provision for current
additions to reserves), all determined in accordance with GAAP applied on a
basis consistent with the Company's prior corresponding periods, if any.
(gg) "DROP-DEAD DATE" shall mean March 15, 1999.
(hh) "EQUITABLE CLAIM REGARDING CONTENT" shall have the meaning
specified in Section 5.7(c).
(ii) "EVENTS" shall have the meaning specified in the Master
Venture Agreement.
(jj) "EXCESS CAPITAL CONTRIBUTION" shall mean the amount, if any,
by which the sum of Quokka's Initial Capital Contribution and all Quokka
Quarterly Capital Contributions exceeds [*] dollars $[*].
(kk) "FISCAL YEAR" shall mean the Company's fiscal year. The
Company's fiscal year shall be January 1 through December 31 unless a different
taxable year is required by Section 706 of the Code, in which event the
Company's fiscal year shall be the taxable year required by Section 706 of the
Code.
(ll) "FUNDS FROM A SALE OF THE COMPANY" means all Distributable
Cash held by the Company which results from a Sale of the Company.
(mm) "FUNDS FROM OPERATIONS" means all Distributable Cash held by
the Company which results from the operation of the business of the Company from
whatever source, except for Funds From a Sale of the Company and Capital
Contributions.
(nn) "GAMES" shall have the meaning specified in the Master
Venture Agreement.
(oo) "INITIAL CAPITAL CONTRIBUTION" shall mean a Member's initial
contribution to the Capital of the Company pursuant to this Operating Agreement
in connection with the initial issuance of Units by the Company, as set forth on
Schedule A hereto.
(pp) "INITIAL CONTENT PLAN" shall have the meaning specified in
Section 5.3(a).
(qq) "INITIAL MEMBERS" shall mean NBC and Quokka.
[*] Confidential Treatment Requested
5.
<PAGE> 11
(rr) "INTEREST" shall mean the proportion that a Member's Units
bears to the aggregate outstanding Units of all Members.
(ss) "INTEREST INCOME" shall mean all interest income, including
without limitation, income received from commercial paper, certificates of
deposit, United States treasury bills and other money market investments.
(tt) "LONG-TERM STRATEGIC PLAN" shall have the meaning specified
in Section 5.3(b).
(uu) "MASTER VENTURE AGREEMENT" shall mean that certain Master
Venture Agreement of even date herewith among NBC, Quokka and the Company.
(vv) "MEMBER" shall mean each of Quokka, NBC, any Additional
Member and any Substituted Member which is, as of a given time, a member of the
Company.
(ww) "MUTUAL TERMINATION EVENT" shall have the meaning specified
in the Master Venture Agreement.
(xx) "NBC COMPETITOR" shall mean any media company that is
significantly engaged in any of the primary businesses of NBC, National
Broadcasting Company, Inc. or its Subsidiaries or any telecommunications,
Internet or similar company that is significantly engaged in any of the primary
businesses of National Broadcasting Company, Inc., its Subsidiaries or Snap! LLC
[*]; provided, however, that NBC Competitor shall not include any Person
identified by Quokka in writing to NBC (a "Request Notice") that NBC does not
identify as such in writing to Quokka within thirty (30) days of such Request
Notice.
(yy) "NBC SERVICES AGREEMENT" shall mean that certain NBC Rights
and Services Terms attached as Exhibit A to the Master Venture Agreement.
(zz) "NET PROFIT OR NET LOSS" shall be an amount computed for
each Accounting Period as of the last day thereof that is equal to the Company's
taxable income or loss for such Accounting Period, determined in accordance with
Section 703(a) of the Code (for this purpose, all items of income, gain, loss,
or deduction required to be stated separately pursuant to Code Section 703(a)(1)
shall be included in taxable income or loss), with the following adjustments:
(1) Any income of the Company that is exempt from
federal income tax and not otherwise taken into account in computing Net Profit
or Net Loss pursuant to this Section 1.1(zz) shall be added to such taxable
income or loss;
(2) Any expenditures of the Company described in Code
Section 705(a)(2)(b) or treated as Code Section 705(a)(2)(b) expenditures
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise
taken into account in computing Net Profit or Net Loss pursuant to this Section
1.1(zz) shall be subtracted from such taxable income or loss; and
[*] Confidential Treatment Requested
6.
<PAGE> 12
(3) Items that are specially allocated pursuant to
Section 11.2 hereof shall not be taken into account in computing Net Profit or
Net Loss.
Notwithstanding anything to the contrary contained in this definition of Net
Profit or Net Loss, income, gain or loss resulting from the disposition of,
distribution to a Member of, or depreciation, amortization or other cost
recovery deductions with respect to, any Company asset shall be computed by
reference to the book value of the asset disposed of, distributed or
depreciated, amortized or otherwise recovered, notwithstanding that the adjusted
tax basis of such asset differs from its book value.
(aaa) "OPERATING AGREEMENT" shall mean this Operating Agreement
as originally executed and as amended from time to time in accordance with the
terms of this Operating Agreement.
(bbb) "PERMITTED PLEDGE" shall mean a pledge by a Member of its
interest in the Company in connection with a debt financing transaction creating
an encumbrance on all or substantially all the assets of such Member, which
assets include such Member's interest in the Company.
(ccc) "PERSON" shall mean any individual or corporation,
partnership, limited liability company, joint venture, association, joint stock
company, trust, unincorporated organization or other entity, including any
government or political subdivision or any agency or instrumentality thereof and
the heirs, executors, administrators, legal representatives, successors, and
permitted assigns of such "Person" where the context so admits.
(ddd) "QUARTERLY CAPITAL NEEDS" shall have the meaning specified
in Section 5.3(c).
(eee) "QUOKKA COMPETITOR" shall mean any Person significantly
engaged in the business of providing coverage, promotion or advertising of
sports or sporting events over the Internet Medium (as such term is defined in
the NBC Services Agreement).
(fff) "QUOKKA QUARTERLY CAPITAL CONTRIBUTION" shall have the
meaning specified in Section 5.4(a).
(ggg) "QUOKKA SERVICES AGREEMENT" shall mean that certain Quokka
Rights and Services Terms attached as Exhibit B to the Master Venture Agreement.
(hhh) "QUOKKA WARRANTS" shall have the meaning specified in the
Master Venture Agreement.
(iii) "REDUCED ACTIVITY PERIOD" shall mean any six month period
following the expiration or termination of the Master Venture Agreement (as such
terms are defined in the Master Venture Agreement) during which the Company has
not either accrued expenditures of at least $[*] or recognized revenues of at
least $[*].
(jjj) "REDUCED SPENDING PLAN" shall have the meaning specified in
Section 5.3(b).
[*] Confidential Treatment Requested
7.
<PAGE> 13
(kkk) "RESTRICTED ADVERTISER CATEGORY" shall have the meaning
specified in the Master Venture Agreement.
(lll) "SALE OF COMPANY PROPERTY" shall mean the sale,
disposition, assignment, transfer, lease, pledge, hypothecation or encumbrance
of, or the granting of any security interest in, any Company Property that, when
considered with any other Company Property so transferred or otherwise treated
outside the ordinary course of business, has an aggregate fair market value
greater than 20% of the fair market value of all Company Property (including
without limitation any Sale of the Company).
(mmm) "SALE OF THE COMPANY" shall mean the sale or disposition of
all or substantially all the Company Property.
(nnn) "SERVICES AGREEMENTS" shall mean the NBC Services Agreement
and the Quokka Services Agreement.
(ooo) "SUBSIDIARY" of any Person shall mean any entity of which
such Person beneficially holds, directly or indirectly, fifty percent (50%) or
more of such entities outstanding securities.
(ppp) "SUBSTITUTE MEMBER" shall mean any Person who or which is
admitted to the Company as a Substitute Member pursuant to Articles 12 and 13 of
this Operating Agreement.
(qqq) "SUPERMAJORITY OF THE DIRECTORS" shall mean the vote of
three (3) or more Directors, including at least one (1) Class A Director and at
least one (1) Class B Director. Every act or decision done or made by three (3)
or more Directors, including at least one (1) Class A Director and at least one
(1) Class B Director, at a meeting duly held and at which a quorum is present
shall be the act of a Supermajority of the Directors. Additionally, any act or
decision done or made pursuant to a written consent executed by all five (5)
Directors (or, in the event of a reduction in the number of Directors pursuant
to Section 4.2, all four (4) Directors) in accordance with the terms of Section
4.7(g) shall be the act of a Supermajority of the Directors. Votes by a Director
shall be as a representative of the Members electing such Director and not as a
fiduciary of the Company or all of its Members.
(rrr) "TREASURY REGULATIONS" shall mean the Income Tax
Regulations, including temporary regulations, promulgated under the Code, as
amended from time to time.
(sss) "UNITS" shall mean the capital units issued by the Company
to its Members, in exchange for contributions, which represent the Member's
interest in the Company.
(ttt) "WARRANT ISSUANCE AGREEMENT" shall mean that certain
Warrant Issuance Agreement dated of even date herewith among Quokka, NBC and the
Company.
ARTICLE 2
FORMATION OF COMPANY
2.1 FORMATION. On February 5, 1999, the Company was organized as a
Delaware limited liability company under and pursuant to the Delaware Act.
8.
<PAGE> 14
2.2 NAME. The name of the Company is NBC/Quokka Ventures, LLC.
2.3 PRINCIPAL PLACE OF BUSINESS. The principal place of business of the
Company shall be in the State of New York.
2.4 REGISTERED OFFICE AND REGISTERED AGENT. The Company's registered
office in the state of Delaware shall be at the office of its registered agent,
and the name and address of its initial registered agent shall be The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801. The Corporation Trust Company is located in the
County of Newcastle.
2.5 TERM. The Company's existence commenced February 5, 1999 upon the
filing with the Secretary of the State of Delaware of the Company's Certificate
of Formation and shall continue indefinitely, unless the Company is earlier
dissolved in accordance with either the provisions of this Operating Agreement
or the Delaware Act.
ARTICLE 3
PURPOSES OF COMPANY
3.1 COMPANY PURPOSES. The purpose of the Company is to (a) design,
develop, produce and market the Channel in accordance with the Master Venture
Agreement, the Services Agreements and the Content Plans, (b) sell advertising
on, or sponsorships of, the Channel in accordance with the Master Venture
Agreement and the Services Agreements, (c) design, develop, manufacture, market
and sell derivative products relating to the Channel in accordance with the
Master Venture Agreement and the Services Agreements, (d) engage in such other
activities as contemplated by the Master Venture Agreement, the Services
Agreements and the Content Plans and (e) engage in any lawful act or activity
for which a limited liability company may be organized under the laws of the
State of Delaware, incident, necessary, advisable or desirable to carry out the
foregoing. The Company shall have all powers available to limited liability
companies under the Delaware Act to make and perform all contracts and to engage
in all actions and transactions necessary or advisable to carry out the purposes
of the Company.
ARTICLE 4
MANAGEMENT OF COMPANY
4.1 GENERALLY. Except as specifically set forth in this Operating
Agreement, the Members hereby delegate all power and authority to manage the
business and affairs of the Company to the Directors, who shall act as the
managers of the Company subject to and in accordance with the terms of this
Operating Agreement (including, without limitation, Section 5.1). Such five (5)
(or, as provided in Section 4.2 below, four (4)) Directors shall constitute the
"Board of Directors" and such term may be used in this Operating Agreement to
refer to such five (5) (or, as provided in Section 4.2 below, four (4))
Directors. Such term is used for convenience only and is not intended by the
parties to confer to the Board of Directors any additional power or authority
other than that expressly and specifically conferred pursuant to and in
accordance with the terms of this Operating Agreement.
4.2 NUMBER OF DIRECTORS; CLASSIFICATION OF DIRECTORS. The number of
Directors of the Company shall be fixed at five (5) Directors. Three (3)
Directors shall be classified as Class
9.
<PAGE> 15
A Directors and two (2) Directors shall be classified as Class B
Directors. Notwithstanding the foregoing however, if within thirty (30) days
following the date the Class B Directors receive written notice from the Class A
Directors that a Class A Acquisition Date has occurred (a "Class A Acquisition
Date Notice"), the holders of a majority of the Class B Interests elect to
reduce the number of Class A Directors, the number of Directors of the Company
shall be fixed at four (4) Directors. In such event two (2) Directors shall be
classified as Class A Directors and two (2) Directors shall be classified as
Class B Directors. The Class A Directors shall provide a Class A Acquisition
Date Notice promptly following a Class A Acquisition Date.
4.3 TENURE, ELECTION AND QUALIFICATIONS.
(a) The initial Class A Directors shall be Richard H. Williams,
Alan Ramadan and Les Schmidt. Each Class A Director shall serve until the
earlier of (i) the election of such Class A Director's successor by Class A
Members holding a majority of the Class A Interests, (ii) the removal of such
Class A Director in accordance with the terms of this Operating Agreement, (iii)
such Class A Director's resignation and (iv) such Class A Director's death.
(b) The initial Class B Directors shall be Bob Myers and Gary
Zenkel. Each Class B Director shall serve until the earlier of (i) the election
of such Class B Director's successor by Class B Members holding a majority of
the Class B Interests, (ii) the removal of such Class B Director in accordance
with the terms of this Operating Agreement, (iii) such Class B Director's
resignation and (iv) such Class B Director's death.
(c) At the time of his appointment and at all times during his
service as a Director, a Director must be an officer, director or employee of a
Member. In the event a Director shall cease to be an officer, director or
employee of a Member, such Director shall be deemed to have resigned as a
Director effective upon such cessation date. In addition, at least one (1) Class
B Director shall be an officer, director or employee of NBC.
4.4 RESIGNATION. A Director may resign at any time by giving written
notice to the Members. The resignation of a Director shall take effect upon
receipt of notice thereof or at such later time as shall be specified in such
notice; unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
4.5 REMOVAL.
(a) A Class A Director may be removed at any time, with or
without Cause, by the affirmative vote of Class A Members holding a majority of
the Class A Interests. Without limiting the generality of the foregoing, in the
event of a reduction in the number of Directors classified as Class A Directors
pursuant to Section 4.2, the Class A Members holding a majority of the Class A
Interests shall determine which Class A Director shall be removed as a result of
such reduction.
(b) A Class B Director may be removed at any time, with or
without Cause, by the affirmative vote of Class B Members holding a majority of
the Class B Interests.
(c) Notwithstanding the foregoing, upon the affirmative vote of
any two Directors, any other Director may be removed for Cause.
4.6 VACANCIES.
10.
<PAGE> 16
(a) Any vacancy occurring in the office of a Class A Director
shall be filled by the affirmative vote of Class A Members holding a majority of
the Class A Interests.
(b) Any vacancy occurring in the office of a Class B Director
shall be filled by the affirmative vote of Class B Members holding a majority of
the Class B Interests.
4.7 MEETINGS.
(a) Subject to the notice provisions set forth in this Section
4.7, regular meetings of the Board of Directors shall be held at such times and
dates as determined by the Board of Directors. The Board of Directors shall hold
at least four (4) regular meetings annually, which meetings shall be held in
such locations as determined pursuant to this Section 4.7. The officers and
other executives of the Company, if any, may attend meetings of the Board of
Directors with the prior approval of the Board of Directors. The Board of
Directors shall meet with the officers and other senior executives of the
Company, if any, at least two (2) times annually.
(b) Directors may participate in a meeting through use of
conference telephone or similar communication equipment, so long as all
Directors participating in such meeting can hear one another. Such participation
constitutes presence in person at such meeting.
(c) Special meetings of the Board of Directors for any purpose
may be called by the Chairman of the Board or by any two Directors.
(d) Each Director shall receive notice of the date, time and
place of all meetings of the Board of Directors at least thirty (30) days before
the meeting. Such notice shall be delivered in writing (which may be by
facsimile or by telegraph) to each Director. Such notice may be given by the
Chairman of the Board, the Secretary of the Company or by the person or persons
who called the meeting. Such notice shall specify the purpose of the meeting.
Notice of any meeting of the Board of Directors shall not be required to be
given to any Director who signs a waiver of notice of such meeting or a consent
to holding the meeting, either before or after the meeting, or who attends the
meeting without protesting prior to such meeting or at the commencement thereof.
No meeting of the Board of Directors shall be considered a valid meeting of the
Board of Directors unless notice as required pursuant to this Section 4.7 has
been given. All such waivers, consents and approvals shall be filed with the
corporate records of the Company.
(e) Regular meetings of the Board of Directors shall be held
alternatively in San Francisco, California and New York, New York, or in such
other places as the Directors who desire to attend such meeting may collectively
determine. Special meetings of the Board of Directors shall be held in New York,
New York, or in such other places as the Directors who desire to attend such
meeting may collectively determine, with respect to special meetings called by
the Class A Directors and shall be held in San Francisco, California, or in such
other places the Directors who desire to attend such meeting may collectively
determine, with respect to special meetings called by the Class B Directors. The
location of any meeting of the Board of Directors shall be designated in the
notice of the meeting.
(f) Any meeting of the Board of Directors, whether or not a
quorum is present, may be adjourned to another time and place by the affirmative
vote of a majority of the Directors present. If the meeting is adjourned for
more than twenty-four (24) hours, notice of
11.
<PAGE> 17
such adjournment to another time or place shall be given prior to the time of
the adjourned meeting to the Directors who were not present at the time of the
adjournment.
(g) Any action required or permitted to be taken by the Board of
Directors may be taken without a meeting of the Board of Directors, if all the
Directors individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the corporate records of the
Company. Such action by written consent shall have the same force and effect as
a unanimous vote of the Directors.
4.8 QUORUM AND TRANSACTION OF BUSINESS. The number of Directors that
constitutes a quorum for the transaction of business at a properly noticed
meeting of the Board of Directors shall be three (3); provided, however, that if
a vote requiring a Supermajority of the Directors shall be taken at such
meeting, a Supermajority of the Directors shall constitute a quorum. Except as
required by the Delaware Act or as otherwise set forth in this Operating
Agreement, every act or decision done or made by three (3) or more Directors at
a meeting duly held and at which a quorum is present shall be the act of the
Board of Directors.
4.9 DIRECTORS HAVE NO EXCLUSIVE DUTY TO COMPANY. The Directors shall not
be required to manage the Company as their sole and exclusive function, and the
Directors may have other business interests and may engage in other activities
in addition to those relating to the Company. Neither the Company nor any Member
shall have any right, by virtue of this Operating Agreement or otherwise, to
share or participate in such other investments or activities of the Directors or
to the income or proceeds derived therefrom.
4.10 SALARIES. The Directors shall receive no salary or other
compensation from the Company; provided, however, the foregoing shall not
prevent any employee of or consultant to the Company from receiving salary or
other compensation from the Company with respect to his services as an employee
or consultant.
ARTICLE 5
POWERS OF AND RESTRICTIONS ON THE DIRECTORS
5.1 MANAGEMENT. The Directors shall in all cases act as a group and
shall have no authority to act individually. The Board of Directors may appoint
one (1) or more officers to manage the day-to-day operations of the Company. The
initial officers shall be as designated in Section 6.1 below and shall have the
respective duties set forth in Section 6.2 below. The Board of Directors may
adopt such rules and regulations for the management of the Company not
inconsistent with this Operating Agreement or the Delaware Act. Except as
otherwise provided in the Delaware Act or authorized pursuant to the terms of
this Operating Agreement, no debt shall be contracted or liability incurred by
or on behalf of the Company except by the Company's Board of Directors.
5.2 ADHERENCE TO CURRENT CONTENT PLAN. Except as approved by a Supermajority of
the Directors, the Board of Directors shall operate the Company, and the Company
shall operate the Channel, in a manner in all ways consistent with and in
accordance with the Content Plan as in effect with respect to a Games at any
given time (the "Current Content Plan"). Amendments to the Current Content Plan
shall require approval by a Supermajority of the Directors.
12.
<PAGE> 18
Notwithstanding any provision herein to the contrary, approval of any
Content Plan shall not constitute approval of the raising of additional capital
for the Company.
5.3 CONTENT PLAN, LONG-TERM STRATEGIC PLAN AND ANNUAL OPERATING PLAN.
(a) Until the Drop-Dead Date, the Members shall negotiate in good
faith to develop, for approval by a Supermajority of the Directors, an initial
content plan (the "Initial Content Plan") with respect the first Games,
provided, however, in conducting such negotiations, it will not be NBC's
intention to acquire "participating rights" as defined in EITF 96-16. Nothing
contained in the foregoing proviso, however, will affect the enforceability of
the Initial Content Plan once it has been approved by a Supermajority of the
Directors. Thereafter, no later than thirty (30) days prior to each Content Plan
Deadline, the officers of the Company shall prepare and submit to the Board of
Directors for approval by a Supermajority of the Directors, a content plan (the
"Content Plan") covering with respect to the next upcoming Games the types of
items covered in the Initial Content Plan with respect to the first Games. The
Members shall cause the Directors of the Company to work together in good faith
to develop and approve by such Supermajority of the Directors a Content Plan
with respect to each Games by the Content Plan Deadline; provided, however, in
the event a Supermajority of the Directors do not approve a Content Plan with
respect to the next upcoming Games on or before the Content Plan Deadline, the
Content Plan with respect to the next upcoming Games shall be the Content Plan
for the prior Games as updated by the General Manager and Production
Coordinating Producer of the Company to adjust for (i) the different sports
occurring during such Games (e.g. figure skating shall be substituted for
gymnastics), (ii) changes in technology and (iii) the current competitive
landscape. In the event that the General Manager and the Production Coordinating
Producer cannot agree on the updates necessary to create the Content Plan, the
General Manager shall have final authority to approve such Content Plan.
(b) From time to time as requested by the Board of Directors, but
at least one hundred twenty (120) days prior to the beginning of every other
Fiscal Year (beginning with the Fiscal Year commencing January 1, 2001), the
officers of the Company shall prepare and submit to the Board of Directors for
approval a long-term strategic plan for the Company (the "Long-term Strategic
Plan") for the period commencing with such Fiscal Year (or, the current Fiscal
Year in the event the Long-term Strategic Plan is not being considered by the
Board of Directors within sixty (60) days prior to the beginning of a Fiscal
Year) and ending with the Fiscal Year following the completion of the last Games
with respect to which the Company has rights under the NBC Services Agreement.
Notwithstanding the foregoing however, the first Long-term Strategic Plan shall
be prepared and submitted to the Board of Directors for approval no later than
ninety (90) days from the date hereof. Each Long-term Strategic Plan shall
include for each Fiscal Year covered by such Long-term Strategic Plan the
financial goals of the Company for each such Fiscal Year including a summary of
target operating revenues and expenses, capital expenditures and sources and
uses of funds and shall set forth an estimate of the additional capital needs,
if any, of the Company during each quarter of each such Fiscal Year, provided,
however, that such information need not be as detailed as the information
provided in the Annual Operating Plan. The Long-term Strategic Plan shall be
prepared on a basis in all respects consistent with the Current Content Plan. In
the event that there are three (3) Class A Directors and the Board of Directors
approves a Long-term Strategic Plan that provides for disbursement of (x) with
respect to the first Games, less than [*] dollars ([*]), (y) with respect to the
second Games, less than the amount equal to [*] dollars ([*]) multiplied by the
NBC Budget Discount, if any, or (z) with
[*] Confidential Treatment Requested
13.
<PAGE> 19
respect to the third Games, less than the amount equal to [*] dollars ([*])
multiplied by the NBC Budget Discount, if any, such Long-term Strategic Plan
shall be deemed a "Reduced Spending Plan." If at any time NBC substantially
reduces its overall television network budget with respect to any Games (other
than the 2000 Games) for reasons relating solely to an adverse change in general
economic conditions in the United States, then the "NBC Budget Discount" shall
mean the percentage by which NBC has reduced such budget. The foregoing
notwithstanding, nothing contained in this Section 5.3(b) shall obligate NBC to
provide Quokka or the Company with any written materials relating to NBC's
television network budget for any Games.
(c) From time to time as requested by the Board of Directors, but
at least one hundred twenty (120) days prior to the beginning of each Fiscal
Year, the officers of the Company shall prepare and submit to the Board of
Directors for approval an annual operating plan for the Company (the "Annual
Operating Plan") for such Fiscal Year. Notwithstanding the foregoing however,
the first Annual Operating Plan shall be prepared and submitted to the Board of
Directors for approval no later than ninety (90) days from the date hereof. The
Annual Operating Plan shall include the budget of the Company for such fiscal
year including estimates of operating revenues and expenses, capital
expenditures and sources and uses of funds and shall set forth an estimate of
the additional capital needs, if any, of the Company during each quarter of each
such Fiscal Year (the "Quarterly Capital Needs"). The Annual Operating Plan
shall be prepared on a basis in all respects consistent with the Current Content
Plan and the Long-term Strategic Plan. In the event that there are only two (2)
Class A Directors as a result of an election by the Class B Directors pursuant
to Section 4.2 and the Board of Directors is unable to approve an Annual
Operating Plan by the date one hundred (100) days prior to the beginning of a
Fiscal Year, the Annual Operating Plan for the upcoming Fiscal Year shall be the
Annual Operating Plan for the prior Fiscal Year increased by five percent (5%)
in each category.
5.4 ADDITIONAL CAPITAL.
(a) From time to time, Quokka shall make additional contributions
(the "Quokka Quarterly Capital Contribution") to the capital of the Company in
such amounts necessary to fund the Company's operations on an on-going basis in
accordance with the current Long-term Strategic Plan and the Annual Operating
Plan. Each Quokka Quarterly Capital Contribution, if any, shall be made at the
beginning of each quarter and shall equal the Quarterly Capital Needs for the
subsequent commencing quarter; provided, however, that in the event that a Games
commences during any particular quarter, then (x) the Quokka Quarterly Capital
Contribution that would have otherwise been due at the beginning of the quarter
in which the Games commence shall instead be due at the beginning of the
previous quarter, (y) the Quokka Quarterly Capital Contribution that would have
otherwise been due at the beginning of the quarter subsequent to the quarter in
which the Games commence shall instead be due at the beginning of the quarter in
which the Games commence and (z) no capital contribution shall be required at
the beginning of the quarter subsequent to the quarter in which the Games
commence because the amount that otherwise would have been contributed at such
time was contributed a quarter earlier (e.g., by way of example only, Quokka
shall make a Quokka Quarterly Capital Contribution at the beginning of the first
quarter of the year in an amount equal to the Quarterly Capital Needs during the
second quarter; provided, however, in the event that a Games commences during
the second quarter, the Quokka Quarterly Capital Contribution that would have
otherwise been payable at the beginning of the second quarter (i.e. the
Quarterly Capital Needs during the third quarter) shall also be paid at the
beginning of the first quarter). Quokka
[*] Confidential Treatment Requested
14.
<PAGE> 20
shall not receive additional Units in exchange for such Quokka Quarterly Capital
Contributions. Additionally, for so long as Quokka shall not have completed an
initial public offering of its equity or other securities, Quokka shall provide
the Board of Directors with (1) Quokka's unaudited quarterly report including a
consolidated balance sheet as at the end of the most recently completed quarter,
and an unaudited consolidated statement of income and an unaudited statement of
cash flows for such quarter, all prepared in accordance with U.S. generally
accepted accounting principles consistently applied (other than for accompanying
notes and changes resulting from year-end audit adjustments) within forty-five
(45) days of the end of each quarter of Quokka's fiscal year and (2) a
consolidated balance sheet of Quokka as at the end of the most recently
completed fiscal year, and a consolidated statement of income and a consolidated
statement of cash flows of Quokka for such year, all prepared in accordance with
U.S. generally accepted accounting principles consistently applied, together
with a report and opinion thereon by independent public accountants of national
standing selected by Quokka's board of directors, within ninety (90) days after
the end of each fiscal year of Quokka.
(b) From time to time, pursuant to the provisions of Section
5.7(b), the Class B Directors, in their sole discretion, may direct the Company
to exercise all or a portion of the Quokka Warrants. Concurrently therewith, NBC
shall contribute to the capital of the Company an amount equal to the exercise
price of the Quokka Warrants being exercised at such time (except in the event
of a "net issuance exercise" in accordance with the terms of the Quokka Warrants
pursuant to which a portion of the Quokka Warrants shall be canceled in
satisfaction of the applicable exercise price). Until such amount has been
contributed to the capital of the Company, the Company shall take no action with
respect to such requested exercise of the Quokka Warrants (except in the event
of a "net issuance exercise" in accordance with the terms of the Quokka Warrants
pursuant to which a portion of the Quokka Warrants shall be canceled in
satisfaction of the applicable exercise price). NBC shall not receive additional
Units in exchange for such additional capital contributions.
(c) Except as set forth in Section 5.4(a) and 5.4(b) above, the
Company shall not raise additional capital (or, in connection therewith, issue
additional units of the Company or admit Additional Members) without the
approval of a Supermajority of the Directors.
(d) Except in the event the Class B Directors elect pursuant to
Section 5.4(b) to exercise the Quokka Warrants for cash or in the event the
Class B Directors elect to control Equitable Claim Regarding Content pursuant to
Section 5.7(c), the Class B Members shall have no obligation to contribute cash
to the Company.
5.5 ACTIONS REQUIRING SIMPLE MAJORITY APPROVAL. As set forth in Section
4.8, except as required by the Delaware Act or as otherwise set forth in this
Operating Agreement (including, without limitation, Section 5.6), every act or
decision done or made by three (3) or more Directors at a meeting duly held and
at which a quorum is present shall be the act of the Board of Directors. Without
limiting the generality of Section 4.8 or Section 5.1 or the obligation of the
Board of Directors to operate the Company in accordance with the Current Content
Plan as set forth in Section 5.2, the Members desire to affirmatively set forth
certain actions which may be taken by a simple majority of the Board of
Directors in accordance with Section 4.7. Such actions are as follows:
(a) Election of the Chairman of the Board, who shall preside at
all meetings of the Board of Directors;
15.
<PAGE> 21
(b) Approval and amendment of the Annual Operating Plan and
Long-term Strategic Plan (as set forth in Section 5.3);
(c) The appointment or removal of the General Manager and other
officers of the Company; provided, however, that the appointment of the
Production Coordinating Producer shall require the approval of a Supermajority
of the Directors;
(d) The hiring, firing and compensation of the Company's
personnel; provided, however, that the hiring of the Production Coordinating
Producer shall require the approval of a Supermajority of the Directors;
(e) Selection of the equipment and production processes of the
Company in the ordinary course of business;
(f) Directing and controlling claims and litigation against or
involving third parties, other than claims or litigation (i) subject to approval
by a Supermajority of the Directors pursuant to Section 5.6, (ii) Equitable
Claims Regarding Content subject to the direction and control of the Class B
Directors pursuant to Section 5.7(c) or (iii) which any Person (other than the
Company) has a contractual right to control and direct; and
(g) Negotiation and approval of agreements with third parties,
other than agreements subject to approval by a Supermajority of the Directors
pursuant to Section 5.6.
5.6 ACTIONS REQUIRING SUPERMAJORITY APPROVAL. Notwithstanding any other
provision in this Operating Agreement to the contrary, every act or decision
outside the ordinary course of business shall require the approval of a
Supermajority of the Directors. For purposes of this Operating Agreement,
"outside the ordinary course of business" shall mean acts or decisions regarding
matters of a type (as opposed to matters involving an amount) that is not
consistent with those normally expected to be addressed in directing and
carrying out the purposes of the Company as set forth in Section 3.1, regardless
of whether the events or transactions that would necessitate such decisions are
expected to occur in the near term or in the long term. Operation of the Company
in any way inconsistent with the Current Content Plan is considered "outside the
ordinary course of business" for purposes hereof. In addition, the following
shall require the approval of a Supermajority of the Directors:
(a) Any agreement, arrangement or understanding with any Member,
Director or any holder of Units or any Affiliate, employee or relative of any
such Member, Director or holder, or any amendment, renewal or extension of any
such agreement, arrangement or understanding (other than employment contracts
between any such natural person and the Company); provided, however, that the
Master Venture Agreement and the Warrant Issuance Agreement as executed and
delivered as of the date hereof shall be deemed to be approved by a
Supermajority of the Directors as of the date hereof for purposes of this
Section 5.6(a);
(b) Amendments of the Current Content Plan of the Company (as set
forth in Section 5.2) and approval of new Content Plans (as set forth in Section
5.3(a));
(c) Any redemption of any Unit or other interest in the Company;
(d) Distributions pursuant to Section 11.3(b), Section 11.3(d)
and Section 11.3(f);
16.
<PAGE> 22
(e) Acquisitions of assets representing at least twenty percent
(20%) of the net book value of the assets of the Company in any single
transaction or series of related transactions or any Sale of Company Property;
provided, however, that the approval of a Supermajority of Directors shall not
be required if such transaction or transactions represents less than [*] in
any single year and less than [*] in the aggregate;
(f) Hiring and appointing the Production Coordinating Producer;
providing, however, that the initial appointment of the Production Coordinating
Producer set forth in Section 6.1 shall be deemed approved by a Supermajority of
the Directors as of the date hereof for purposes of this Section 5.6(i);
(g) Decisions to put the Company into Bankruptcy;
(h) To prepare and file all tax returns on behalf of the Company,
and to make such tax elections and determinations as a Supermajority of the
Directors deems appropriate;
(i) Approving certain indemnifications of Persons by the Company
(as set forth in Section 8.1);
(j) Directing and controlling claims and litigation against or
involving third parties with respect to which NBC is not entitled to complete
indemnification and has been named as a co-defendant or in connection with which
the Company could face criminal penalties or negotiating or approving any
settlement with respect to any such claims or litigation;
(k) Transfers of Units by the Members (in accordance with Article
12), the admission of any Additional Member or any Substitute Member (in
accordance with Section 13.1) or the issuance of any equity in the Company or
any security convertible into equity in the Company; and
(l) Borrowing money for the Company from banks or other Persons,
or hypothecating, encumbering or granting any security interests in the assets
of the Company to repay borrowed funds until such time that the sum of Quokka's
Initial Capital Contribution and Quarterly Capital Contributions has exceeded
[*]; provided, however, that notwithstanding that the sum of Quokka's Initial
Capital Contribution and Quarterly Capital Contributions has exceeded [*], the
Company may not pledge its rights under the NBC Services Agreement or any
content owned by the Company without the consent of a Supermajority of the
Directors.
Notwithstanding any provision to the contrary contained in this
Operating Agreement, the approval rights set forth in this Section 5.6 shall
continue to be applicable following a Dissolution Event pursuant to Article 14
until the filing of a Certificate of Cancellation.
In voting on any matter requiring approval of a Supermajority of the
Directors, a Director shall vote as a representative of the Members electing
such Director and not as a fiduciary of the Company or all of its Members.
5.7 ACTIONS REQUIRING APPROVAL OF ONLY ONE CLASS OF DIRECTORS.
(a) Notwithstanding any other provision in this Operating
Agreement to the contrary but subject to any fiduciary duties a Director owes to
the Company and its Members
[*] Confidential Treatment Requested.
17.
<PAGE> 23
under Delaware law, (i) the Class A Directors shall have the exclusive right to
direct and control, on behalf of the Company, any claim by the Company against
NBC or any Affiliate of NBC, including, without limitation, exercising all
rights and remedies of the Company in the event any such party breaches the
Master Venture Agreement, the NBC Services Agreement or the Warrant Issuance
Agreement and (ii) the Class B Directors shall have the exclusive right to
direct and control, on behalf of the Company, any claim by the Company against
Quokka or any Affiliate of Quokka, including, without limitation, exercising all
rights and remedies of the Company in the event any such party breaches the
Master Venture Agreement, the Quokka Services Agreement, the Quokka Warrants or
the Warrant Issuance Agreement.
(b) Notwithstanding any other provision in this Operating
Agreement to the contrary but subject to the provisions of Section 5.4(b), the
Class B Directors shall have sole authority to direct the Company to distribute
the Quokka Warrants and any shares issued to the Company upon exercise of the
Quokka Warrants (the "Warrant Shares") to NBC in accordance with the terms of
this Operating Agreement and subject to the terms of the Quokka Warrants,
exercise the Quokka Warrants, vote the Warrant Shares, sell the Warrant Shares,
distribute any proceeds from the sale of any Warrant Shares, any dividends
(whether in cash or otherwise) or other distributions received by the Company in
respect of the Warrant Shares in accordance with the terms of this Operating
Agreement or exercise any other rights available to the Company in respect of
the Warrant Shares. The Class B Directors acknowledge and agree that the Quokka
Warrants and Warrant Shares may not be distributed in kind prior to the earlier
of (i) the initial public offering of equity securities of Quokka; (ii) three
(3) years from the initial issuance of the Quokka Warrants; and (iii) the
dissolution of the Company. Any transfer taxes or other fees and expenses (other
than applicable income taxes) arising from any distribution of the Quokka
Warrants or Warrant Shares shall be borne as set forth in the Quokka Warrants.
Additionally, notwithstanding the foregoing, in the event that the Class B
Members transfer any Class B Units pursuant to Section 12.1(a)(ii), the Class B
Directors shall not be entitled to distribute any of the Quokka Warrants or any
of the Warrant Shares (or any securities issued upon conversion thereof) to such
transferee without the consent of the Class A Members, which consent shall not
be unreasonably withheld, and in such event shall only be entitled to distribute
cash dividends or other distributions in respect of the Warrant Shares or any
proceeds from the sale of the Warrant Shares (or any securities issued upon
conversion thereof) to such transferee in accordance with the terms of this
Operating Agreement; provided, however, that this restriction shall not apply in
the event of a dissolution of the Company.
(c) Notwithstanding any other provision in this Operating
Agreement to the contrary, in the event the Company faces any claim involving
equitable remedies which may limit the Company's ability to exploit content
provided to it by NBC pursuant to the NBC Rights and Services Agreement and NBC
wishes to contest such potential limitation ("Equitable Claim Regarding
Content"), the Class B Directors may elect to direct and control such Equitable
Claim Regarding Content, provided, however, that the Company shall not enter
into any settlement or other agreement restricting the activities of the Company
without the approval of the Class A Directors if such settlement or other
agreement would have a greater negative impact on the Company than would have
been the case had NBC exercised its rights to withhold the content in question
pursuant to any of clauses (i) through (v) of Sections 3(b), 3(c) or 3(e) of the
NBC Services Agreement, as the case may be. In the event that the Class B
Directors elect to direct and control such Equitable Claim Regarding Content,
the Class B Members shall be required pro rata based on Class B Interests to
contribute additional capital to the Company to cover the
18.
<PAGE> 24
expenses and costs relating to such litigation, including without limitation
attorney's fees. No additional Units shall be issued in connection with such
additional capital contributions.
5.8 CERTAIN POWERS OF DIRECTORS. Without limiting the generality of
Section 5.1 or the obligation of the Board of Directors to operate the Company
in accordance with the Current Content Plan as set forth in Section 5.2, and
subject to any limitation set forth in this Operating Agreement (including,
without limitation, Sections 5.6 and 5.7), the Board of Directors shall have
power and authority on behalf of the Company:
(a) To acquire property from any Person as the Board of Directors
may determine in accordance with the terms of this Operating Agreement;
(b) To purchase liability and other insurance to protect the
Company's property and business of a type maintained by companies in a similar
business to that of the Company, it being understood that it shall be reasonable
to maintain insurance providing at least $[*] in coverage and that companies in
a similar business to that of the Company may maintain, without limitation,
director and officer, commercial general liability, umbrella, workers'
compensation, foreign workers compensation and liability, satellite
transmission, errors and omissions and DICE (documentary, industrial, commercial
and educational films);
(c) To hold and own any Company real and/or personal properties
in the name of the Company;
(d) To invest any Company funds temporarily in time deposits,
short-term governmental obligations, commercial paper or other similar low-risk
investments;
(e) Subject to the approval of Members holding a majority of the
Class A Interests and a majority of the Class B Interests, to effect a Sale of
the Company;
(f) To execute on behalf of the Company all instruments and
documents necessary, in the opinion of the Board of Directors, to the business
of the Company in accordance with the terms of this Operating Agreement;
(g) To open bank accounts from time to time in the name of the
Company;
(h) To employ accountants from nationally-recognized accounting
firms, legal counsel, or other experts to perform services for the Company and
to compensate them from Company funds;
(i) To enter into any and all other agreements on behalf of the
Company, with any other Person for any purpose, in such forms as the Board of
Directors may approve in accordance with the terms of this Operating Agreement;
(j) To establish and enforce limits of authority and internal
controls with respect to all personnel and functions;
(k) To develop or cause to be developed accounting procedures for
the maintenance of the Company's books of account; and
19.
[*] Confidential Treatment Requested
<PAGE> 25
(l) To do and perform all other acts as may be necessary or
appropriate to the conduct of the Company's business.
5.9 REPORTS TO MEMBERS. As soon as practicable after the end of any
quarter but in any event within thirty (30) days thereafter, the Board of
Directors shall provide to each of the Class A Members and Class B Members a
balance sheet, statement of income, statement of operations and statement of
cash flows (including the amount, if any, of the Quokka Quarterly Capital
Contribution made during such quarter) for such period and for the Fiscal Year
to date, prepared in accordance with U.S. generally accepted accounting
principles, consistently applied, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have been
made. As soon as practicable after the end of any Fiscal Year but in any event
within ninety (90) days thereafter, the Board of Directors shall provide to each
of the Class A Members and Class B Members (i) a balance sheet, statement of
income, statement of operations and statement of cash flows for such Fiscal
Year, prepared in accordance with U.S. generally accepted accounting principles,
consistently applied, and accompanied by a report and opinion thereon by the
Company's independent public accountants and (ii) a statement of the Capital
Account of each of the Class A Members and Class B Members prepared in
accordance with the terms of this Operating Agreement. Additionally, the Board
of Directors shall provide each Member with such other information as shall be
required to support such Member's public reporting obligations as well as such
other information as such Member shall reasonably request from the Board of
Directors.
5.10 INDEPENDENT PUBLIC ACCOUNTANTS. Pricewaterhouse Coopers or such
other nationally-recognized accounting firm selected by the board of directors
of Quokka to serve as Quokka's independent public accountants shall be the
Company's independent public accountants. The Company's independent public
accountant shall complete its audit of the Company in a timely fashion each
Fiscal Year so as to provide each Member with reasonable opportunity to include
the results therefrom, as required, in documents required to be filed by such
Member under the Securities Exchange Act of 1934 as amended.
5.11 LITIGATION. In the event that the Company and any Member are named
in third-party litigation and such Member is not entitled to complete
indemnification in connection therewith, the Board of Directors shall cooperate
with such Member in directing and controlling such litigation on behalf of the
Company in order to coordinate a common defense as appropriate.
ARTICLE 6
OFFICERS; COMMITTEES
6.1 APPOINTMENT OF OFFICERS. The Board of Directors may appoint officers
of the Company which may include, but shall not be limited to: (a) General
Manager; (b) one or more positions similar to the position of vice president of
a Delaware corporation as set forth below; (c) secretary; and (d) treasurer or
chief financial officer; provided, however, that the appointment of the
Production Coordinating Producer shall be subject to the approval of a
Supermajority of the Directors. The Board of Directors may delegate their
day-to-day management responsibilities to any such officers, and such officers
shall have the authority to contract for, negotiate on behalf of and otherwise
represent the interests of the Company as authorized by the Board of Directors
pursuant to this Operating Agreement in any job description created by
20.
<PAGE> 26
the Board of Directors. As of the effective date of this Operating Agreement,
Paul Gudelis shall be designated Technical Coordinating Producer and Tom Feuer
shall be designated Production Coordinating Producer, Mike Novelly shall be
designated Chief Financial Officer and Mike Novelly shall be designated
Secretary. At the time of his appointment and at all times during his service as
an officer of the Company, each officer must be an officer, director or employee
of a Member or the Company. In the event an officer shall cease to be an
officer, director or employee of a Member or the Company, such officer shall be
deemed to have resigned as an officer effective upon such cessation date.
6.2 TENURE AND DUTIES OF OFFICERS. All officers shall hold office at the
pleasure of the Board of Directors and until their successors shall have been
duly elected and qualified, unless sooner removed. Any officer may be removed at
any time by the Board of Directors, with or without Cause. Additionally, any
officer may be removed at any time by any two Directors for Cause. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors; provided, however, that the appointment of the Production
Coordinating Producer shall be subject to the approval of a Supermajority of the
Directors.
(a) DUTIES OF THE GENERAL MANAGER. The General Manager (the
"General Manager") shall preside at all meetings of the Members, unless the
Board of Directors shall have appointed another person to so preside and such
person is present. The General Manager shall be the Chief Executive Officer of
the Company and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
Company. The General Manager shall perform other duties commonly incident to a
president of a Delaware corporation and shall also perform such other duties and
have such other powers as the Board of Directors shall designate from time to
time.
(b) DUTIES OF VICE PRESIDENTIAL LEVEL OFFICERS. The Technical
Coordinating Producer, Production Coordinating Producer and other officers
holding positions designated by the Board of Directors as being similar to the
position of vice president of a Delaware corporation (together, the "Senior
Officers"), in the order of their seniority, may assume and perform the duties
of the General Manager in the absence or disability of the General Manager or
whenever the office of General Manager is vacant. The Senior Officers shall
perform other duties commonly incident to a vice president of a Delaware
corporation and shall also perform such other duties and have such other powers
as the Board of Directors shall designate from time to time.
(c) DUTIES OF SECRETARY. The secretary (the "Secretary") shall
attend all meetings of the Members, and shall record all acts and proceedings
thereof in the minute book of the Company. The Secretary shall give notice in
conformity with this Operating Agreement of all meetings of the Members
requiring notice. The Secretary shall perform all other duties given him or her
in this Operating Agreement and other duties commonly incident to a secretary of
a Delaware corporation and shall also perform such other duties and have such
other powers as the Board of Directors shall designate from time to time. The
General Manager may direct any Assistant Secretary to assume and perform the
duties of the Secretary in the absence or disability of the Secretary, and each
Assistant Secretary shall perform other duties commonly incident to the office
of assistant secretary in a Delaware corporation and shall also perform such
other duties and have such other powers as the Board of Directors or the General
Manager shall designate from time to time.
21.
<PAGE> 27
(d) DUTIES OF CHIEF FINANCIAL OFFICER OR TREASURER. The chief
financial officer (the "Chief Financial Officer") or treasurer (the "Treasurer")
shall keep or cause to be kept the books of account of the Company in a thorough
and proper manner, and shall render statements of the financial affairs of the
Company in such form and as often as required by this Operating Agreement, the
Board of Directors or the General Manager. The Chief Financial Officer or
Treasurer, subject to the order of the Board of Directors, shall have the
custody of all funds and securities of the corporation. The Chief Financial
Officer or Treasurer shall perform other duties commonly incident to the office
of Chief Financial Officer or Treasurer in a Delaware corporation and shall also
perform such other duties and have such other powers as the Board of Directors
or the General Manager shall designate from time to time. The General Manager
may direct any Assistant Treasurer to assume and perform the duties of the Chief
Financial Officer or Treasurer in the absence or disability of the Chief
Financial Officer or Treasurer, and each Assistant Treasurer shall perform other
duties commonly incident to the office the Chief Financial Officer or Treasurer
of a Delaware corporation and shall also perform such other duties and have such
other powers as the Board of Directors or the General Manager shall designate
from time to time.
ARTICLE 7
RIGHTS AND OBLIGATIONS OF MEMBERS
7.1 LIMITATION OF LIABILITY. Each Member's liability shall be limited as
set forth in the Delaware Act and other applicable law. Except as otherwise
provided by the Delaware Act, the debts, obligations and liabilities of the
Company, whether arising in contract, tort or otherwise, shall be the debts,
obligations and liabilities solely of the Company, and the Members of the
Company shall not be obligated personally for any of such debts, obligations or
liabilities solely by reason of being a Member of the Company.
7.2 NATURE OF RIGHTS AND OBLIGATIONS. Except as otherwise expressly
provided herein, nothing contained in this Operating Agreement shall be deemed
to constitute a Member an agent or legal representative of the other Members. A
Member shall not have any authority to act for, or to assume any obligation or
responsibility on behalf of, any other Member or the Company.
7.3 MEMBER ACCESS TO RECORDS. Upon advance notice, each Member shall
have the right, during regular business hours, to inspect and copy the Company
documents set forth in Section 11.7 at the Member's expense.
7.4 CERTAIN ACTIONS REQUIRING SPECIAL APPROVAL. Notwithstanding any
other provision in this Operating Agreement to the contrary, the following shall
require the approval of Members holding a majority of the Class A Interests and
a majority of the Class B Interests:
(a) the merger (or any conversion of the Company from a limited
liability company to another type of entity), consolidation, liquidation or
dissolution of the Company;
(b) any Sale of the Company; and
(c) any amendment of this Operating Agreement or the Certificate
of Formation.
22.
<PAGE> 28
7.5 OUTSIDE ACTIVITIES. Subject to the terms of the Master Venture
Agreement and Services Agreements, each Member and each Affiliate of each Member
shall be entitled to and may have business interests and engage in business
activities in addition to those relating to the Company, and may engage in the
ownership, operation and management of businesses and activities, for its own
account and for the account of others, and may own interests in the same
properties, as those in which the Company or the other Members own an interest,
without having or incurring obligation to offer any interest in such properties,
businesses or activities to the Company or any other Member, and no other
provision of this Operating Agreement shall be deemed to prohibit any such
Person from conducting such other businesses or activities. Subject to the terms
of the Master Venture Agreement and the Services Agreements, no provision of
this Operating Agreement shall be construed to preclude any Member or any of
their respective Affiliates from engaging in or possessing an interest in any
other business ventures of any nature or description, independently or with
others, whether presently existing or hereafter created, and neither the Company
nor any Member shall have any rights in or to such independent ventures or the
income or profits derived therefrom.
ARTICLE 8
CERTAIN MATTERS CONCERNING
MEMBERS, DIRECTORS AND EXECUTIVE OFFICERS
8.1 LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION.
(a) No Director or Officer of the Company shall be liable, in
damages or otherwise, to the Company or any Member for any act or omission
performed or omitted to be performed by it in good faith pursuant to the
authority granted to such Director or officer of the Company by this Operating
Agreement or by the Delaware Act.
(b) To the fullest extent permitted by the laws of Delaware, the
Company shall indemnify and hold harmless each Member, Director and its
respective Affiliates, officers, directors, shareholders, members or partners
and each Officer of the Company (each, an "Indemnitee"), from and against any
and all losses, claims, demands, costs, damages, liabilities (joint or several),
expenses of any nature (including reasonable attorneys' fees and disbursements),
judgments, fines, settlements and other amounts ("Damages") arising from any and
all claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which an Indemnitee may be involved, or
threatened to be involved, as a party or otherwise, arising out of or incidental
to the business of the Company, regardless of whether an Indemnitee continues to
be a Member, Director or an Affiliate, officer, director, shareholder, member or
partner of such Member or Director or an officer of the Company at the time any
such liability or expense is paid or incurred, except (i) for any Damages based
upon, arising from or in connection with any act or omission of an Indemnitee
committed without authority granted pursuant to this Operating Agreement or in
bad faith or otherwise constituting willful misconduct, (ii) Damages arising
from any obligation of such Indemnitee to indemnify any Person pursuant to the
Master Venture Agreement or Services Agreement or (iii) to the extent that all
Damages with respect to which the Company has provided indemnification hereunder
exceed [*], unless specifically approved by a Supermajority of the Directors.
(c) Expenses (including reasonable attorneys' fees and
disbursements) incurred in defending any claim, demand, action, suit or
proceeding, whether civil, criminal,
23.
[*] Confidential Treatment Requested.
<PAGE> 29
administrative or investigative, subject to Section 8.1(b) hereof, may be paid
(or caused to be paid) by the Company in advance of the final disposition of
such claim, demand, action, suit or proceeding upon receipt of an undertaking by
or on behalf of the Indemnitee to repay such amount if it shall ultimately be
determined, by a court of competent jurisdiction from which no further appeal
may be taken or the time for any appeal has lapsed (or otherwise, as the case
may be), that the Indemnitee is not entitled to be indemnified by the Company as
authorized hereunder or is not entitled to such expense reimbursement.
(d) The indemnification provided by Section 8.1(b) hereof shall
be in addition to any other rights to which an Indemnitee may be entitled under
any agreement properly approved by or vote properly taken by the Members or
Board of Directors (after taking into effect any related party nature of such
agreement or vote), as a matter of law or otherwise, both (i) as to action in
the Indemnitee's capacity as a Member, Director or as an Affiliate, officer,
director, shareholder, member or partner of a Member or Director or as an
Officer of the Company, and (ii) as to action in another capacity, and shall
continue as to an Indemnitee who has ceased to serve in such capacity and shall
inure to the benefit of the heirs, successors, assigns, administrators and
personal representatives of the Indemnitee.
(e) Any indemnification hereunder shall be satisfied only out of
the assets of the Company, and the Members shall not be subject to personal
liability by reason of these indemnification provisions.
(f) In order to facilitate meeting its obligations under this
Section 8.1, the Company may purchase and maintain a customary director and
officer insurance policy. The Company may purchase and maintain such other
insurance policies of a type maintained by companies in a similar business to
that of the Company, it being understood that it shall be reasonable to maintain
insurance providing at least $[*] in coverage and that companies in a similar
business to that of the Company may maintain, without limitation, director and
officer, commercial general liability, umbrella, workers' compensation, foreign
workers compensation and liability, satellite transmission, errors and omissions
and DICE (documentary, industrial, commercial and educational films).
(g) An Indemnitee shall not be denied indemnification in whole or
in part under this Section 8.1 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Operating Agreement.
(h) The provisions of this Section 8.1 are for the benefit of
each Indemnitee and its heirs, successors, assigns, administrators and personal
representatives, and shall not be deemed to create any rights for the benefit of
any other Persons.
8.2 OTHER MATTERS CONCERNING THE DIRECTORS AND OFFICERS OF THE COMPANY.
(a) Each Director and officer of the Company may rely on, and
shall be protected in acting or refraining from acting upon, any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture or other paper or document reasonably believed by it to
be genuine and to have been signed or presented by the proper party or parties.
[*] Confidential Treatment Requested
24.
<PAGE> 30
(b) For purposes of this Operating Agreement, each Director and
officer of the Company may consult with legal counsel, accountants, appraisers,
management consultants, investment bankers, other consultants and advisers
selected by it and any written advice or written opinion of any such Person as
to matters which such Director and Officer of the Company reasonably believes to
be within such Person's professional or expert competence, and any act or
omission, if done or omitted to be done in good faith reliance upon any such
advice or opinion, will be conclusively presumed not to constitute fraud, gross
negligence or willful or wanton misconduct.
ARTICLE 9
MEETINGS OF MEMBERS
9.1 ANNUAL AND SPECIAL MEETINGS. Meetings of the Members shall be held
at such date and time as the Board of Directors may fix from time to time.
Additionally, unless otherwise prescribed by statute, a special meeting may be
called by any Member or Members holding at least a majority of the Class A
Interests or a majority of the Class B Interests. No annual or regular meetings
of Members are required.
9.2 PLACE OF MEETINGS. The Board of Directors may designate any place,
either within or outside the State of Delaware, as the place of meeting for any
meeting of the Members; provided however that if a special meeting is called by
the holders of a majority of the Class A Interests, the meeting shall be held in
New York, New York and if a special meeting is called by the holders of the
Class B Interests, the meeting shall be held in San Francisco, California. If no
designation is made by the Board of Directors or pre-determined pursuant to this
Section 9.2, the place of meeting shall be the principal executive office of the
Company.
9.3 NOTICE OF MEETINGS. Except as provided in Section 9.6, written
notice stating the place, day and hour of the meeting and the purpose or
purposes for which the meeting is called shall be delivered not less than thirty
(30) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the Board of Directors or
person calling the meeting, to each Member entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered as provided in Section 16.1.
9.4 MEETING OF ALL MEMBERS. If all of the Members shall meet at any time
and place, either within or outside of the State of Delaware, and consent to the
holding of a meeting at such time and place, such meeting shall be valid without
call or notice, and at such meeting lawful action may be taken.
9.5 RECORD DATE. For the purpose of determining Members entitled to
notice of or to vote at any meeting of Members or any adjournment thereof, or
Members entitled to receive payment of any distribution, or in order to make a
determination of Members for any other purpose, the date on which notice of the
meeting is mailed or the date on which the resolution declaring such
distribution is adopted, as the case may be, shall be the record date for such
determination of Members. When a determination of Members entitled to vote at
any meeting of Members has been made as provided in this Section 9.5, such
determination shall apply to any adjournment thereof.
25.
<PAGE> 31
9.6 QUORUM. Members holding a majority of the Class A Interests and a
majority of the Class B Interests, present in person or represented by proxy,
shall constitute a quorum at any meeting of Members. Notwithstanding the
foregoing, if the action to be taken by the Members is to be taken only by one
class of Members (such as the election of a Class A Director), Members holding a
majority of the Interests represented by such class shall constitute a quorum.
In the absence of a quorum at any such meeting, Members holding a majority of
the Interests so represented may adjourn the meeting from time to time for a
period not to exceed sixty (60) days without further notice. However, if the
adjournment is for more than sixty (60) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each Member of record entitled to vote at the meeting.
At such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted that might have been transacted at the meeting as
originally noticed. The Members present at a duly organized meeting may continue
to transact business until adjournment, notwithstanding the withdrawal during
such meeting of Members holding Interests whose absence would cause less than a
quorum.
9.7 MANNER OF ACTING. If a quorum is present, the affirmative vote of
Members entitled to vote holding a majority of the Class A Interests and a
majority of the Class B Interests shall be the act of the Members, unless the
vote of a greater or lesser proportion or number is otherwise required by the
Delaware Act, by the Certificate of Formation or by this Operating Agreement.
9.8 PROXIES. At all meetings of Members, a Member may vote in person or
by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Board of Directors of the
Company before or at the time of the meeting. No proxy shall be valid after
eleven (11) months from the date of its execution, unless otherwise provided in
the proxy.
9.9 ACTION BY MEMBERS WITHOUT A MEETING. Action required or permitted to
be taken at a meeting of Members may be taken without a meeting if the action is
evidenced by one (1) or more written consents describing the action taken,
signed and delivered to the Board of Directors within sixty (60) days of the
record date for that action, by Members having not less than the minimum number
of votes that would be necessary to authorize or take that action at a meeting
at which all Members entitled to vote on that action were present and voted. All
such consents shall be delivered to the Board of Directors of the Company for
inclusion in the minutes or for filing with the Company records. Action taken
under this Section 9.9 is effective when the number of consents required to
authorize the proposed action shall have been received by the Board of
Directors, unless the consent specifies a different effective date. Any Member
giving a written consent may revoke the consent by a writing received by the
Board of Directors before written consents representing the number of votes
required to authorize the proposed action have been received by the Board of
Directors. The record date for determining Members entitled to take action
without a meeting shall be the date the first Member signs a written consent.
9.10 WAIVER OF NOTICE. When any notice is required to be given to any
Member, a waiver thereof in writing signed by the person entitled to such
notice, whether before, at or after the time stated therein, shall be equivalent
to the giving of such notice.
ARTICLE 10
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CONTRIBUTIONS TO THE COMPANY,
CAPITAL UNITS AND CAPITAL ACCOUNTS
10.1 CAPITAL CONTRIBUTIONS. Concurrently with the execution and delivery
of this Operating Agreement, Quokka made an Initial Capital Contribution to the
Company in the amount as shown on Schedule A hereto, in exchange for the number
of Class A Units held by Quokka as shown on Schedule A. As reflected on Schedule
A, NBC made no Initial Capital Contribution in exchange for the number of Class
B Units held by NBC as shown on Schedule A.
10.2 UNITS. Each Member's interest in the Company shall be represented
by Units of membership interest, denoted "Class A" or "Class B" as set forth on
Schedule A. Concurrently with the execution and delivery of this Operating
Agreement, the Initial Members received the number and type of Units set forth
on Schedule A.
10.3 CAPITAL ACCOUNTS.
(a) A separate Capital Account will be maintained for each
Member.
(1) To each Member's Capital Account there shall be
credited (a) such Member's Capital Contributions, (b) such Member's distributive
share of Net Profits and any items in the nature of income or gain which are
specially allocated pursuant to Section 11.2 hereof, and (c) the amount of any
Company liabilities assumed by such Member or which are secured by any Property
distributed to such Member.
(2) To each Member's Capital Account there shall be
debited (a) the amount of money and the Adjusted Asset Value of any Company
asset distributed to such Member pursuant to any provision of this Operating
Agreement, (b) such Member's distributive share of Net Losses and any items in
the nature of expenses or losses which are specially allocated pursuant to
Section 11.2 hereof, and (c) the amount of any liabilities of such Member
assumed by the Company or which are secured by any property contributed by such
Member to the Company.
(b) In the event of a permitted assignment, sale or exchange of
all or part of a Member's interest in the Company, the Capital Account of the
transferor shall become the Capital Account of the transferee to the extent it
relates to the transferred interest.
(c) The manner in which Capital Accounts are to be maintained
pursuant to this Section 10.3 is intended, and shall be construed and applied so
as, to comply with the requirements of Code Section 704(b) and the Treasury
Regulations promulgated thereunder.
10.4 WITHDRAWAL OR REDUCTION OF MEMBERS, CONTRIBUTIONS TO CAPITAL.
(a) A Member shall not receive out of the Company's property any
part of its contributions to capital until all liabilities of the Company,
except liabilities to Members on account of their contributions to capital, have
been paid or there remains property of the Company sufficient to pay them.
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(b) A Member shall not be entitled to demand or receive from the
Company the liquidation of his interest in the Company until the Company is
dissolved in accordance with the provisions hereof and other applicable
provisions of the Delaware Act.
10.5 UNIT CERTIFICATES. The Company shall issue certificates evidencing
the Units issued by the Company. Such certificates shall indicate whether the
Units represented thereby are Class A Units or Class B Units and shall (in
addition to any legend required under applicable state securities laws) bear the
following legends:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED.
THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
HOLDER HEREOF OR ITS PREDECESSOR IN INTEREST. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF THE COMPANY.
ARTICLE 11
ALLOCATIONS, INCOME TAX, ELECTIONS AND REPORTS
11.1 ALLOCATION OF PROFITS AND LOSSES FROM OPERATIONS.
(a) ALLOCATION OF NET PROFITS. The Net Profits of the Company for
each Accounting Period shall be allocated among the Members as follows:
(i) First, to all Class A Members in proportion to their
respective Class A Interests until the Capital Accounts of the Class A Members
are equal to the Excess Capital Contributions of the Class A Members less all
distributions to the Class A Members;
(ii) Second, to all Members in proportion to their
respective Interests.
(b) ALLOCATION OF NET LOSSES. The Net Losses of the Company for
each Accounting Period shall be allocated among the Members as follows:
(i) First, to all Members to the extent of and in
proportion to the Net Profits previously allocated to them pursuant to Section
11.1(a)(ii);
(ii) Second, to all Class A Members in proportion to
their respective Class A Interests until there have been allocated Net Losses
under this Section 11.1(b)(ii) in an amount equal to the Excess Capital
Contribution of the Class A Members;
(iii) Third, to all Class A Members in proportion to
their respective Class A Interests until there have been allocated Net Losses
under this Section 11.1(b)(iii) in an
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amount equal to the Capital Contribution of the Class A Members less the Excess
Capital Contribution of the Class A Members;
(iv) Fourth, to all Members in proportion to their
respective Interests.
11.2 SPECIAL ALLOCATIONS. Notwithstanding Section 11.1,
(a) INTEREST INCOME. All Interest Income earned on Capital
Contributions made by the Class A Members (until such Capital Contributions have
either been distributed or utilized to fund the Company's operations) shall be
allocated solely to the Class A Members pro rata in proportion to their
respective Class A Interests.
(b) QUOKKA WARRANTS. The parties agree that, for federal and
state tax purposes, NBC shall be treated as having received ownership of the
Quokka Warrants on the date of grant of the Quokka Warrants to the Company.
Therefore, any profits or losses (including the initial value of the Quokka
Warrants upon receipt by the Company) realized on the receipt by the Company of
or a taxable disposition (including exercise) of, an adjustment of the Adjusted
Asset Values of, or a distribution in kind of the Quokka Warrants or any
securities issued upon exercise thereof (including, without limitation, the
Warrant Shares) shall be allocated solely to NBC. Any transfer taxes or other
costs or expenses (other than applicable income taxes) arising from any
distribution to NBC of the Quokka Warrants shall be borne as set forth in the
Quokka Warrants.
(c) EQUITABLE CLAIM REGARDING CONTENT. Any costs or expenses
connected to any Equitable Claim Regarding Content subject to the direction and
control of the Class B Directors in accordance with Section 5.7(c) shall be
allocated solely to the Class Members in proportion to their respective Class B
Interests. Any profits received by the Company from a final judgment in
connection with, or final settlement of, an Equitable Claim Regarding Content
shall first be allocated to the Class B Members in proportion to their
respective Class B Interests until there have been allocated profits under this
Section 11.2(c) in the current Accounting Period and all prior Accounting
Periods in an amount equal to the costs or expenses previously allocated to the
Class B Members under this Section 11.2.
(d) SUBSTANTIAL ECONOMIC EFFECT. The Members agree that they
shall take such other actions and make such other allocations as are necessary
to ensure that the allocations described in this Article 11 have substantial
economic effect within the meaning of Regulations Section 1.704-1(b)(2).
(e) QUALIFIED INCOME OFFSET. In the event any Member unexpectedly
receives any adjustments, allocations or distributions described in Section
1.704-l(b)(2)(ii)(d)(4), (5) or (6) of the Treasury Regulations, items of
Company income and gain shall be specially allocated to each such Member in an
amount and manner sufficient to eliminate, to the extent required by the
Treasury Regulations, the deficit balance of the Capital Account of such Member
as quickly as possible, provided that an allocation pursuant to this Section
11.2(c) shall only be made if and to the extent such Member would have a deficit
balance in its Capital Account after all other allocations provided for in
Section 11.1 and Section 11.2 have been made as if this Section 11.2(c) were not
in this Operating Agreement.
(f) SECTION 754 ELECTION. At the request of any Member (or
Members) holding not less than twenty-five percent (25%) of the Interests, the
Company shall elect,
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pursuant to Section 754 of the Code, to adjust the basis of the Company assets
as permitted and provided in Sections 734 and 743 of the Code, in which case
Capital Accounts shall be maintained and allocations shall be made in accordance
with Regulations Section 1.704-1(b)(2)(iv)(m).
(g) TAX ALLOCATIONS. Except as otherwise permitted in this
Agreement, the Company's ordinary income and losses, and capital gains income
and losses, as determined for federal income tax purposes (and each item of
income, gain, loss or deduction entering into the computation thereof) shall be
allocated to the Members in the same proportion as the corresponding items are
allocated for Capital Account maintenance purposes. Notwithstanding the
foregoing, federal income tax items relating to assets that have an Adjusted
Asset Value that is not equal to their tax basis shall be allocated in
accordance with Section 704(c) of the Code, and the Company shall adopt the
traditional method under Section 704(c) for purposes of such allocation.
11.3 DISTRIBUTIONS.
(a) MANDATORY DISTRIBUTIONS.
(i) Subject to applicable law and any limitations
contained elsewhere in this Operating Agreement and provided that the Company is
being taxed as a partnership, the Board of Directors shall distribute cash to
the Members in an amount equal to the product of (i) the Tax Percentage and (ii)
the Company's taxable income for such Fiscal Year determined in accordance with
Section 703(a) of the Code as reflected on the Schedule K-1's in respect of each
Unit. For purposes hereof, "Tax Percentage" shall mean initially forty percent
(40%) and shall be adjusted from time to time by the Board of Directors in
response to changes in the tax rates applicable to corporations under the Code
and under the state income tax laws of the State of California and the State of
New York and in response to any other factors which cause the distributions
under this Section 11.3(a) to be less than a Member's tax liability in respect
of each Unit.
(ii) In the event of a Reduced Activity Period, the
Board of Directors shall establish reasonable reserves for purposes of
satisfaction of all liabilities and obligations of the Company (other than those
to Members on account of their Capital Contributions) and shall distribute the
remaining cash of the Company (x) first, to the Class A Members pro rata in
proportion to their Class A Interests on the record date of such distribution
until the Class A Members shall have received total distributions pursuant to
this Article 11 in an amount equal to the Excess Capital Contribution of the
Class A Members and (y) second, to the Members pro rata in proportion to their
respective Interests on the record date of such distribution.
(b) DISTRIBUTIONS OF FUNDS FROM OPERATIONS. Subject to applicable
law and any limitations contained elsewhere in this Operating Agreement
(including, without limitation, Section 5.6), the Board of Directors may elect
from time to time to distribute Funds From Operations (x) first, to the Class A
Members pro rata in proportion to their Class A Interests on the record date of
such distribution until the Class A Members shall have received total
distributions pursuant to this Article 11 in an amount equal to the Excess
Capital Contribution of the Class A Members and (y) second, to the Members pro
rata in proportion to their respective Interests on the record date of such
distribution.
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(c) DISTRIBUTIONS RELATING TO THE QUOKKA WARRANTS. The Class B
Directors may elect from time to time to distribute the Quokka Warrants, the
Warrant Shares, any other securities or other rights with respect to the
Warrants or the Warrant Shares or any cash obtained by any sale of the Warrant
Shares to NBC, subject to the terms of the Quokka Warrants. The Class B
Directors acknowledge and agree that the Quokka Warrants and Warrant Shares may
not be distributed in kind prior to the earlier of (i) the initial public
offering of equity securities of Quokka; (ii) three (3) years from the initial
issuance of the Quokka Warrants; and (iii) the dissolution of the Company. The
Class B Directors further acknowledge the additional restrictions set forth in
Section 5.4(b) in the event of any transfer of the Class B Units.
(d) DISTRIBUTIONS OF FUNDS FROM A SALE OF THE COMPANY. Subject to
applicable law and any limitations contained elsewhere in this Operating
Agreement, the Board of Directors may elect from time to time to distribute
Funds From a Sale of the Company to the Members. Any distribution of Funds From
a Sale of the Company made under this Section 11.3(d) shall be made (x) first,
to the Class A Members pro rata in proportion to their Class A Interests on the
record date of such distribution until the Class A Members shall have received
total distributions pursuant to this Article 11 in an amount equal to the Excess
Capital Contribution of the Class A Members and (y) second, to the Members pro
rata in proportion to their respective Interests on the record date of such
distribution.
(e) DISTRIBUTIONS UPON DISSOLUTION OF THE COMPANY. Upon
dissolution of the Company, after satisfaction of the liabilities of the Company
in accordance with Section 14.3(a), the remaining assets of the Company shall be
distributed to the Members pro rata in proportion to their respective Capital
Account balances; provided, however, that any securities or other property
issued upon exercise of the Quokka Warrants shall be distributed to NBC and that
such distribution shall be reflected in the Capital Account balances of NBC
prior to making or determining the amount of any other distribution pursuant to
this Section 11.3(e).
(f) OTHER DISTRIBUTIONS. All other distributions of cash or other
property shall be made (x) first, to the Class A Members in proportion to their
Class A Interests on the record date of such distribution until the Class A
Members shall have received total distributions pursuant to this Article 11 in
an amount equal to the Excess Capital Contribution of the Class A Members and
(y) second, to the Members in proportion to their respective Interests on the
record date of such distribution.
(g) TAX WITHHOLDING. The Company shall comply with withholding
requirements under federal, state and local law and shall remit amounts withheld
to, and file required forms with, the applicable jurisdictions. To the extent
the Company is required to withhold and pay over any amounts to any authority
with respect to distributions or allocations to any Member, the amount withheld
shall be treated as a distribution in the amount of the withholding to that
Member. If the amount of withholding tax paid by the Company was not withheld
from actual distributions, the Company may, at its option, (i) require the
Member to promptly reimburse the Company for such withholding or (ii) reduce any
subsequent distributions by the amount of such withholding. Each Member agrees
to furnish the Company with any representations and forms as shall reasonably be
requested by the Company to assist it in minimizing or eliminating and in
determining the extent of, and in fulfilling, its withholding obligations.
11.4 LIMITATION UPON DISTRIBUTIONS.
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(a) No distribution shall be declared and paid to a Member in
violation of the Delaware Act.
(b) A Member who receives a distribution in violation of the
Delaware Act, and who knew at the time of the distribution that the distribution
violated the Delaware Act, shall be liable to the Company for the amount of the
distribution. A Member who receives a distribution in violation of the Delaware
Act, and who did not know at the time of the distribution that such distribution
violated the Delaware Act and shall have made a good faith effort to return as
much as possible of the improper distribution shall not be liable for the amount
of the distribution.
(c) A Member who receives a distribution from the Company shall
have no liability under the Delaware Act or other applicable law for the amount
of the distribution after the expiration of three (3) years from the date of the
distribution unless an action to recover the distribution from such Member is
commenced prior to the expiration of the said three (3) year period and an
adjudication of liability against such Member is made in the said action.
11.5 ACCOUNTING PRINCIPLES. The profits and losses of the Company shall
be determined in accordance with United States generally accepted accounting
principles applied on a consistent basis under the accrual method of accounting.
11.6 INTEREST ON AND RETURN OF CAPITAL CONTRIBUTIONS. No Member shall be
entitled to interest on its Capital Contribution or to return of its Capital
Contribution. In addition, no Member shall have the right to withdraw any
portion of such member's Capital Account. No Member shall be personally liable
to any other Member for the return of any Capital Contributions (or any
additions thereto), it being agreed that any distribution as may be made from
time to time shall be made solely from the assets of the Company and only in
accordance with the terms of this Operating Agreement.
11.7 RECORDS AND REPORTS. At the expense of the Company, the Directors
shall maintain records and accounts of all operations and expenditures of the
Company for a period of five (5) years from the end of the Fiscal Year during
which the last entry was made on such record, the first two (2) years in the
principal office of the Company. At a minimum the Company shall keep the
following records:
(a) A current list of the full name and last known business
address of each Director and each Member;
(b) A copy of the Certificate of Formation and all amendments
thereto, together with executed copies of any written powers of attorney
pursuant to which the Operating Agreement and any certificate and all amendments
thereto have been executed;
(c) Copies of the Company's federal, foreign, state and local
income tax returns and reports, if any, for all years of the Company's
existence, except for those years for which all applicable statures of
limitation, as they may apply to any Member, may have run;
(d) Copies of the Operating Agreement and all amendments thereto;
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(e) True and full information regarding the status of the
business and financial condition of the Company, including financial statements
of the Company for the five (5) most recent years;
(f) Information regarding expenses incurred by a Member and
reimbursed by the Company; and
(g) True and full information regarding the amount of cash and a
description and statement of the agreed value of any other property or services
contributed by each Member and which each Member has agreed to contribute in the
future, and the date on which each became a Member.
11.8 RETURNS AND OTHER ELECTIONS. The Company shall be treated as a
partnership for federal income tax purposes and, to the extent possible, state
and local income tax purposes. The Board of Directors shall cause the
preparation and timely filing of all tax returns required to be filed by the
Company pursuant to the Code and all other tax returns deemed necessary and
required in each jurisdiction in which the Company does business. Copies of such
returns, or pertinent information therefrom, shall be furnished to the Members
within a reasonable time after the end of the Company's Fiscal Year. All
elections permitted to be made by the Company under federal or state laws shall
be made by the Board of Directors in its discretion.
11.9 TAX MATTERS PARTNER. Quokka is hereby designated the "tax matters
partner" of Company for purposes of Chapter 63 of the Code and the Treasury
Regulations thereunder. During any Company income tax audit or other income tax
controversy with any governmental agency, the tax matters partner shall keep the
Members informed of all material facts and developments on a timely basis, shall
provide each Member with a copy of each of the Company's tax filings at least
thirty (30) days prior to the filing thereof and shall consult with the Members
upon the request of any Member. The tax matters partner shall not be authorized
to enter into any settlement, agreement or arrangement which binds the Members
or the Company or take any other action with respect to taxes which could
adversely impact any of the Members without the advance consent of such Members
which consent may not be unreasonably withheld. The tax matters partner may be
changed by the Board of Directors.
ARTICLE 12
TRANSFERABILITY
12.1 RESTRICTIONS ON TRANSFERABILITY.
(a) No Member shall sell, assign, pledge, mortgage, or otherwise
encumber, dispose of or transfer its interest in the Company without the prior
approval of a Supermajority of the Directors.
(i) Notwithstanding the foregoing, a Member shall be
entitled to effect a Permitted Pledge, provided that any pledgee of an Interest
shall, in the event of foreclosure, hold such Interest subject to the
restrictions of this Operating Agreement, including the provisions of this
Article 12.
(ii) Furthermore, notwithstanding the foregoing, NBC
shall be entitled to transfer its Interests in the Company to any Affiliate
which assumes NBC's obligations under
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the Master Venture Agreement and NBC Rights and Services Agreement and which
assumes NBC's obligations, and is the permitted transferee of NBC's rights with
respect to the IOC (as such term is defined in the Master Venture Agreement).
Furthermore, notwithstanding the foregoing, NBC shall be entitled to transfer up
to [*] of the Class B Interests originally issued to NBC to [*], or any
combination thereof. Furthermore, notwithstanding the foregoing, NBC shall be
entitled to transfer to [*] up to [*] of NBC's economic interest in the Class B
Interests excluding the Quokka Warrants (the effect of any transfer of an
economic interest being that the transferee shall be only an assignee of NBC's
rights to allocations and distributions with respect to the Class B Interests
subject to such transfer of economic interest but shall not become a Member and
shall have no voting rights or other rights of a Member, which non-economic
rights shall be retained by NBC). Notwithstanding any provision in this
Operating Agreement to the contrary, in the event of any transfer of Class B
Interests or any transfer of economic interest with respect to Class B
Interests, any allocations or distributions made pursuant to this Operating
Agreement with respect to the Quokka Warrants shall remain with NBC and shall
not be transferred to such transferee (and shall not be reflected in the Capital
Account of any such transferee).
(b) In addition to other restrictions on transfer contained
herein, each Member agrees that it will not make any disposition of all or any
part of its interest in the Company which will result in the violation by it or
by the Company of the Securities Act of 1933 or any other applicable securities
laws.
12.2 NO EFFECT TO TRANSFERS IN VIOLATION OF OPERATING AGREEMENT. Any
purported transfer in violation of this Article 12 shall be null and void and
the purported transferee shall become neither a Member nor a holder of any
interest in the Company whatsoever.
ARTICLE 13
ADDITIONAL AND SUBSTITUTE MEMBERS
13.1 ADMISSION OF ADDITIONAL MEMBERS AND SUBSTITUTE MEMBERS.
(a) From the date of the formation of the Company, any Person
acceptable to the Board of Directors may, subject to the terms and conditions of
this Operating Agreement and with the approval of a Supermajority of the
Directors, become an Additional Member of the Company by the purchase of new
Units for such consideration as a Supermajority of the Directors shall determine
in accordance with the terms of this Operating Agreement. Except as set forth in
this Section 13.1(a), the Company shall not admit or agree to admit any
Additional Member in connection with the issuance of any additional Units or
other equity interests in the Company, including without limitation, any options
or warrants.
(b) Prior to recognizing any assignment of a Member's Interest
that has been transferred in accordance with this Operating Agreement, the Board
of Directors will require the transferring Member to execute and acknowledge a
written instrument of assignment in form and substance satisfactory to the Board
of Directors, and will require the assignee to execute an agreement to be bound
by all of the terms and provisions of this Operating Agreement. The
[*] Confidential Treatment Requested.
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assignee (except any assignee of economic interests only) will become a
Substitute Member upon satisfaction of the requirements of Article 12 and this
Section 13.1. Unless otherwise approved by a Supermajority of the Directors, a
transfer shall be deemed effective as of the last day of the calendar month in
which such transfer is effected.
13.2 ALLOCATIONS TO ADDITIONAL MEMBERS AND SUBSTITUTE MEMBERS. No
Additional or Substitute Member shall be entitled to any retroactive allocation
of losses, income or expense deductions incurred by the Company. The Net Profits
and Net Losses of the Company for each Accounting Period shall be allocated
among the Members in proportion to their respective Interests, with the
Accounting Period being subject to adjustment pursuant to Section 1.1(a) upon
the addition of an Additional or Substitute Member.
13.3 EFFECT OF TRANSFER. The transfer of a Member's Interest or any part
thereof and the admission of a Substituted Member in accordance with the
provisions of this Operating Agreement will not be cause for dissolution of the
Company.
ARTICLE 14
DISSOLUTION AND TERMINATION
14.1 DISSOLUTION. The Company shall be dissolved upon the occurrence of
any of the following events (a "Dissolution Event"):
(a) the unanimous written agreement of all Members;
(b) upon or following the Class B Trigger Date, upon the written
request of Class A Members holding a majority of the Class A Interests;
(c) upon or following the Class A Trigger Date, upon the written
request of Class B Members holding a majority of the Class B Interests;
(d) upon a Mutual Termination Event;
(e) the entry of a decree of judicial dissolution under Section
18-802 of the Delaware Act; and
(f) the Bankruptcy of the Company, Quokka or NBC.
14.2 EFFECT OF FILING OF CERTIFICATE OF CANCELLATION. The Company shall
cease to carry on its business, except insofar as may be necessary for the
winding up of its business, upon the occurrence of a final dissolution event,
but its separate existence shall continue until a Certificate of Cancellation
has been filed with the Secretary of State or until a decree dissolving the
Company has been entered by a court of competent jurisdiction.
14.3 DISTRIBUTION OF ASSETS UPON DISSOLUTION. In settling accounts after
dissolution, the liabilities of the Company shall be entitled to payment in the
following order:
(a) those to creditors, in the order of priority as provided by
law in satisfaction of all liabilities and obligations of the Company whether by
payment or the establishment of
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reasonable reserves therefor, except those to Members of the Company on account
of their Capital Contributions;
(b) those to Members of the Company in accordance with Section
11.3(e).
14.4 WINDING UP. Except as provided by law, upon dissolution, each
Member shall look solely to the assets of the Company for the return of its
Capital Contribution. If the Company Property remaining after the payment or
discharge of the debts and liabilities of the Company is insufficient to return
the Capital Contribution of each Member, such Member shall have no recourse
against any other Member. The winding up of the affairs of the Company and the
distribution of its assets shall be conducted exclusively by the Board of
Directors, who subject to the terms of this Operating Agreement (including,
without limitation, applicable requirements that the Board of Directors act by a
Supermajority of the Directors), are hereby authorized to take all actions
necessary to accomplish such distribution, including without limitation, selling
any Company assets the Board of Directors deems necessary or appropriate to
sell.
14.5 FILING OF CERTIFICATE OF CANCELLATION.
(a) When all debts, liabilities and obligations have been paid
and discharged or adequate provisions have been made therefor and all of the
remaining property and assets have been distributed to the Members, a
Certificate of Cancellation shall be executed in duplicate and verified by the
person signing the certificate, which certificate shall set forth the
information required by the Delaware Act. Duplicate originals of such
Certificate of Cancellation shall be delivered to the Delaware Secretary of
State.
(b) Upon the acceptance of the Certificate of Cancellation, the
existence of the Company shall cease, except for the purpose of suits, other
proceedings and appropriate action as provided in the Delaware Act. The Board of
Directors shall thereafter be trustees for the Members and creditors of the
Company and, subject to the terms of this Operating Agreement (including,
without limitation, applicable requirements that the Board of Directors act by a
Supermajority of the Directors), as such shall have authority to distribute any
Company property discovered after dissolution, convey real estate and take such
other action as may be necessary on behalf of and in the name of the Company.
ARTICLE 15
MERGER OR CONSOLIDATION
15.1 MERGER OR CONSOLIDATION. The Company may, upon the approval of the
Board of Directors and a vote of the Members of the Company holding a majority
of the Class A Interests and a majority of the Class B Interests, merge or
consolidate pursuant to an agreement of merger or consolidation with or into one
or more entities formed or organized under the laws of the State of Delaware or
any other state of the United States or any foreign country or other foreign
jurisdiction, with such entity as the agreement shall provide being the
surviving or resulting entity.
15.2 VOTE RELATING TO MERGER OR CONSOLIDATION. A merger or consolidation
by the Company and any other entity shall be approved by the Board of Directors
in accordance with
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the provisions of Section 5.6 and by the Members holding a majority of the Class
A Interests and a majority of the Class B Interests.
15.3 EXCHANGE RELATING TO MERGER OR CONSOLIDATION. Rights or securities
of, or interests in, the Company or other entity that is a constituent party to
the merger or consolidation may be exchanged for or converted into cash,
property, rights or securities of, or interests in, the surviving or resulting
entity or, in addition to or in lieu thereof, may be exchanged for or converted
into cash, property, rights or securities of, or interests in, an entity which
is not the surviving or resulting entity in the merger or consolidation.
15.4 FILING AND EFFECT OF CERTIFICATE OF MERGER OR CONSOLIDATION. If the
Company enters into an agreement of merger or consolidation, the surviving
entity shall file a Certificate of Merger or Consolidation in the Office of the
Secretary of State of the State of Delaware containing the information required
by Section 18-209(c) of the Delaware Act. Unless a future date is provided for
in such Certificate of Merger or Consolidation, the effective date shall be the
date of filing with the Secretary of State of the State of Delaware. Such
Certificate of Merger or Consolidation shall act as a Certificate of
Cancellation for the Company if it is not the surviving or resulting entity in
the merger or consolidation.
15.5 AMENDMENT OF OLD OR ADOPTION OF NEW OPERATING AGREEMENT. An
agreement of merger or consolidation approved in accordance with Section 15.2
may effect any amendment to the Company's Operating Agreement or effect the
adoption of a new Operating Agreement for the Company or the surviving entity,
as the case may be. Any amendment of the Operating Agreement or adoption of a
new Operating Agreement shall be effective at the effective time or date of the
merger or consolidation.
15.6 ASSUMPTION OF ASSETS AND LIABILITIES. When any merger or
consolidation shall have become effective under this Article 15, for all
purposes of the laws of the State of Delaware, all of the rights, privileges and
powers of the Company and each of the other entities that have merged or
consolidated, and all property, real, personal and mixed, and all debts due or
incurred to or by any of the constituent parties, as well as all other things
and causes of action belonging to each of such parties to the merger or
consolidation, shall be vested in the surviving or resulting entity, and shall
thereafter be the property or obligation of the surviving or resulting entity,
and the title to any real property vested by deed or otherwise shall not revert
or be in any way impaired.
ARTICLE 16
MISCELLANEOUS PROVISIONS
16.1 NOTICES. Any notice, demand or communication required or permitted
to be given by any provision of this Operating Agreement shall be in writing and
shall be deemed effectively given: (i) upon personal delivery to the party to be
notified, (ii) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient; if not, then on the next business day, (iii)
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, (iv) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt, or (v) if earlier, upon receipt. All
communications shall be delivered to a Director, a Member or the Company, as
appropriate, to such Director's, such Member's or the Company's address or
facsimile number as
37.
<PAGE> 43
such appears in the Company's records as of the date hereof or to such other
address or facsimile number as such Member, such Director or the Company may
designate by ten (10) days advance written notice to the other parties hereto.
16.2 APPLICATION OF DELAWARE LAW. This Operating Agreement, and the
application and interpretation hereof, shall be governed exclusively by its
terms and by the laws of the State of Delaware (without giving effect to
principles of conflicts of laws).
16.3 WAIVER OF ACTION FOR PARTITION. Each Member irrevocably waives
during the term of the Company any right that it may have to maintain any action
for partition with respect to the property of the Company.
16.4 AMENDMENTS. Any amendment to this Operating Agreement may be
proposed to the Members by Members holding at least a majority of the Class A
Interests or a majority of the Class B Interests. A vote on an amendment to this
Operating Agreement shall be taken within sixty (60) days after notice thereof
has been given to the Members unless such period is otherwise extended by
applicable laws, regulations, or agreement of the Members. A proposed amendment
shall become effective at such time as it has been approved by Members holding a
majority of the Class B Interests and a majority of the Class A Interests.
16.5 EXECUTION OF ADDITIONAL INSTRUMENTS. Each Member hereby agrees to
execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments necessary to comply with
any laws, rules or regulations.
16.6 CONSTRUCTION. Whenever the singular number is used in this
Operating Agreement and when required by the context, the same shall include the
plural, and the masculine gender shall include the feminine and neuter genders
and vice versa. This Operating Agreement is prepared and executed in the English
language only and any translation of this Operating Agreement into any other
language shall have no effect.
16.7 HEADINGS. The headings in this Operating Agreement are inserted for
convenience only and are in no way intended to describe, interpret, define, or
limit the scope, extent or intent of this Operating Agreement or any provision
hereof.
16.8 WAIVERS. The failure of any party to seek redress for violation of
or to insist upon the strict performance of any covenant or condition of this
Operating Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
16.9 RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies provided by
this Operating Agreement are cumulative, and the use of any one right or remedy
by any party shall not preclude or waive the right to use any or all other
remedies. Such rights and remedies are given in addition to any other rights the
parties may have by law, statute, ordinance or otherwise.
16.10 SEVERABILITY. If any provision of this Operating Agreement or the
application thereof to any person or circumstance shall be invalid, illegal or
unenforceable to any extent, the remainder of this Operating Agreement and the
application thereof shall not be affected and shall be enforceable to the
fullest extent permitted by law.
38.
<PAGE> 44
16.11 HEIRS, SUCCESSORS AND ASSIGNS. Each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the parties hereto and, to the extent permitted by this
Operating Agreement, their respective heirs, legal representatives, successors
and assigns.
16.12 CREDITORS. None of the provisions of this Operating Agreement
shall be for the benefit of or enforceable by any creditor of the Company.
16.13 COUNTERPARTS. This Operating Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
16.14 NO THIRD PARTY BENEFICIARIES. It is understood and agreed among
the parties that this Operating Agreement and the covenants made herein are made
expressly and solely for the benefit of the parties hereto, and that no other
Person, other than an Indemnitee under Article 8 hereof (but only in respect of
the rights under such Article 8), shall be entitled or be deemed to be entitled
to any benefits or rights hereunder, nor be authorized or entitled to enforce
any rights, claims or remedies hereunder or by reason hereof.
[INTENTIONALLY BLANK]
39.
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have executed this Operating
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
QUOKKA SPORTS, INC.
By: /s/ Les Schmidt
-----------------------------
Name: Les Schmidt
Title: Senior Vice President
and Chief Financial Officer
NBC OLYMPICS, INC.
By: /s/ Randel Falco
-----------------------------
Name: Randel Falco
Title: President
40.
<PAGE> 46
SCHEDULE A
INITIAL CAPITAL CONTRIBUTION
<TABLE>
<CAPTION>
INITIAL CAPITAL NUMBER AND TYPE OF UNITS
NAME AND ADDRESS OF MEMBER CONTRIBUTION OF MEMBERSHIP
<S> <C> <C>
Quokka Sports, Inc. [*] 5,100 Class A Units
Ground Floor
525 Brannan Street
San Francisco, CA 94107
Attention: Chief Financial Officer
With a copy to:
Cooley Godward LLP
20th Floor
One Maritime Plaza
San Francisco, CA 94111
Attn: Isobel A. Jones
NBC Olympics, Inc. $0 4,900 Class B Units
30 Rockefeller Plaza
New York, NY 10112
Attn: Gary Zenkel, Sr. VP, Olympic
Marketing
With a copy to:
NBC Law Dept.
30 Rockefeller Plaza
New York, NY 10112
Attn: Corporate & Transactions Group Head
</TABLE>
[*] Confidential Treatment Requested.
<PAGE> 47
AMENDMENT NO. 1
TO THE
OPERATING AGREEMENT OF
NBC/QUOKKA VENTURES, LLC
THIS AMENDMENT NO. 1 to the Operating Agreement of NBC/Quokka Ventures,
LLC is hereby entered into as of the 15th day of March, 1999 by and between NBC
Olympics, Inc. ("NBC") and Quokka Sports, Inc. ("Quokka"). Capitalized terms
used but not defined herein shall have the meanings specified in the Operating
Agreement.
RECITALS
WHEREAS, pursuant to the terms of Section 5.3(a) of the Operating
Agreement of NBC/Quokka Ventures, LLC dated February 9, 1999 between NBC and
Quokka (the "Operating Agreement"), the Members are required to negotiate in
good faith to develop, for approval by a Supermajority of the Directors no
later than the Drop Dead Date, an Initial Content Plan;
WHEREAS, pursuant to Section 1.1(gg) of the Operating Agreement, the
Drop Dead Date is defined as March 19, 1999; and
WHEREAS, NBC and Quokka desire to amend and restate Section 1.1(gg) to
extend the Drop Dead Date;
AGREEMENT
NOW, THEREFORE, the undersigned, intentionally to be legally bound and
in consideration of the mutual promises contained herein, agree as follows:
Section 1.1(gg) of the Operating Agreement shall be amended and restated to
read in full as follows:
"(gg) DROP-DEAD DATE" shall mean March 22, 1999."
1.
<PAGE> 48
In Witness Whereof, the parties hereto have executed this Amendment No. 1
to the Operating Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
QUOKKA SPORTS, INC.
By: [SIGNATURE ILLEGIBLE]
----------------------------
Name:
Title:
NBC OLYMPICS, INC.
By: /s/ GARY ZENKEL
----------------------------
Name: Gary Zenkel
Title: Sr. VP.
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO
THE OPERATING AGREEMENT OF
NBC/QUOKKA VENTURES, LLC]
2.
<PAGE> 49
AMENDMENT NO. 2
TO THE
OPERATING AGREEMENT OF
NBC/QUOKKA VENTURES, LLC.
THIS AMENDMENT NO. 2 TO THE Operating Agreement of NBC/Quokka Ventures,
LLC is hereby entered into as of the 15th day of March, 1999 by and between NBC
Olympics, inc. ("NBC") and Quokka Sports, Inc. ("Quokka"). Capitalized terms
used but not defined herein shall have the meanings specified in the Operating
Agreement.
RECITALS
WHEREAS, pursuant to the terms of Section 5.3(a) of the Operating Agreement
of NBC/Quokka Ventures, LLC dated February 9, 1999 between NBC and Quokka (the
"Operating Agreement"), the Members are required to negotiate in good faith to
develop, for approval by a Supermajority of the Directors no later than the Drop
Dead Date, an Initial Content Plan;
WHEREAS, pursuant to Section 1.1(gg) of the Operating Agreement, the Drop
Dead Date is defined as March 15, 1999; and
WHEREAS, pursuant to Amendment No. 1 entered into by and between the
parties as of March 15, 1999, the parties agreed to amend Section 1.1(gg) of
the Operating Agreement to change the Drop Dead Date to March 22, 1999; and
WHEREAS, NBC and Quokka desire to again amend and restate Section 1.1(gg)
to extend the Drop Dead Date;
AGREEMENT
NOW, THEREFORE, the undersigned, intentionally to be legally bound and in
consideration of the mutual promises contained herein, agree as follows:
Section 1.1(gg) of the Operating Agreement shall be amended and restated to
read in full a follows:
"(gg) DROP-DEAD DATE" shall mean March 23, 1999."
<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2
to the Operating Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
QUOKKA SPORTS, INC.
By: /s/ LES SCHMIDT
-----------------------------
Name: Les Schmidt
-----------------------
Title: Sr. VP & CFO
----------------------
NBC OLYMPICS, INC.
By: /s/ GARY ZENKEL
-----------------------------
Name: Gary Zenkel
-----------------------
Title: Sr. VP
----------------------
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE OPERATING AGREEMENT OF NBC/QUOKKA
VENTURES, LLC.]
<PAGE> 51
AMENDMENT NO. 3
TO THE
OPERATING AGREEMENT OF
NBC/QUOKKA VENTURES, LLC.
THIS AMENDMENT NO. 3 TO THE Operating Agreement of NBC/Quokka Ventures, LLC
dated February 9, 1999 (the "Operating Agreement") is hereby entered into as of
the 7th day of May, 1999 by and between NBC Olympics, Inc. ("NBC") and Quokka
Sports, Inc. ("Quokka"). Capitalized terms used but not defined herein shall
have the meanings specified in the Operating Agreement.
RECITALS
WHEREAS, pursuant to the terms of Section 5.3(b) of the Operating
Agreement the Board of Directors is required to approve a Long-term Strategic
Plan no later than May 8, 1999 (the "Approval Date");
WHEREAS, NBC and Quokka desire to amend and restate Section 5.3(b) to
extend the Approval Date;
AGREEMENT
NOW, THEREFORE, the undersigned, intending to be legally bound and in
consideration of the mutual promises contained herein, agree as follows;
In the second sentence of Section 5.3(b) of the Operating Agreement the words
"ninety (90)" shall be changed to "one hundred-twenty (120)".
<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 3
to the Operating Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
QUOKKA SPORTS, INC.
By: /s/ THOMAS P. NEWELL
---------------------
Name: Thomas P. Newell
---------------------
Title: Sr. VP, Business & Legal Affairs
--------------------------------
NBC OLYMPICS, INC.
By: /s/ GARY ZENKEL
---------------------------
Name: Gary Zenkel
---------------------
Title: Sr. V.P.
---------------------
<PAGE> 1
EXHIBIT 10.17
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES ACT OF 1933. A COMPLETE
COPY OF THIS EXHIBIT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
DIGITAL ENTERTAINMENT PARTNERSHIP
BETWEEN
COMPAQ COMPUTER CORPORATION
AND
QUOKKA SPORTS, INC.
THIS AGREEMENT (the "Agreement") is made as of January 1, 1999 (the
"Effective Date") by and between QUOKKA SPORTS, INC., a corporation organized
under the laws of Delaware, with principal offices at 525 Brannan Street, San
Francisco, CA. 94107 (hereinafter referred to as "Quokka") and COMPAQ COMPUTER
CORPORATION, a corporation organized under the laws of the state of Delaware,
20555 State Hwy. 249, Houston, TX, 77070-2698 (hereinafter referred to as
"COMPAQ").
RECITALS
WHEREAS, Quokka has and will develop, construct and operate the digital
coverage of a network tentatively known as quokka.com (the "Network"), which
will feature digital coverage of a wide variety of events, including sailing,
adventure and motor racing events over the years, and will, in part, include
certain individual Event Coverage as well. Quokka is establishing quokka.com
which is designed to act as a central portal for Quokka Sports Immersion
productions, the tentative programming calendar for which is set forth on
Exhibit E.
WHEREAS, COMPAQ desires to be a digital entertainment partner in
connection with the Network and the Event Coverage therein, and to receive the
rights and benefits as more fully described herein;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. DIGITAL ENTERTAINMENT PARTNERSHIP: Quokka hereby designates COMPAQ as its
exclusive Quokka Performance Team Official Partner for the Computing category
(as defined herein) in connection with the Network. The "Computing" category is
defined as CPU-based devices that process digital information utilizing
software, either visually or aurally, for business, educational or entertainment
purposes. Computing components shall mean all computers which are referred to
as: workstations, personal computers (PC's, desktops, towers, notebooks,
laptops, portables, handhelds, palmtops, etc.), servers, minicomputers and
mainframes. This category also includes Computing-related maintenance, support
services, and professional IT services. Quokka shall be entitled to appoint no
more than [*] additional Official Partners of the Quokka Performance Team,
provided that Quokka shall not appoint as an Official Partner any other company
in the Computing category during the term of this Agreement. Other Quokka
Performance Team categories currently contemplated include, but are not limited
to: Networking, Software, Digital Distribution Communications, Wireless
Communications, Database Software, Consumer Electronics, Digital Documents and
Digital Imaging.
[*] Confidential treatment requested.
Page 1 of 16
<PAGE> 2
2. TERM: The term of this Agreement shall commence upon the execution
of this Agreement and conclude December 31, 2001, unless terminated sooner or
extended pursuant to COMPAQ's first negotiation rights more fully described in
Exhibit A.
3. RIGHTS GRANTED TO COMPAQ: Quokka guarantees, represents and warrants
that it has the legal right and responsibility to provide the rights and
benefits granted to COMPAQ under this Agreement as outlined in the attached
Exhibit A and Exhibit B. Quokka further guarantees, represents and warrants that
the materials, content and services appearing on the Network (collectively
"Materials") are factually accurate and do not contain any fraudulent, deceptive
or obscene materials, or material which misrepresents, ridicules or attacks an
individual or group on the basis of age, color, national origin, race, religion,
sex, sexual orientation or handicap; that the Materials will not violate any
foreign or domestic, federal, state or local law or regulation, or any rights of
any third party, including, but not limited to, any copyright, patent,
trademark, trade secret, music, image, or other proprietary, property, or
contractual right, or constitute false advertising, unfair competition,
defamation, invasion of privacy or rights to celebrity, or any other right of
any person or entity
4. PAYMENT: In consideration of the rights and benefits granted to
COMPAQ herein, COMPAQ shall make payments to Quokka Sports in accordance with
the terms and schedule in the attached Exhibit C. Quokka will invoice COMPAQ
sixty (60) days prior to the due date ("Invoice Date"). Payments received by
Quokka more than seventy (70) days after the Invoice Date will bear interest at
the rate of 1.5% per month from the original Due Date to the date the payment is
received.
4.1 If the cumulative Actual Branded Page Views are less than
the Projected Branded Page Views as set forth in Exhibit C
or the actual number or category of Events covered is
substantially less than those listed in Exhibit E, COMPAQ
shall receive a mutually agreeable "make good" during the
Term or thereafter until such Branded Page Views are
achieved.
4.2 While there shall be no obligation on the part of Quokka to
achieve such Actual Branded Page Views, for any cumulative
Actual Branded Page Views between [*] and [*] of the
Projected Branded Page Views there shall be no additional
charge to COMPAQ.
4.3 Once the cumulative Actual Branded Page Views reach [*] of
the Projected Branded Page Views, then Quokka shall provide
COMPAQ with an option to purchase any additional inventory.
5. PURCHASE OF EQUIPMENT: During the Term, Quokka shall purchase certain
COMPAQ computer products and services in an amount no less than [*] in
accordance with the terms and schedule in the attached Exhibit D. During the
Term, any COMPAQ products and services shall be sold or provided to Quokka [*].
COMPAQ
[*] Confidential treatment requested.
Page 2 of 16
<PAGE> 3
will invoice Quokka thirty (30) days prior to the due date ("Invoice Date").
Payments received by Compaq more than forty five (45) days after the Invoice
Date will bear interest at the rate of 1.5% per month from the original Due Date
to the date the payment is received. Upon completion of Quokka's current
outsourcing agreement with Global Center, Quokka shall enter into good-faith
negotiations for COMPAQ to provide Operations Management Services (outsourcing)
for the Data/IT Infrastructure needs of Quokka, provided that there is no
conflict with any other agreement entered into by Quokka.
6. MEZZANINE FINANCING OPTION: Quokka shall use reasonable efforts to
provide Compaq with an opportunity to participate in its mezzanine round of
finance which is currently planned to be closed on or before its public
offering. The terms of the investment shall be set by the lead investor for that
round, the investment bankers for Quokka's initial public offering or such other
entity as Quokka shall appoint. It is anticipated (though not warranted by
Quokka) that the potential investment from COMPAQ would be in the approximate
range of [*] million, which sum, if COMPAQ elects to participate in the round,
shall be in addition to the 3 Year Fee set forth in Exhibit C. While this round
of finance is currently contemplated by Quokka, there is no guarantee that
Quokka will undertake such a round of finance coincident with or prior to its
public offering, and Quokka makes no representation or warranty with respect
thereto, and the failure to undertake such a round of finance shall not be a
breach of this Agreement.
7. CONFIDENTIALITY: The parties acknowledge that this Agreement and its
terms shall be confidential. The parties further acknowledge that, in the course
of performing duties under this Agreement, each party may obtain from the other
party data or information of a confidential or proprietary nature, including
know-how and trade secrets, relating to the business, the affairs, the
development projects, or current or future products or services of such party
("Confidential Information"). Confidential Information may be disclosed to a
party in writing, in other tangible form (including e-mails), orally, or
visually. Data or information will be considered Confidential Information if:
(a) a party has marked it as such; (b) a party, orally or in writing, has
advised the other party of its confidential or proprietary nature, or (c) due to
its character and nature, a reasonable person under like circumstances would
treat it as confidential. Neither party will at any time, either during or after
the term of this Agreement, either (i) publish, disclose or otherwise divulge
any of the other party's Confidential Information to any person, except its
officers and employees with a need to know under a contractual duty to maintain
the confidentiality of such information consistent with the obligations imposed
hereunder; or (ii) permit its officers or employees to divulge any of the other
party's Confidential Information without the express prior written consent of
the other party. Neither party shall use the other party's Confidential
Information except in the course of performing its duties under this Agreement.
Upon the other party's request or expiration or termination of this Agreement
for any reason, each party will immediately destroy or return to the other party
all of the other party's Confidential Information in its possession, custody or
control. The foregoing obligations will not apply to any Confidential
Information that (1) is already known to the receiving party; (2) is or becomes
publicly known through no wrongful act of the receiving party; (3) is
independently developed by the receiving party without benefit of the disclosing
party's Confidential Information; (4) is received from a third party without
similar restriction and without breach of any obligation of confidentiality; or
(5) is required or reasonably necessary to be disclosed to comply with laws,
statutes, regulations, orders, and other governmental rules, including, without
limitation, any voluntary filing under the Securities Act of 1933, as amended,
or the Securities and Exchange Act of 1934, as amended, to the
[*] Confidential treatment requested.
Page 3 of 16
<PAGE> 4
extent of such required disclosure only and provided that the disclosing party
is notified, if applicable, prior to such disclosures to allow them to seek a
protective order. Additionally, neither party shall be prohibited from
disclosing the terms and conditions of this Agreement to financial institutions
when required to obtain financing provided such financial institutions are under
a contractual duty to maintain the confidentiality of the information that is
consistent with the obligations imposed hereunder. The obligations of
confidentiality shall expire three years after the expiration of termination of
this Agreement.
8. INDEPENDENT CONTRACTORS: Notwithstanding the use of the term Digital
Entertainment Partnership herein, nothing contained herein shall constitute or
be construed as the creation of any partnership, agency or joint venture
relationship between the parties hereto. Neither party shall have the right to
obligate or bind the other in any manner whatsoever, and nothing herein
contained shall give or is intended to give any rights of any kind to any third
persons. The relationship of the parties shall be as independent contractors.
9. CONSEQUENTIAL DAMAGES: Other than for the purchase and sale of
equipment, under Section 5 of this Agreement, in no event shall either party be
liable to the other party or to third parties for lost profits or other
consequential, incidental, indirect, special, punitive damages of any nature
whatsoever, including, without limitation, loss of profits, loss of business, or
anticipatory profits, even if such party has been apprised of the likelihood of
such damages. The terms applicable to the purchase and sale of equipment are
provided in Section 5, Exhibit D and the Limited Warranty Statements
accompanying each product.
10. ASSIGNMENT: This Agreement is in the nature of a contract for
personal services, therefore, neither party shall assign any right or interest
herein nor delegate any duty or obligation without the prior written consent of
the other, unless the assignment is made to a successor in interest or to an
entity that purchases all or substantially all of its assets.
11. USE OF MARKS: Trademark licenses are granted in Exhibit B. Each
party shall submit any promotional materials and advertisements using the other
party's (the "Licensing Party") trademarks, or the third party trademarks
licensed hereunder, to the Licensing Party prior to any commercial availability
thereof. The Licensing Party shall approve or disapprove such materials within
five (5) working days of such submission. If the Licensing Party fails to
approve such materials within such period, the submitted material may be deemed
approved. Once per year, upon a party's request, each party shall supply to the
respective Licensing Party a reasonable number of specimens of its materials
bearing any of the Licensing Party's Marks in determining if such party is
maintaining the applicable quality standards for using the licensed marks.
Notwithstanding the foregoing, neither party shall be permitted to make any
ancillary use of such trademarks without the prior written approval of the other
party. Each party's license to use, copy and distribute such trademarks will
terminate with the expiration or termination of this Agreement.
12. ENTIRE AGREEMENT AND ORDER OF PRECEDENCE: The entire understanding
between the parties is incorporated herein and supersedes all prior discussions
and agreements between the parties relating to the subject matter hereto. All
prior understandings, oral or written, if any, have been merged herein, or, if
not merged, are hereby canceled. This Agreement can be modified only by a
written amendment executed by Quokka and COMPAQ, and shall not be supplemented
or modified by any course of dealing
Page 4 of 16
<PAGE> 5
or trade usage. The terms of this Agreement will prevail over conflicting terms
contained in any purchase order, invoice or confirmation used by the parties or
submitted under this Agreement. No representations have been made except those
expressly set forth herein.
13. FUTURE OBLIGATIONS: Any obligations and duties, which by their
nature extend beyond the expiration or termination of this Agreement, including
but not limited to the confidentiality obligations under Section 8 and the
Indemnity obligations under Section 20, shall survive any expiration and
termination and remain in effect.
14. INVALID PROVISIONS: If any provision or provisions of this Agreement
shall be held to be invalid or unenforceable, such provision shall be enforced
to the fullest extent permitted by applicable law and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
15. FORCE MAJEURE: Neither party shall be liable for the failure to
perform any of its obligations under this Agreement if such failure is caused by
the occurrence of any contingency beyond its reasonable control. However, each
party shall use its reasonable best efforts to minimize the resulting duration
and consequences of any failure or delay in performance. Additionally, each
party shall cooperate in good faith such that the rights and obligations
hereunder may be fulfilled by rescheduling, substitution, alternate performance,
equitable adjustment of the contract price or similar means.
16. TERMINATION:
16.1 Commencing May 1, 1999, in the event that COMPAQ shall be
dissatisfied with Quokka's performance hereunder and, in Compaq's sole judgment,
shall not have received adequate future assurances from Quokka with respect to
such performance, then COMPAQ shall have the right to terminate the Agreement at
the end of any calendar year by giving Quokka written notice of its intention to
terminate no later than June 30 of such year. Such termination shall become
effective only at the conclusion of such calendar year. Subsequent to the
effective date of such termination, COMPAQ shall not be liable for any further
payment obligations and Quokka shall have no further responsibility to COMPAQ
hereunder, except as provided under Section 12, Future Obligations.
16.2 Commencing May 1, 1999, Quokka shall have the right to terminate
the Agreement at the end of any calendar year by giving COMPAQ written notice of
its intention to terminate no later than June 30 of such year. Such termination
shall become effective only at the conclusion of such calendar year. Subsequent
to the effective date of such termination, COMPAQ shall not be liable for any
further payment obligations and Quokka shall have no further responsibility to
COMPAQ hereunder, except as provided under Section 12, Future Obligations.
16.3 Due to the potential similarity between the Computing category and
certain of the Quokka Performance Team categories, Quokka shall notify Compaq
prior to executing any agreements with any other Official Partner. In the event
that Compaq believes, in its sole judgment, that the category specified for such
additional Official Partner materially dilutes Compaq's exclusive rights
hereunder such that the benefits that COMPAQ receives are less than one half of
that set forth in this Agreement, then Compaq shall have ten (10) business days
from receipt of Quokka's notification that Quokka has, in fact, executed such an
Page 5 of 16
<PAGE> 6
agreement to give Quokka notice of its intention to terminate the Agreement at a
date no earlier than six (6) months from the date of Compaq's notice of
intention to terminate. Such termination shall become effective only at the
conclusion of such six (6) month period. Subsequent to the effective date of
such termination, COMPAQ shall not be liable for any further payment
obligations, and Quokka shall have no further responsibility to COMPAQ
hereunder, except as provided under Section 12, Future Obligations.
17. NOTICE: Notices required or permitted hereunder shall be in writing
and deemed given and received when properly posted by registered or certified
mail, postage prepaid, first class, in an envelope properly addressed
(i) if to COMPAQ, to: COMPAQ Computer Corporation
20555 State Hwy. 249
Houston, TX 77070-2698
ATTN: Doug Wheeler
(ii) if to Quokka, to: Quokka Sports, Inc.
525 Brannan Street, Ground Floor
San Francisco, CA. 94107
ATTN: Alan Ramadan
18. WAIVER: Any waiver of any kind by either party of a breach of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
by the other party. Any delay or omission in exercising any right, power or
remedy pursuant to a breach or default by one party shall not impair any right,
power or remedy which the other party may have. All rights, remedies,
undertakings, obligations and agreements contained in this Agreement shall be
cumulative and none of them shall be in limitation of any other right, remedy,
undertaking, obligation or agreement of either party.
19. GOVERNING LAW:THIS AGREEMENT AND ALL TRANSACTIONS EXECUTED HEREUNDER
SHALL BE GOVERNED EXCLUSIVELY BY AND CONSTRUED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
20. ATTORNEYS FEES: In any action or proceeding between the parties
hereto, or brought to enforce the terms of this Agreement, the prevailing party
in such action or proceeding shall be entitled to recover its attorneys' fees
and costs.
21. INDEMNIFICATION:
21.1 Quokka agrees to defend, indemnify and hold harmless Compaq and its
affiliated companies, and their respective employees, directors and officers
from and against any and all third party claims, demands, suits, expenses,
judgments, awards, fines, fees (including court costs and reasonable attorneys
fees) arising out of or related to Quokka's performance of this Agreement and
the activities hereunder, including activities of the Network, or breach or
alleged breach of any of the representations, warranties or guarantees made
hereunder. Compaq shall promptly notify Quokka of any such claims.
Page 6 of 16
<PAGE> 7
21.2 Compaq agrees to defend, indemnify and hold harmless Quokka and its
affiliated companies, and their respective employees, directors and officers
from and against any and all third party claims, demands, suits, expenses,
judgments, awards, fines, fees (including court costs and reasonable attorneys
fees) arising out of or related to Compaq's performance of this Agreement,
claims that Compaq' trademarks, when used in accordance with Compaq's written
approval, infringe any intellectual property or proprietary rights of any third
party or breach or alleged breach of any of the representations, warranties or
guarantees made hereunder. Quokka shall promptly notify Compaq of any such
claims.
Whereof, the parties hereto have signed this Agreement this 3rd day of May
in 1999.
COMPAQ COMPUTER CORPORATION
By: /s/ ENRICO PESATORI Date: 5/3/99
-------------------------------------- ------------------
Enrico Pesatori
Senior Vice President of Corporate Marketing
QUOKKA SPORTS, INC.
By: /s/ ALAN RAMADAN Date: 5/5/99
-------------------------------------- ------------------
Alan Ramadan
President & CEO
Page 7 of 16
<PAGE> 8
EXHIBIT A
RIGHTS AND BENEFITS
I. RIGHTS
A. EXCLUSIVE CATEGORY RIGHTS
Exclusive Computing category rights (as defined in Paragraph 1 of the Agreement)
on the Quokka Performance Team associated with the Network during the Term. The
exclusive category designation for the Network includes all Event coverage
unless any Event rightsholder prohibits Quokka from offering COMPAQ the
exclusive Computing category in connection with coverage of such rightsholder's
Event. Notwithstanding the foregoing and for the sake of clarity, the category
rights granted COMPAQ herein shall not extend to the Olympic Games.
B. EXCLUSIVE RIGHT OF FIRST NEGOTIATION ON RENEWAL
Except in the case where COMPAQ has terminated the Agreement, Quokka shall begin
exclusive negotiations with COMPAQ at least one (1) year prior to the expiration
of COMPAQ's category rights hereunder for a period of ninety (90) days with
respect to the acquisition by COMPAQ of rights similar to the rights granted
herein. If at the end of this negotiating period the parties have not reached a
written agreement, Quokka may enter into agreement with any third party with
respect to rights similar to, or different from, the rights granted herein.
C. WORLDWIDE USAGE OF OFFICIAL MARKS AND DESIGNATIONS
1. Worldwide use of Official Marks, subject to the terms in Exhibit B:
Quokka Performance Team Mark
Quokka Sports Mark
2. Worldwide use of Official Designations, subject to the terms in
Exhibit B:
Official Worldwide Partner of the
Quokka Performance Team Official Worldwide Computing
Partner of the Quokka Performance Team
D. [*]
[*]
[*] Confidential treatment requested.
Page 8 of 16
<PAGE> 9
II. BENEFITS
A. CATEGORY LEADERSHIP BENEFITS
1. Exclusive Association: Exclusive Computing association with
Quokka Sports, the leader in the emerging Digital Entertainment
Marketplace.
2. Exclusive ownership of the Computing category for the Quokka
Performance Team.
3. Incorporation of COMPAQ products in the development of the Quokka
Sports Platform, subject to COMPAQ's efforts to make such
products available in a reasonably timely fashion.
4. Access to Quokka Sports strategic digital media R&D initiatives
done in conjunction with other IT industry leaders (where Quokka
has the unilateral right to include COMPAQ).
5. Insight into leading technology product and service trends from
the Quokka Sports team, Quokka Performance Team partners and
other influential Quokka alliances.
6. Opportunities for COMPAQ digital media products to participate in
real world labs and product development trials for testing and
showcasing purposes.
7. Opportunity to participate in attempts to define and promote
Digital Entertainment Industry Standards to secure long-term
competitive advantages.
8. Access, at no dollar charge, to Quokka Immersion Media syndicated
content to integrate within Alta Vista, compaq.com and other
COMPAQ cross media marketing efforts.
9. Establishment of an on-going relationship between Quokka and
COMPAQ Research to showcase jointly their leading-edge Internet
capabilities.
10. Access for COMPAQ executive(s) to participate in an Annual Quokka
Sports Digital Summit including the leaders in digital media,
technology, sport and entertainment collectively defining the
digital media industry.
11. Access to Quokka Sports digital media market research.
12. As set forth in Exhibit B, worldwide license to use all Quokka
Performance Team cobrandable official marks, performance
meters/icons
Page 9 of 16
<PAGE> 10
and designation in COMPAQ external and internal marketing and
sales efforts, subject to Quokka having such rights.
13. Right to leverage the Quokka Performance Team partnership
alliance as the cross-marketing platform with all internal and
external COMPAQ brand communications, marketing initiatives,
production promotional efforts, new product releases (within the
designated computing category scope) sales efforts, trade events.
14. Quokka will appoint a designated COMPAQ Relationship manager, at
no cost to COMPAQ, to manage and maximize to the extent possible
the benefits hereunder.
15. COMPAQ Digital Entertainment Partnership Plan prepared jointly by
Quokka Sports and COMPAQ focused on executing against COMPAQ
business strategies.
16. Annual ROI-based Assessment Report.
B. BUSINESS TO BUSINESS AND CONSUMER SALES BENEFITS
1. Real-time COMPAQ and Quokka Performance Team Product Showcase
within Network to use as a dynamic visual representation
dedicated to educating and promoting the Quokka Performance Team
story and COMPAQ products and services in a digital media
context. Showcases may be leveraged by COMPAQ as a lead
generation system for pre-screening targeted customers.
2. E-commerce: Integration and promotion of COMPAQ Online Direct
Store to prospects and customers by linking the Quokka Sports
online store(s) to the COMPAQ online store (or retail fulfillment
centers) for back-end management.
3. COMPAQ Sales Tool: Quokka will create a custom URL within the
Network for exclusive use by COMPAQ to showcase COMPAQ equipment
and technology.
4. Ability to sell Quokka products and services on Compaq.com and
Alta Vista.
5. Access to and use of names and other registration information for
direct marketing purposes, in accordance with user agreement
terms.
6. Ability to use Quokka Sports Immersion content across all COMPAQ
sales channels and sales presentations, events and trade shows as
approved by Quokka Sports.
Page 10 of 16
<PAGE> 11
7. Access to and branding throughout the Quokka Digital Studio for
real time product showcasing and corporate customer and employee
events.
8. Direct Marketing: Reasonable commercial efforts to promote QPT
and COMPAQ's role therein in online newsletters, direct mail and
one to one relationship marketing efforts.
C. SPONSORSHIP BENEFITS
1. Exclusive category access and use of Event designations in
connection with coverage of Events, to the extent that Quokka may
grant such rights.
2. Hospitality programs, as mutually agreed, in connection with each
Event, to the extent that Quokka may grant such rights.
3. Exclusive category access to premier product placement and QPT
branding at Quokka Sports production venues, to the extent Quokka
may grant such rights.
4. Option to co-market and/or co-brand with QPT logo all applicable
Quokka Sports collectible products at Quokka's reasonable
discretion.
D. MEDIA BENEFITS
1. Guaranteed Branded Media Impressions: Guaranteed premiere Quokka
Performance Team branding and placement for COMPAQ (as
exemplified in the attached Exhibit F) on or within [*] of the
cumulative Projected Branded Page Views set forth in Exhibit C.
At least [*] of such cumulative Projected Branded Page Views
shall represent solo branding and placement for COMPAQ and/or
Alta Vista (as exemplified in the attached Exhibit G).
2. Exclusive COMPAQ First QPT Partner Mention: To the extent that
Quokka maintains control of placement of any branding on any
particular site or in connection any QPT marketing programs,
COMPAQ's logo shall appear first (at the left or on top, as the
case may be) where the logos of Quokka Performance Team Official
Partners will appear at the same time in a linear fashion (either
horizontally or vertically).
3. Exclusive category access to premier product placement within the
Network.
4. Premium multimedia advertising design, strategic consulting and
creative services furnished by Quokka at no cost to COMPAQ (e.g.,
pop-ups, interstitials, distributed applications and broadband
media advertisements).
[*] Confidential treatment requested.
Page 11 of 16
<PAGE> 12
5. Monthly Network viewer/audience reports, including page views.
E. QPT PUBLIC RELATIONS/COMMUNICATIONS BENEFITS
1. When available, Quokka will use its reasonable efforts to
recognize and endorse the Quokka Performance Team partnership
alliance and COMPAQ's official designation in off-line media
relations, public announcements, advertising and keynote
addresses done by Quokka Sports.
2. From time to time, Quokka shall make reasonable efforts to supply
executive speakers (such as John Bertrand and Alan Ramadan) to
speak to COMPAQ meetings, events and trade shows regarding
COMPAQ's Digital Marketing initiatives. All speaker fees shall be
waived for COMPAQ.
3. From time to time, Quokka shall make reasonable efforts to
participate in COMPAQ promotional events, both online and
otherwise.
4. Access to Quokka Sports Immersion content for COMPAQ use to
integrate in all employee communications.
Page 12 of 16
<PAGE> 13
EXHIBIT B
USAGE OF DESIGNATIONS AND MARKS
1. Subject to Quokka's reasonable, prior written approval which will not be
unreasonably withheld or delayed:
A. License of Marks: Quokka grants to COMPAQ a category-exclusive license
during the Term to use, and authorize third party distributors of its
products and services to use, the marks granted in Exhibit A in COMPAQ's
packaging, advertising and promotional materials, product and services
literature and other communications.
B. License of Designations: Quokka grants COMPAQ a category-exclusive
license during the Term to use, and authorize third party distributors
of its products and services to use, the designations granted in Exhibit
A in COMPAQ's packaging, advertising and promotional materials, product
and services literature and other communications.
C. Reservations: Quokka's trademarks, logos and designations, licensed
hereunder shall remain the property of Quokka. Any and all rights under
trademark or copyright law or otherwise relating to such items shall
inure to the benefit of Quokka. The right to use Quokka's marks as
permitted under this Agreement is nonassignable, nonexclusive and
nontransferable by Compaq.
2. Subject to COMPAQ's reasonable, prior written approval, which will not be
unreasonably withheld or delayed, COMPAQ grants Quokka a license during the Term
to use its marks and designations in Quokka's packaging, advertising and
promotional materials, product and services literature, derivative products and
other communications. Compaq's trademarks, logos and designations, licensed
hereunder shall remain the property of Compaq. Any and all rights under
trademark or copyright law or otherwise relating to such items shall inure to
the benefit of Compaq. The right to use Compaq's marks as permitted under this
Agreement is nonassignable, nonexclusive and nontransferable.
Page 13 of 16
<PAGE> 14
EXHIBIT C
QUOKKA SPORTS DIGITAL ENTERTAINMENT PACKAGE
A. Projected Viewership:
<TABLE>
<CAPTION>
----------------------------------------------
Year Projected Branded Page Views
----------------------------------------------
<S> <C>
1999 [*]
----------------------------------------------
2000 [*]
----------------------------------------------
2001 [*]
----------------------------------------------
TOTAL [*]
----------------------------------------------
</TABLE>
B. Term: January 1, 1999 to December 31, 2001, unless sooner terminated as
set forth herein.
C. 3 Year Fee: [*], payable: [*] for 1999, [*] for 2000 and [*] in 2001,
which Fee represents the following Applied Discount (s):
- Long-term Partner Discount: [*] off List Price
- Additional Repeat Partner Discount for COMPAQ: additional [*] off
List Price.
D. Payment Due Date*:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
1999 2000 2001
-----------------------------------------------------------------------
<S> <C> <C> <C>
January 15 [*] [*] [*]
-----------------------------------------------------------------------
April 15 [*] [*] [*]
-----------------------------------------------------------------------
July 15 [*] [*] [*]
-----------------------------------------------------------------------
October 15 [*] [*] [*]
-----------------------------------------------------------------------
</TABLE>
*-- pursuant to Paragraph 4, invoices will be sent 60 days prior to the
payment Due Date.
[*] Confidential treatment requested.
Page 14 of 16
<PAGE> 15
EXHIBIT D
EQUIPMENT PURCHASE SCHEDULE
Schedule for Quokka Purchases of Compaq Equipment, Support, and IT Services*:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
1999 2000 2001
-----------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $ [*] $ [*] $ [*]
-----------------------------------------------------------------------
Second Quarter [*] [*] [*]
-----------------------------------------------------------------------
Third Quarter [*] [*] [*]
-----------------------------------------------------------------------
Fourth Quarter [*] [*] [*]
-----------------------------------------------------------------------
TOTAL [*] [*] [*]
-----------------------------------------------------------------------
</TABLE>
*In the event that Quokka does not spend the sums set forth in any particular
quarter, Quokka shall not be in breach of this agreement so long as it places
the total amount of purchases in any calendar year by December 31 and so long as
COMPAQ has meet its payment obligations hereunder. In the event that Quokka
purchases more than the sums set forth above in any particular year, such
additional purchases over such minimum sums shall be credited against the next
year's purchase obligation first and then the next succeeding year's obligation.
In the event that this Agreement shall be terminated, then Quokka's obligation
to purchase COMPAQ equipment and services shall also terminate simultaneously.
Warranty:
The warranty provisions applicable to each product are those that accompany the
product and are provided in the standard Limited Warranty Statement packaged
with the product.
COMPAQ MAKES NO OTHER WARRANTIES EXPRESS OR IMPLIED, AND DOES NOT WARRANT THE
PRODUCT'S PERFORMANCE WITH ANY THIRD PARTY PRODUCT. THE WARRANTIES CONTAINED IN
THE PRODUCT PACKAGING AND IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALL
OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
[*] Confidential treatment requested.
Page 15 of 16
<PAGE> 16
EXHIBIT E
QUOKKA SPORTS IMMERSION PRODUCTIONS AND TENTATIVE PROGRAMMING
<TABLE>
<CAPTION>
PLANNED IN DEVELOPMENT
------- --------------
<S> <C> <C>
Motor Sports CART [*]
Grand Prix Motorcycles
Sailing [*] America's Cup
[*]
[*]
[*]
Adventure Marathon des Sables [*]
Hidden Peak [*]
Trango Tower [*]
[*] [*]
[*]
Other TBD [*]
</TABLE>
NOTE: THE FOREGOING IS SUBJECT TO CHANGE IN THE DISCRETION OF QUOKKA.
[*] Confidential treatment requested.
Page 16 of 16
<PAGE> 1
EXHIBIT 23.02
We consent to the inclusion in this registration statement on Form S-1 of our
report dated January 22, 1999, except as to Note 12 for which the date is July
1, 1999, on our audits of the financial statements of Quokka Sports, Inc. We
also consent to the references to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers
- ------------------------------------
PricewaterhouseCoopers LLP
San Francisco, California
July 5, 1999
