<PAGE> 1
[QUOKKA SPORTS LOGO]
AUGUST , 2000
Dear Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") to be held on September , 2000, 9:00 a.m., California time,
at our offices located at 525 Brannan Street, San Francisco, California 94107.
At the Special Meeting you will be asked to consider the following
proposals:
1. To approve the Purchase Agreement and Plan of Reorganization dated June
8, 2000, as amended, among Quokka, Golf.com, L.L.C., the selling members
of Golf.com and the other parties identified therein, and the issuance
of shares of Quokka common stock thereunder;
2. To approve an amendment to Quokka's Amended and Restated Certificate of
Incorporation to increase the authorized number of shares of common
stock from 110,000,000 to 200,000,000 shares; and
3. To transact such other business as may properly come before the special
meeting or any adjournment or postponement of the meeting.
THE SHARE ISSUANCE. If the acquisition is completed, the selling members of
Golf.com will receive a total of 3,890,150 shares of Quokka common stock in
exchange for their full ownership interest in Golf.com. Our common stock is
listed on the Nasdaq National Market under the symbol "QKKA."
THE CERTIFICATE AMENDMENT. If the amendment to Quokka's Amended and
Restated Certificate of Incorporation is approved, our authorized shares of
common stock will be increased by 90,000,000 shares from 110,000,000 shares to
200,000,000 shares.
Our board of directors has unanimously approved the acquisition of
approximately 71% of the ownership interests of Golf.com, L.L.C. and the
amendment of our Amended and Restated Certificate of Incorporation to increase
the number of authorized shares of common stock from 110,000,000 shares to
200,000,000 shares. OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL
OF THE GOLF.COM ACQUISITION IN PROPOSAL 1 AND VOTE FOR APPROVAL OF THE AMENDMENT
OF OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION IN PROPOSAL 2. Approval
of the amendment to Quokka's Amended and Restated Certificate of Incorporation
requires the affirmative vote of a majority of the issued and outstanding shares
of Quokka common stock. The share issuance requires the affirmative vote of a
majority of shares of Quokka common stock cast in person or by proxy at the
Special Meeting.
This proxy statement provides you with information about Quokka and the
proposed acquisition of 71% of the membership interests of Golf.com, L.L.C. and
the proposal to amend our Amended and Restated Certificate of Incorporation. In
addition, you may obtain other information about Quokka from documents filed
with the Securities and Exchange Commission. We encourage you to read the entire
proxy statement carefully.
Whether or not you expect to attend the Special Meeting in person, please
complete, date, sign and promptly return the enclosed proxy card in the enclosed
postage-prepaid envelope to assure representation of your shares. You may revoke
your proxy at any time before it has been voted, and if you attend the Special
Meeting you may vote in person, even if you previously returned your proxy card.
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We hope that you can attend the Special Meeting. Your interest and support
in the affairs of Quokka are greatly appreciated.
Sincerely,
<TABLE>
<S> <C>
/s/ RICHARD H. WILLIAMS /s/ ALAN RAMADAN
Richard H. Williams Alan Ramadan
Chairman of the Board President and Chief Executive Officer
</TABLE>
FOR A DISCUSSION OF SIGNIFICANT MATTERS THAT SHOULD BE CONSIDERED BEFORE VOTING
AT THE SPECIAL MEETING, SEE "RISK FACTORS" BEGINNING ON PAGE 15 AND PAGE 51.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE QUOKKA COMMON STOCK TO BE ISSUED IN THE GOLF.COM
ACQUISITION OR DETERMINED WHETHER THE PROXY STATEMENT IS ACCURATE OR ADEQUATE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE PROXY STATEMENT 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.
<PAGE> 3
QUOKKA SPORTS, INC.
525 Brannan Street, Ground Floor
San Francisco, California 94107
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER , 2000
TO THE STOCKHOLDERS OF QUOKKA SPORTS, INC.:
NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders of Quokka
Sports, Inc., a Delaware corporation (the "Company"), will be held on ,
September , 2000 at 9:00 a.m. local time at the Company's headquarters at 525
Brannan Street, San Francisco, California 94107 for the following purposes:
1. To approve the Purchase Agreement and Plan of Reorganization dated June
8, 2000, as amended, among Quokka, Golf.com, L.L.C., the selling members
of Golf.com and the other parties identified therein, and the issuance
of shares of Quokka common stock thereunder;
2. To approve an amendment to Quokka's Amended and Restated Certificate of
Incorporation to increase the authorized number of shares of common
stock from 110,000,000 to 200,000,000 shares; and
3. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement of the meeting.
The board of directors of Quokka has fixed the close of business on July 21,
2000 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Special Meeting and any adjournment or postponement
thereof. Only holders of record of shares of Quokka common stock at the close of
business on the record date are entitled to notice of, and to vote at, the
Special Meeting. At the close of business on the record date, Quokka had
outstanding and entitled to vote 46,284,872 shares of common stock.
By Order of the Board of Directors
LES SCHMIDT
Secretary
San Francisco, California
August , 2000
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 4
QUOKKA SPORTS, INC.
525 Brannan Street, Ground Floor
San Francisco, California 94107
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER , 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the board of directors of
Quokka Sports, Inc., a Delaware corporation ("Quokka" or the "Company"), for use
at the Special Meeting of Stockholders to be held on September , 2000, at
9:00 a.m. local time (the "Special Meeting"), or at any adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Special Meeting. The Special Meeting will be held at the Company's
headquarters, 525 Brannan St., San Francisco, CA 94107. The Company intends to
mail this proxy statement and accompanying proxy card on or about August ,
2000, to all stockholders entitled to vote at the Special Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
card and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of common stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of common stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
RECORD DATE AND VOTING RIGHTS AND REQUIREMENTS
Only holders of record of common stock at the close of business on July 21,
2000 will be entitled to notice of and to vote at the Special Meeting. At the
close of business on July 21, 2000 the Company had outstanding and entitled to
vote 46,284,872 shares of common stock.
Each holder of record of common stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Special Meeting.
The presence, in person or by proxy, at the Special Meeting of the holders of a
majority of the shares of Quokka common stock outstanding and entitled to vote
at the Special Meeting is necessary to constitute a quorum at the meeting. The
affirmative vote of the holders of a majority of the votes cast is required for
approval of the issuance of the Quokka shares in the acquisition. The
affirmative vote of the holders of a majority of the issued and outstanding
shares of Quokka common stock is required for approval of the amendment to
Quokka's Amended and Restated Certificate of Incorporation.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
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VOTING VIA THE INTERNET OR BY TELEPHONE
FOR SHARES REGISTERED IN THE NAME OF A BROKER OR BANK
A number of brokers and banks are participating in a program provided
through ADP Investor Communication Services that offers telephone and Internet
voting options. If your shares are held in an account with a broker or bank
participating in the ADP Investor Communication Services program, you may vote
those share telephonically by calling the telephone number shown on the voting
form received from your broker or bank, or via the Internet at ADP Investor
Communication Services' voting web site (www.eproxyvote.com).
GENERAL INFORMATION FOR ALL SHARES VOTED VIA THE INTERNET OR BY TELEPHONE
Votes submitted via the Internet or by telephone must be received by 11:59
p.m., California time on Thursday, September , 2000. Submitting your proxy via
the Internet or by telephone will not affect your right to vote in person should
you decide to attend the Special Meeting.
THE TELEPHONE AND INTERNET VOTING PROCEDURES ARE DESIGNED TO AUTHENTICATE
STOCKHOLDERS' IDENTITIES, TO ALLOW STOCKHOLDERS TO GIVE THEIR VOTING
INSTRUCTIONS AND TO CONFIRM THAT STOCKHOLDERS' INSTRUCTIONS HAVE BEEN RECORDED
PROPERLY. STOCKHOLDERS VOTING VIA THE INTERNET SHOULD UNDERSTAND THAT THERE MAY
BE COSTS ASSOCIATED WITH ELECTRONIC ACCESS, SUCH AS USAGE CHARGES FROM INTERNET
ACCESS PROVIDERS AND TELEPHONE COMPANIES, THAT MUST BE BORNE BY THE STOCKHOLDER.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 525
Brannan Street, San Francisco, California, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 of the Securities and Exchange Commission, to
include a stockholder proposal in the Company's proxy statement and form of
proxy for a meeting of stockholders other than a regularly scheduled annual
meeting, the stockholder proposal must be submitted at a reasonable time before
the Company begins to print and mail its proxy materials. Stockholders are also
advised to review the Company's Bylaws, which contain additional requirements
with respect to advance notice of stockholder proposals.
The date of this proxy statement is August , 2000, and is first being
mailed to stockholders
of Quokka on or about August , 2000.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS.................. 1
WHERE YOU CAN FIND MORE INFORMATION......................... 1
SUMMARY..................................................... 6
THE SPECIAL MEETING......................................... 6
Date, Time and Place...................................... 6
Purpose of the Special Meeting............................ 6
Recommendations of the Board of Directors................. 6
Record Date and Voting Power.............................. 6
Voting and Revocation of Proxies.......................... 6
Required Vote............................................. 7
Solicitation of Proxies................................... 7
Other Matters............................................. 7
Stockholder Proposals..................................... 7
PROPOSAL 1 -- THE GOLF.COM ACQUISITION...................... 8
General Description of the Acquisition.................... 8
Background of the Transaction............................. 8
Quokka's Reason for the Acquisition....................... 10
Risk Factors.............................................. 11
Recommendation of the Board............................... 12
Material U.S. Federal Income Tax Consequences.............
Accounting Treatment...................................... 12
Regulatory Matters........................................ 12
Rights of Appraisal....................................... 12
THE ACQUISITION AGREEMENT................................... 13
The Acquisition........................................... 13
Assignment of Web Site Content............................ 13
Representation and Warranties............................. 13
Covenants................................................. 13
Limitation On Considering Other Acquisition Proposals..... 14
Conditions to the Acquisition............................. 15
Termination of the Acquisition Agreement.................. 16
Fees and Expenses......................................... 16
Escrow and Indemnification................................ 16
VOTING AGREEMENTS........................................... 17
RESALE OF QUOKKA SHARES..................................... 17
Restricted Securities and Resale Limitations.............. 17
REGISTRATION OF QUOKKA SHARES............................... 17
QUOKKA SPORTS, INC. AND SUBSIDIARIES SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA............................... 20
GOLF.COM SELECTED HISTORICAL FINANCIAL DATA................. 21
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA....... 22
COMPARATIVE PER SHARE DATA.................................. 28
INFORMATION ABOUT GOLF.COM.................................. 29
General................................................... 29
Business of Golf.com...................................... 29
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and Analysis of Financial
Condition and Results of Operations of Golf.com........ 29
Overview............................................... 29
Results of Operations.................................. 30
Three Months Ended March 31, 2000 and 1999........... 30
Years Ended December 31, 1999, 1998 and 1997......... 30
Liquidity and Capital Resources...................... 31
INFORMATION ABOUT QUOKKA.................................... 32
General................................................... 32
Business of Quokka........................................ 32
Properties................................................ 44
Legal Proceedings......................................... 45
MARKET PRICE AND DIVIDEND DATA.............................. 46
RISK FACTORS................................................ 47
Risks Relating to Quokka.................................. 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF QUOKKA....................... 59
Overview.................................................. 59
Recent Events............................................. 60
Results of Operations..................................... 60
Three Months Ended March 31, 2000 and 1999............. 60
Years Ended December 31, 1999, 1998 and 1997........... 62
Liquidity and Capital Resources........................ 64
SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 65
DESCRIPTION OF QUOKKA CAPITAL STOCK......................... 68
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 68
PROPOSAL 2 -- AMENDMENT OF QUOKKA'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION.............................. 69
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 70
EXPERTS.....................................................
REPRESENTATIVES OF INDEPENDENT PUBLIC ACCOUNTANTS........... 70
OTHER MATTERS............................................... 70
INDEX TO ANNEXES............................................
Appendix A -- Purchase Agreement..........................
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................
</TABLE>
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<PAGE> 8
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
THIS PROXY STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE SUBJECT TO THE "SAFE
HARBOR" CREATED BY THOSE SECTIONS. THE FORWARD-LOOKING STATEMENTS INCLUDE, BUT
ARE NOT LIMITED TO: THE REASONS FOR THE ACQUISITION DISCUSSED UNDER THE CAPTION
"PROPOSAL 1 -- THE GOLF.COM ACQUISITION," STATEMENTS ABOUT THE EXPECTED IMPACT
OF THE ACQUISITION ON QUOKKA'S BUSINESS, FINANCIAL PERFORMANCE AND CONDITION,
AND STATEMENTS ABOUT THE ACCOUNTING TREATMENT OF QUOKKA RELATED TO THE
ACQUISITION. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY ALSO BE
FOUND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION OF GOLF.COM" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF QUOKKA." FURTHER, ANY
STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE
DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE FOREGOING, YOU CAN
IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY, SUCH AS "MAY," "WILL,"
"SHOULD," "WOULD," "EXPECTS," "PLANS," "ANTICIPATES," "BELIEVES," "ESTIMATES,"
"PREDICTS," "POTENTIAL," OR "CONTINUE" OR THE NEGATIVE OF THESE TERMS OR OTHER
COMPARABLE TERMINOLOGY. THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE IN SUCH FORWARD-LOOKING STATEMENTS. QUOKKA DISCLAIMS ANY OBLIGATION TO
UPDATE THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF SUBSEQUENT EVENTS. THE
"RISK FACTORS" SECTIONS OF THIS PROXY STATEMENT, AMONG OTHER THINGS, SHOULD BE
CONSIDERED IN EVALUATING QUOKKA'S PROSPECTS AND FUTURE FINANCIAL PERFORMANCE.
WHERE YOU CAN FIND MORE INFORMATION
Quokka files reports, proxy statements and other information with the Securities
and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934,
as amended. You may read and copy any of this information at the following
locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>
You may obtain information on the operation of the SEC's Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet web
site that contains reports, proxy statements and other information regarding
issuers, like us, that file electronically with the SEC. The address of that
site is www.sec.gov. The SEC file number for our documents filed under the
Securities Exchange Act is 000-26311.
You can obtain copies of our documents filed under the Securities Exchange Act
from the SEC, through the SEC's web site at the address described above, or from
us, by requesting them in writing or by telephone at the following address:
Quokka Sports, Inc.
525 Brannan Street, Ground Floor
San Francisco, California 94107
Attn: Investor Relations
Telephone: (415) 908-3800
These documents are available from us without charge, excluding any exhibits to
them. If you request any documents from us, we will mail them to you by first
class mail, or another equally prompt means, within two business days after we
receive your request.
This document is a proxy statement of Quokka. Golf.com, L.L.C. has supplied all
information contained in, or considered a part of, this proxy statement relating
to Golf.com, and we have supplied all such information relating to Quokka.
1
<PAGE> 9
Neither Golf.com nor Quokka has authorized anyone to give any information or
make any representation about the acquisition, Golf.com or Quokka that is
different from, or in addition to, the information contained in this proxy
statement or in any of the materials that we have incorporated into this
document. Therefore, if anyone gives you information of this sort, you should
not rely on it. The information contained in this document speaks only as of the
date of this document unless the information specifically indicates that another
date applies.
2
<PAGE> 10
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT. TO UNDERSTAND
THE PROPOSALS DISCUSSED HEREIN FULLY, YOU SHOULD READ CAREFULLY THIS ENTIRE
DOCUMENT AND THE DOCUMENTS TO WHICH WE REFER. SEE "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 5. WE HAVE INCLUDED PAGE REFERENCES IN PARENTHESES TO
DIRECT YOU TO A MORE DETAILED DESCRIPTION OF THE TOPICS PRESENTED IN THIS
SUMMARY.
THE QUOKKA SPECIAL MEETING (PAGE ).
TIME, DATE AND PLACE. A special meeting of the stockholders of Quokka will
be held on , September , 2000, at Quokka's headquarters located at 525
Brannan Street, San Francisco, California at 9:00 a.m., local time, to vote on
the following proposals:
1. To approve the Purchase Agreement and Plan of Reorganization, dated June
8, 2000, as amended, among Quokka, Golf.com, L.L.C., the selling members
of Golf.com and the other parties identified therein, and the issuance
of shares of Quokka common stock thereunder;
2. To approve an amendment to Quokka's Amended and Restated Certificate of
Incorporation to increase the authorized number of shares of common
stock from 110,000,000 to 200,000,000 shares; and
3. To transact such other business as may properly come before the special
meeting or any adjournment or postponement of the meeting.
RECORD DATE AND VOTING POWER. You are entitled to vote at the special
meeting if you owned shares of Quokka common stock at the close of business on
July 21, 2000, the record date for the special meeting. You will have one vote
at the special meeting for each share of Quokka common stock you owned at the
close of business on the record date. There are 46,284,872 shares of Quokka
common stock entitled to be voted at the special meeting.
REQUIRED VOTE. Under Delaware General Corporation Law the affirmative vote
of the holders of a majority of the votes cast is required for approval of the
issuance of the Quokka shares in the acquisition and the affirmative vote of a
majority of the issued and outstanding shares of Quokka common stock is required
for approval of the amendment to Quokka's Amended and Restated Certificate of
Incorporation.
SHARE OWNERSHIP OF CERTAIN PARTIES. A group of ten stockholders, composed
of some directors and executive officers of Quokka as well as other significant
owners, representing more than a majority of Quokka's outstanding common stock,
have agreed to vote their shares in favor of the issuance of shares of Quokka
common stock in the acquisition.
PROPOSAL 1 -- THE GOLF.COM ACQUISITION
INFORMATION ABOUT QUOKKA (PAGE )
QUOKKA SPORTS, INC.
525 Brannan Street, Ground Floor
San Francisco, California 94107
(415) 908-3800
Quokka Sports, Inc. is a leading provider of sports entertainment for the
digital world. The Quokka Sports Network currently covers motor racing, sailing,
action sports like skiing, climbing, hiking, snowboarding, adventure racing and
mountain biking, and key Olympic summer sports, along with specific sporting
events like the biennial Olympic Games, the America's Cup yacht match, FedEx
Championship Auto Racing Series and the Moto Grand Prix championship. Quokka
offers live event coverage, race viewers, news and information, analysis, audio
and text dispatches, and content created by fans as well as the ability to
purchase premium content and products and services. Quokka seeks to generate
revenues from sponsorship and advertising from business customers, content
syndication from media companies, and sales of content, sports memorabilia,
merchandise and services to consumers.
3
<PAGE> 11
INFORMATION ABOUT GOLF.COM (PAGE ).
GOLF.COM, L.L.C.
234 Fayetteville Street Mall
Raleigh, North Carolina 27604
(919) 573-8000
Golf.com, L.L.C. is an award-winning Internet property dedicated to the
golf community. Golf.com's site offers premium content, original storyline
features, near real time scores and statistics, community products, and services
such as tee time reservations, travel and pro shop. Golf.com is the primary golf
coverage vehicle for MSNBC Sports. Golf.com generates revenue primarily through
advertising sales and sales of golf-related products and services.
CONSIDERATION; FIXED EXCHANGE RATIO (PAGE ). Selling members of Golf.com
will receive an aggregate of 3,890,150 shares of Quokka common stock in exchange
for the ownership interest in Golf.com that they own. The numbers of shares of
Quokka common stock is fixed and, regardless of fluctuations in the market price
of Quokka common stock, will not change between now and the date that the
acquisition is completed.
PER SHARE MARKET PRICE INFORMATION (PAGE ). Quokka common stock is listed
on the Nasdaq National Market. On June 7, 2000, the last full trading day prior
to the public announcement of the proposed acquisition, Quokka common stock
closed at $5.1875. On August 10, 2000, Quokka common stock closed at $6.6250.
REASONS FOR THE ACQUISITION (PAGE ). The Quokka board of directors
approved the acquisition based on a number of factors, including the following:
- ownership of the www.golf.com domain name
- access to an estimated 30 million U.S. golf enthusiasts
- entry into traditional sport coverage
- the strategic benefits of combining Quokka's immersive coverage with
Golf.com's strong editorial content
- strengthen relationship with NBC
- shorten the expected time for Quokka to achieve profitability
ACCOUNTING TREATMENT (PAGE ). The acquisition will be accounted for using
the purchase method of accounting and accordingly, the purchase price will be
allocated to the tangible and intangible assets acquired and the liabilities
assumed on the basis of their respective fair values on the acquisition date.
RECOMMENDATIONS TO QUOKKA STOCKHOLDERS (PAGE ). The board of directors
believes that the acquisition is advisable and fair to you and in your best
interests. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
ISSUANCE OF SHARES OF QUOKKA COMMON STOCK IN THE ACQUISITION.
For a more detailed discussion of the factors considered by the board of
directors in reaching its decision, see "The Golf.com Acquisition -- Background
of the Acquisition" and "The Golf.com Acquisition -- Quokka's Reasons for the
Acquisition'
CONDITIONS TO THE ACQUISITION (PAGE ). The obligations of both Quokka and
Golf.com to complete the acquisition are subject to the satisfaction of certain
conditions.
TERMINATION OF THE PURCHASE AGREEMENT (PAGE ). Quokka and the selling
members can terminate the purchase agreement under certain conditions.
LIMITATION ON CONSIDERING OTHER ACQUISITION PROPOSALS (PAGE ). Golf.com
and the selling members have agreed not to consider a business combination or
other similar transaction with another party while the acquisition agreement is
still in effect.
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<PAGE> 12
PROPOSAL 2 -- THE AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION
Quokka stockholders are being asked to approve an amendment to our Amended
and Restated Certificate of Incorporation to increase the number of authorized
shares of common stock from 110,000,000 shares to 200,000,000 shares. This
amendment will provide Quokka, at the discretion of our board of directors, with
additional shares for issuance in connection with future acquisitions, stock
splits, stock dividends, equity financings, employee benefit plans and other
corporate purposes.
This proposal is not related to the Golf.com acquisition. OUR BOARD OF
DIRECTORS BELIEVES THAT THE AMENDMENT OF OUR AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION IS IN THE BEST INTERESTS OF QUOKKA AND ITS STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT OF OUR AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION SET FORTH IN PROPOSAL 2.
5
<PAGE> 13
THE SPECIAL MEETING
DATE, TIME AND PLACE
The special meeting of Quokka stockholders will be held on , September
, 2000, at Quokka's headquarters located at 525 Brannan Street, San Francisco,
California commencing at 9:00 a.m. local time. We are sending this proxy
statement to you in connection with the solicitation of proxies by the Quokka
board of directors for use at the special meeting and any adjournments or
postponements of the special meeting.
PURPOSE OF THE SPECIAL MEETING
The purpose of the special meeting is to consider and vote on the following
proposals:
1. To approve the Purchase Agreement and Plan of Reorganization dated June
8, 2000, as amended, among Quokka, Golf.com, L.L.C., the selling members
of Golf.com and the other parties identified therein, and the issuance
of shares of Quokka common stock thereunder;
2. To approve an amendment to Quokka's Amended and Restated Certificate of
Incorporation to increase the authorized number of shares of common
stock from 110,000,000 to 200,000,000 shares; and
3. To transact such other business as may properly come before the special
meeting or any adjournment or postponement of the meeting.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
PROPOSAL 1 -- THE GOLF.COM ACQUISITION. The Quokka board of directors has
concluded that the proposal to approve the issuance of shares of Quokka common
stock in the Golf.com acquisition is advisable and in the best interests of
Quokka and its stockholders and has unanimously approved and adopted the
proposal. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALL
STOCKHOLDERS VOTE "FOR" THE ISSUANCE OF SHARES OF COMMON STOCK IN THE
ACQUISITION SET FORTH IN PROPOSAL 1.
PROPOSAL 2 -- THE CERTIFICATE AMENDMENT. The Quokka board of directors has
concluded that the proposal to approve the amendment of Quokka's Amended and
Restated Certificate of Incorporation to increase the number of authorized
shares of Quokka common stock is advisable and in the best interests of Quokka
and its stockholders and has unanimously approved and adopted the proposal.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALL STOCKHOLDERS
VOTE "FOR" THE AMENDMENT TO QUOKKA'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION SET FORTH IN PROPOSAL 2.
RECORD DATE AND VOTING POWER
Only holders of record of Quokka common stock at the close of business on
the record date, July 21, 2000, are entitled to notice of, and to vote at, the
special meeting. There were approximately 363 holders of record of Quokka common
stock at the close of business on the record date, with 46,284,782 shares of
Quokka common stock issued and outstanding. Each share of Quokka common stock
entitles the holder thereof to one vote on each matter submitted for stockholder
approval. See "Security Ownership by Certain Beneficial Owners" for information
regarding persons known to the management of Quokka to be the beneficial owners
of more than 5% of the outstanding shares of Quokka common stock.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked will be voted at the
special meeting and at any adjournments or postponements of the special meeting
in accordance with the instructions contained in the proxy. If a holder of
Quokka common stock executes and returns a proxy and does not specify otherwise,
the shares represented by that proxy will be voted "FOR" the issuance of shares
of Quokka common stock in the acquisition.
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A Quokka stockholder who has executed and returned a proxy may revoke it at
any time before it is voted at the special meeting by executing and returning a
proxy bearing a later date, filing written notice of revocation with the
Secretary of Quokka stating that the proxy is revoked or attending the special
meeting and voting in person.
REQUIRED VOTE
The presence, in person or by proxy, at the special meeting of the holders
of a majority of the shares of Quokka common stock outstanding and entitled to
vote at the special meeting is necessary to constitute a quorum at the meeting.
The affirmative vote of the holders of a majority of the votes cast is required
for approval of the issuance of the Quokka shares in the acquisition. The
affirmative vote of the holders of a majority of the issued and outstanding
shares of Quokka common stock is required for the approval of the amendment to
Quokka's Amended and Restated Certificate of Incorporation. Abstentions will be
counted towards the tabulation of votes cast on the proposals presented to
stockholders and will have the same effect as negative votes, and broker
non-votes will be counted towards a quorum, but are not counted for any purpose
in determining whether the proposals are approved.
At the record date for the special meeting, certain directors and executive
officers and other significant holders of Quokka common stock owned more than a
majority of the outstanding shares of Quokka common stock entitled to vote at
the meeting and have entered into a voting agreement with Golf.com and the
selling members dated June 8, 2000. They have agreed in the voting agreements to
vote all shares of Quokka common stock owned by them as of the record date in
favor of the issuance of shares of Quokka common stock in the acquisition.
23,313,500 shares of Quokka common stock, which represents approximately 50.4%
of the outstanding shares of Quokka common stock as of the record date, are
subject to the voting agreements. See "Voting Agreements." In addition, MediaOne
Interactive Services, Inc., a selling member of Golf.com, owns 3,897,437 shares
of Quokka common stock as of the record date.
SOLICITATION OF PROXIES
Quokka will bear the costs of the solicitation of proxies from its
stockholders. In addition to solicitation by mail, the directors, officers,
employees and agents of Quokka may solicit proxies from Quokka's stockholders by
personal interview, telephone, telegram or otherwise. No additional compensation
will be paid to directors, officers or other regular employees for such
services. Copies of solicitation materials will be furnished to banks, brokerage
houses, fiduciaries and custodians holding in their names shares of Quokka
common stock beneficially owned by others to forward to such beneficial owners.
Quokka may reimburse persons representing beneficial owners of Quokka common
stock for their costs of forwarding solicitation materials to such beneficial
owners.
OTHER MATTERS
At the date of this proxy statement, the Quokka board of directors does not
know of any business to be presented at the special meeting other than as set
forth in the notice accompanying this proxy statement. If any other matters
should properly come before the special meeting, it is intended that the shares
represented by proxies will be voted with respect to such matters in accordance
with the judgment of the persons voting the proxies.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 of the Securities and Exchange Commission, to
include a stockholder proposal in the Company's proxy statement and form of
proxy for a meeting of stockholders other than a regularly scheduled annual
meeting, the stockholder proposal must be submitted at a reasonable time before
the Company begins to print and mail its proxy materials. Stockholders are also
advised to review the Company's Bylaws, which contain additional requirements
with respect to advance notice of stockholder proposals.
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PROPOSAL 1 -- THE GOLF.COM ACQUISITION
THE DESCRIPTION OF THE ACQUISITION AND THE ACQUISITION AGREEMENT CONTAINED IN
THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
ACQUISITION AGREEMENT, THE FULL TEXT OF WHICH, WITH THE EXHIBITS THERETO, IS
ATTACHED HERETO AS ANNEX A AND INCORPORATED HEREIN BY THIS REFERENCE. WE
ENCOURAGE YOU TO READ THE ENTIRE ACQUISITION AGREEMENT VERY CAREFULLY.
GENERAL DESCRIPTION OF THE ACQUISITION
Upon the closing of the acquisition, Quokka will acquire approximately 71%
of the outstanding membership interests in Golf.com and will issue in exchange
approximately 3,890,150 shares of its common stock. NBC will retain an ownership
interest in Golf.com representing approximately 29% of the company.
Approximately ten percent of the Quokka shares issued in the acquisition will be
placed in escrow for a maximum of one year to cover any indemnification claims
against the selling members.
Selling members of Golf.com will receive an aggregate of 3,890,150 shares
of Quokka common stock in exchange for the ownership interests in Golf.com that
they own. The numbers of shares of Quokka common stock to be issued in the
acquisition transaction is fixed and, regardless of fluctuations in the market
prices of Quokka's common stock, will not change between now and the date that
the acquisition is completed. Each selling member will receive approximately
33,535.7759 shares of Quokka common stock for each membership unit of Golf.com,
as set forth in further detail on exhibit B to the acquisition agreement.
BACKGROUND OF THE TRANSACTION
The terms and conditions of the acquisition agreement are the result of
arms-length negotiations between the representatives of Quokka and the
representatives of Golf.com and the selling members. Set forth below is a
summary of the background of these negotiations.
Quokka has identified and pursued as one of its strategies growth through
the acquisition of, or combination with, complementary businesses.
In June 1998 MediaOne Interactive Services, Inc. purchased 2,666,667 shares
of common stock of Quokka, and in December 1998, MediaOne purchased an aggregate
of 1,230,770 shares of common stock of Quokka. Media One is a greater than 5%
stockholder of Quokka and a selling member.
In February 1999, Quokka and NBC Olympics, Inc. entered into a joint
venture to provide interactive digital coverage of the Olympics. See
"Information About Quokka -- Joint Ventures and Rights Agreements." NBC
Olympics, Inc. is a wholly-owned subsidiary of National Broadcasting Company,
Inc., parent company of NBC -- Golf.com Holding, Inc., a 29% owner of Golf.com.
In April 1999, Quokka and MediaOne entered into a trial agreement to
implement and test streaming media technology. In connection with that
transaction, Quokka issued a warrant to MediaOne to purchase 153,846 shares of
common stock at an exercise price of $3.25 per share. The warrant expires in
April 2009.
On February 10, 2000 members of Quokka's senior management visited the
offices of Total Sports Inc. in Raleigh, North Carolina to review the
operations, technology and facilities of Total Sports. On February 23, 2000
members of Total Sports management and representatives of J.P. Morgan, Total
Sports' financial advisors, visited with members of Quokka's management to
discuss the financial terms of a possible acquisition of Total Sports by Quokka.
Total Sports is a selling member of Golf.com.
On March 10, 2000, the board of directors of Quokka met via a telephonic
special meeting to discuss the proposed acquisition of a majority of Golf.com.
On March 13, 2000, members of Quokka senior management presented a bid for
a potential acquisition transaction with Total Sports at a Total Sports board
meeting. Following the board meeting, Total Sports informed Quokka that it had
rejected the proposed offer by Quokka to acquire Total Sports and had accepted a
proposed offer from a competing bidder.
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From March 10, 2000 to March 23, 2000, representatives of Quokka and
Golf.com participated in various telephone conferences to discuss financial
terms. From time-to-time throughout the discussions between the parties, the
members of the board of directors of Quokka were advised of and discussed the
progress of the discussions.
On March 23, 2000, Quokka delivered to Golf.com a non-binding term sheet
containing an outline of the principal terms of a possible transaction and a
letter agreement that included "no shop" provisions prohibiting Golf.com or its
selling members from soliciting or entertaining acquisition proposals from third
parties for a limited period of time.
On April 3, 2000, Quokka and Golf.com entered into a mutual nondisclosure
agreement. Thereafter, the respective parties met to discuss financial terms of
the acquisition and to discuss the process for due diligence investigations.
On April 5, 2000, members of Quokka senior management met with executives
from Total Sports at Quokka's offices in San Francisco, California regarding a
potential acquisition transaction of Total Sports by Quokka. Quokka and Total
Sports also signed a mutual confidential evaluation agreement on April 5, 2000
to allow both companies to perform detailed due diligence reviews of the other
company.
On April 12, 2000, Quokka and Golf.com entered into a letter agreement that
included "no shop" provisions and a non-binding term sheet outlining the
principal terms of a possible transaction.
Between March 23, 2000 and April 24, 2000, senior executives of Quokka and
executives of Golf.com and the selling members, and their respective outside
legal counsel, discussed the proposed terms.
On April 24, 2000, Quokka delivered a first draft of an acquisition
agreement to outside legal counsel to the selling members. From April 24, 2000
through June 8, 2000, representatives of Quokka and representatives of Golf.com
and the selling members and the respective outside legal counsel had numerous
meetings and telephone conferences during which the acquisition agreement and
various related agreements were discussed and negotiated.
On May 2 and 3, 2000, members of Quokka management met in Raleigh, North
Carolina with executives from Golf.com and Total Sports to review the books,
records and operations of Golf.com.
On May 15, 2000, Quokka and Golf.com amended the "no shop" letter agreement
to extend the "no-shop" period until May 31, 2000.
On May 15 and 16, 2000, members of Quokka management and representatives of
Golf.com, GolfData, MediaOne and the counsel for the selling members met in
Dallas, Texas at the offices of counsel for the selling members to discuss the
material terms of the acquisition agreement, including pricing, representations
and warranties, indemnification obligations and conditions to closing.
On May 23, 2000, executives and financial advisors of Total Sports met with
executives of Quokka in San Francisco, California to discuss the possible
acquisition of Total Sports by Quokka.
From May 17 through June 7, 2000 the parties and their counsel held daily
telephone conferences to resolve remaining issues.
On May 24, 2000, Quokka held a telephonic meeting of its board of
directors. At that meeting, the Quokka board of directors, members of management
and representatives of Quokka's outside legal counsel discussed the proposed
acquisition. The Quokka board of directors voted unanimously to approve the
acquisition agreement, the related agreements and the transactions contemplated
by the acquisition agreement and the related agreements and authorized the
officers to finalize and execute the acquisition agreement and related
agreements.
On May 31, 2000, Quokka and Golf.com amended the "no shop" letter agreement
to extend the "no-shop" period until June 7, 2000.
The board of managers of Golf.com approved the transaction via a telephonic
special meeting on June 8, 2000.
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The definitive acquisition agreement and related agreements were executed
and delivered on June 8, 2000. Also on June 8, 2000 Quokka and Total Sports
entered into an event coverage agreement relating to joint coverage of specific
golf events such as the 2000 U.S. Open.
On June 8, 2000, Quokka issued a press release announcing the execution of
the acquisition agreement.
From June 13, 2000 to June 16, 2000 members of Quokka management met in
Raleigh, North Carolina with executives from Total Sports to review the books,
records and operations of Total Sports.
On June 22, 2000, NBC Holding and Quokka executed an amended operating
agreement for Golf.com which will become effective upon the closing of the
transactions contemplated in the acquisition agreement.
From June 17, 2000 to July 19, 2000, Total Sports, Quokka and their
respective counsel held daily telephone conferences to prepare definitive
documents and to resolve remaining issues.
On July 20, 2000, Quokka and Total Sports signed a merger agreement whereby
Total Sports would merge into Quokka.
QUOKKA'S REASONS FOR THE ACQUISITION
The following discussion of Quokka's reasons for the acquisition contains a
number of forward-looking statements that reflect the current views of Quokka
with respect to future events that may have an effect on their future financial
performance. Forward-looking statements are subject to risks and uncertainties.
Actual results and outcomes may differ materially from the results and outcomes
discussed in the forward-looking statements. Cautionary statements that identify
important factors that could cause or contribute to differences in results and
outcomes include those discussed in "Special Note on Forward-Looking Statements"
and "Risk Factors."
Quokka's primary reasons for seeking to acquire a controlling interest in
Golf.com is the belief of the board of directors and management that the
acquisition would result in a number of benefits, including:
The board of directors has determined that the acquisition is in the best
interests of Quokka and its stockholders. In reaching its determination, the
board of directors considered a number of factors, including the factors
discussed below. The board of directors' conclusions with respect to each of the
factors listed below supported its determination that the acquisition and the
issuance of shares of Quokka common stock in the acquisition were fair to, and
in the best interests of, Quokka and its stockholders:
- ownership of the www.golf.com domain name
- access to an estimated 30 million U.S. golf enthusiasts
- entry into traditional sports coverage
- the strategic benefits of combining Quokka's immersive coverage with
Golf.com's strong editorial content
- strengthen relationship with NBC
- shorten the time to achieving Quokka profitability
- management's favorable recommendation of the acquisition, based in part
on the business, financial and legal due diligence investigations
performed with respect to Golf.com
- the anticipated accretive effect of the acquisition on Quokka common
stock
- the terms of the purchase agreement and related agreements, including
price and structure, which were considered by both the board of directors
and management of Quokka to provide a fair and equitable basis for the
acquisition
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The board of directors also considered a number of potentially negative
factors in its deliberations concerning the acquisition. The negative factors
considered by the board of directors included:
- the risk that the acquisition might not be completed in a timely manner
or at all
- the potential dilutive effect on Quokka's common stock
- the general difficulties of integrating operations
- the possibility that the acquisition might limit other company
transactions
- the other risks and uncertainties discussed below under "Risk Factors"
The foregoing discussion of information and factors considered by the
Quokka board of directors is not intended to be exhaustive but is believed to
include all material factors considered by the board of directors. In view of
the wide variety of factors considered by the board of directors, the board of
directors did not find it practicable to quantify or otherwise assign relative
weight to the specific factors considered. In addition, the board did not reach
any specific conclusion on each factor considered, or any aspect of any
particular factor, but conducted an overall analysis of these factors.
Individual members of the board may have given different weight to different
factors. However, after taking into account all of the factors set forth above,
the board of directors unanimously agreed that the purchase agreement and the
acquisition were fair to, and in the best interests of, Quokka and its
stockholders and that Quokka should proceed with the acquisition.
RISK FACTORS
RISKS RELATING TO THE ACQUISITION.
You should consider the following factors in evaluating whether to approve
the issuance of shares of Quokka common stock in the acquisition and the
principal terms of the acquisition. These factors should be considered in
conjunction with the other information included or incorporated by reference in
this proxy statement.
IF WE DO NOT INTEGRATE OUR OPERATIONS, WE MAY FAIL TO ACHIEVE OUR FINANCIAL
OBJECTIVES.
Achieving the benefits of the acquisition will depend in part on the
integration of Quokka's and Golf.com's operations in a timely and efficient
manner. Our ability to integrate our operations is unpredictable because each
companies' operations were developed independently and were designed without
regard to such integration. If we cannot successfully integrate our operations
and continue to provide users with desirable content in the future on a timely
basis, we may lose users and our business and results of operations may be
seriously harmed. Additionally, the diversion of management attention and any
difficulties encountered in the transition and integration process could
adversely affect the combined company going forward.
WE MAY NOT REALIZE THE EXPECTED BENEFITS OF THE ACQUISITION AND WE WILL HAVE
INCURRED SIGNIFICANT COSTS WHICH MAY HARM OUR BUSINESS.
We expect to incur costs from integrating Golf.com's operations and
personnel. These costs may include costs for redesigning and upgrading the
www.golf.com web site and costs related to additional travel and communication
due to operations located across the country. We may not be successful in these
integration efforts and cannot assure you that we will realize the expected
benefits of the acquisition.
IF ACCESS TO THE WEB SITE IS DISRUPTED AS A RESULT OF OUR REDESIGN OR UPGRADE OF
THE CONTENT, THE NUMBER OF USERS COULD DECLINE.
Users may not continue their current visit patterns during the pendency of,
and following, the acquisition. Any significant delay in redesigning or
upgrading the content on the web site could adversely affect Golf.com's future
operations. Users may consider visiting the golf web sites of competitors.
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POSSIBLE VOLATILITY OF QUOKKA'S COMMON STOCK PRICE.
Selling members of Golf.com, and the shareholders of GolfData upon the
distribution of Quokka common stock by GolfData, will receive Quokka common
stock in the acquisition. At or as soon as practicable after the closing of the
acquisition, Quokka will issue shares of Quokka common stock in consideration
for the membership interests in Golf.com being transferred to Quokka. In recent
years, the stock market, in general, and the securities of Internet-based
companies, in particular, have experienced extreme price and volume
fluctuations. These market fluctuations may adversely affect the market price of
Quokka common stock. There can be no assurance that the market price of Quokka
common stock upon and after the consummation of the acquisition will not be
lower than the market price of Quokka common stock on the date of the execution
of the acquisition agreement or the current market price.
RESALE OF QUOKKA COMMON STOCK AFTER THE ACQUISITION.
The shares of Quokka common stock to be received by the selling members of
Golf.com, and the shareholders of GolfData upon the distribution of Quokka
common stock by GolfData, in the acquisition will not be immediately saleable.
The shares of Quokka common stock will not be registered under securities laws
at the time of their issuance. The parties receiving Quokka common stock in the
acquisition will therefore bear the risk of a decline in the price of such stock
without being able to sell their shares until such shares have been registered
for resale, or are sold pursuant to an exemption from the registration
requirements of the United States and state securities laws. It is a condition
to the closing of the acquisition that Quokka's existing Investor Rights
Agreement be amended and restated to give the parties receiving Quokka common
stock in the acquisition certain rights to cause Quokka to file a registration
statement with the SEC covering the resale of the shares of Quokka common stock
received in the acquisition, as well as certain rights to have such shares of
Quokka common stock included in a registration filed by Quokka. Detailed
information concerning the registration rights of parties receiving Quokka
common stock in the acquisition are contained in the Amended and Restated
Investor Rights Agreement, which is attached to this document and is hereby
incorporated by reference.
RECOMMENDATION OF THE BOARD
FOR THE REASONS DISCUSSED IN "QUOKKA'S REASONS FOR THE ACQUISITION," THE
BOARD OF DIRECTORS OF QUOKKA HAS APPROVED THE ACQUISITION AND THE PURCHASE
AGREEMENT AND HAS DETERMINED THAT THE ACQUISITION AND THE PURCHASE AGREEMENT ARE
FAIR TO, AND IN THE BEST INTERESTS OF, QUOKKA AND THE QUOKKA STOCKHOLDERS.
ACCORDINGLY, THE BOARD OF DIRECTORS OF QUOKKA HAS UNANIMOUSLY RECOMMENDED THAT
THE QUOKKA STOCKHOLDERS VOTE "FOR" APPROVAL OF THE ACQUISITION.
ACCOUNTING TREATMENT
The acquisition will be accounted for using the purchase method of
accounting and accordingly the purchase price will be allocated to the tangible
and intangible assets acquired and the liabilities assumed on the basis of their
respective fair values on the acquisition date.
REGULATORY MATTERS
It is not believed that the acquisition requires any regulatory approval.
However, should the acquisition be deemed to be subject to review by the
Department of Justice and the Federal Trade Commission to determine whether it
complies with applicable antitrust laws, notification reports will have to be
filed pursuant to the Hart-Scott-Rodino Act and specified waiting period
requirement will have to be met before the acquisition can be consummated.
RIGHTS OF APPRAISAL
Under Delaware corporate law, Quokka stockholders are not entitled to
dissenters' rights of appraisal with respect to the acquisition.
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THE ACQUISITION AGREEMENT
THE ACQUISITION
The acquisition agreement provides that, upon the closing of the
transaction, Quokka will acquire approximately 71% of the outstanding membership
interests in Golf.com and will issue in exchange approximately 3,890,150 shares
of its common stock. NBC will retain an ownership interest in Golf.com
representing approximately 29% of the company. Approximately ten percent of the
Quokka shares issued in the acquisition will be placed in escrow for a maximum
of one year to cover any indemnification claims against the selling members.
ASSIGNMENT OF WEB SITE CONTENT
The acquisition agreement provides that, upon the closing of the
acquisition, Total Sports Inc., the current operator of the Golf.com web site
and a selling member of Golf.com, will grant to Quokka a perpetual, fully paid,
worldwide, non-exclusive license to the text, images and other content created
for and used on Golf.com's web site. Quokka and Total Sports recently signed a
definitive agreement to merge Total Sports with and into Quokka. See
"Information about Quokka -- Business of Quokka -- Recent Developments."
REPRESENTATIONS AND WARRANTIES
The acquisition agreement contains customary representations and warranties
of Quokka, Golf.com and the selling members of Golf.com relating to, among other
things, certain aspects of the respective businesses and assets of the parties
and other matters. The representations and warranties will expire one year after
the closing of the acquisition.
COVENANTS
Affirmative Covenants of Golf.com and the selling members of Golf.com
Golf.com and the selling members of Golf.com have agreed that before the
closing of the acquisition they will:
- provide Quokka with access to and copies of the books, records, tax
returns and other documents of Golf.com and copies of those; or
- conduct its business and operations only in the ordinary course and in
accordance with past practices, use all commercially reasonable efforts
to preserve intact its current business organization, keep available the
services of its current officers and employees and maintain its relations
and goodwill with all suppliers, customers, landlords, creditors,
licensors, licensees, employees and other persons having business
relationships with it, keep in full force all insurance policies, and
report regularly to Quokka concerning Golf.com's business.
Negative Covenants of Golf.com and the selling members of Golf.com
Golf.com and the selling members of Golf.com have agreed that before the
closing of the acquisition, unless approved by Quokka, they will not:
- subject to exceptions, declare, accrue, set aside or pay any dividend or
make any other distribution in respect of any membership interests, or
repurchase, redeem or otherwise reacquire any membership interest other
securities;
- sell, issue, or authorize the issuance of any membership interests or
other security, option or right to acquire any membership interest or
security, or any instrument convertible into or exchangeable for any
membership interest or security;
- subject to exceptions, amend its articles of organization or operating
agreement;
- effect or become a party to any acquisition, consolidation, business
combination, recapitalization or similar transaction;
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- form any subsidiary or acquire any equity interest or other interest in
any other entity;
- make any capital expenditure, outside of Golf.com's approved budget,
exceeding $25,000;
- enter into, become bound by, amend or terminate any material contract;
- acquire, lease or license any right or other asset from any other person
or sell or otherwise dispose of, or lease or license, any right or other
asset to any other person other than in the ordinary course of business;
- subject to exceptions, lend money to any person or incur or guarantee any
indebtedness;
- subject to exceptions, establish or amend any employee benefit plan, pay
any bonus or make any profit-sharing payment to, or increase the amount
of the wages, salary, commissions, fringe benefits or other compensation
payable to, any of its managers, officers or employees;
- hire any employee or consultant whose aggregate annual compensation is
expected to exceed $50,000;
- materially change any of its methods of accounting or accounting
practices in any respect;
- make any tax election; or
- commence or settle any legal proceeding.
Covenants of Quokka, Golf.com and the selling members of Golf.com
Quokka, Golf.com and the selling members of Golf.com have agreed that on or
prior to the closing of the acquisition:
- they will make all filings (if any) and give all notices (if any)
required to complete the acquisition and will use reasonable efforts to
obtain all consents from third parties required to be obtained:
- they will not issue any press release or make any public statement
regarding the acquisition without the other parties' written consent;
- Quokka and NBC will complete and execute an amended operating agreement
for Golf.com;
- Quokka will use reasonable efforts to obtain the required stockholder
consent to amend the existing investor rights agreement, and if unable to
obtain the required consent will grant to the selling members of Golf.com
the same common stock registration rights that would have been contained
in the amended investor rights agreement;
- GolfData, as a selling member of Golf.com and in connection with the
distribution of the Quokka common stock it receives to its shareholders,
will (i) have each of its shareholders who is not an "accredited
investor" appoint a purchaser representative to facilitate the evaluation
of the merits of the acquisition, (ii) have each of its shareholders
complete necessary shareholder certification documents, (iii) provide
information to its shareholders concerning the acquisition, and (iv) call
and hold a meeting at which its shareholders to consider the transaction
and obtain additional information;
- they will use reasonable efforts to terminate an agreement between
broadcast.com and Golf.com;
- each selling member of Golf.com will execute and deliver a certificate of
non-foreign status to Quokka; and
- each selling member of Golf.com will execute and deliver a general
release to Golf.com;
LIMITATION ON CONSIDERING OTHER ACQUISITION PROPOSALS
As an inducement to Quokka to enter into the acquisition agreement,
Golf.com and the selling members of Golf.com have agreed that they will not:
- directly or indirectly solicit or encourage the initiation of any
inquiry, proposal or offer, for the sale, license, disposition or
acquisition of all or substantially all of Golf.com's business or assets;
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- participate in any discussions or negotiations or enter into any
agreement with, or provide any non-public information to any person
relating to or in connection with the sale, license, disposition or
acquisition of all or substantially all of Golf.com's business or assets;
- consider, entertain or accept any proposal or offer from any person
relating to the sale, license, disposition or acquisition of all or
substantially all of Golf.com's business or assets;
CONDITIONS TO THE ACQUISITION
Conditions to the Obligations of Quokka
The obligations of Quokka to complete the acquisition are subject to the
satisfaction of the following conditions:
- the representations and warranties made by Golf.com and the selling
members of Golf.com in the acquisition agreement shall be accurate in all
respects as of the closing date as if made on the closing date;
- Golf.com and the selling members of Golf.com shall have complied in all
material respects with all of its covenants and obligations in the
acquisition agreement at or prior to the closing date;
- Quokka shall have received the following from Golf.com:
- a certificate from Golf.com's chief executive officer as to certain
representations, warranties, and conditions;
- a certificate from each of the selling members of Golf.com as to certain
representations, warranties, and conditions;
- escrow agreements from Golf.com's designated company agent and the
selling members of Golf.com;
- a legal opinion from counsel to Golf.com and from counsel to each
selling member of Golf.com;
- the written resignations of all officers and managers of Golf.com
effective as of completion of the acquisition, except for the managers
of Golf.com appointed by NBC; and
- a certification as to investor status for securities laws from each
selling member of Golf.com and any shareholder of a selling member of
Golf.com who will receive a distribution of Quokka common stock;
- there shall not be any temporary restraining order, preliminary or
permanent injunction, or other order that prevents the consummation of
the acquisition; and
- there shall not be pending or threatened in writing any action or legal
proceeding that may materially and adversely affect the consummation of
the acquisition or the financial condition, business or operations of
Golf.com.
Conditions to the Obligations of Golf.com and selling members of Golf.com
The obligations of Golf.com and the selling members of Golf.com to complete
the acquisition are subject to the satisfaction of the following conditions:
- the representations and warranties made by Quokka in the acquisition
agreement shall be accurate in all material respects as of the closing
date as if made on the closing date;
- Quokka shall have complied in all material respects with all of its
covenants and obligations in the acquisition agreement at or prior to the
closing date;
- the selling members of Golf.com shall have received a certificate from
Quokka's chief financial officer as to certain representations,
warranties, conditions and required board and stockholder actions, and a
legal opinion from counsel to Quokka;
15
<PAGE> 23
- Quokka shall have filed with the Nasdaq National Market a notification
form for the listing of additional shares on the Nasdaq National Market;
- there shall not be any temporary restraining order, preliminary or
permanent injunction, or other order that prevents the consummation of
the acquisition; and
- Golf.com shall have distributed to its selling members all excess cash in
Golf.com on the date immediately prior to the closing of the acquisition.
TERMINATION OF THE ACQUISITION AGREEMENT
The termination provisions provide that Quokka, Golf.com, and a majority in
interest of the selling members of Golf.com can agree by mutual consent to
terminate the acquisition agreement at any time before the closing of the
acquisition. In addition, the termination provisions provide that either Quokka
or the selling members of Golf.com can terminate the acquisition agreement if
any condition to that parties performance has become impossible and that party
has not breached the acquisition agreement. On July 31, 2000, Quokka, Golf.com
and the selling members executed an amendment to the acquisition agreement to
provide that either Quokka or the selling members can terminate the acquisition
agreement if the closing of the acquisition has not taken place by September 30,
2000 (subject to extension for certain delays).
FEES AND EXPENSES
Each party to the acquisition agreement has agreed to bear and pay all
expenses incurred by that party in investigating Golf.com's business,
negotiating and preparing the acquisition agreement, preparing and submitting
any required filings or notices, and consummating the acquisition. However, the
selling members of Golf.com have agreed to assume a pro rata share of all third
party expenses incurred by Golf.com upon the closing of the acquisition.
ESCROW AND INDEMNIFICATION
Ten percent of the shares of Quokka common stock to be received by each
selling member of Golf.com, and thereby each shareholder of GolfData upon
distribution of Quokka common stock by GolfData to its shareholders, will be
deposited in escrow with an escrow agent to serve as a source for payment of any
indemnification obligations or liabilities of Golf.com or the selling members of
Golf.com for one year from the closing of the acquisition. Golf.com and the
selling members of Golf.com are obligated to indemnify Quokka out of the escrow
fund for any damages arising out of:
- any inaccuracy in or breach of any representation or warranty (other than
certain representations and warranties of the selling members as set
forth in section 2.1 of the acquisition agreement) by Golf.com or the
selling members of Golf.com;
- any breach of any covenant or obligation of Golf.com or the selling
members of Golf.com; and
- any claim by any individual or entity of a membership interest or other
security in Golf.com.
In the event of damages to Quokka resulting from the foregoing, an amount
agreed upon or settled by binding arbitration on a pro rata basis will be
deducted from the escrow fund and paid to Quokka; provided, however, Quokka
shall be entitled to indemnification only after damages in the aggregate exceed
$250,000 and are determined to be payable, after which Quokka shall be entitled
to be indemnified against and compensated and reimbursed up to the full amount
of such damages, including the first $250,000 (but not to exceed the value of
the shares in the escrow fund). The $250,000 threshold and the limitation on
indemnification do not apply to damages arising out of fraud by Golf.com or the
selling members of Golf.com.
Additionally, the selling members of Golf.com are obligated to indemnify
Quokka for damages arising out of any inaccuracy in or breach of certain
representations and warranties by the selling members of Golf.com (as set forth
in section 2.1 of the acquisition agreement). Quokka's right to indemnification
for these damages are subject to the same $250,000 threshold provisions as the
escrowed share indemnification.
16
<PAGE> 24
Additionally, the right to indemnification for these damages is limited to
Quokka's actual damages which may include:
- the fair market value, as of the closing of the acquisition, of the
Quokka common stock received by any indemnifying selling member;
- the fair market value, as of the enforcement of the remedy, of the Quokka
common stock received by any indemnifying selling member;
- the fair market value, as of the closing of the acquisition, of the
ownership interest in Golf.com claimed by a third party; and
- the fair market value, as of the enforcement of the remedy, of the
ownership interest in Golf.com claimed by a third party.
Finally, Quokka is obligated to indemnify each selling member of Golf.com
for damages arising out of any inaccuracy in or breach of any warranty or
representation by Quokka. The selling members' right to indemnification for
these damages are subject to the same $250,000 threshold provisions as the
escrowed share indemnification. Additionally, the right to indemnification for
these damages is limited to the higher of:
- the fair market value as of the closing of the acquisition of the Quokka
common stock issued by Quokka to the selling members; and
- the fair market value as of the enforcement of the remedy of the Quokka
common stock issued by Quokka to the selling members.
VOTING AGREEMENTS
Accel IV L.P., John Bertrand, Quokka's Vice Chairman, Intel Corporation,
Media Technology Equity Partners, L.P., Media Technology Ventures, L.P., Media
Technology Ventures Entrepreneurs Fund L.P., Pogmohane Partners L.P., Trinity
Ventures V, L.P., Wakefield Group II L.L.C. and Richard H. Williams, Quokka's
Chairman, have each entered into voting agreements with Golf.com and the selling
members of Golf.com dated June 8, 2000. They have agreed in the voting
agreements to vote all shares of Quokka common stock owned by them as of the
record date in favor of the approval of the principal terms of the acquisition.
Approximately 23.3 million shares, or 51% of the Quokka common stock outstanding
on the record date is subject to voting agreements. They have also agreed that,
before the termination of the voting agreements, they will not transfer any
shares of Quokka common stock owned by them unless each person to whom any
shares is transferred executes a voting agreement and agrees to hold the shares
subject to all of the terms and provisions of the voting agreement.
RESALE OF QUOKKA SHARES
RESTRICTED SECURITIES AND RESALE LIMITATIONS
The shares of Quokka common stock being issued in the acquisition will be
issued pursuant to exemptions from the registration requirements of the United
States and state securities laws. In order to confirm the availability of these
exemptions, each selling member of Golf.com must complete, sign and return the
shareholder certification sent together with this proxy statement. Because the
Quokka shares are being issued in reliance on securities laws exemptions, all
shares of Quokka common stock to be issued in connection with the acquisition
will be considered "restricted securities" within the meaning of Rule 144 ("Rule
144") under the Securities Act. This means that such Quokka shares may not be
resold except pursuant to a registration statement effective under, or an
exemption provided by, the Securities Act and the rules and regulations
thereunder. The Quokka shares issued in the acquisition will bear a legend
stating these restrictions.
In general, under Rule 144 as currently in effect, former members of
Golf.com and shareholders of GolfData who receive Quokka common stock in the
acquisition and who hold such shares for one year from the closing of the
acquisition would be entitled to sell through brokers within any three month
period a number
17
<PAGE> 25
of shares that does not exceed the greater of one percent of the
then-outstanding shares of Quokka common stock or the average weekly trading
volume of the Quokka common stock during the four calendar weeks preceding the
date on which notice of the sale is filed with the SEC. Sales under Rule 144 are
subject to certain requirements relating to manner of sale, notice and
availability of current public information about Quokka. In addition, a person
(or persons whose shares are aggregated) who is not deemed to have been an
"affiliate" (which generally include officers and directors of Quokka and
persons who hold at least 10% of the outstanding shares of capital stock of
Quokka) of Quokka at any time during the 90 days immediately preceding the sale
and who beneficially owns restricted shares is entitled to sell such securities
under Rule 144(k) without regard to limitations describe above; provided that at
least two years have elapsed since the later of the date the shares were
acquired from Quokka or from an affiliate of Quokka.
THE FOREGOING IS A SUMMARY OF RULE 144 AND IS NOT INTENDED TO BE A COMPLETE
DESCRIPTION THEREOF. ANY GOLF.COM MEMBER OR GOLFDATA SHAREHOLDER DESIRING TO
SELL THE SHARES OF QUOKKA COMMON STOCK ABSENT A REGISTRATION STATEMENT COVERING
SUCH SALE SHOULD CONSULT HIS, HER OR ITS LEGAL ADVISORS FOR A DETAILED
DETERMINATION OF THE LEGAL RESTRICTIONS APPLICABLE TO SUCH A TRANSACTION.
REGISTRATION OF QUOKKA SHARES
In the acquisition agreement, Quokka covenants that it will seek and use
reasonable efforts to obtain the stockholder consents necessary to amend
Quokka's existing Amended and Restated Investor Rights Agreement substantially
as set forth in the Amended and Restated Investor Rights Agreement attached as
Exhibit G to the acquisition agreement. In order for the amendment and
restatement to become effective, holders of more than 50% of the Quokka stock
covered by the existing Amended and Restated Investor Rights Agreement must
execute the amendment and restatement. Amendment and restatement of the Amended
and Restated Investor Rights Agreement is a condition to the closing of the
acquisition. QUOKKA DOES NOT CONTROL THE PARTIES TO THE EXISTING AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT, SO THERE CAN BE NO ASSURANCE THAT THE
REQUISITE NUMBER OF QUOKKA STOCKHOLDERS PARTY TO THE AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT WILL AGREE TO ITS AMENDMENT AND RESTATEMENT AS
CONTEMPLATED IN THE ACQUISITION AGREEMENT. References in the following
description are to the Amended and Restated Investor Rights Agreement proposed
to be entered into at the closing of the acquisition.
The Amended and Restated Investor Rights Agreement will provide former
Golf.com members and GolfData shareholders holding shares of Quokka common stock
with certain demand and "piggyback" registration rights. The demand rights of
Golf.com members and GolfData shareholders take effect with respect to 50% of
the Quokka common stock received in the acquisition on the six-month anniversary
of the closing of the acquisition. On the first anniversary of the closing of
the acquisition, the demand registration rights become effective with respect to
the remaining 50% of the shares of Quokka common stock received in the
acquisition. The "piggyback" registration rights of former Golf.com members and
GolfData shareholders take effect with respect to 50% of the Quokka common stock
received in the acquisition upon the closing of the acquisition. On the
six-month anniversary of the closing of the acquisition the "piggyback"
registration rights become effective with respect to the remaining 50% of the
shares of Quokka common stock received in the acquisition.
Under the Amended and Restated Investor Rights Agreement, the holders of
registrable securities may demand, by written request from holders of more than
50% of the then outstanding holders' registrable securities, that Quokka file a
registration statement under the Securities Act covering all or a portion of the
holders' 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 more than $10.0 million, or in the case of a
registration on Form S-3, there is a reasonably anticipated aggregate offering
price to the public of at least $1.0 million. In addition, the former Golf.com
members and GolfData shareholders holding shares of Quokka common stock may
demand, by written request of more than 50% of the shares of Quokka common stock
issued in the acquisition, that Quokka file a registration statement under the
Securities Act on Form S-3 covering all or a portion of the holders' registrable
securities; provided that, only in the case of a Form S-3 requested by the
former Golf.com members and GolfData shareholders pursuant to this additional
right to demand a registration on Form S-3, there is a reasonably anticipated
aggregate offering price to the public of
18
<PAGE> 26
more than $10.0 million. These registration rights are subject to Quokka's 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, Quokka 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, Quokka 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 holders have "piggyback" registration rights. If Quokka
proposes to register any of its securities under the Securities Act (other than
pursuant to the holders' demand registration rights noted above), the holders
may require Quokka 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 Quokka. Each selling holder would pay all
underwriting discounts and selling commissions applicable to the sale of his,
her or its registrable securities.
All registration rights described above will terminate on the tenth
anniversary of Quokka's initial public offering of its common stock. The rights
of each holder holding less than one percent of Quokka's outstanding common
stock under the Amended and Restated Investor Rights Agreement will terminate
when that holder may sell all of his, her or its shares pursuant to Rule 144(k)
under the Securities Act or during any 90-day period pursuant to Rule 144 under
the Securities Act.
19
<PAGE> 27
QUOKKA SPORTS, INC. AND SUBSIDIARIES
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues........................................ $ 82 $ 39 $ 4,000 $ 8,635 $ 13,070
------ ------- ------- -------- --------
Cost of revenues:
Production and other............................ 21 611 5,130 7,780 20,070
Amortization of acquired rights................. -- -- -- -- 3,441
------ ------- ------- -------- --------
Total cost of revenues................ 21 611 5,130 7,780 23,511
------ ------- ------- -------- --------
Gross profit (loss)................... 61 (572) (1,130) 855 (10,441)
------ ------- ------- -------- --------
Operating expenses:
Research and engineering........................ 18 423 1,030 4,480 13,094
Sales and marketing............................. 5 53 816 2,519 19,525
General and administration...................... 56 508 1,827 3,184 11,069
Depreciation.................................... -- -- 68 530 4,217
------ ------- ------- -------- --------
Total operating expenses.............. 79 984 3,741 10,713 47,905
------ ------- ------- -------- --------
Losses of associated venture.................... -- -- -- -- 2,176
Minority interest in net loss on consolidated
sub........................................... -- -- -- -- (1,936)
Other income/(expense).......................... 12 (4) (71) 320 1,702
------ ------- ------- -------- --------
Net loss.............................. $ (6) $(1,560) $(4,942) $ (9,538) $(56,884)
====== ======= ======= ======== ========
Basic and diluted net loss per share............ $(0.00) $ (0.41) $ (0.73) $ (0.40) $ (1.45)
Shares used in computation of basic and diluted
net loss per share............................ 3,800 3,800 6,792 23,916 39,366
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable
securities.................................... $ -- $ 65 $ 4,027 $ 23,994 $ 68,757
Working capital................................. (8) (1,566) 1,444 23,218 72,560
Total assets.................................... -- 113 4,651 28,212 99,880
Debt and leases, long-term portion.............. -- -- 83 501 11,493
Accumulated deficit............................. (8) (1,566) (6,508) (16,046) (72,930)
Total stockholders' equity...................... (8) (1,566) 1,663 25,453 72,258
</TABLE>
20
<PAGE> 28
GOLF.COM
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION (JUNE 6) YEARS ENDED DECEMBER 31,
TO DECEMBER 31, ----------------------------
1996 1997 1998 1999
------------------ ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues...................................... $129 $ 475 $ 891 $ 1,354
---- ------ ------- -------
Cost of revenues:
Production and other........................ 4 54 581 611
---- ------ ------- -------
Total cost of revenues.............. 4 54 581 611
---- ------ ------- -------
Gross profit........................ 125 421 310 743
---- ------ ------- -------
Operating expenses:
Operating expenses.......................... -- 1,338 1,341 1,937
Depreciation and amortization............... -- 52 56 14
---- ------ ------- -------
Total operating expenses............ -- 1,390 1,396 1,951
---- ------ ------- -------
Other income/(expense)........................ -- 34 (8) 7
---- ------ ------- -------
Net income/(loss)................... $125 $ (935) $(1,094) $(1,201)
==== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
1996 1997 1998 1999
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalent............................ $ 896 $ 11 $ 36 $ 728
Working capital..................................... 976 150 51 679
Total assets........................................ 1,165 375 303 984
Accumulated deficit................................. (1,072) (2,040) (3,134) (4,335)
Total stockholders' equity.......................... 1,142 304 109 1
</TABLE>
21
<PAGE> 29
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The accompanying unaudited pro forma condensed combined financial data
gives effect to the consummated and probable acquisitions as if they had
occurred on March 31, 2000, and combines the Quokka historical consolidated
balance sheet at March 31, 2000, with the respective historical consolidated
balance sheets of ZoneNetworks.com, Inc. or "Zone", Golf.com, L.L.C., and Total
Sports Inc. The acquisition of ZoneNetworks was consummated on March 31, 2000;
therefore, Quokka's historical consolidated balance sheet at March 31, 2000
includes the allocated purchase price for this transaction. The accompanying
unaudited pro forma combined statements of operations data assume that the
consummated and probable acquisitions took place as of January 1, 1999.
The selected unaudited pro forma combined financial data are presented for
illustrative purposes only and is not necessarily indicative of the operating
results that would have been achieved had the transactions been in effect as of
the beginning of the periods presented and should not be construed as being
representative of future operating results. The selected unaudited pro forma
combined financial data as of March 31, 2000 and for the year ended December 31,
1999 and for the three months ended March 31, 2000 should be read in conjunction
with the respective financial statements and the related notes.
22
<PAGE> 30
QUOKKA SPORTS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------------------------------------------------------------------------------------------
HISTORICAL
HISTORICAL ------------------ COMBINED
------------------- COMBINED TOTAL ADJUSTED
QUOKKA GOLF.COM ADJUSTMENTS PRO FORMA SPORTS COMBINED ADJUSTMENTS PRO FORMA
-------- -------- ----------- --------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents... $ 5,472 $ 916 $ -- $ 6,388 $6,626 $13,014 $ -- $ 13,014
Restricted cash............. 17,885 -- -- 17,885 -- 17,885 -- 17,885
Investments in marketable
securities................ 28,812 -- -- 28,812 -- 28,812 -- 28,812
Accounts receivable, net.... 8,627 300 -- 8,927 2,365 11,292 (29)F 11,263
Inventory, net of reserve... 817 -- -- 817 371 1,188 -- 1,188
Deferred publishing costs... -- -- -- -- 566 566 -- 566
Acquired programming and
distribution rights....... 11,141 -- -- 11,141 -- 11,141 -- 11,141
Prepaid expenses and other
current assets............ 3,849 -- -- 3,849 2,549 6,398 -- 6,398
-------- ------ ------- -------- ------- -------- -------- --------
Total Current
Assets............... 76,603 1,216 -- 77,819 12,477 90,296 (29) 90,267
-------- ------ ------- -------- ------- -------- -------- --------
Investment in affiliate..... -- -- -- -- 135 135 (135)G --
Deferred publishing costs... -- -- -- -- 1,219 1,219 -- 1,219
Property and equipment,
net....................... 14,073 2 -- 14,075 5,417 19,492 -- 19,492
Intangible assets........... 34,150 8 26,209E 60,367 1,888 62,255 140,850E 203,105
Other assets................ 255 -- -- 255 445 700 -- 700
-------- ------ ------- -------- ------- -------- -------- --------
Total Assets.......... $125,081 $1,226 $26,209 $152,516 $21,581 $174,097 $140,686 $314,783
-------- ------ ------- -------- ------- -------- -------- --------
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable............ $10,069 $ -- $ 350D $ 10,419 $3,547 $13,966 $ 8,700D $ 22,666
Accrued expenses............ 8,884 182 -- 9,066 10,891 19,957 -- 19,957
Current portion of long-term
debt and capitalized lease
obligations............... 10,245 -- -- 10,245 373 10,618 -- 10,618
Due to related party........ -- 29 -- 29 -- 29 (29)F --
Deferred revenues........... 4,285 251 -- 4,536 801 5,337 -- 5,337
-------- ------ ------- -------- ------- -------- -------- --------
Total Current
Liabilities.......... 33,483 462 350 34,295 15,612 49,907 8,671 58,578
-------- ------ ------- -------- ------- -------- -------- --------
Notes Payable............... -- -- -- -- 288 288 -- 288
Long-term debt and
capitalized lease
obligations, net of
current portion........... 10,462 -- -- 10,462 175 10,637 -- 10,637
-------- ------ ------- -------- ------- -------- -------- --------
Total Liabilities..... 43,945 462 350 44,757 16,075 60,832 8,671 69,503
-------- ------ ------- -------- ------- -------- -------- --------
Minority interest in
consolidated subsidiary... -- -- 222C 222 -- 222 -- 222
Stockholders' equity
Preferred stock............. -- -- -- -- 3,527 3,527 (3,527)B --
Common stock................ 4 -- -- 4 3 7 (3)B 4
Additional paid-in
capital................... 161,481 5,042 21,359A,B 187,882 68,179 256,061 69,342A,B,G 325,403
Warrants and other.......... 7,831 404 (404)B 7,831 (11,897) (4,066) 11,897B 7,831
Treasury stock, at cost..... (107) -- -- (107) -- (107) -- (107)
Accumulated deficit......... (88,073) (4,682) 4,682B (88,073) (54,306) (142,379) 54,306B (88,073)
-------- ------ ------- -------- ------- -------- -------- --------
Total stockholders'
equity............... 81,136 764 25,637 107,537 5,506 113,043 132,015 245,058
-------- ------ ------- -------- ------- -------- -------- --------
Total liabilities and
stockholders'
equity............... $125,081 $1,226 $26,209 $152,516 $21,581 $174,097 $140,686 $314,783
======== ====== ======= ======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
23
<PAGE> 31
QUOKKA SPORTS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, 2000
-----------------------------------------------------------------------------------------
HISTORICAL HISTORICAL
------------------------------------- COMBINED -----------------------
QUOKKA ZONE NETWORK GOLF.COM ADJUSTMENTS PRO FORMA TOTAL SPORTS COMBINED
----------- ------------ -------- ----------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $ 9,510 $ 1,939 $ 319 $ -- $ 11,768 $ 3,236 $ 15,004
Cost of revenue Production and
other costs...................... 7,515 2,802 112 -- 10,429 3,380 13,809
Amortization of programming and
distribution rights............ 1,822 -- -- -- 1,822 -- 1,822
----------- ------- ----- ----------- -------- ------- --------
Total cost of revenue...... 9,337 2,802 112 -- 12,251 3,380 15,631
----------- ------- ----- ----------- -------- ------- --------
Gross profit (loss)............ 173 (863) 207 -- (483) (144) (627)
----------- ------- ----- ----------- -------- ------- --------
Operating expenses Production
costs............................ 4,793 622 562 -- 5,977 1,525 7,502
Sales and marketing.............. 6,830 2,494 -- -- 9,324 5,877 15,201
General and administrative....... 3,332 1,966 -- -- 5,298 1,488 6,786
Depreciation and amortization.... 1,417 201 1 7,602H 9,221 696 9,917
----------- ------- ----- ----------- -------- ------- --------
Total operating expenses... 16,372 5,283 563 7,602 29,820 9,586 39,406
=========== ======= ===== =========== ======== ======= ========
Loss from operations........... (16,199) (6,146) (356) (7,602) (30,303) (9,730) (40,033)
Minority interest in net loss of
consolidated subsidiary.......... 645 -- -- 100J 745 -- 745
Other income/(expense), net....... -- (19) -- -- (19) 43 24
Interest income/(expense), net.... 411 (123) 10 -- 298 (1) 297
----------- ------- ----- ----------- -------- ------- --------
Net income (loss).............. $ (15,143) $(6,288) $(346) $ (7,502) $(29,279) $(9,688) $(38,967)
=========== ======= ===== =========== ======== ======= ========
Pro forma net loss per share from
continuing operations:
Net loss per share -- basic and
diluted........................ $ (0.34)
Weighted average shares -- basic
and diluted.................... 44,201,000 4,780,475
<CAPTION>
QUARTER ENDED MARCH 31, 2000
-------------------------------
HISTORICAL
----------- COMBINED ADJUSTED
ADJUSTMENTS PRO FORMA
----------- -----------------
<S> <C> <C>
Revenues.......................... $ (319)I $ 14,685
Cost of revenue Production and
other costs...................... (112)I 13,697
Amortization of programming and
distribution rights............ -- 1,822
----------- -----------
Total cost of revenue...... (112) 15,519
----------- -----------
Gross profit (loss)............ (207) (834)
----------- -----------
Operating expenses Production
costs............................ (420)I 7,082
Sales and marketing.............. 15,201
General and administrative....... -- 6,786
Depreciation and amortization.... 11,740H 21,657
----------- -----------
Total operating expenses... 11,320 50,726
=========== ===========
Loss from operations........... (11,527) (51,560)
Minority interest in net loss of
consolidated subsidiary.......... -- 745
Other income/(expense), net....... -- 24
Interest income/(expense), net.... -- 297
----------- -----------
Net income (loss).............. $ (11,527) $ (50,494)
=========== ===========
Pro forma net loss per share from
continuing operations:
Net loss per share -- basic and
diluted........................ $ (0.83)
Weighted average shares -- basic
and diluted.................... 13,500,000 62,481,475
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
24
<PAGE> 32
QUOKKA SPORTS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------------------------
HISTORICAL HISTORICAL
------------------------------------- COMBINED ------------------------
QUOKKA ZONE NETWORK GOLF.COM ADJUSTMENTS PRO FORMA TOTAL SPORTS COMBINED
----------- ------------ -------- ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues......................... $ 13,070 $ 4,627 $ 1,578 $ -- $ 19,275 $ 6,753 $ 26,028
Cost of revenue Production and
other costs..................... 20,070 4,356 831 -- 25,257 9,957 35,214
Amortization of programming and
distribution rights........... 3,441 -- -- -- 3,441 -- 3,441
----------- -------- ------- ---------- --------- -------- ---------
Total cost of revenue..... 23,511 4,356 831 -- 28,698 9,957 38,655
----------- -------- ------- ---------- --------- -------- ---------
Gross (loss) profit........... (10,441) 271 747 -- (9,423) (3,204) (12,627)
----------- -------- ------- ---------- --------- -------- ---------
Operating expenses............... --
Production costs................ 13,094 3,070 1,958 -- 18,122 4,033 22,155
Sales and marketing............. 19,525 8,177 -- -- 27,702 5,217 32,919
General and administrative...... 11,069 2,280 -- -- 13,349 3,745 17,094
Depreciation and amortization... 4,217 14 30,409H 34,640 1,906 36,546
----------- -------- ------- ---------- --------- -------- ---------
Total operating
expenses................. 47,905 13,527 1,972 30,409 93,813 14,901 108,714
=========== ======== ======= ========== ========= ======== =========
Gain (loss) from operations... (58,346) (13,256) (1,225) (30,409) (103,236) (18,105) (121,341)
Loss of associated venture....... (2,176) -- -- -- -- --
Minority interest in net loss of
consolidated subsidiary......... 1,936 -- -- 353J 2,289 -- 2,289
Other income/(expense), net...... (11) -- -- (11) 131 120
Interest income/(expense), net... 1,702 (206) 7 -- 1,503 (550) 953
----------- -------- ------- ---------- --------- -------- ---------
Net gain (loss)............... $ (56,884) $(13,473) $(1,218) $ (30,056) $ (99,455) $(18,524) $(119,052)
----------- -------- ------- ---------- --------- -------- ---------
Pro forma net loss per share from
continuing operations:
Net loss per share -- basic and
diluted....................... $ (1.45) $ (2.85)
Weighted average shares -- basic
and diluted................... 39,366,000 4,780,475
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------
HISTORICAL
----------- COMBINED ADJUSTED
ADJUSTMENTS PRO FORMA
----------- -----------------
<S> <C> <C>
Revenues......................... $ (1,578)I $ 24,450
Cost of revenue Production and
other costs..................... (831)I 34,383
Amortization of programming and
distribution rights........... 3,441
----------- -----------
Total cost of revenue..... (831) 37,824
----------- -----------
Gross (loss) profit........... (747) (13,374)
----------- -----------
Operating expenses...............
Production costs................ (1,507)I 20,648
Sales and marketing............. 32,919
General and administrative...... -- 17,094
Depreciation and amortization... 46,950H 83,496
----------- -----------
Total operating
expenses................. 45,443 154,157
=========== ===========
Gain (loss) from operations... (46,190) (167,531)
Loss of associated venture....... -- --
Minority interest in net loss of
consolidated subsidiary......... -- 2,289
Other income/(expense), net...... -- 120
Interest income/(expense), net... -- 953
----------- -----------
Net gain (loss)............... $ (45,117) $ (164,169)
----------- -----------
Pro forma net loss per share from
continuing operations:
Net loss per share -- basic and
diluted.......................
Weighted average shares -- basic
and diluted................... 13,500,000 57,646,475
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
25
<PAGE> 33
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
Effective March 31, 2000, Quokka Sports, also referred to as the Company,
acquired all the outstanding common stock and stock rights of ZoneNetworks.com,
Inc. ("Zone") through the issuance of 1,411,639 shares of the Company's common
stock for a total purchase price of approximately $25.9 million including
acquisition costs. Zone produces and operates web sites that offer digital
content, products and services targeted to enthusiasts of skiing, climbing,
hiking, snowboarding, adventure racing and mountain biking. As consideration for
the transaction, 0.07193 of a share of the common stock of the Company ("Company
Common Stock") was issued for each outstanding share of the common stock and
preferred stock of Zone ("Zone Capital Stock"); the Company paid cash in lieu of
fractional shares. Outstanding options and warrants for Zone Capital Stock were
assumed by the Company and were automatically converted into options and
warrants for Company Common Stock at the same exchange ratio, except an
outstanding warrant to purchase 169,503 shares of the Series B Preferred Stock
of Zone was automatically converted into a warrant to purchase 23,849 shares of
the Company's Common Stock. Approximately ten percent of such shares were placed
in escrow to secure certain indemnification obligations contained in the
agreement. Subject to outstanding claims, the escrow will terminate upon the
earlier of (a) the date 30 days following the receipt by the Company of four
full fiscal quarters of audited financial statements of Zone and (b) May 15,
2001. Of the total purchase price, approximately $34.2 million was allocated to
intangible assets, including assembled workforce, customer base and goodwill.
The intangible assets are being amortized over their estimated useful lives of
two years.
On June 8, 2000, the Company signed a definitive agreement to obtain a 71%
ownership interest of Golf.com, L.L.C. ("Golf") through the issuance of
approximately 3,900,000 shares of the Company's common stock for a total
purchase price of approximately $26.7 million including acquisition costs. Golf
is in the business of developing, marketing and distributing a golf related
online service via the Internet. Of the purchase price, approximately $267,000
will be allocated to net liabilities assumed, and the remainder will be
allocated to identified intangible assets with any remaining purchase price
allocated to goodwill. The acquired intangible assets will be amortized over
their estimated useful life of two years. The Company's management believes that
the pending acquisition of Golf is a probable acquisition.
On July 20, 2000, the Company signed a definitive agreement to acquire all
the outstanding preferred and common stock, options and warrants of Total Sports
Inc. ("Total Sports") through the issuance of up to 15,000,000 shares of the
Company's common stock. The purchase price using an average stock price around
the date the transaction was announced was approximately $128 million including
acquisition costs. Of the purchase price, approximately $12.1 million will be
allocated to net liabilities assumed, and the remainder will be allocated to
identified intangible assets with any remaining purchase price allocated to
goodwill. The acquired intangible assets will be amortized over their estimated
useful life of three years. Total Sports is an event-centered online sports
media company. The Company's management believes that the pending acquisition of
Total Sports is a probable acquisition.
These acquisitions have been accounted for using the purchase method of
accounting and accordingly the purchase price has been or will be allocated to
the tangible and intangible assets acquired and the liabilities assumed on the
basis of their respective fair values on the acquisition date. The purchase
price assumed for the Total Sports acquisition is an initial estimate of the
purchase price and is subject to change. The purchase price allocations for the
Golf acquisition and the Total Sports acquisition are based upon a preliminary
valuation. These valuations could change when finalized upon closing of the
acquisitions, based upon the facts and circumstances at that time. A change in
the purchase price or the allocation of the purchase price could have a material
effect on actual future results of the Company.
26
<PAGE> 34
The following pro forma adjustments have been made to the historical
financial statements of the Company, Zone, Golf, and Total Sports based upon
assumptions made by management for the purpose of preparing the unaudited pro
forma condensed combined financial statements:
(a) To record the amount of additional paid-in capital resulting from the
purchase transaction.
(b) The elimination of the equity accounts of Golf and Total Sports.
(c) To record the minority interest in Golf.
(d) The amount of accounts payable necessary to accrue transaction costs.
(e) The excess of acquisition costs over the fair value of net assets
acquired (goodwill) at March 31, 2000 associated with the acquisitions
of Golf and Total Sports. Approximately $26.7 and $152 million were
allocated to intangible assets, including assembled workforce, customer
base and goodwill in connection with the Golf and Total Sports
acquisitions respectively.
(f) To eliminate the intercompany payables/receivables, which were between
Golf and Total Sports.
(g) To eliminate Total Sports' investment in Golf.
(h) To reflect amortization of goodwill and other purchased intangibles
associated with the acquisitions of Zone, Golf and Total Sports over
the following periods:
Zone -- Two years
Golf -- Two years
Total Sports -- Three years
(i) To eliminate the revenue and expenses recorded on the books of both
Golf and Total Sports, due to Total Sports' recording of such items in
accordance with the related operating agreement.
(j) To eliminate the minority interest in net loss of Golf.
The proforma financial statements were not tax effected since the Company,
Golf and Total Sports are in net operating loss positions and accordingly, a
full valuation allowance would be recorded.
The pro forma combined basic net loss per share is based on the combined
weighted average number of common shares of the Company's common stock for each
period, calculated using the exchange ratios that resulted in the issuance of
1,411,639 share of the Company's common stock for 100% ownership of Zone,
3,890,150 shares of the Company's common stock for 71% ownership interest of
Golf, and 15,000,000 shares of the Company's common stock for 100% ownership of
Total Sports. The adjustment to historical weighted average shares outstanding
results from inclusion of actual shares issued or estimated shares to be issued
in conjunction with the consummated or pending acquisition, respectively, as if
such shares were outstanding from January 1, 1999. In accordance with the
definitive agreements, approximately ten percent of the stock consideration to
Zone, Golf and Total Sports (approximately 141,164, 389,015 and 1,500,000
shares, respectively) will be held in a time-lapsing escrow account and have
been excluded from the pro forma basic and diluted net loss per share for the
year ended December 31, 1999 and the three months ended March 31, 2000.
27
<PAGE> 35
COMPARATIVE PER SHARE DATA
The following tabulation reflects (a) the historical net income and book
value per share of Quokka Sports, Inc. common stock in comparison with the pro
forma net income and book value per share after giving effect to the proposed
acquisition with Golf.com, L.L.C. and proposed merger with Total Sports Inc. and
(b) the historical net income and book value per unit of Golf.com, L.L.C.
membership interest and per share of Total Sports Inc. common stock in
comparison with the equivalent pro forma net income and book value per share
attributable to 3,890,150 and 15,000,000 shares of Quokka Sports, Inc. common
stock which will be received for each unit of Golf.com, L.L.C. and for each
share of Total Sports Inc. common stock, respectively. The information presented
in this tabulation should be read in conjunction with the pro forma combined
financial statements and the separate financial statements of the respective
companies and the notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
<S> <C> <C>
QUOKKA SPORTS, INC.
Net loss from continuing operations:
Historical................................................ $ (1.45) $ (0.34)
Pro forma................................................. $ (2.85) $ (0.83)
Book value:
Historical................................................ $ 1.77
Pro forma................................................. $ 3.68
GOLF.COM, L.L.C.
Net loss from continuing operations:
Historical................................................ $ (7,518.52) $ (2,135.80)
Equivalent pro forma(1)................................... $(95,576.96) $(27,834.69)
Book value:
Historical................................................ $ 4,716.05
Equivalent pro forma(1)................................... $123,411.66
TOTAL SPORTS INC.
Net loss from continuing operations:
Historical................................................ $ (10.52) $ (1.47)
Equivalent pro forma(2)................................... $ (4.85) $ (1.39)
Book value:
Historical................................................ $ 1.90
Equivalent pro forma(2)................................... $ 6.33
</TABLE>
---------------
(1) Pro forma amounts for Quokka Sports, Inc. multiplied by 33,535.78:1 (the
ratio of exchange).
(2) Pro forma amounts for Quokka Sports, Inc. multiplied by 1.77:1 (the ratio of
exchange).
28
<PAGE> 36
INFORMATION ABOUT GOLF.COM
GENERAL
Golf.com, L.L.C. was formed in May 1996 by GolfData Corporation and NBC
Multimedia, Inc., predecessor to NBC-Golf.com Holding, Inc. In August 1996,
MediaOne Interactive Services, Inc. and The New York Times Company Magazine
Group, Inc. became members of Golf.com, L.L.C., and in July 1998, Total Sports
Inc. was admitted as a member of Golf.com and signed a five-year agreement to
exclusively host, manage and operate the web site. Golf.com is based in Raleigh,
North Carolina.
BUSINESS OF GOLF.COM
Golf.com is an award-winning Internet property dedicated to the golf
community. The site offers premium content, original storyline features such as
"Golfers Network," "Golf Radio," "Outside the Ropes," and "Nicklaus Chronicles,"
near real time scores and statistics, community products such as fantasy games
and consumer products and services such as tee time reservations, travel and pro
shop. From web coverage of the Ryder Cup, Masters, U.S. Open, The Players
Championship and other PGA Tour events to instruction, commentary and archival
features, the web site provides comprehensive golf coverage online. Golf.com is
the primary golf coverage vehicle for MSNBCSports. Golf.com generates revenue
primarily through advertising sales and sales of golf-related products and
services.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF GOLF.COM
OVERVIEW
Golf.com, L.L.C. was formed in May 1996 by GolfData Corporation and NBC
Multimedia, Inc., predecessor to NBC-Golf.com Holding, Inc. In August 1996,
MediaOne Interactive Services, Inc. and The New York Times Company Magazine
Group, Inc. became members of Golf.com, L.L.C., and in July 1998, Total Sports
Inc. was admitted as a member of Golf.com and signed a five-year agreement to
exclusively host, manage and operate the web site. Golf.com is based in Raleigh,
North Carolina.
On June 8, 2000, Quokka signed a definitive agreement to acquire a
controlling interest in Golf.com. Quokka will issue approximately 3.9 million
shares of common stock in exchange for 71% of the ownership interest. NBC will
retain its 29% ownership of Golf.com. The transaction is subject to approval by
Quokka's stockholders.
On September 16, 1996, Golf.com granted Otto Candies L.L.C., an unrelated
entity, a fully vested and exercisable warrant to purchase two membership units
at a price of $25,000 per unit. The warrant had a three-year exercise term. The
fair value of this warrant was determined to be $129,000 calculated using the
Black-Scholes option pricing model using the following assumptions: risk-free
interest rate 5.0%, volatility 70%, a dividend yield of zero and a unit price of
$83,075, which is based upon the price per unit paid by Media One just one month
earlier. This warrant expired unexercised. On September 27, 1999, a new fully
vested and exercisable warrant was granted to Otto Candies L.L.C. with an
exercise period of two years. The fair value of this warrant was $275,000
determined using the Black-Scholes model with the following assumptions: risk-
free interest rate 6.1%, volatility 70%, a dividend yield of zero and a unit
price of $159,000, which is based upon the ramp between the Media One valuation
and the value of Golf.com established by Quokka. On May 30, 2000, Otto Candies
L.L.C. exercised its warrant to purchase two membership units of Golf.com for an
aggregate price of $50,000, as provided in the membership units purchase warrant
agreement.
Golf.com generates revenue primarily through advertising sales and sales of
golf-related products and services. Because of an advertising relationship with
Total Sports, advertising revenues in 1999 and 2000 are reported on a net basis
due to Total Sports assuming the primary risks and acting as the principal in
the related transactions. All revenue generated in prior periods are reported on
a gross basis. As a direct result of having only a small number of live programs
at any time, revenues from advertising and sales of golf-related products have
varied on both a quarterly and annual basis during Golf.com's short operating
history. Revenues may
29
<PAGE> 37
fluctuate from period to period in the future depending upon Golf.com's ability
to attract and retain sponsors and advertisers, the number of live events that
are being produced and distributed simultaneously during any one period,
Golf.com's ability to attract a worldwide audience, its ability to select and
offer the right merchandise and services for its audience to buy, and Golf.com's
ability to obtain or create content that is valuable.
Golf.com has incurred significant net losses and negative cash flows from
operations, and as of March 31, 2000, Golf.com had an accumulated deficit of
$4.7 million. This accumulated deficit resulted from the production costs of its
programming, the costs of expanding its sales and business development efforts
and other costs related to ongoing research and design including costs paid by
Total Sports on behalf of Golf.com.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Revenues
Golf.com's revenues increased $107,000 or 33% to $319,000 for the March
2000 quarter from $212,000 for the March 1999 quarter. During the March 2000
quarter, Golf.com recognized increased revenues in advertising from Golf.com's
enhanced position in the marketplace through brand marketing and additional
promotion efforts. Revenues for the March 1999 quarter were derived primarily
from advertising revenues. Sales returns and bad debts for the quarters ended
March 31,1999 and March 31, 2000 were insignificant.
Cost of Revenues
Cost of revenues consists primarily of the cost of products sold and
related shipping cost. Cost of net revenues increased from $76,000 for the
period ended March 31, 1999 to $112,000 for the quarter ended March 31, 2000 as
a result of the significant increase in Golf.com's net revenues. Gross profit
margin improved from 64.0% for the quarter ended March 31, 1999 to 64.8% for the
quarter ended March 31, 2000. The improvement in gross profit margin resulted
from changes in our cost structure for shipping functions and increased sales
volume. This improvement was also the result of gross profit derived from higher
margin advertising revenue. While Golf.com plans to increase its gross margin in
the future by employing more selective pricing and merchandising strategies,
increasing advertising revenues and emphasizing the sale of higher margin
products, Golf.com may not be able to improve its profit margins.
Operating Expenses
Operating expenses increased $357,000 to $563,000 for the March 2000
quarter from $206,000 for the March 1999 quarter. Operating expenses include
costs of personnel and consultants, travel, as well as general, sales and
administrative expenses. The increase in production costs from 1999 to 2000 is
due to increased programming of Golf.com's sports coverage of specific golf
events and additional expenses for sales of advertising under the Total Sports
agreement. In March 2000, Golf.com received significant promotion on NBC golf
broadcasts during the PGA Tour's "Southern Swing." NBC broadcast four events in
the first quarter of 1999 and five events for the March 2000 quarter, and
Golf.com received promotion in each of those broadcasts.
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Revenues
Revenues increased to $1.4 million in 1999 from $890,000 in 1998 and
$474,000 in 1997. In 1999, Golf.com realized the benefits from a full year's
relationship with Total Sports, who was primarily responsible for the
substantial increase in Golf.com's advertising and sponsorship revenue. Revenues
increased from 1998 to 1999 primarily as a result of advertising/sponsorship
sales totaling $880,000 during 1999 as compared to advertising/sponsorship sales
of $626,000 in 1998 and e-commerce revenue which were $478,000 in 1999 compared
to $264,000 in 1998. The increase in revenues from 1998 to 1997 is primarily
attributable to a
30
<PAGE> 38
$195,500 increase in advertising/sponsorship and E-commerce revenues. Sales
returns and bad debts for all periods were insignificant.
Cost of Revenues
Cost of revenues consists primarily of the cost of products sold and
related shipping cost. Cost of net revenues increased from $54,000 to $580,000
and then to $611,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
Operating Expenses
Operating expenses increased to $2.0 million in 1999 from $1.4 million in
1998 and 1997. Operating expenses include costs of personnel and consultants,
travel, and general, sales and administrative expenses. The $600,000 increase in
production costs from 1998 to 1999 is due to increased programming of Golf.com's
sports coverage of specific golf events and additional expenses for sales of
advertising per the Total Sports agreement. Also included in 1999 production
costs are costs associated with additional acquisition of editorial content with
the loss of Golf Digest content in 1998. Golf.com spent less than $25,000 a year
in marketing expenses. Since its inception Golf.com has relied on its partners
to market the www.golf.com web site. In 1999, Golf.com received significant
promotion on NBC golf broadcasts. NBC broadcast over 20 events in 1999 and
Golf.com received promotion in each of those broadcasts. In 1998 and 1997, NBC
provided promotion for the www.golf.com site and Golf Digest provided promotion
for the www.golf.com site in its print publication.
LIQUIDITY AND CAPITAL RESOURCES
Since May 1996, Golf.com has financed its operations primarily through
private sales of its equity securities. From May 1996 to June 1998, Golf.com
raised small amounts of money through the sale of units to various entities for
an ownership interest in Golf.com. In June 1998 Golf.com entered into an
operating agreement with Total Sports whereby Total Sports agreed to host,
operate and manage the web site and pay all the costs associated with running
the site.
31
<PAGE> 39
INFORMATION ABOUT QUOKKA
GENERAL
Quokka Sports, Inc. was incorporated in Delaware on August 15, 1996 as
Quokka Productions, Inc. The company changed its name to Quokka Sports, Inc. on
September 16, 1996. Quokka is based in San Francisco, California.
BUSINESS OF QUOKKA
Quokka Sports, Inc. is a leading provider of sports entertainment for the
digital world.
Around the world, sports enthusiasts immerse themselves in their favorite
sports, both as spectators and as participants. This passion for sports
translates into billions of dollars of spending on sports entertainment and
related sporting products and services. We believe that this market will
continue to expand as advances in technology create more opportunities to fuel
the passions of sports enthusiasts.
We use the power of emerging digital media to bring sports enthusiasts
closer to their favorite sports. We leverage our digital technology to offer
live event coverage, race viewers, news and information, audio and text
dispatches from athletes, games, community forums and content created by fans,
as well as opportunities for the fan to purchase premium content and products
and services in order to provide our audience a complete sports experience. We
believe that media coverage is most effective when it allows the viewer to feel
a real connection to other individuals, events and venues. As a result, the
sports experiences on the Quokka Sports Network and for our distribution
partners are intended to allow our viewers to reach halfway around the world in
real time to experience all of the excitement of a major sporting event direct
from wherever they happen to be.
Through this immersive approach, we seek to win the "hearts and minds" of
enthusiasts of the sports we offer and create ongoing communities around these
sports. The properties of the Quokka Sports Network are designed to become the
destinations for followers of these sports. We call these destinations for
specific sport communities "sport verticals."
The Quokka Sports Network is designed to appeal to a global audience. We
currently cover motor racing, sailing, adventure and action sports like skiing,
climbing, hiking, snowboarding, adventure racing and mountain biking, and key
Olympic summer sports, such as track and field, swimming and gymnastics. The
Quokka Sports Network also includes coverage of some of the world's largest
sporting events like the biennial Olympic Games, the America's Cup yacht match,
FedEx Championship Auto Racing (CART) Series and the Moto Grand Prix
championship as a result of our relationships with our strategic partners like
NBC Olympics, Inc., CART, Dorna Promocion del Deporte, S.A. and Volvo Event
Management (UK) Limited. The properties of the Quokka Sports Network have
attracted a community of sports enthusiasts that averaged over 1.25 million
unique visitors per month for the quarter ended March 31, 2000, according to our
internal tracking systems.
We recognize that sports enthusiasts are tribal in nature and we seek to
deliver content that reflects the fan's zeal for coverage of their favorite
event, sport, nation, team or athlete. For example, in addition to targeting the
English-speaking audience, we are beginning to localize content for non-English
speaking fans of the sports that we cover in order to most effectively engage a
global audience. We also understand that sports enthusiasts often want an
individualized experience. We are therefore focusing on methods of customizing
our content to further satisfy the individual needs of the members of our
growing community.
Since our inception, we have sought to lead our industry with innovations
that allow for the delivery of this content across a wide variety of digital
platforms, from wireless to narrowband Internet to broadband Internet to true
converged media. We call this "allband." To help us achieve this multi-platform
approach, we have entered into strategic relationships with some major players
in the media and communications industries Our strategic investors include
MediaOne Interactive Services, Intel Corporation, British Telecom Holdings,
B.V., Comcast Interactive Investments, Inc., At Home Corporation, Hearst
Communications, Inc. and
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<PAGE> 40
Liberty QS, Inc. and our distribution partners include Microsoft Corporation,
Road Runner, Terra Networks, S.A., and Yahoo!, Inc.
We seek to generate revenue from three sets of customers, each of which is
described in greater detail below:
- from business customers through sales of sponsorships and advertising;
- from media companies through revenue from content syndication; and
- from consumers through sales of premium content, sports memorabilia,
officially-licensed merchandise and other products and services.
Sponsorship and Advertising. We believe sponsors and advertisers are attracted
to our passionate sports audiences for several reasons. First, this audience
comprises an attractive demographic, including male professionals who are often
a difficult segment to reach. Second, our sports fan base tends to be
emotionally attached to the content that we offer. Finally, we believe the rich
interactive media environment allows for compelling brand messaging
opportunities. As a result of these and other factors, large multi-national
advertisers account for the majority of our sponsorship and advertising revenue.
Content Syndication. Content syndication is also emerging as a significant
source of revenue for us. Our exclusive rights allow us to create content that
is attractive to our media customers as these media companies seek unique and
engaging content for their users. Currently, we are syndicating content to
narrowband Internet platforms and broadband Internet platforms.
Revenue from Consumers. The impassioned sports fan is likely to spend money on a
variety of products and services to become further connected to a favorite
sport, event, team or athlete. For example, a fan may purchase a hat or print
autographed by a favorite America's Cup skipper, purchase a pay-per-view
experience or travel to a destination to meet a famous athlete or experience an
event from the front row. We integrate opportunities to purchase these types of
products and services into the Quokka Sports Network.
Finally, we are developing an adaptable technology and business
infrastructure that will support a fully localized global network. We believe
that our technology platform, our distribution network and our business
infrastructure will permit us to rapidly achieve economies of scale as we build
out new sport verticals.
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. References in this proxy
statement to "Quokka Sports," "Quokka," "we," "our" and "us" refer to Quokka
Sports, Inc. and its subsidiaries.
INDUSTRY BACKGROUND
The Sports Enthusiast
Sports enthusiasts are found in a myriad of shapes and sizes and live in
every corner of the world -- men and women, young and old, spectators and
participants. A 23 year-old "petrol head" from Milan who lives to know
everything there is to know about "air-to-fuel ratios" is quite different from a
38 year-old businesswoman from Seattle who does technical big-wall climbing on
the weekends. However, these people share a common passion for achievement in
sport. This primal zeal for achievement, whether in the form of competition or
inspiration, is at the core of all sport and it drives the sports enthusiast to
great lengths to fulfill this passion for a particular sport, team, event or
national interest.
This enthusiasm for sports is an almost universal phenomenon. It seems that
almost everyone has a strong attachment to at least one sport. For example, the
ESPN Chilton Sports Poll estimates that 86.6% of the general United States
population 12 years of age or older are sports fans. They further estimate that
currently 19.7% of this population accesses sports information with their
computer.
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<PAGE> 41
The Global Sports Industry
A huge industry has emerged to serve the passions of sports enthusiasts.
Sports broadcasting and publishing, athletic and outdoor gear, team apparel,
travel services, training, and venue access comprise several billion-dollar
industry segments. The Georgia Institute of Technology estimates that revenue
streams derived from spectator sports, sporting goods and sporting publications
in the United States alone exceeded $130 billion in 1995. The industry continues
to grow at a robust rate. For example, Paul Kagan Associates Inc. estimates that
U.S. advertisers will increase their investment in sports-related TV advertising
by 38% between 1998 and 2003.
The emergence of the Internet has added to the expansion of the sports
entertainment industry. Jupiter Communications, Inc. estimates that global
consumers will spend approximately $3.0 billion per year online on sporting
goods, apparel, footwear and tickets by 2003. In addition, Forrester Research,
Inc. projects that total U.S. online ad spending on advertisements will grow to
$22 billion in 2004.
Advance Of Digital Media Platforms
We believe that the world is currently undergoing a revolution in the way
it enjoys entertainment. The growth of the Internet is well documented, but
broadband delivery of content is also advancing quickly. Forrester Research
projects that 22 million U.S. households will have high-speed broadband access
by 2003. Other digital media platforms are also emerging. Jupiter Communications
estimates that the total user base of mobile personal Internet appliances such
as "smart" phones, pagers and PDAs will reach almost 26 million by 2002.
Converged media devices are starting to develop as well. Forrester Research
projects that so-called "Interactive TV" applications like enhanced broadcast TV
and web on TV will reach a total of 37 million households by 2004. Advances in
digital media platforms will someday allow sports enthusiasts to follow their
favorite sports 24 hours a day, 7 days per week, whether they are on the road,
at the office, on the golf course or at home in the living room.
Need For A Centralized Source Of Entertainment For The Sports Enthusiast
We believe sports enthusiasts seek to fully immerse themselves in their
sport of choice. The sports fan that travels to a sports venue often desires the
most complete experience possible. Of course, he will watch the live
competition -- but the experience does not end there. The fan also might buy a
program to learn which athletes are competing, watch replays on the "big
screen," talk to other fans about the competition, pick-up a magazine for more
in-depth stories, buy an official event jacket and try to get "behind the
scenes" to meet the athletes. This multi-faceted experience could describe a
motor racing track, a soccer match, a golf tournament, a sailing regatta or
almost any sports experience. Similarly, a climber on a rock face can check out
the weather conditions, take in the view, gauge the progress of the climb or
share stories with fellow climbers. When the climber leaves the mountain, she is
likely to continue to seek out ways to replicate this "complete" experience.
While there are numerous traditional and on-line sources of sports
information, products and services, we believe that sports enthusiasts do not
have a single location that fulfills all of their needs for experiencing a
particular sport. Currently, a sports fan must weave together a patchwork of
media and experiences by doing all or most of the following: subscribe to
magazines, newspapers or newsletters to get the latest news and information; be
near a TV at the right time to catch the live coverage of their sport or event
(if it's being covered at all); head to the local bar to debate the latest
events in their sport; get to the store to grab the latest gear; and ask someone
who's going to the venue to pick up an event souvenir. Furthermore, there are
some experiences that are extremely difficult to replicate via traditional
outlets, such as: getting the inside story directly from the athlete during
competition; enjoying real-time coverage of events that are not covered in a
particular region or at all; or having an individual question directly answered
by an athlete, expert or another fan who is located halfway around the world.
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QUOKKA SPORTS -- THE COMPLETE SPORTS EXPERIENCE
Since our inception, we have had a simple goal: to bring the sports
enthusiast the most complete sports experience possible -- regardless of where
he or she is located. This effort began with our coverage of the Whitbread Race
for the Volvo Trophy in 1997, an around-the-world yacht race, and continues
today for the tribal followers of a number of sports. We strive to leverage the
power of digital media to bring a 24x7, 360-degree experience to sports
enthusiasts. This complete experience is designed to utilize virtually every
aspect of emerging media, combining live event coverage, new narrative
techniques, rich content, community functions, audio and text dispatches from
athletes, games, opportunities to purchase premium content, travel services and
official event merchandise. We employ a variety of techniques to achieve what we
call "Quokka Sports Immersion."
We start with the individual sports enthusiast. We give fans the
opportunity to create their own experience by tailoring our interactive media to
their own interests and level of understanding. If the sports enthusiast wants
to watch live coverage of an event, she can launch a Quokka RaceViewer that
delivers images, audio, telemetry, and results data. If a fan wants to learn
more about a sport, he can access that information. He can also follow related
human-interest stories through in-depth features or strike up an argument with
other fans about some controversy through our often-intense bulletin-board
forums. An enthusiast can get to know the athletes through biographies, and more
intimately through regular diary-entries and live chats. She can experience
competition by joining a fantasy league or competing in a virtual race.
Furthermore, fans can bring a tangible piece of their sport home by purchasing
licensed merchandise in our online stores or by bidding for one-of-a-kind gear
and memorabilia through our auction services. We also provide updates on where
to participate in a sport and how to get there. Finally, we provide information
on gear and create an opportunity for fans to buy it. Enthusiasts can share "war
stories" or recommendations on locations, gear, and training. They can take
advantage of the unique perspectives provided by our sports coverage that
leverages the available assets to create a complete and compelling view of the
action.
We seek to do more than just attain the "eyeballs" of sports enthusiasts.
Rather, we want to win their "hearts and minds." Our properties in the Quokka
Sports Network are designed to be the destinations for fans of those sports, and
we intend to leverage the value of this engaged audience. We call these
destinations for specific sports communities "sport verticals."
THE QUOKKA SPORTS NETWORK
At the core of our business is a commitment to strive for deep coverage of
specific sports in each of our sport verticals, including key events, teams and
athletes associated with those sports. This approach forms the basis for our
scalable network strategy to build a network of sports communities. It is
designed to form the deepest -- and most valuable -- relationship with the
tribal communities that follow these sports. With this approach, we believe that
we will be well positioned to leverage the entire value chain associated with
these passionate communities -- from sponsorship and advertising to merchandise
to travel services, and more.
The Quokka Sports Network has been created to extend the value of each of
our sport verticals by implementing the following strategies:
- Aggregation of the best of the Quokka Sports Network at Quokka.com,
- Localization of content for regional fan-bases throughout the world, and
- Multi-platform delivery of content across various digital media devices.
SPORT VERTICALS -- EVENTS, TEAMS AND ATHLETES
We have created a network of discreet sport verticals that focus on the
interests and passions of specific sports communities. Since the beginning of
1999, the Quokka Sports Network has grown from two properties, the Whitbread
Race and the Around Alone yacht race, to over a dozen properties as of June
2000, including the 2000 America's Cup, the BT Global Challenge, CART, Climbing
Cameroon, Everest 2000, Great Trango Tower, Key West Race Week, Marathon des
Sables, NBCOlympics.com and Surfing Antarctica. We are
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pursuing three primary strategies to build out our network. First, we seek to
secure official rights to particular events or circuits, such as the 2000
America's Cup Match and the CART racing series. Additionally, we look for
opportunities to add existing sport verticals by acquiring other companies.
Finally, we intend to leverage our expertise from our coverage of Olympic sports
by developing some of the 35 sports sites and Quokka's Wired Athlete(TM)
features in our Olympic Games property. Currently, the Quokka Sports Network
includes:
- Destinations for a number of sports with truly global fan-bases such as
motor racing, sailing, skiing, snowboarding, adventure racing, climbing,
hiking and Olympic summer sports like track and field, swimming, and
gymnastics.
- Live coverage of some of the world's largest sporting events, including
the biennial Olympic Games, the America's Cup 2000 yacht match, the CART
racing series, and the Moto Grand Prix motorcycle championships.
- Relationships with some of the world's top athletes, including: Michael
Johnson, Dan O'Brien, Amy Van Dyken, Dominique Moceaneau, and Karch
Kiraly.
QUOKKA.COM
The most engaging stories and features from the Quokka Sports Network are
aggregated at Quokka.com. Quokka.com also provides a sampler of "broadband"
content for those visitors with high-speed connections who want to explore our
most innovative presentation techniques. Community, gaming, and shopping
experiences are also unified at Quokka.com. For example, fans who enjoy virtual
games in one sport, for example, often look for similar opportunities in other
events. We believe Quokka.com provides an effective way to cross-promote our
varied sports coverage to fans with multiple interests.
INTERNATIONAL NETWORK
We are working to localize some of our content into multiple languages. We
also work with athletes and local writers from various countries to tell their
own stories in their own language with their local perspective. We believe that
this capability makes our global sports and event properties more valuable
because they are being made relevant for regional audiences around the world,
including Europe and Latin America. A localized global strategy is critical for
our goal of becoming the leading provider of sports entertainment for the
digital world because we recognize that the tribal nature of sports fans across
the globe requires that the story be relevant and engaging for this diverse
audience.
Advancements in new media platforms and communications bandwidth capacity
have presented us with the opportunity to distribute these experiences in a
variety of ways to our diverse audience. We are creating our products with this
"all band" environment in mind because we believe that digital distribution
platforms will continue to evolve and afford richer entertainment experiences
and far greater accessibility across multiple platforms. We have established a
diverse group of distribution partners to execute this vision, including: Yahoo!
Europe, Excite@Home, Road Runner, Microsoft and Terra Networks.
MULTIPLE ENTRY POINTS TO THE NETWORK
A fan can become immersed in his passion for sports by accessing the Quokka
Sports Network from a variety of different entry points. For example, a senior
executive in London can access the Quokka RaceViewer for race coverage of the
America's Cup finals over her office LAN. An 18-year old gymnastics fan can
check out the gymnastics Olympic coverage over her DSL service from her bedroom
while her friend with Road Runner broadband service can relive a climb in the
Himalayas. A CART fan from Gary, Indiana will someday experience true
interactive broadcast coverage of a race through a new set-top device. A
stay-at-home mother from White Plains, New York can follow our most compelling
"360 degree" sports story of the day at Quokka.com over her AOL dial-up service.
In the future, we intend to provide access to our coverage via hand-held
wireless devices such as PDAs and cell phones.
Once on the network, sports enthusiasts have the opportunity to go deeper
into their favorite sport or explore other sports. We aggressively cross-promote
our properties through targeted e-mails, on-site promo-
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tion and contests. We believe that a "network effect" will create great leverage
for us because every new visitor to one of our properties will immediately be
exposed to all of our other properties on the Quokka Sports Network, and is a
potential visitor of another of our sport verticals.
COMPELLING CONTENT
We combine our deep coverage for the passionate fan and our network of
sport verticals in order to try to capture the hearts and minds of an engaged
audience. Our sailing vertical represents one example of our commitment to
provide a complete experience that contains immersive and engaging content.
Sailing enthusiasts can follow live coverage of the BT Global Challenge and the
Volvo Ocean Race, keep up with smaller scale events like the Sydney to Hobart
race or Key West Race Week, debate the strategies of the America's Cup skippers
on our forums, bid for one-of-a-kind America's Cup memorabilia in our sailing
auctions, build a virtual boat, compete in a fantasy challenge to guess the
America's Cup winners, or find out what's going on in-and-around Auckland, New
Zealand, the site of the 2000 America's Cup. The result is a deeply engaged
sports enthusiast that can obtain the complete sports experience.
MULTIPLE REVENUE STREAMS
We have identified three distinct sets of customers for our 360-degree
sports experience. These customers include advertisers looking to connect with
our highly valued audience, media companies seeking compelling and unique
content, and the individual fans who seek out premium gear, memorabilia and
services to complete their experience with their favorite sport. As our business
matures over time, we expect about 85% to 90% of our revenues to be split evenly
between sponsorship and advertising revenue and content syndication revenue,
with the remaining 10% to 15% to come from consumer revenue.
Sponsorship and Advertising Revenue
In 1999, sponsors and advertisers provided approximately 90% of our
revenue. We have established multi-year sponsorship arrangements with Compaq,
Computer Associates and Intel Corporation as "Quokka Performance Team" members.
We offer these sponsors multi-dimensional marketing opportunities across the
Quokka Sports Network. In addition, we also have sponsors and advertisers that
are interested in particular sport verticals in our network, such as IBM, Ford
Motor Corporation, Qwest Communications, Visa International, Adidas America and
Anheuser Busch.
We believe these advertisers find our primary audience, the hard-to-reach
male professional, to be extremely attractive. This audience enjoys our rich
content at home, and even in the office, one of the toughest places to get the
attention of these professionals. Because of their passion for sport, we believe
the audience is also emotionally engaged in the content. The emergence of the
sports media and sponsorship industry demonstrates the value that marketers see
in these intense relationships.
We present our sponsors' and advertisers' brands and products as an
integral part of the sports content, and rich media presentations of these
messages to help bring their brands to life. Some of our sponsors leverage our
content on their own web sites. In addition, some technology sponsors also work
with us to develop new infrastructure solutions that enable our coverage. These
"custom solutions" then become marketing tools for the technology providers as
they look to expand their presence in the new digital media marketplace.
Three customers accounted for approximately 65% of our revenues in 1999,
three customers accounted for approximately 81% of our revenues in 1998 and
three customers accounted for 91% of our revenues in 1997. In 1999 our
relationship with Compaq accounted for 27% of our revenues, our relationship
with Computer Associates accounted for 23% of our revenues, and our relationship
with Intel Corporation accounted for 15% of our revenues. In 1998 our
relationship with Compaq (through Tandem Computer) accounted for 52% of our
revenues, our relationship with CompuServe accounted for 16% of our revenues and
our work for the International Olympic Committee accounted for 13% of our
revenues. In 1997 our relationship with Tandem Computer accounted for 48% of our
revenues, our relationship with CompuServe
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accounted for 14% of our revenues and our work for the International Olympics
Committee accounted for 29% of our revenue.
Content Syndication
Media companies are emerging as significant customers of ours. Our primary
media customers today are Internet companies, but wireless and converged media
customers are also emerging. The Internet content providers -- often portals
-- are interested in our content, because they believe it will help them create
longer user visits. Our exclusive access to event properties and our rich media
presentations have attracted these companies. Current narrowband "portal"
customers include Excite and Terra Networks. In February 2000, we produced
content for wireless devices with Nokia, our initial development partner for
this product. In March 2000, we partnered with WebTV Networks, Inc. to develop
content for their interactive television platform. Broadband partners, including
Microsoft, Road Runner and At Home, have also presented our content on their
networks.
As proprietary digital entertainment content becomes available to new media
companies, we expect this trend toward content syndication to continue. The
historical growth of the cable television industry is an example of how content
syndication models develop. For instance, ESPN commanded subscription fees from
cable providers as the ESPN television business matured. We believe that a
similar business model will progress as the Internet evolves from a pure news
and information medium to one that also provides exclusive entertainment
experiences.
Revenue from Consumers
One of the characteristics of a tribal culture is that the tribe's members
often follow the same rituals, value the same objects and wear the same
clothing. We believe sports enthusiasts are no different. They go to great
lengths to wear the uniforms and use the gear authentic to their sports, and
wear the marking and colors of their favorite teams or athletes. Further, many
fans want to obtain an authentic artifact from a memorable sports event, which
may be passed down from generation to generation.
We have developed several features in the properties of the Quokka Sports
Network to fulfill the needs of this tribe-like dynamic of our audience. We seek
to leverage our relationships with event owners to establish exclusive
partnerships with the merchandise partners for these events. We offer
exclusively licensed event merchandise, high-end sports equipment, venue-based
travel services, fantasy sports experiences, and one-of-a-kind sports
collectibles and memorabilia. Commerce-focused businesses like Adidas and
Boatscape.com, Inc. have purchased tenancies in the electronic shopping areas of
our network in order to capitalize on our fans' desire for products and services
related to our sport verticals. In August 2000, we partnered with Planet
Outdoors to provide our MountainZone.com property with electronic commerce
services.
We also auction unique merchandise and experiences on the Quokka Sports
Network to allow rabid fans the opportunity to fulfill their need for a complete
sports experience. On our QuokkaAuctions.com site, we auction one-of-a-kind
autographed memorabilia from athletes, event art, fantasy sports experiences,
equipment and limited edition team uniforms. For example, during the America's
Cup 2000, we offered for auction the 17th seat on the America One boat, which
allows a fan to sit on an America's Cup yacht during a race and watch the action
first hand, a fantasy trip to watch the finals from the water with former
America's Cup champion skipper (and Quokka co-founder) John Bertrand, a jade
replica of the actual America's Cup trophy, which was offered for bid for tens
of thousands of dollars, and a number of autographed items from Paul Cayard, the
renowned skipper from the America One syndicate.
Furthermore, we use contextual selling opportunities to maximize our
ability to offer our products and services to a highly qualified and targeted
audience. For example, when a team or driver in the CART series wins a race, we
often juxtapose the story about that victory with links to the merchandise of
that athlete or team. Excited fans can make immediate purchases while still
focused on the thrill of the latest race or match. Consumer purchasing
opportunities are presented throughout relevant content on our properties such
as athlete's pages, relevant news items, and team pages.
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SCALABLE NETWORK INFRASTRUCTURE
We are developing a scalable technology and business infrastructure with
global capabilities.
We are building a common "chassis" for all our properties across all
possible media platforms. This chassis provides the technological framework for
each of our properties. This chassis will incorporate common user interfaces,
publishing tools, live event viewers, asset management systems, ad servers,
community functionality, commerce engines and game engines that are functional
across the Quokka Sports Network properties. As an early innovator in the
digital entertainment space, we will continue to place great emphasis on
evolving its chassis to maximize the power of the digital medium as new
platforms emerge. Each new property will be outfitted with this chassis to best
leverage our innovations, create a common user experience, and afford
efficiencies in production.
We have developed a localization strategy in order to derive the greatest
value from our global sporting events. Once we have invested in the production
of a global sporting event or sport site, we can leverage that investment by
making that content accessible and relevant to sports enthusiasts around the
world. Local relevance for our content is created through diaries from athletes
and stories from local writers. Every new property that we add to our network
can be made readily available to each of these audiences, which we believe will
increase the audience size and lower the production cost per unique visitor.
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 and the Volvo Ocean Race directly
from the rights holders and we have entered into a joint venture with NBC
Olympics, Inc. in connection with the Olympic Games. We originally created a
joint venture with Forsythe Racing, Inc. in connection with CART, but
subsequently dissolved the joint venture and derive our right to our coverage of
CART racing directly from 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.
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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, 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. Additionally, we issued
warrants to purchase 2,100,000 shares of our common stock. Based on the
Noreen-Wolfson fair value model with a volatility of 70%, these warrants have a
fair value of $4.9 million. 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.
CART Digital Media Enterprises, LLC.
In January 1999, we established CART Digital Media Enterprises, LLC or
"CDME," a joint venture with Forsythe Racing, Inc. Forsythe owns two of the
teams that compete as part of the Championship Auto Racing Teams circuit.
In March 1999, CDME 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
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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.
We issued to Championship Auto Racing Teams, Inc. warrants to purchase
76,366 shares of our common stock. Based on the Noreen-Wolfson fair value model
with a volatility of 70%, these warrants have a fair value of $400,841.
In December 1999, we dissolved our joint venture with Forsythe. As a
result, we now own 100% of CDME.
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 receiving
approval of certain other third parties. Dorna has the ability to terminate the
agreement if we fail to pay the required rights fee.
In July 2000 we reached an agreement with Dorna to amend our original
agreement for exclusive, worldwide interactive media rights for all FIM Road
Racing World Championship Grand Prix events. The amended agreement will expire
on December 31, 2000. Under the amended agreement we will not be required to
make any further rights payments and are relieved of certain sponsorship
payments. For the rest of the shortened term, Dorna will pay us certain
production and operation fees relating to our coverage and will also receive a
portion of revenues attributable to our coverage. In the event that we are
unable to conclude an
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agreement with Dorna for continuation of our rights after the expiration of the
term, we will continue to provide certain predetermined amounts of services to
Dorna free of charge during 2001.
Volvo Ocean Race
In July 2000, we acquired from Volvo Event Management (UK) Ltd. ("Volvo")
exclusive, worldwide Internet rights and became the official provider of
Internet coverage for the 2001-2002 and 2005-2006 Volvo Ocean Races (formerly
The Whitbread Round the World Race). The Volvo Ocean Race continues for nine
months as sailors circumnavigate the globe, stopping in nine countries on five
continents. In connection with these rights, we have secured the rights to:
- create and host the official Internet web sites for The Volvo Ocean Race
in 2001-2002 and 2005-2006.
- use trademarks and logos of The Volvo Ocean Race on the sites;
- collect and use data and content from the races;
- sell sponsorship and advertising on the sites in cooperation with Volvo;
and
- sell official event merchandise on the sites in cooperation with official
licensees.
Our rights are specific to the Internet and may only be exercised in other
media with Volvo's consent. The agreement contains a provision under which
either party can request that the agreement be renegotiated in good faith as a
result of technological changes after the 2001-2002 race ends. The agreement may
be terminated by either party in the event such a renegotiations fails, or if
either party breaches its terms, including, in our case, a failure to pay to
Volvo any revenue sharing earned.
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.
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.
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, the completeness of
the experience, 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 audience with attractive demographics;
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- 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 properties of the Quokka Sports Network are hosted by Intel's Online
Services group in Santa Clara, California and with Frontier GlobalCenter in
Sunnyvale, California, except that our NBCOlympics.com web site is hosted by IBM
in Redwood City, California, Bethesda, Maryland and Schaumburg, Illinois. In the
next few months we intend to host our content, other than the Olympics site,
with two Intel Online Services hosting facilities. All of our network operations
are controlled from our headquarters in San Francisco, California with the
ability to operate from remote facilities. We provide multiple web servers that
run the Microsoft Internet Information Server on the Microsoft Windows NT Server
operating system upon Compaq server hardware that we own, as well as hardware
that our distribution channels use. Currently, Internet access is maintained by
Intel Online Services and Frontier GlobalCenter.
Our network infrastructure is composed of Cisco Systems, Inc. products in
fully redundant configurations. Network connectivity is provided through
multiple routes through redundant providers from our headquarters in San
Francisco. The computer and networking equipment used to operate our properties
is configured with redundant network interfaces, disk configurations, and power
supplies. Both Intel Online Services and Frontier GlobalCenter provide generator
backup power for at least two weeks.
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 the
Intel Online Services facility or the Frontier GlobalCenter facility could
significantly interrupt our programming, 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 the disaster recovery plan
completely documented, we are working to finalize this documentation to reflect
the on-going alterations in our configuration.
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.
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."
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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 -- Risks Relating to Quokka -- Changes in regulation of the
Internet could limit our business prospects."
We are qualified to do business in eight 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, 2000, we had 379 employees, including 126 in production and
programming, 92 in engineering, software development and network operations, 107
in marketing, sales and e-commerce and 54 in administration. 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 except for Michael Gough, our Chief
Creative Officer and Executive Producer, and Alvaro Saralegui, our Chief
Operating Officer. 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.
RECENT DEVELOPMENTS
Acquisition of Total Sports Inc.
On July 20, 2000, Quokka signed a definitive agreement to acquire all the
outstanding common stock and stock rights of Total Sports Inc. through the
issuance of up to 15,000,000 shares of Quokka common stock. Total Sports is a
selling member of Golf.com and the current operator of the Golf.com web site.
Upon the closing of the merger of Total Sports with and into Quokka, the
approximately 1,375,168 shares of Quokka common stock to be issued to Total
Sports in accordance with the Golf.com purchase transaction will be retired as
treasury stock of Quokka.
Founded in 1997, Total Sports is an online sports media company engaged in
real-time sporting event coverage for mainstream sports. Total Sports owns and
operates the Total Sports Network that features TotalCast(TM) live-event
coverage of Major League Baseball, NCAA basketball and NCAA football as well as
every major college sports championship, including the College World Series. In
addition to live event coverage, the Total Sports Network offers proprietary
historical databases, data analysis and news for their fan communities. Last
year, Total Sports produced TotalCast(TM) live event coverage for over 4,600
games for these audiences, and according to company estimates, their network
attracted over 1.5 million unique visitors per month.
The closing of the transaction is dependent upon various conditions
contained in the definitive agreement, including the approval of the transaction
by Quokka's stockholders and Total Sports' stockholders. For additional
information please see Quokka's Current Report on Form 8-K filed on July 26,
2000 with the SEC.
PROPERTIES
Our principal administrative, marketing, production and research and
engineering facilities are located in approximately 40,000 square feet of office
space in San Francisco, California under a lease that expires in
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March 2006. We have options to renew this lease for two successive five-year
terms. We have entered into two additional office leases in San Francisco,
California covering an aggregate of approximately 120,000 square feet at two
additional sites to accommodate additional personnel. Approximately 88,000
square feet of this space is not expected to be available until the end of 2000.
We have additional office space of approximately 44,000 square feet in Seattle,
Washington under a lease that expires in December 2003. We have an option to
renew this lease for an additional five years. We also have small sales offices
located in Troy, Michigan; La Jolla, California; Schaumburg, Illinois; Bethesda,
Maryland and Norwalk, Connecticut 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 that serves as the center for our European
operations. We believe that our existing facilities are adequate to meet our
current and near-term needs.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings. We may from
time to time become a party to various legal proceedings arising in the ordinary
course of our business.
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MARKET PRICE AND DIVIDEND DATA
Quokka common stock is included in the National Association of Securities
Dealers Automated Quotations System ("Nasdaq") and designated on the Nasdaq
National Market under the symbol "QKKA." This table sets forth, for the periods
indicated, the range of high and low per share sales prices for Quokka common
stock as reported on the Nasdaq National Market. Quokka's fiscal year ends on
December 31.
<TABLE>
<CAPTION>
QUOKKA
COMMON STOCK
-----------------
LOW HIGH
------ -------
<S> <C> <C>
FISCAL YEAR 1999
Third quarter (July 27 to September 30, 1999)............... $6.000 $15.875
Fourth quarter.............................................. $6.750 $18.750
FISCAL YEAR 2000
First quarter............................................... $9.250 $18.000
Second quarter.............................................. $2.750 $10.688
Third quarter (through August 10, 2000)..................... $5.500 $ 9.594
</TABLE>
On June 7, 2000, the last full trading day prior to the public announcement
of the proposed acquisition, Quokka common stock sold for a high and low per
share sales price of $5.50 and $5.0625, respectively and closed at $5.1875. On
July 21, 2000, Quokka common stock closed at $8.8125. On August 10, 2000, Quokka
common stock closed at $6.6250.
As of July 21, 2000, there were 46,284,872 shares of common stock
outstanding held of record by 363 stockholders.
Quokka has never declared or paid cash dividends on its common stock. The
policy of Quokka is to retain earnings for use in its business.
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RISK FACTORS
RISKS RELATING TO QUOKKA
You should consider the following factors in evaluating whether to approve
the issuance of shares of Quokka common stock in the acquisition and the
principal terms of the acquisition. These factors should be considered in
conjunction with the other information included or incorporated by reference in
this proxy statement.
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, 2000, we had an accumulated
deficit of $88.1 million. Our net operating losses were $15.1 million for the
three months ended March 31, 2000, $56.9 million for the year ended 1999 and
$9.5 million for year ended December 31, 1998. Cash used in operating activities
was $14.2 million for the three months ended March 31, 2000, $48.3 million for
year ended December 31, 1999 and $10.9 million for year ended December 31, 1998.
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH WE 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;
- retain existing sponsors and advertisers;
- acquire rights on commercially feasible terms to cover additional
sporting events;
- acquire and integrate other media and technology companies;
- 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;
- 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.
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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, 2000 were $9.5 million compared to revenues of $897,000 for the
quarter ended March 31, 1999 and $6.7 million for the preceding quarter ended
December 31, 1999. These fluctuations depend on a number of factors described
below and elsewhere in this "Risk Factors" section of this report, many of which
are outside our control. We may be unable to predict our future revenues and
expenses accurately or adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. In particular, because digital entertainment
sponsorships have a lengthy sales cycle, it is difficult to predict when new
sponsorship agreements will be completed and, consequently, when revenue from
new agreements will first be recognized. 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 revenue, gross profit or
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, content syndication and
consumer revenue transactions we execute. We expect that our consumer 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 RAISE ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE ON FAVORABLE
TERMS AND COULD RESULT IN ADDITIONAL DILUTION.
In order to achieve our aggressive plans for growth and expansion, we
anticipate that we will need to raise additional capital by the end of the next
fiscal quarter. 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. 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.
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.
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 the first quarter of 2000, three sponsors accounted for 58% of
our revenues. In 1999, three sponsors accounted for 65% of our revenues. We
anticipate that our results of operations will continue to depend, to a
significant extent, upon revenues from a small number of digital entertainment
sponsors. The loss of one or more sponsors could negatively affect our business.
Although we seek to enter into multi-year agreements with sponsors, we cannot
guarantee that these sponsors will maintain their association with us. Certain
of our sponsors have the right to
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terminate our agreement with them if they are dissatisfied with our performance,
and certain digital entertainment sponsors have the right to terminate our
agreements after a specified period of time as set forth in the applicable
contract. The termination or renegotiation of any sponsorship agreement could
have a material adverse affect on our business and financial results. For
example, we recently agreed with Compaq Computer Corporation to terminate its
sponsorship agreement with us at the end of 2000. If we are unable to obtain
additional sponsors to replace the revenue forecasted for 2001 and 2002 under
the Compaq digital entertainment partnership agreement, our financial results
would be adversely affected.
A DISASTER OR MALFUNCTION THAT DISABLES OUR COMPUTER SYSTEMS COULD HARM OUR WEB
SITE 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
Intel Online Services, Inc. in Santa Clara, California and Frontier GlobalCenter
in Sunnyvale, California, where our web sites are hosted. Our Olympics web site
is hosted by IBM at their facilities located in Redwood City, California,
Bethesda, Maryland and Schaumburg, Illinois. 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 any of our hosting services facilities 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 have a formally documented disaster
recovery plan for major disasters.
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. For example, on some weekends during which we were covering multiple
motor sports events, our servers have suffered service disruptions.
Additionally, 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. Interruptions and
malfunctions related to the access to our web sites could materially damage our
relationships with our audience and rightsholders, and our business could
suffer.
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 the Quokka Sports
Network brand as well as the brands of individual sport verticals within our
network. We plan to continue to market each of these brands through extensive
traditional media campaigns employing advertising on television, printed
publications, outdoor signage and radio. We also plan to continue to conduct a
simultaneous online advertising campaign and to seek exposure through our
co-branded initiatives. During the three months ended March 31, 2000, we spent
$3.9 million for advertising and $7.7 million for the year ended December 31,
1999. We expect to significantly increase our advertising expenses in future
periods as we build the Quokka brands and awareness of our properties in our
network. We may lack the resources necessary to accomplish these initiatives.
Even if the resources are available, we cannot be certain that our multi-brand
enhancement strategy will deliver the brand recognition and favorable audience
perception that we seek for any of our brands. 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 brands, competitors with
greater resources or a more recognizable brand could reduce our market share of
the emerging digital sports entertainment market.
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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
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. Recently, we
amended our agreement with Dorna Promocion del Deporte, S.A. to expire at the
end of December 2000. If we are unable to conclude an agreement with Dorna to
extend our rights beyond 2000, the breadth of the programming on the Quokka
Sports Network may suffer.
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. For example, we acquired ZoneNetwork.com, Inc. in March 2000. 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.
Competitive forces could require us to acquire additional 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. In June 2000, we signed an agreement to
purchase a majority interest in Golf.com, L.L.C. and in July 2000, we signed an
agreement to acquire Total Sports Inc. Both companies' operations are based in
North Carolina. We may be unable to complete the Golf.com, L.L.C. and Total
Sports Inc. transactions if any of the conditions set forth in those agreements,
such as approval of both of the transactions by Quokka's stockholders and
approval of the Total Sports transaction by the Total Sports stockholders, are
not met. In addition, even if we complete both transactions, we may be unable to
efficiently integrate each of the companies into our operations or realize the
benefits that we had expected due to geographic separation or other unforeseen
factors.
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
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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 IBM, Intel Online Services and
Frontier GlobalCenter, each of which hosts some of our web sites. From time to
time, service of our servers at the Frontier GlobalCenter hosting facility has
been temporarily disabled or has malfunctioned, and access to our web sites was
limited or eliminated. Our history with the IBM and Intel Online Services
facilities is very short and we cannot be certain that similar problems will be
avoided at these other facilities.
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 consumer revenue 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. Also, our ability to
generate content syndication revenue depends on whether other media companies
value our content and are willing to pay for that content.
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 in the past required
significantly fewer resources and technical skills than the major sports
programming we are scheduled to produce, including the Olympic Games. Our
programming may not keep pace with technological developments, evolving industry
standards or competing programming alternatives. We have only recently begun to
develop multiple large-scale programming events simultaneously and may lack the
financial and technical resources to develop effectively 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.
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. 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 other sponsors and advertisers, 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.
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OUR SPONSORSHIP MODEL COULD PREVENT US FROM ACQUIRING CRITICAL TECHNOLOGY, WHICH
COULD AFFECT THE QUALITY OF OUR PROGRAMMING.
As a significant feature of some of our sponsorships we offer the exclusive
right to be the sole sponsor of a sponsorship category, such as computing,
database software, web site hosting, 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 particular
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;
- 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 sports events, particularly 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, expeditions to Mount
Everest 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 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;
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- 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 379 employees
at March 31, 2000, compared to 284 employees at December 31, 1999 and 118
employees at December 31, 1998. 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.
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.
DELAYS IN THE ACCESSIBILITY OR GROWTH OF DIGITAL MEDIA NETWORKS 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 digital
media networks, including the Internet and broadband networks. 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 digital media 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, hacker attacks and
other delays as a result of damage to portions of its infrastructure, and it
could face outages and delays in the future. 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
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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.
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.espn.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 Cnet
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 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.
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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;
- 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.
SALES OF OUR SHARES 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 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.
Stockholders beneficially owing in the aggregate approximately 23.3 million
shares of our common stock have entered into voting agreements in connection
with our purchase agreement with the selling members of Golf.com to vote in
favor of that transaction at our special stockholders meeting to approve that
purchase transaction. Under the terms of those voting agreements, those Quokka
stockholders have agreed not to sell or otherwise transfer their shares of
Quokka stock unless that purchase agreement is terminated or unless the selling
members of Golf.com agree to release those stockholders from the obligations of
the Golf.com voting agreements. In addition, stockholders beneficially owing in
the aggregate approximately 26.7 million shares of our common stock have entered
into voting agreements and proxies in connection with our merger agreement with
Total Sports to vote in favor of our pending merger with Total Sports at our
special stockholders meeting to approve that merger transaction. Under the terms
of their voting agreements with Total Sports, those Quokka stockholders have
agreed not to sell or otherwise transfer their shares of Quokka stock unless
that merger agreement is terminated or unless Total Sports agrees to release
those stockholders from the obligations of the Total Sports voting agreements
and proxies. Any shares subject to these voting agreements may be released at
any time by the selling members of Golf.com or Total Sports, as applicable, with
or without notice. Upon the closing of our pending Golf.com purchase transaction
and our pending merger with Total Sports, or the earlier termination of the
voting agreements, the stock held by those stockholders will be released from
those contractual obligations restricting transfer and sale.
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 some of 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.
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WE HAVE LIMITED EXPERIENCE GENERATING CONSUMER REVENUES FROM THE SALE OF
PRODUCTS AND SERVICES, AND WE MAY NOT BE ABLE TO DO SO IF WE ARE UNABLE TO
DEVELOP AND IMPLEMENT A SUCCESSFUL 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 only recently begun
generating revenues from the sale of products and services. If we are unable to
develop and implement a successful 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
consumer revenues.
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 consumers that fall short of the cost
of our 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.
We recently decided to enter into a relationship with a service provider
for the back-end infrastructure, inventory and customer care processes for a
portion of our electronic commerce business. We have no experience managing this
type of relationship and may be unable to realize the anticipated cost savings
and increased consumer revenues. After becoming familiar with our service
provider, individuals may decide to purchase products directly from them and we
may lose consumer revenues. We may experience lower viewing time on our web
sites if viewers are diverted from our web sites to our service provider's web
site, which could impact our revenue from sponsorships.
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
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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.
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.
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.
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CHANGES IN REGULATION OF THE INTERNET COULD LIMIT OUR BUSINESS PROSPECTS. OUR
INTERNET ACTIVITIES MAY BECOME SUBJECT TO ADDITIONAL TAXES, WHICH COULD
NEGATIVELY AFFECT OUR RESULTS OF OPERATIONS.
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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF QUOKKA
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included elsewhere in
this proxy statement. This discussion contains certain forward-looking
statements that involve risks and uncertainties. Our actual results and the
timing of certain events could differ materially from those discussed in these
forward-looking statements as a result of certain factors, including, but not
limited to, those set forth herein and elsewhere in this statement.
OVERVIEW
Quokka Sports is a leading provider of sports entertainment for the digital
world.
We use the power of emerging digital media to bring sports enthusiasts
closer to their favorite sports. We leverage our digital technology to offer
live event coverage, race viewers, news and information, audio and text
dispatches from athletes, games, community forums and content created by fans,
as well as opportunities for the fan to purchase premium content, products and
services in order to provide our audience a complete sports experience. The
Quokka Sports Network is designed to appeal to a global audience. We currently
cover motor racing, sailing, action sports like skiing, climbing, hiking,
snowboarding, adventure racing and mountain biking, and key Olympic summer
sports, such as track and field, swimming and gymnastics. The Quokka Sports
Network also includes coverage of some of the world's largest sporting events
like the biennial Olympic Games, FedEx Championship Auto Racing (CART) Series
and the MotoGrandPrix championship as a result of our relationships with our
strategic partners like NBC Olympics, Inc., CART and Dorna Promocion del
Deporte, S.A.
We generate revenue from three sets of customers: from business customers
through sales of sponsorships and advertising; from media companies through
revenue from content syndication; and from consumers through sales of premium
content, sports memorabilia, officially-licensed merchandise and other products
and services. We currently derive the majority of our revenues from the sale of
sponsorship and advertising packages to corporations. In the past, we have
accepted property and services that we use in our business 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 proportion of property and services accepted for payment in
future periods, although we may not be successful in this regard.
Several of our contracts are multi-year, multi-event and multi-benefit
sponsorships. These broader, long-term 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. In
addition, we sell shorter-term, more narrowly focused sponsorships and
advertising packages, depending upon the needs and demands of our corporate
customers. Our sponsorship agreements provide for periodic sponsorship fees that
we 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 receivable is probable. Because some of our sponsorship
revenues 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 a small number of live programs at any
time, revenues from sponsorships, advertising and consumer revenues 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 and retain sponsors and advertisers, 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, our ability to develop and produce sports programming that will attract
a global audience, our ability to acquire and integrate other companies, our
ability to select and offer
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the right merchandise and services for our audience to buy, and our ability to
obtain or create content that is valuable to other media companies.
We also generate revenues by providing studio services that could lead to
digital sports entertainment programming and long-term sponsorship
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 and ultimately we may chose to discontinue offering these
services.
We have incurred significant net losses and negative cash flows from
operations, and as of March 31, 2000, we had an accumulated deficit of $88.1
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 the Quokka Sports
Network, we expect to incur significant operating losses for the foreseeable
future. We may never achieve significant revenues or profitability; or if we
achieve significant revenues, they may not be sustained.
As of December 31, 1999 we had 284 employees compared to 118 at December
31, 1998. As of March 31, 2000 we had 379 employees compared to 186 at March 31,
1999.
RECENT EVENTS
On July 20, 2000 we entered into a definitive agreement to acquire all of
the stock and stock rights of Total Sports Inc. in exchange for up to 15,000,000
shares of Quokka common stock. For a more detailed discussion of this recent
event, please refer to the discussion in "Information About Quokka -- Business
of Quokka -- Recent Developments."
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Revenues
Our revenues increased $8.6 million to $9.5 million for the March 2000
quarter from $897,000 for the March 1999 quarter. During the March 2000 quarter,
we recognized revenues from our digital entertainment sponsorship agreements,
other sponsorship and advertising, content distribution, consumer revenue and
other sources. Revenues for the March 1999 quarter were derived primarily from
sponsorship revenues associated with the Around Alone Race and studio services.
Production Costs
Production costs increased $5.2 million to $7.5 million for the March 2000
quarter from $2.3 million for the March 1999 quarter. Production costs include
costs of personnel and consultants, software, travel, satellite transmission
costs, field gear, marketing and an allocation of general and administrative
expenses. The increase in production costs from 1999 to 2000 is due to increased
sports programming including our sports coverage of the CART FedEx Championship
Series, the FIM Racing World Championship Grand Prix motorcycle races, the 2000
America's Cup and Challenger Series yacht races, the BT Global Challenge and the
2000 North American International Auto Show. Production costs in March 1999 were
associated with coverage of the Around Alone race, our sole event during the
period.
Amortization of Acquired Programming and Distribution Rights
Acquired programming rights to sporting events and acquired distribution
rights are amortized over their respective license periods on a straight-line
basis. Amortization of acquired programming and distribution rights increased
$1.4 million to $1.8 million for the March 2000 quarter from $425,000 for the
March 1999 quarter. This amortization pertains to licensing fees paid for the
acquisition of programming rights related to our joint venture with NBC
Olympics, Inc. for U.S. digital coverage of the Olympic Games and for the
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exclusive worldwide interactive media rights to FIM Road Racing World
Championship Grand Prix and for the America's Cup 2000 Yacht Race. Acquired
distribution rights represents licensing fees paid for the rights to distribute
our programming on Excite@Home and Terra Networks, S.A.
Gross Profit/Loss
Based upon the foregoing information, we had positive gross margin of
$172,000 for the March 2000 quarter compared to a negative gross margin of $1.8
million for the March 1999 quarter.
Research and Engineering
Research and engineering expenses increased $2.7 million to $4.8 million
for the March 2000 quarter from $2.1 million for the March 1999 quarter. The
increase represents the cost of additional personnel, costs associated with
network operations, expenses incurred to improve and develop our Quokka Sports
Platform and broadband applications and hosting costs related to our expanded
events.
Sales and Marketing
Sales and marketing expenses increased $5.4 million to $6.8 million for the
March 2000 quarter from $1.4 million for the March 1999 quarter. Sales and
marketing expenses include personnel costs, consultants, partnership marketing
and advertising. This increase is attributable to partnership marketing and
off-line advertising, which is designed to create brand recognition and drive
Internet traffic to www.quokka.com and the other properties on the Quokka Sports
Network. Expenses also increased as a result of increases in the number of sales
and marketing personnel.
General and Administrative
General and administrative expenses increased $1.5 million to $3.3 million
for the March 2000 quarter from $1.8 million for the March 1999 quarter. General
and administrative expenses include personnel associated with general
management, business and legal affairs, finance and accounting, facilities, and
human resources. The increase is attributable to increased personnel and related
facilities and other third-party expenses associated with building our
operational infrastructure.
Depreciation
Depreciation expenses increased $1.0 million to $1.4 million for the March
2000 quarter from $430,000 for the March 1999 quarter. 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 is primarily due to purchases of
additional equipment and amortization of leasehold improvements in our expanded
facilities.
Losses of Associated Venture
In December 1999, we dissolved our joint venture with Forsythe Racing, Inc.
Accordingly, we did not record any losses related to the associated venture for
the March 2000 quarter. Prior to December 1999, we had accounted for our 50%
interest in this joint venture under the equity method of accounting. For the
March 1999 quarter losses of associated venture were $452,000.
Minority Interest in Net Loss of Consolidated Subsidiary
During the March 1999 quarter, we formed NBC/Quokka Ventures, LLC, a joint
venture with NBC Olympics, Inc. to provide interactive digital coverage of the
Olympic Games and related pre-games events. In connection with this venture, NBC
has contributed, among other things, certain programming and content in exchange
for a 49% minority interest. The fair market value of this content is being
amortized over the initial term of the venture agreement from inception in
February 1999 through October 2004 on a straight-line basis
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<PAGE> 69
and is included in our amortization of acquired programming rights expense. For
the March 2000 quarter, minority interest expense of $645,000 represents the
minority interest's share of net losses for the period.
Interest Income/(Expense)
Interest income, net of interest expense, increased $242,000 to $411,000
for the March 2000 quarter from $169,000 for the comparable March 1999 quarter.
Interest income recorded during these periods includes interest income earned on
cash and cash equivalents and investment in marketable securities. Interest
expense incurred during these periods related to our financing obligations for
various equipment purchases.
Net Loss
Based upon the foregoing information, we had a net loss of $15.1 million
for the March 2000 quarter compared to a net loss of $7.9 million for the March
1999 quarter.
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Revenues
Revenues increased to $13.1 million in 1999 from $8.6 million in 1998 and
$4.0 million in 1997. In 1999, we recognized revenues for the first time from
our multi-year, multi-event and multi-benefit digital entertainment
sponsorships, other sponsorships and advertising, content distribution, consumer
revenues and other. Revenues increased from 1998 to 1999 primarily as a result
of sponsorship sales totaling $11.7 million during 1999 as compared to
sponsorship sales of $7.0 million in 1998. The increase in revenues from 1998 to
1997 is primarily attributable to a $4.3 million increase in sponsorship
revenues.
Production Costs
Production costs increased to $20.1 million in 1999 from $7.8 million in
1998 and $5.1 million in 1997. Production costs include costs of personnel and
consultants, software, travel, satellite transmission costs, field gear, event
marketing and an allocation of general and administrative expenses. The $12.3
million increase in production costs from 1998 to 1999 is due to increased
programming of our sports coverage of CART FedEx Championship Series and the FIM
Racing World Championship Grand Prix motorcycle races, America's Cup and
Challenger Series yacht races, BT Global Challenge, the World Track and Field
Championships in Seville, Spain, the U.S. Gymnastics Championships in
Sacramento, California and the 2000 North American International Auto Show. Also
included in 1999 production costs are costs associated with producing
www.quokka.com, which was launched in March 1999. The $2.7 million increase from
1997 to 1998 is attributable to an increase in the number of programming events
from September 1997 when we launched our first digital sports entertainment
program, the Whitbread Race.
Amortization of Acquiring Programming and Distribution Rights
Acquired programming rights to sporting events and acquired distribution
rights are amortized over their respective license periods on a straight-line
basis. Total amortization of acquired programming and distribution rights were
$3.4 million for 1999. No such amortization costs were incurred during the
comparable 1998 or 1997 periods. Amortization pertains to licensing fees paid
for the acquisition of programming rights related to our joint venture with NBC
Olympics, Inc. for U.S. digital coverage of the Olympic Games and the exclusive
worldwide interactive media rights to FIM Road Racing World Championship Grand
Prix and for the America's Cup 2000 Yacht Race. Acquired distribution rights
represent licensing fees paid for the rights to distribute our programming on
Excite@Home and Terra Networks.
Research and Engineering
Research and engineering expenses increased to $13.1 million in 1999 from
$4.5 million in 1998 and $1.0 million in 1997. The increases represents the
costs of additional personnel, costs associated with network operations and
expenses incurred to improve and develop our Quokka Sports Platform and
broadband
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<PAGE> 70
applications. Included in research and engineering expensed during 1999 is $1.2
million in non-cash compensation expenses related to the issuance of 153,846
warrants to purchase common stock that were issued in connection with certain
broadband research initiatives. Research and engineering costs are expensed as
incurred.
Sales and Marketing
Sales and marketing expenses increased to $19.5 million in 1999 from $2.5
million in 1998 and $816,000 in 1997. Sales and marketing expenses include
personnel costs, consultants, sales sponsorships and advertising. During 1999,
we spent $7.7 million for advertising related to our marketing campaign, which
was designed to create brand recognition and drive Internet traffic to
www.quokka.com. Expenses also increased as a result of increases in the number
of sales and marketing personnel. During 1998, we spent $554,000 for advertising
and $320,000 in 1997. We may significantly increase our advertising expenses in
future periods as we build the Quokka brand and awareness of our programming.
General and Administrative
General and administrative expenses increased to $11.1 million in 1999 from
$3.2 million in 1998 and $1.8 million in 1997. General and administrative
expenses include personnel associated with general management, business and
legal affairs, finance and accounting, facilities and human resources. The
increase in general and administrative expenses is attributable to increased
personnel and related facilities and other third-party expenses associated with
building our operational infrastructure.
Depreciation and Amortization
Depreciation and amortization expenses increased to $4.2 million in 1999
from $530,000 in 1998 and $68,000 in 1997. 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 is primarily due to increased purchases of equipment and amortization
of leasehold improvements in our expanded facilities.
Losses of Associated Venture
We incurred net losses of $2.2 million in CART Digital Media Enterprises,
LLC, our joint venture with Forsythe Racing, Inc. for the year ended December
31, 1999. We have accounted for our 50% interest in this joint venture under the
equity method of accounting since the inception of the venture in January 1999.
Expenses incurred during the period related primarily to production expenses for
CART programming. In December 1999, we dissolved our joint venture with
Forsythe. As a result, we own 100% of CDME.
Minority Interest in Net Loss of Consolidated Subsidiary
During the March 1999 quarter, we formed NBC/Quokka Ventures, LLC, a joint
venture with NBC Olympics, Inc. to provide interactive digital coverage of the
Olympic Games and related pre-games events. In connection with this venture, NBC
has contributed, among other things, certain programming and content in exchange
for a 49% minority interest. The fair market value of this content is being
amortized over the initial term of the venture agreement from inception in
February 1999 through October 2004 on a straight-line basis. For 1999, minority
interest expense of $1.9 million represents the minority interest's share of net
losses for the period.
Interest Income and Expense, Net
Net interest income was $1.7 million in 1999 and $320,000 in 1998. Net
interest expense was $71,000 in 1997. The increase from 1999 to 1998 was
primarily due to a higher investment balance throughout 1999 due to the issuance
of preferred stock and our initial public offering. Interest income in 1999 was
partially offset by
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<PAGE> 71
increased interest expense due to borrowings under a line of credit. Interest
income recorded during these periods includes interest income earned on cash and
cash equivalents.
Net Losses
Based upon the foregoing information, we had net losses of $56.9 million
for the year ended December 31, 1999, $9.6 million for the year ended December
31, 1998 and $4.9 million for the year ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since August 1996, we have financed our operations primarily through sales
of our equity securities. On August 2, 1999, Quokka completed its initial public
offering of common stock. Net proceeds to Quokka from that offering were
approximately $54.5 million, net of underwriters' discounts and offering
expenses. Total net proceeds from sales of our equity securities since August
1996 were $161.5 million through March 31, 2000.
At March 31, 2000, we had $52.2 million in cash and cash equivalents and
marketable securities. Restricted cash associated with three office leases and
the employee stock purchase plan and certain cash funding requirements under the
NBC/Quokka Ventures, LLC operating agreement aggregated $17.9 million at March
31, 2000. Net cash used in operating activities was $14.2 million for the three
months ended March 31, 2000, $48.3 million and $10.9 million for the years ended
December 31, 1999 and 1998, respectively and $6.4 million for the three months
ended March 31, 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 and options to attract key vendors
and business partners. Non-cash charges related to the issuance of these
warrants and options were $500,000 for the three months ended March 31, 2000,
$4.2 million and $530,000 for the years ended December 31, 1999 and 1998,
respectively and $569,000 for the three months ended March 31, 1999. Non-cash
charges relating to depreciation expense were $1.4 million for the three months
ended March 31, 2000 and $430,000 for the three months ended March 31, 1999.
Non-cash charges related to the amortization of programming and distribution
rights were $1.8 million for the three months ended March 31, 2000 and no
comparable charge for the three months ended March 31, 1999.
Net cash provided by investing activities was $16.1 million for the three
months ended March 31, 2000 resulting primarily from net sales of marketable
securities offset by purchases of additional equipment and leasehold
improvements in our expanded facilities. Net cash used in investing activities
was $74.2 million and $2.7 million for the years ended December 31, 1999 and
1998, respectively and $2.6 million for the three months ended March 31, 1999
resulting primarily from purchases of additional equipment and leasehold
improvements in our expanded facilities.
Net cash used in financing activities was $237,000 for the three months
ended March 31, 2000 resulting primarily from payments on long-term financing
arrangements offset by proceeds from the issuance of common stock. Net cash
provided by financing activities was $102.4 million and $33.6 million for the
years ended December 31, 1999 and 1998, respectively and $279,000 for the three
months ended March 31, 1999 resulting primarily from net proceeds from long term
financing arrangements and the issuance of preferred and common stock.
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<PAGE> 72
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of July 21, 2000 by: (i) each director and
nominee for director; (ii) each of the executive officers of the Company; (iii)
all executive officers and directors of the Company as a group; and (iv) all
those known by the Company to be beneficial owners of more than five percent of
its Common Stock. Unless otherwise indicated, the address is Quokka Sports,
Inc., 525 Brannan Street, San Francisco, CA 94107.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
---------------- ---------- ----------
<S> <C> <C>
Entities associated with Media Technology Ventures(2)....... 4,895,932 10.6%
One First Street, Suite 2
Los Altos, CA 94022
Intel Corporation........................................... 4,184,093 9.0%
2200 Mission College Blvd.
Santa Clara, CA 95052
MediaOne Interactive Services, Inc.(3)...................... 4,051,283 8.7%
9000 E. Nichols Avenue, Suite 100
Englewood, CO 80112
Entities associated with Accel VI LP(4)..................... 3,505,029 7.6%
428 University Avenue
Palo Alto, CA 94301
Entities associated with Trinity Ventures(5)................ 2,920,033 6.3%
3000 Sand Hill Road, Building 1, Suite 240
Menlo Park, CA 94025
Alan S. Ramadan(6).......................................... 2,370,572 5.1%
Richard H. Williams(7)...................................... 2,965,623 6.4%
P.O. Box 4281
Incline Village, NV 89450
John Bertrand(8)............................................ 2,267,704 4.9%
c/o Quokka Sports
133 Long Acre
London, England WC2E98D
Walter W. Bregman (9)....................................... 411,140 *
James G. Shennan, Jr.(10)................................... 2,988,515 6.4%
c/o Trinity Ventures V L.P.
Barry M. Weinman(11)........................................ 4,952,432 10.7%
c/o Media Technology Ventures
Les Schmidt(12)............................................. 738,923 1.6%
Alvaro Saralegui(13)........................................ 1,025,000 2.2%
Mark J. Ellis(14)........................................... 300,000 *
Michael W. Gough(15)........................................ 323,125 *
All directors and executive officers as a group (10
persons)(16).............................................. 18,343,034 37.3%
</TABLE>
---------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
46,284,872 shares outstanding on July 21, 2000, adjusted as required by
rules promulgated by the SEC.
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<PAGE> 73
(2) Includes 3,654,794 shares held by Media Technology Ventures, LP, 696,290
shares held by Media Technology Equity Partners, LP, 471,907 shares held by
Media Technology Ventures Entrepreneurs Fund, LP, 48,464 shares held by
Media Technology Entrepreneurs Fund II, LP and 24,477 shares held by
Thomson Management Growth 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 2,839,875 shares held by Accel VI LP, 362,834 shares held by Accel
Internet Fund II LP, 240,726 shares held by Accel Investors '98 LP, 45,354
shares held by Accel Keiretsu VI LP and 16,240 shares owned by Accel
Investors '99 LP (collectively, the "Accel Funds").
(5) Includes 2,759,534 shares held by Trinity Ventures V, LP and 160,499 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 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 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. Includes 300,000 shares underlying currently exercisable stock
options. If exercised in full within 60 days of the date of this table,
210,001 of the shares subject to the options would be subject to a
repurchase right in favor of Quokka.
(7) Includes 200,000 shares underlying currently exercisable stock options. If
exercised in full within 60 days of the date of this table, 105,002 of the
shares subject to the option would be subject to a repurchase right in
favor of Quokka.
(8) Includes 150,000 shares underlying currently exercisable stock options. If
exercised in full within 60 days of the date of this table, 105,001 of the
shares subject to the option would be subject to a repurchase right in
favor of Quokka. Includes an aggregate of 15,000 shares owned by Mr.
Bertrand's three children.
(9) Includes 348,208 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 an
aggregate of 1,500 shares owned by Mr. Bregman's two children. Includes
62,932 shares underlying currently exercisable stock options.
(10) Includes 2,759,534 shares held by Trinity Ventures V, LP and 160,499 shares
held by Trinity V, Side-by-Side Fund, LP. See footnote (5) above regarding
Mr. Shennan's indirect pecuniary interest in these shares. Includes 50,000
shares underlying currently exercisable stock options.
(11) Includes 4,895,932 shares held by MT Funds. See footnote (2) above
regarding Mr. Weinman's indirect pecuniary interest in these shares.
Includes 50,000 shares underlying currently exercisable stock options.
(12) Includes 299,423 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 439,500 shares underlying currently exercisable stock
options. If exercised in full within 60 days of the date of this table,
288,333 shares would be subject to a right of repurchase in favor
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<PAGE> 74
of Quokka. Includes an aggregate of 18,000 shares owned in trust for the
benefit of Mr. Schmidt's three children.
(13) Includes 1,001,472 shares underlying currently exercisable stock options.
If exercised in full within 60 days of the date of this table, 741,568
shares would be subject to right of repurchase in favor of Quokka.
(14) Includes 300,000 shares underlying currently exercisable stock options. If
exercised in full within 60 days of the date of this table, 260,000 shares
would be subject to right of repurchase in favor of Quokka.
(15) Includes 323,125 shares underlying currently exercisable stock options. If
exercised in full within 60 days of the date of this table, 208,000 shares
would be subject to right of repurchase in favor of Quokka.
(16) See footnotes (1) through (15) above, as applicable. Roel Pieper resigned
from Quokka's board of directors effective July 1, 2000. Accordingly Mr.
Pieper's information is not included in this table.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires Quokka's directors and executive officers, and persons who own more
than ten percent of a registered class of Quokka's equity securities, to file
with the SEC initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of Quokka. Officers, directors and
greater than ten percent stockholders are required by SEC regulation to furnish
Quokka with copies of all Section 16(a) forms they file.
To Quokka's knowledge, based solely on a review of the copies of such
reports furnished to Quokka and written representations that no other reports
were required, during the fiscal year ended December 31, 1999, all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with, except that one report covering
one transaction was filed late by our ten percent stockholder, Media Technology
Ventures.
During fiscal 1999, Mr. Bertrand timely reported all transactions but
reported an incorrect number of shares owned due to a clerical error. This error
was corrected on a Form 4 report and by amending a previous Form 4 report.
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DESCRIPTION OF QUOKKA CAPITAL STOCK
As of July 21, 2000, there were 46,284,872 shares of Quokka common stock
outstanding held of record by 363 stockholders and no shares of Quokka preferred
stock outstanding. The holders of Quokka common stock are entitled to one vote
for each share held of record on all matters submitted to a vote of the
stockholders. The 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. Subject to preferences that may apply to any then-outstanding preferred
stock, holders of common stock are entitled to receive ratably such dividends as
may be declared by the board of directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of Quokka,
holders of the common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then-outstanding preferred stock. Holders of common stock have no preemptive
rights and no right to convert their common stock into any other securities. No
redemption or sinking fund provisions apply to the common stock. All outstanding
shares of common stock are fully paid and nonassessable. The rights, preferences
and privileges of holders of Quokka common stock are subject to those of holders
of Quokka preferred stock.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio. We maintain an investment policy that is intended
to ensure the safety and preservation of our invested funds by limiting default
risk, market risk and reinvestment risk. We do not currently use, nor has we
historically used, derivative financial instruments to manage or reduce market
risk. We mitigate default risk by investing in high credit quality securities
such as debt instruments of the United States government and its agencies and
high quality corporate issuers, as well as money market funds. The portfolio
includes only marketable securities with active secondary or resale markets to
ensure portfolio liquidity and maintains a prudent amount of diversification. As
of March 31, 2000, we had $5.5 million of cash and $46.7 million of cash
equivalents and marketable securities.
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<PAGE> 76
PROPOSAL 2 -- AMENDMENT OF QUOKKA'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
Our board of directors has previously approved and is presently proposing
for stockholder approval an increase in our authorized number of shares of our
common stock to 200,000,000 shares. The additional common stock to be authorized
by approval of the amendment would have rights identical to the currently
outstanding Quokka common stock. Quokka's authorized capital stock currently
consists of 110,000,000 shares of common stock and 10,000,000 shares of
preferred stock. As of July 21, 2000, 46,284,872 shares of common stock and no
shares of preferred stock are issued and outstanding, and 13,630,213 shares of
common stock are reserved for issuance upon the conversion of outstanding
options and warrants. If the Golf.com acquisition is approved, an additional
3,890,150 shares of common stock will be issued in accordance with that
transaction. If the amendment is approved, it will become effective upon filing
of a Certificate of Amendment of Quokka's Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware.
Our board of directors believes that the proposed amendment to our Amended
and Restated Certificate of Incorporation is necessary to provide Quokka with
shares for issuance at the discretion of our board of directors for future
acquisitions, stock splits, stock dividends, equity financings, employee benefit
plans, and other corporate purposes. Our board believes that it is desirable to
have our authorized capital sufficiently flexible so that future business needs
and corporate opportunities may be dealt with by our board of directors without
any undue delay or the necessity of holding another special meeting of our
stockholders.
The additional shares of common stock that would become available for
issuance if the proposal were adopted could also be used by Quokka to oppose a
hostile takeover attempt or delay or prevent changes in control or management of
Quokka. For example, without further stockholder approval, the Board could
strategically sell shares of common stock in a private transaction to purchasers
who would oppose a takeover or favor the current board of directors. Although
this proposal to increase the authorized common stock has been prompted by
business and financial considerations and not by the threat of any hostile
takeover attempt (nor is the board of directors currently aware of any such
attempts directed at Quokka), nevertheless, stockholders should be aware that
approval of proposal could facilitate future efforts by Quokka to deter or
prevent changes in control of the company, including transactions in which the
stockholders might otherwise receive a premium for their shares over
then-current market prices.
The proposed increase in authorized common stock could result in the
dilution of the ownership interests of existing stockholders.
The affirmative vote of a majority of the shares of common stock
outstanding will be required to increase the number of authorized common stock
to 200,000,000 shares. Unless otherwise indicated, properly executed proxies
will be voted in favor of Proposal 2 in increase the authorized number of shares
of our common stock to 200,000,000 shares.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
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<PAGE> 77
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
OR ACCOUNTING AND FINANCIAL DISCLOSURE
None.
REPRESENTATIVES OF INDEPENDENT PUBLIC ACCOUNTANTS
It is expected that representatives of PricewaterhouseCoopers LLP, Quokka's
independent public accountants, will be present at the Special Meeting where
they will have an opportunity to respond to appropriate questions of
stockholders and to make a statement if they so desire.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Special Meeting of Stockholders. If any other matters are
properly brought before the meeting, it is the intention of the persons named in
the accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
LES SCHMIDT
Secretary
August , 2000
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, QUOKKA SPORTS,
INC., 525 BRANNAN STREET, GROUND FLOOR, SAN FRANCISCO, CA 94107.
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<PAGE> 78
QUOKKA SPORTS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<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> 79
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Quokka Sports, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Quokka Sports, Inc. and its subsidiaries, at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, 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.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered significant
operating losses, has accumulated deficit of $112.7 million and a working
capital deficiency which raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
San Francisco, California
January 19, 2000, except for note 14, which is as of March 1, 2000
F-2
<PAGE> 80
QUOKKA SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1998 1999 2000
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................ $ 23,994 $ 3,855 $ 5,472
Restricted cash.......................................... -- 3,200 17,885
Investments in marketable securities..................... -- 61,702 28,812
Accounts receivable, net................................. 1,151 6,067 8,627
Inventory, net........................................... -- -- 817
Acquired programming and distribution rights............. -- 12,042 11,141
Prepaid and other expenses............................... 331 1,823 3,848
-------- -------- --------
Total current assets............................. 25,476 88,690 76,603
Property and equipment, net................................ 2,736 10,551 14,073
Other assets............................................... -- 640 255
Goodwill................................................... -- -- 34,150
-------- -------- --------
Total assets..................................... $ 28,212 $ 99,880 $125,081
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable......................................... 289 2,427 10,069
Accrued expenses......................................... 1,199 3,797 8,884
Current portion of long-term debt and capitalized lease
obligations........................................... 290 6,041 10,245
Deferred revenues........................................ 480 3,864 4,285
-------- -------- --------
Total current liabilities........................ 2,258 16,129 33,483
-------- -------- --------
Long term debt and capitalized lease obligations, net of
current portion.......................................... 501 11,493 10,461
Stockholders' equity
Preferred stock, $0.0001 par value; authorized: 26,700,000
at December 31, 1999; issued and outstanding: none at
December 31, 1999; authorized: 26,700,000 at December 31,
1998; issued and outstanding: 23,736,016 at December 31,
1998..................................................... 2 -- --
Common stock, voting, $0.0001 par value; authorized
120,000,000 at December 31, 1999 and 45,400,000 at
December 31, 1998; issued and outstanding: 44,041,376 at
December 31, 1999 and 9,400,365 at December 31, 1998 and
non-voting, $0.0001 par value; authorized: 300,000 at
December 31, 1999 and 1998; issued and outstanding:
300,000 at December 31, 1999 and 1998.................... 1 4 4
Additional paid-in capital................................. 41,019 137,460 161,481
Warrants and other......................................... 477 7,831 7,831
Treasury stock, at cost 23,244 shares at December 31, 1999
and none at December 31, 1998............................ -- (107) (107)
Accumulated deficit........................................ (16,046) (72,930) (88,074)
-------- -------- --------
Total stockholders' equity....................... 25,453 72,258 81,136
-------- -------- --------
Total liabilities and stockholders' equity....... $ 28,212 $ 99,880 $125,081
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 81
QUOKKA SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------------- -------------------------
1997 1998 1999 1999 2000
------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $ 4,000 $ 8,635 $ 13,070 $ 897 $ 9,510
Cost of revenues
Production and other costs................. 5,130 7,780 20,070 2,293 7,515
Amortization of programming and
distribution rights..................... -- -- 3,441 425 1,822
------- ------- -------- ------- --------
Total cost of revenues............. 5,130 7,780 23,511 2,718 9,337
------- ------- -------- ------- --------
Gross profit/(loss).............. (1,130) 855 (10,441) (1,821) 172
Operating expenses
Research and engineering................... 1,030 4,480 13,094 2,132 4,792
Sales and marketing........................ 816 2,519 19,525 1,390 6,830
General and administrative................. 1,827 3,184 11,069 1,792 3,332
Depreciation............................... 68 530 4,217 430 1,417
------- ------- -------- ------- --------
Total operating expenses........... 3,741 10,713 47,905 5,744 16,372
------- ------- -------- ------- --------
Loss from operations............. (4,871) (9,858) (58,346) (7,564) (16,199)
Losses of associated venture................. -- -- 2,176 452 --
Minority interest in net loss of consolidated
subsidiary................................. -- -- (1,936) -- (645)
Interest income/(expense), net............... (71) 320 1,702 169 411
------- ------- -------- ------- --------
Net loss......................... $(4,942) $(9,538) $(56,884) $(7,848) $(15,143)
======= ======= ======== ======= ========
Net loss per share:
Basic and diluted.......................... $ (.73) $ (.99) $ (1.45) $ (.80) $ (.34)
Weighted average shares
outstanding -- basic and diluted........ 6,792 9,656 39,366 9,756 44,201
======= ======= ======== ======= ========
Pro forma net loss per share:
Basic and diluted.......................... $ (.40) $ (.23)
Weighted average shares
outstanding -- basic and diluted........ 23,916 34,001
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 82
QUOKKA SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
--------------- ------------------- ------------------ ------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------ ------ ---------- ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997................................ -- $-- -- $ -- -- $ -- --
Issuance of common stock to founder for cash net of
issuance costs......................................... -- -- -- -- -- -- --
Issuance of common stock to founder for cash net of
issuance costs of $31,401..............................
Issuance of common stock for cash at $.50 per share of
issuance costs of $17,591..............................
Issuance of warrants in connection with promissory
notes..................................................
Issuance of Series A Preferred Stock for cash of $0.68
per share, net of issuance costs of $18,141............ 7,721 1
Net loss................................................
------ --- ---------- ------ --------- ---- ------
Balance, December 31, 1997.............................. 7,721 1 -- -- -- -- --
Issuance of Series B Preferred Stock for cash of $1.50
per share, net of issuance costs of $75,543............ 10,737 1
Issuance of warrants....................................
Issuance of options for services rendered...............
Issuance of options for services rendered...............
Exercise of voting common stock options to employees for
cash of $0.50 per share................................
Issuance of Series C Preferred stock for cash of $3.25
per share, net of issuance costs of $36,031............ 4,939 0
Issuance of warrants under joint development
agreement..............................................
Exercise of warrants.................................... 146 0 170 0 24 0
Cumulative Translation Adjustment.......................
Net Loss................................................
------ --- ---------- ------ --------- ---- ------
Balance as of December 31, 1998......................... 7,866 1 10,906,869 1,091 4,962,998 496 --
Exercise of voting common stock options to employees for
cash of $0.50 per share................................
Exercise of voting common stock warrants at $.50 per
share..................................................
Purchase of Treasury Stock..............................
Issuance of common stock for services rendered..........
Issuance of warrants for Subordinated-Debt agreement....
Issuance of warrants for CART Rights agreement..........
Issuance of warrants for Media One Broadband
agreement..............................................
Issuance of warrants for Excite agreement...............
Issuance of warrants for NBC JV agreement...............
Issuance of options for services rendered...............
Issuance of Series D Preferred Shares at $9.00 per share
less issuance cost accrual of $790,344................. 4,520
Exercise of warrants.................................... 100 0 148 0 48 0
Initial Public Offering net of issuance costs of
$5,560,611.............................................
Conversion of Preferred Stock to Common Stock........... (7,966) (1) (11,055) (1) (5,011) (1) (4,520)
Cumulative Translation Adjustment.......................
Unrealized gain/(loss) on available-for-sale
securities.............................................
Net Loss................................................
------ --- ---------- ------ --------- ---- ------
Balance as of December 31, 1999......................... -- -- -- -- -- -- --
Exercise of voting common stock options to employees for
cash of $0.50 per share (unaudited)....................
Issuance of options for services rendered (unaudited)...
Issuance of stock for net assets acquired (unaudited)...
Cumulative Translation Adjustment (unaudited)...........
Unrealized gain/(loss) on available-for-sale
securities.............................................
Net Loss (unaudited)....................................
------ --- ---------- ------ --------- ---- ------
Balance as of March 31, 2000 (unaudited)................ -- $-- -- $ -- -- $ -- --
====== === ========== ====== ========= ==== ======
<CAPTION>
ES D
RTIBLE
RRED STOCK
----------- --------------- --------------- PAID-IN
ES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
-- ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997................................ $-- 3,800 $ 0 -- $-- $ --
Issuance of common stock to founder for cash net of
issuance costs......................................... -- -- -- 200 0 100
Issuance of common stock to founder for cash net of
issuance costs of $31,401.............................. 1,900 0 100 0 968
Issuance of common stock for cash at $.50 per share of
issuance costs of $17,591.............................. 3,652 0 1,808
Issuance of warrants in connection with promissory
notes..................................................
Issuance of Series A Preferred Stock for cash of $0.68
per share, net of issuance costs of $18,141............ 5,231
Net loss................................................
--- ------ --- ---- --- --------
Balance, December 31, 1997.............................. -- 9,352 1 300 0 8,107
Issuance of Series B Preferred Stock for cash of $1.50
per share, net of issuance costs of $75,543............ 15,988
Issuance of warrants....................................
Issuance of options for services rendered............... 5
Issuance of options for services rendered............... 29
Exercise of voting common stock options to employees for
cash of $0.50 per share................................ 48,799 5 24
Issuance of Series C Preferred stock for cash of $3.25
per share, net of issuance costs of $36,031............ 16,014
Issuance of warrants under joint development
agreement..............................................
Exercise of warrants.................................... 850
Cumulative Translation Adjustment.......................
Net Loss................................................
--- ------ --- ---- --- --------
Balance as of December 31, 1998......................... -- 9,400 1 300 0 41,019
Exercise of voting common stock options to employees for
cash of $0.50 per share................................ 600 0 850
Exercise of voting common stock warrants at $.50 per
share.................................................. 163 0 143
Purchase of Treasury Stock.............................. (12) (0)
Issuance of common stock for services rendered.......... 3 -- 10
Issuance of warrants for Subordinated-Debt agreement....
Issuance of warrants for CART Rights agreement..........
Issuance of warrants for Media One Broadband
agreement..............................................
Issuance of warrants for Excite agreement...............
Issuance of warrants for NBC JV agreement...............
Issuance of options for services rendered............... 345
Issuance of Series D Preferred Shares at $9.00 per share
less issuance cost accrual of $790,344................. 0 39,959
Exercise of warrants.................................... 848
Initial Public Offering net of issuance costs of
$5,560,611............................................. 5,000 1 54,395
Conversion of Preferred Stock to Common Stock........... (0) 28,552 3
Cumulative Translation Adjustment....................... (53)
Unrealized gain/(loss) on available-for-sale
securities............................................. (58)
Net Loss................................................
--- ------ --- ---- --- --------
Balance as of December 31, 1999......................... 43,706 4 300 0 137,459
Exercise of voting common stock options to employees for
cash of $0.50 per share (unaudited).................... 261 0 1,133
Issuance of options for services rendered (unaudited)... 500
Issuance of stock for net assets acquired (unaudited)... 0 22,389
Cumulative Translation Adjustment (unaudited)........... 16
Unrealized gain/(loss) on available-for-sale
securities............................................. (17)
Net Loss (unaudited)....................................
--- ------ --- ---- --- --------
Balance as of March 31, 2000 (unaudited)................ $-- 43,967 $ 5 300 $ 0 $161,481
=== ====== === ==== === ========
<CAPTION>
TOTAL
TREASURY WARRANTS ACCUMULATED STOCKHOLDERS'
STOCK AND OTHER DEFICIT EQUITY/(DEFICIT)
-------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997................................ $ -- $ -- $ (1,566) $ (1,566)
Issuance of common stock to founder for cash net of
issuance costs......................................... -- -- -- 100
Issuance of common stock to founder for cash net of
issuance costs of $31,401.............................. 969
Issuance of common stock for cash at $.50 per share of
issuance costs of $17,591.............................. 1,808
Issuance of warrants in connection with promissory
notes.................................................. 62 62
Issuance of Series A Preferred Stock for cash of $0.68
per share, net of issuance costs of $18,141............ 5,232
Net loss................................................ (4,942) (4,942)
----- -------- -------- --------
Balance, December 31, 1997.............................. -- 62 (6,508) 1,663
Issuance of Series B Preferred Stock for cash of $1.50
per share, net of issuance costs of $75,543............ 15,989
Issuance of warrants.................................... 588,734 588,734
Issuance of options for services rendered............... 5
Issuance of options for services rendered............... 29
Exercise of voting common stock options to employees for
cash of $0.50 per share................................ 24
Issuance of Series C Preferred stock for cash of $3.25
per share, net of issuance costs of $36,031............ 16,015
Issuance of warrants under joint development
agreement.............................................. 264 264
Exercise of warrants.................................... (438) 412
Cumulative Translation Adjustment....................... 161 161
Net Loss................................................ (9,538) (9,538)
----- -------- -------- --------
Balance as of December 31, 1998......................... -- 477 (16,046) 25,453
Exercise of voting common stock options to employees for
cash of $0.50 per share................................ 850
Exercise of voting common stock warrants at $.50 per
share.................................................. (62) 81
Purchase of Treasury Stock.............................. (107) (107)
Issuance of common stock for services rendered.......... 10
Issuance of warrants for Subordinated-Debt agreement.... 572 572
Issuance of warrants for CART Rights agreement.......... 401 401
Issuance of warrants for Media One Broadband
agreement.............................................. 1,154 1,154
Issuance of warrants for Excite agreement............... 702 702
Issuance of warrants for NBC JV agreement............... 5,001 5,001
Issuance of options for services rendered............... 345
Issuance of Series D Preferred Shares at $9.00 per share
less issuance cost accrual of $790,344................. 39,960
Exercise of warrants.................................... (415) 433
Initial Public Offering net of issuance costs of
$5,560,611............................................. 54,396
Conversion of Preferred Stock to Common Stock........... --
Cumulative Translation Adjustment....................... (53)
Unrealized gain/(loss) on available-for-sale
securities............................................. (58)
Net Loss................................................ (56,884) (56,884)
----- -------- -------- --------
Balance as of December 31, 1999......................... (107) 7,831 (72,930) 72,257
Exercise of voting common stock options to employees for
cash of $0.50 per share (unaudited).................... 1,133
Issuance of options for services rendered (unaudited)... 500
Issuance of stock for net assets acquired (unaudited)... 22,389
Cumulative Translation Adjustment (unaudited)........... 16
Unrealized gain/(loss) on available-for-sale
securities............................................. (17)
Net Loss (unaudited).................................... (15,143) (15,143)
----- -------- -------- --------
Balance as of March 31, 2000 (unaudited)................ $(107) $ 7,831 $(88,074) $ 81,136
===== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 83
QUOKKA SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------------- -------------------------
1997 1998 1999 1999 2000
------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $(4,942) $ (9,538) $(56,884) $(7,848) $(15,143)
Adjustments to reconcile net loss to net
cash used in operating activities:
Loss on disposal of fixed assets......... -- -- -- -- 171
Depreciation and amortization of property
and equipment.......................... 68 530 4,217 430 1,417
Amortization of acquired rights.......... -- -- 3,441 -- 1,822
Minority interest amortization of
programming rights..................... -- -- (1,936) -- (645)
Non-cash compensation-related charges and
other.................................. 106 450 1,433 569 500
Changes in operating assets and
liabilities:
Inventory.............................. -- -- -- -- (91)
Accounts receivable.................... (76) (1,074) (4,916) 331 (1,976)
Prepaid expenses and other............. (199) (85) (920) (670) (1,917)
Other assets........................... -- -- (640) -- 406
Accounts payable....................... 410 (433) 2,138 1,447 (1,221)
Accrued expenses....................... (1) 1,117 2,598 (473) 2,302
Acquired rights........................ -- -- (200) -- (275)
Deferred revenues...................... 781 (1,826) 3,385 (231) 421
------- -------- -------- ------- --------
Net cash used in operating
activities........................ (3,853) (10,859) (48,286) (6,444) (14,229)
------- -------- -------- ------- --------
Cash flows from investing activities:
Net sale/(purchases) of marketable
securities............................... -- -- (64,902) -- 18,205
Business acquisitions, net of cash
acquired................................. -- -- -- -- 130
Purchase of property and equipment.......... (295) (2,723) (9,310) (2,567) (2,252)
------- -------- -------- ------- --------
Net cash used in investing
activities........................ (295) (2,723) (74,212) (2,567) 16,083
------- -------- -------- ------- --------
Cash flows from financing activities:
Proceeds from long term financing
arrangements............................. -- 750 8,700 331 --
Proceeds from bridge loan................... 532 -- -- -- --
Payments on notes, long-term capital leases
and financing arrangements............... -- (79) (2,322) (76) (1,370)
Proceeds from the issuance of common stock,
net of issuance cost..................... 2,877 24 56,167 120 1,132
Purchase of Treasury Stock.................. -- -- (107) (95) --
Proceeds from the issuance of Preferred
stock, net of issuance cost.............. 4,700 32,854 39,920 -- --
------- -------- -------- ------- --------
Net cash provided by financing
activities........................ 8,109 33,550 102,358 279 (237)
------- -------- -------- ------- --------
Net increase/(decrease) in cash............... 3,961 19,968 (20,139) (8,731) 1,617
Cash, beginning of period..................... 65 4,027 23,994 23,994 3,855
------- -------- -------- ------- --------
Cash, end of period........................... $ 4,027 $ 23,994 $ 3,855 $15,263 $ 5,472
======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 84
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
DESCRIPTION OF BUSINESS
Quokka is an independent digital sports network providing real-time
coverage of sporting events for worldwide audiences. Using digital assets
generated at sports venues 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 and other
entertainment devices. Quokka operates as a single segment business.
Revenues are generated from digital entertainment and other sponsorships,
advertising, electronic commerce, the sale of content 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 and obtain branding on the network or specific network
properties, access to development projects, the use of trademarks and logos and
participation in various print and media campaigns.
GOING CONCERN DISCUSSION
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As of June 30, 2000,
the Company had approximately $23.3 million in cash, cash equivalents and
marketable securities. As shown in the consolidated financial statements, the
Company has experienced a substantial increase in operating expenses since
inception in connection with the growth of its operations and staffing. The
Company has incurred significant operating losses since inception, has an
accumulated deficit of $112.7 million at June 30, 2000 and had operating cash
outflows during the six months ended June 30, 2000 of $34.0 million.
The Company was not in compliance with certain covenants related to its
debt facilities at June 30, 2000, but has received the appropriate waivers for
the six months ended June 30, 2000 and through August 31, 2000. If the Company
is not in compliance at any of the future quarterly dates, the bank has the
right to call the loan which could cause the Company to renegotiate with the
bank for forbearance, make other financial arrangements or take other actions in
order to pay down the loan, if required. However, there can be no assurance that
such revised covenants will be met or that replacement financing will be
available. These matters raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
The Company has determined that it must raise additional funds to support
its operations and implement its business strategy over the next 12 months, and
is undertaking efforts to raise additional capital. These efforts include the
planned issuance of convertible promissory notes in a private placement during
the third quarter of 2000, with expected gross proceeds of approximately $50
million. The Company believes that the net proceeds from this offering, along
with cash, cash equivalents and marketable securities on hand, will be
sufficient to fund its cash requirements for operations, working capital and
capital expenditures for at least the next 12 months. Thereafter, the Company
may need to raise additional funds. In the event that this planned offering is
not consummated, the Company believes that it will need to raise additional
capital, either from the sale of equity or debt securities, or from other
sources such as borrowings from banks, in order to continue with its current
business strategy on the planned timetable. Although no assurances can be given
that the efforts to raise additional capital will be successful, based on the
Company's history of raising equity, the Company believes that it can
successfully raise funds necessary to support its plans for the next 12 months.
In the event that the Company is not able to raise such additional funds, it has
prepared a contingency plan that consists of reductions in personnel and
marketing and capital expenditures which, in the opinion of our management,
could be implemented and would allow the Company to continue our operations for
a reasonable period of
F-7
<PAGE> 85
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
time. However, the implementation of this contingency plan could have material
adverse effects on the Company's long-term operations.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying 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.
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.
MARKETABLE SECURITIES
Marketable securities consist of municipal bonds and notes, corporate
bonds, commercial paper and money market funds. Marketable securities are stated
at market value as determined by the most recently traded price of each security
at the balance sheet date. All marketable securities are defined as
available-for-sale securities in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Any unrealized gains or losses are excluded from
earnings and are reported as a separate component of stockholders' equity until
realized.
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 SFAS 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.
ACQUIRED MEDIA RIGHTS
Quokka and its subsidiaries and joint venture account for acquired
programming rights pursuant to SFAS No. 63. Under SFAS 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 are amortized
using the greater of the ratio of rights contributed during the period in
relation to the total rights expected or on a straight-line method over their
estimated useful life.
F-8
<PAGE> 86
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. 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 non-owner 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. Translation adjustments are deemed immaterial and
included as a component of additional paid in capital in the accompanying
financial statements.
REVENUE RECOGNITION
Quokka generates revenues from digital entertainment sponsorships,
advertising, electronic commerce, the sale of content, and studio services.
Prior to April 1999, sponsorship revenues were 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.
Digital entertainment sponsorships signed subsequently represent multi-year,
multi-event and multi-benefit sponsorships. Annual revenues from these new
sponsorships are recognized using the straight line method over the terms of the
agreements.
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
shipped and payment is assured. Quokka will recognize revenue from the sale of
its proprietary content in accordance with the provisions of SFAS No. 63. 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.
COST OF REVENUES
Cost of revenues consists primarily of production costs, amortization of
acquired programming and distribution rights and other costs related to
e-commerce revenue including product fulfillment and inbound and outbound
shipping costs. 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.
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.
F-9
<PAGE> 87
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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, 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, 1998, three customers accounted for 52%,
16% and 12%, respectively, 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.
For the year ended December 31, 1999, four customers accounted for 27%,
23%, 14% and 15%, respectively, of all revenues generated by Quokka. At December
31, 1999, four customers accounted for 43%, 15%, 14% and 11%, respectively, of
total outstanding accounts receivable.
For the three months ended March 31, 2000, three customers accounted for
28%, 16% and 14%, respectively, of all revenues generated by Quokka. At March
31, 2000, three customers accounted for 31%, 20% and 17%, respectively, of total
outstanding accounts receivable
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 which are
included in sales and marketing expenses for the years then ended were $62,000
in 1997, $554,000 in 1998 and $7,727,000 1999. Advertising expenses for the
three months ended March 31, 2000 were $3,894,000.
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 ("APB") No. 25, "Accounting for Stock Issued to
Employees" and, accordingly, pro forma disclosures required under SFAS No. 123
have been presented (See Note 10). 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-10
<PAGE> 88
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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 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. 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.
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,
---------------------------- ------------------
1997 1998 1999 1999 2000
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss available to common
stockholders............................ $(4,942) $(9,538) $(56,884) $(7,848) $(15,143)
Denominator:
Weighted average shares................... 6,792 9,657 39,387 9,773 44,242
Weighted average unvested common shares
subject to repurchase agreements........ -- (2) (21) 17 (40)
------- ------- -------- ------- --------
Denominator for basic and diluted
calculation............................. 6,792 9,655 39,366 9,790 44,202
======= ======= ======== ======= ========
Net loss per share:
Basic and diluted......................... $ (0.73) $ (0.99) $ (1.45) $ (0.80) $ (0.34)
Anti-dilutive securities including options,
warrants and preferred stock not included in
historical net loss per share calculations... 1,643 17,755 11,840 32,686 11,321
======= ======= ======== ======= ========
Pro forma net loss per share:
Net loss....................................... $(9,538) $(7,848)
Shares used in computing net loss per share,
basic and diluted............................ 9,655 9,790
Adjustment to reflect assumed conversion of
preferred stock and exercise of warrants..... 14,260 24,245
Shares used in computing pro forma net loss per
share, basic and diluted..................... 23,915 34,035
======= ======= ======== ======= ========
Pro forma net loss per share, basic and
diluted...................................... $ (0.40) $ (0.23)
</TABLE>
F-11
<PAGE> 89
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Statement, which is effective for the Company in 2000, requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measures those instruments at fair value. The Company is assessing the
requirements of SFAS No. 133 and the effects, if any, on the Company's financial
position, results of operations and cash flows.
In July 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 ("SFAS No. 137"), "Accounting with
Derivative Instruments and Hedging Activities Deferral of the Effective Date of
FASB Statement No. 133," which deferred the effective date until the first
fiscal quarter ending June 30, 2000. The Company will adopt SFAS No. 133 in its
quarter ending June 30, 2000. The Company has not engaged in hedging activities
or invested in derivative instruments.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles ("GAAP") to revenue recognition in
financial statements. The adoption of SAB No. 101 did not have a material effect
on the Company's financial statements.
In April 2000, FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation -- an interpretation of APB Opinion
No. 25" ("FIN No. 44") was issued. FIN No. 44 clarifies the application of APB
No. 25 for only certain issues. Among other issues, FIN No. 44 clarifies the
definition of employee for purposes of applying APB No. 25, the criteria for
determining whether a plan qualifies as a non-compensatory plan, the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award, and the accounting for an exchange of stock compensation awards
in a business combination. FIN No. 44 is effective July 1, 2000, but certain
conclusions in this interpretation cover specific events that occur after either
December 15, 1998 or January 12, 2000. The adoption of certain of the
conclusions of FIN No. 44 covering events occurring during the period after
December 15, 1998 or January 12, 2000 did not have a material impact on the
Company's financial position and results of operations. The Company does not
expect that the adoption of the remaining conclusions will have a material
effect on the financial statements.
In January 2000, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF 99-17, "Accounting for Advertising Barter Transactions" (the
"Issue"). This Issue states that revenue and expense should be recognized at
fair value from an advertising barter transaction only if the fair value of the
advertising surrendered in the transaction is determinable within the limits of
this Issue. If the fair value of the advertising surrendered in the barter
transaction is not determinable within the limits of this Issue, the barter
transaction should be recorded based on the carrying amount of the advertising
surrendered, which likely would be zero. This Issue may be applied either
prospectively to transactions after January 20, 2000, or as a change in
accounting principle.
F-12
<PAGE> 90
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. MARKETABLE SECURITIES
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value of available-for-sale securities at March 31, 2000
is as follows (in thousands). Included in marketable securities as of March 31,
2000 is $17.9 million of restricted cash related ton three office leases, the
employee stock purchase plan and certain funding requirements in association
with NBC/Quokka Ventures, LLC, our joint venture with NBC Olympics, Inc as well
as certain. There were no marketable securities as of December 31, 1998.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST HOLDING GAINS HOLDING LOSSES VALUE
-------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
At December 31, 1999
Cash and cash equivalents............. $ 428 -- -- 428
Municipal bonds and notes............. 21,372 4 -- 21,376
Corporate bonds....................... 16,010 -- (50) 15,960
Commercial paper...................... 27,150 -- (12) 27,138
------- -- --- ------
$64,960 4 (62) 64,902
======= == === ======
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST HOLDING GAINS HOLDING LOSSES VALUE
-------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
At March 31, 2000
Cash and cash equivalents............. $ -- -- -- --
Municipal bonds and notes............. 18,109 -- (7) 18,102
Corporate bonds....................... 11,856 -- (60) 11,796
Commercial paper...................... 16,806 -- (7) 16,799
------- -- --- ------
$46,771 -- (74) 46,697
======= == === ======
</TABLE>
4. ACQUIRED RIGHTS
Acquired programming rights pertain to licensing fees paid for programming
rights related to our joint venture with NBC Olympics, Inc. for U.S. Digital
Coverage of the Olympic Games, the exclusive worldwide interactive media rights
to the FIM 500cc Road Racing Championship Grand Prix and America's Cup 2000
Yacht Race. Acquired distribution rights represent licensing fees paid for the
rights to distribute our programming on Excite@Home and Terra Networks. Acquired
programming rights to sporting events and acquired distribution rights are
amortized over their respective license periods on a straight line basis.
Amortization associated with these rights amounted to $3,441,000 for the year
ended December 31, 1999. There was no amortization expense in 1998 or 1997.
Amortization amounted to $1,822,000 for the three months ended March 31, 2000.
F-13
<PAGE> 91
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1998 1999 2000
------ ------- ---------
<S> <C> <C> <C>
Computer, telecommunications, software & office equipment... $2,242 $ 9,097 $12,602
Furniture and fixtures...................................... 356 1,129 1,201
Leasehold improvements...................................... 568 2,477 4,532
Leased equipment............................................ 75 505 505
Production equipment........................................ 94 2,383 2,433
------ ------- -------
3,335 15,590 21,273
Less accumulated depreciation and amortization.............. 599 5,039 7,200
------ ------- -------
Property and equipment, net............................... $2,736 $10,551 $14,073
====== ======= =======
</TABLE>
Accumulated amortization related to leased equipment was $38,000 and
$178,000 at December 31, 1998 and 1999, respectively. Accumulated amortization
was $220,000 at March 31, 2000. There were no asset disposals during the years
ended December 31, 1997, 1998 or 1999 or during the three months ended March 31,
2000.
6. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1998 1999 2000
------ ------ ---------
<S> <C> <C> <C>
Accrued compensation and related expenses................... $ 579 $1,184 $1,693
Accrued accounts payable expenses........................... 620 1,597 4,749
Accrued Other............................................... 1,016 2,442
------ ------ ------
Total accrued liabilities................................. $1,199 $3,797 $8,884
====== ====== ======
</TABLE>
Accrued liabilities are comprised of:
7. NOTES PAYABLE
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1998 1999 2000
------ ------- ---------
<S> <C> <C> <C>
Notes payable to bank(a).................................... $ 708 $ 458 $ 396
Notes payable to bank(b).................................... 2,000 2,000
Notes payable to third party(c)............................. 5,113 4,725
Notes payable associated with acquired distribution and
programming rights(d)..................................... 7,244 6,844
Note payable to third party(e).............................. 1,538 1,165
Note payable to third party(f).............................. -- 4,000
Other notes payable......................................... 83 770 1,187
------ ------- -------
791 17,123 20,316
Less current installments................................... 290 5,921 10,126
------ ------- -------
$ 501 $11,202 $10,190
====== ======= =======
</TABLE>
---------------
(a) Notes payable to bank represents an equipment financing loan that is
secured by furniture, fixtures and equipment. Terms of the loan calls for
monthly payments over 36 months commencing November 23,
F-14
<PAGE> 92
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1998. The note bears interest at 0.75% over the prime rate as quoted by the
bank (8.50% at December 31, 1999). The agreement also requires the Company
to be in compliance with certain financial covenants. The Company was in
compliance with its covenants as of December 31, 1999.
(b) Notes payable to bank represents an equipment financing loan that is secured
by furniture, fixtures and equipment. Terms of the loan calls for monthly
payments over 48 months commencing August 31, 1999. The note bears interest
at 0.75% over the prime rate as quoted by the bank (8.50% at December 31,
1999). The agreement also requires the Company to be in compliance with
certain financial covenants. The Company was in compliance with its
covenants as of December 31, 1999.
(c) Notes payable to third party represents subordinated debt agreements, due
in 36 monthly installments over the terms of the agreements. In connection
with these agreements, warrants were issued for the purchase of 215,384
shares of Series C Preferred Stock at an exercise price of $3.25, which
were automatically converted into warrants to purchase, on a one to one
basis, shares of common stock. The fair value of these warrants of $552,486
was calculated using the Noreen-Wolfson and has been treated as a loan
commitment fee and was 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.
(d) Obligations under acquired programming and distribution rights pertain to
licensing fees paid for rights to certain sporting events and rights to
distribute our content. Acquired rights obligations are payable in quarterly
payments over the terms of the agreements ranging from two to three years.
(see note 3)
(e) Note payable to third party represents debt related to software licensing
fees which are payable in quarterly installments over the term of the two
year agreement.
(f) Note payable to third party represents a bridge loan dated November 15,
1999 in connection with a loan and security agreement with the Company. The
loan is collateralized by certain assets of the Company. The note was
subsequently paid in full during the second quarter of 2000.
Future minimum annual principal payments at December 31, 1999, are as
follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 5,921
2001........................................................ 5,764
2002........................................................ 4,910
2003........................................................ 528
2004........................................................ --
Thereafter.................................................. --
-------
$17,123
=======
</TABLE>
F-15
<PAGE> 93
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS
Quokka leases office facilities and equipment under noncancelable operating
leases. Rental expense under these operating leases for the years ended 1997,
1998 and 1999 was approximately $150,000, $233,000 and $1,600,000, respectively.
Rental expense under these operating leases for the three months ended March 31,
2000 was approximately $996,000. Additionally, Quokka leases certain office
equipment under capital lease agreements. These leases are due in monthly
installments at various dates through 2004. Minimum future payments under
capital and operating lease agreements for the years ended December 31, are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
2000...................................................... $154 $ 4,824
2001...................................................... 108 5,173
2002...................................................... 108 4,300
2002...................................................... 104 4,374
2004...................................................... 16 4,427
Thereafter................................................ -- 17,598
---- -------
$490 $40,696
=======
Less amount representing interest......................... 79
----
Present value of minimum lease payments under capital
lease................................................... 411
Less current portion...................................... 120
----
Non-current portion............................. $291
====
</TABLE>
9. INCOME TAXES
The provision for income taxes are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Current tax expense
Federal............................................
State.............................................. $ 1 $ 1 $ 1
Foreign............................................ 36 12 --
Deferred tax expense
Federal............................................ (19,621) (2,846) (1,439)
State.............................................. (1,891) (486) (128)
Valuation allowance.................................. 21,512 3,332 1,567
-------- ------- -------
Net tax provision.................................... $ 37 $ 13 $ 1
======== ======= =======
</TABLE>
The change in the valuation allowance was $21,380,705 during the year ended
December 31, 1999 and $3,332,030 during the year ended December 31, 1998. Tax
expenses, which were insignificant, were recorded in general and administrative
expenses. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment. Management
believes it is more likely that not the Company will realize the benefits of
these deductible differences. However given the uncertainty, a full valuation
allowance has been provided for the total net deferred tax assets at December
31, 1999.
F-16
<PAGE> 94
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,
------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Net operating loss carryforward...................... $ 22,681 $ 4,671 $ 1,527
Capitalized research and experimentation costs....... 219
Tax credits.......................................... 430
Deferred revenue..................................... 1,499
Other................................................ 1,582 228 40
-------- ------- -------
Total deferred tax asset............................. 26,411 4,899 1,567
Valuation allowance.................................. $(26,411) $(4,899) $(1,567)
======== ======= =======
Net.................................................. $ -- $ -- $ --
======== ======= =======
</TABLE>
As of December 31, 1999, the Company has net operating loss carryforwards
of $65,592,519 for federal tax purposes expiring in 2011 through 2019, and
$35,007,274 for California income tax purposes which expire in 2003 through
2004. The Company has research and development credit carryforwards of $350,573
for federal purposes and $198,315 for state purposes. The credits expire in
2019. The issuance of class A 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. In addition,
due to changes in the Company's ownership after 1997, the amount of net
operating losses and research and development credits available to offset future
federal income tax liabilities may be limited. The amount of such limitation, if
any, has not been determined. 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,
------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Provision at Federal Rate............................ $(19,340) $(3,243) $(1,702)
State tax, net of Federal benefit.................... (1,914) (556) (291)
Change in valuation allowance........................ 21,512 3,332 1,567
Other................................................ (221) 480 427
-------- ------- -------
Net tax provision.................................... $ 37 $ 13 $ 1
======== ======= =======
</TABLE>
10. STOCKHOLDERS' EQUITY
PREFERRED STOCK
In July 1999 and upon completion of the Company's initial public offering,
all 28,552,264 shares of Series A, B, C & D preferred stock were automatically
converted on a one to one basis into common stock of the Company.
WARRANTS
Outstanding warrants to purchase 3,115,336 shares of preferred and common
stock were automatically converted into warrants to purchase 3,113,252 shares of
common stock (after consideration of net exercises). Concurrent with the IPO,
warrants were exercised to purchase 452,048 share of common stock, resulting in
additional capital proceeds to the Company of $486,000.
F-17
<PAGE> 95
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1998 and 1999, the Company had 508,848 and 2,693,288 of
stock purchase warrants outstanding, respectively. These warrants were issued in
connection with private placements and other means of financing. The holders of
these warrants are entitled to receive one share of common stock of the Company
for one warrant exercised. The warrants have exercise prices ranging from $3.25
to $42.26 and expire ten years from the date of grant.
The estimated fair value of the above warrants have been determined based
on the Noreen-Wolfson fair value model with a volatility of 70%.
ISSUANCE OF STOCK OPTIONS TO NON-EMPLOYEES FOR SERVICES
The Company has recorded $62,000, $853,000 and $3,208,000 of compensation
expense in 1997, 1998 and 1999 respectively, relating to stock options issued to
non-employees for services rendered during those years.
11. 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, 1999, 13,350,000 shares of
common stock were reserved for issuance pursuant to the Plan. Incentive Stock
Options are granted to the extent permissible under IRS rules and generally vest
over a four-year term.
Concurrent with the IPO, the Company initiated the 1999 Non-Employee
Directors' Stock Option Plan. All non-employee directors as of the IPO date
received grants of 25,000 shares pursuant to the terms of the Plan. New
non-employee directors automatically receive grants of 25,000 shares upon their
appointment to the Board of Directors. Starting June 1, 2000, all non-employee
directors will automatically be granted an annual grant of 25,000 shares (or a
reduced pro rata for each full quarter prior to the date of grant during which
such person did not serve as a Non-Employee Director). All options granted under
this plan are non-qualified and immediately exercisable with a three-year term.
A summary of the activity under both Plans 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............................ 2,760,000 $0.50 - $ 2.60 3,736,200 $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..... 3,560,200 $0.50 - $ 2.60 4,079,800 $1.12
---------- -------------- ----------- -----
Granted............................ 7,619,500 $3.25 - $17.00 62,270,500 $8.17
Exercised.......................... (557,617) $0.50 - $ 8.50 (587,900) $1.05
Cancelled.......................... (1,350,246) $0.50 - $12.00 (7,690,600) $5.70
---------- -------------- ----------- -----
Outstanding at December 31, 1999..... 9,271,837 $0.50 - $17.00 $58,071,800 $6.26
========== ============== =========== =====
</TABLE>
F-18
<PAGE> 96
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1999, options to purchase 1,322,830 shares were fully
vested.
The following table summarizes information with respect to stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE 12/31/99 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.50 930,965 7.85 $ 0.50 301,453 $0.50
$ 0.75 - $ 1.50.. 1,136,400 8.58 $ 1.25 235,727 $1.22
$ 2.25 - $ 3.25.. 781,200 8.97 $ 2.71 137,979 $2.52
$ 6.88 - $ 7.44.. 2,079,636 9.60 $ 7.02 308,013 $7.00
$ 8.00 - $ 8.50.. 2,924,536 9.57 $ 8.30 47,007 $8.60
$ 9.00 - $ 9.75.. 490,300 9.83 $ 9.10 20,751 $9.00
$10.00 - $12.00.. 896,300 9.00 $ 9.77 271,900 $6.33
$12.25 - $17.00.. 32,500 9.77 $12.55 --
--------- ---------
9,271,837 1,322,830
========= =========
</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 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
----------- --------
<S> <C> <C>
Risk-free interest rates............................. 5.69% 5.72%
Expected life of options............................. 3.25 years 5 years
Expected dividends................................... $0 $0
</TABLE>
The weighted average fair value of options granted in 1999 was $4.04. 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,
------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Net loss -- historical............................... $(56,884) $(9,538) $(4,942)
Pro forma............................................ $(64,988) $(9,694) $(4,966)
Basic and diluted net loss per share
Historical......................................... $ (1.45) $ (0.99) $ (0.73)
Pro forma.......................................... $ (1.65) $ (1.00) $ (0.73)
</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.
12. 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-19
<PAGE> 97
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information and non-cash activities for the years
ended 1997, 1998 and 1999 and three month periods ended March 31 are as follows
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------- -------------------------
1997 1998 1999 1999 2000
---- ---- ------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosure of cash:
Equipment financed through capital lease.......... $120 $ -- $ 429 $ -- $ --
Accounts payable related to purchase of property
and equipment.................................. $ -- $242 $ 611 $484 $ 831
Issuance of Preferred warrants under joint
development agreement.......................... $ 62 $415 $ --
Issuance of Preferred warrants for subordinated
debt........................................... $ -- $ -- $ 572 $552 $ --
Issuance of Preferred warrants for programming and
distribution rights............................ $ -- $ -- $6,104 $401 $ --
Issuance of Preferred warrants for MediaOne....... $ -- $ -- $1,154
Notes payable related to purchase of programming
and distribution rights........................ $ -- $ -- $7,644
Notes payable related to purchase of property and
equipment...................................... $ -- $ -- $2,293
Equity issued in a business acquisition........... $ -- $ -- $ -- $22,389
Stock options issued as compensation for services
rendered....................................... $ -- $ 35 $ 355 $ 28 $ 500
Amortization of NBC............................... $ -- $ -- $1,936 $ 645
</TABLE>
14. SUBSEQUENT EVENTS
On March 1, 2000, the Company entered into a definitive agreement to
acquire ZoneNetwork.com, Inc., a privately-held company that produces and owns a
leading mountain sports Internet property, Mountainzone.com and its sister web
site SkiResorts.com. The acquisition will extend the reach of the Quokka Sports
Network further into the action sports community. The all stock purchase
transaction is valued at $25 million and closed on March 31, 2000.
15. SUBSEQUENT EVENTS (UNAUDITED)
On June 7, 2000, the Company signed a definitive agreement to acquire a
controlling interest in Golf.com, LLC, a privately-held company that is in the
business of developing, marketing and distributing a golf related electronic
on-line service to be accessed via the Internet. The acquisition will extend the
reach of the Quokka Sports Network into the mainstream sports community. Quokka
will issue approximately 3.9 million shares of common stock in exchange for 71%
of the ownership interest. This transaction is expected to close by the end of
September 2000, subject to various conditions.
On July 20, 2000, the Company signed a definitive agreement to acquire
Total Sports, Inc., an event-centered, online sports media company. The
acquisition will further extend the reach of the Quokka Sports Network into the
sports community. Quokka will issue approximately 15 million shares of common
stock and the transaction is expected to close by the end of October 2000,
subject to various conditions.
For the second quarter of 2000, Quokka was in default of debt covenants
relating to a $2 million loan with Silicon Valley Bank ("SVB"). On July 26,
2000, Quokka obtained a waiver of the default from SVB.
F-20
<PAGE> 98
GOLF.COM, L.L.C.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-22
Balance Sheets.............................................. F-23
Statements of Operations.................................... F-24
Statements of Members' Equity............................... F-25
Statements of Cash Flows.................................... F-26
Notes to Financial Statements............................... F-27
</TABLE>
F-21
<PAGE> 99
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board Members of
Golf.com, L.L.C
In our opinion, the accompanying balance sheets and the related statements
of operations, of members' equity and of cash flows present fairly, in all
material respects, the financial position of Golf.com, L.L.C. at December 31,
1999, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States. 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 audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
June 22, 2000
F-22
<PAGE> 100
GOLF.COM, L.L.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1998 1999 2000
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 35,648 $ 728,315 $ 916,191
Accounts receivable, net....................... 206,799 238,831 295,039
Other receivable............................... -- 5,000 5,000
Due from related party......................... 2,454 -- --
----------- ----------- -----------
Total current assets...................... 244,901 972,146 1,216,230
Property and equipment, net....................... 5,771 2,479 2,013
Intangible assets................................. 52,543 8,902 8,012
----------- ----------- -----------
Total assets.............................. $ 303,215 $ 983,527 $ 1,226,255
=========== =========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Notes payable, current......................... $ 100,000 $ -- $ --
Accounts payable............................... 85,670 -- --
Interest payable............................... 5,360 -- --
Accrued liabilities............................ -- 41,878 182,310
Due to related party........................... -- 170,373 29,099
Deferred revenue............................... 2,913 80,625 250,643
----------- ----------- -----------
Total current liabilities................. 193,943 292,876 462,052
----------- ----------- -----------
Members' equity:
Contributed capital............................ 3,114,658 4,621,896 5,042,332
Warrants....................................... 129,000 404,000 404,000
Accumulated deficit............................ (3,134,386) (4,335,245) (4,682,129)
----------- ----------- -----------
Total members' equity..................... 109,272 690,651 764,203
----------- ----------- -----------
Total liabilities and members' equity..... $ 303,215 $ 983,527 $ 1,226,255
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 101
GOLF.COM, L.L.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED,
----------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES:
Advertising and other..... $ 430,765 $ 626,307 $ 880,232 $121,512 $ 253,327
E-commerce................ 43,860 264,256 473,818 90,112 65,363
---------- ----------- ----------- -------- ---------
Total net
revenues........ 474,625 890,563 1,354,050 211,624 318,690
---------- ----------- ----------- -------- ---------
COST OF NET REVENUES:
Advertising and other..... 14,759 344,888 134,311 4,941 46,451
E-commerce................ 38,933 235,625 476,381 71,495 65,815
---------- ----------- ----------- -------- ---------
Total cost of
revenues........ 53,692 580,513 610,692 76,436 112,266
---------- ----------- ----------- -------- ---------
OPERATING EXPENSES:
Operating expenses........ 1,338,025 1,296,006 1,904,258 202,132 561,880
Depreciation and
amortization........... 52,471 55,614 13,704 3,426 1,357
Loss on
disposal/impairment of
assets................. -- 44,703 33,229 -- --
---------- ----------- ----------- -------- ---------
Total operating
expenses........ 1,390,496 1,396,323 1,951,191 205,558 563,237
---------- ----------- ----------- -------- ---------
Loss from
operations...... (969,563) (1,086,273) (1,207,833) (70,370) (356,813)
Interest income........... 33,892 195 8,443 569 12,041
Interest expense.......... -- (8,360) (1,469) (1,602) (2,112)
Other income, net......... 116 -- -- -- --
---------- ----------- ----------- -------- ---------
Net loss.......... $ (935,555) $(1,094,438) $(1,200,859) $(71,403) $(346,884)
========== =========== =========== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 102
GOLF.COM, L.L.C.
STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<CAPTION>
CONTRIBUTED CAPITAL TOTAL
-------------------- ACCUMULATED MEMBERS'
UNITS AMOUNT WARRANTS DEFICIT EQUITY
------ ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 (unaudited)... 121 $2,214,709 $ -- $(1,104,393) $ 1,110,316
Issue of warrants (unaudited).......... -- -- 129,000 -- 129,000
Net loss (unaudited)................... -- -- -- (935,555) (935,555)
--- ---------- -------- ----------- -----------
Balance at December 31, 1997
(unaudited)............................ 121 2,214,709 129,000 (2,039,948) 303,761
Expenses paid by principal shareholder
(unaudited)......................... -- 649,949 -- -- 649,949
Sale of units (unaudited).............. 41 250,000 -- -- 250,000
Net loss (unaudited)................... -- -- -- (1,094,438) (1,094,438)
--- ---------- -------- ----------- -----------
Balance at December 31, 1998
(unaudited)............................ 162 3,114,658 129,000 (3,134,386) 109,272
Issue of warrants...................... -- -- 275,000 -- 275,000
Expenses paid by principal
shareholder......................... -- 1,507,238 -- -- 1,507,238
Net loss............................... -- -- -- (1,200,859) (1,200,859)
--- ---------- -------- ----------- -----------
Balance at December 31, 1999............. 162 4,621,896 404,000 (4,335,245) 690,651
Expenses paid by principal shareholder
(unaudited)......................... -- 420,436 -- -- 420,436
Net loss (unaudited)................... -- -- -- (346,884) (346,884)
--- ---------- -------- ----------- -----------
Balance at March 31, 2000 (unaudited).... 162 $5,042,332 $404,000 $(4,682,129) $ 764,203
=== ========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 103
GOLF.COM, L.L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $(935,555) $(1,094,438) $(1,200,859) $(71,403) $(346,884)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Provision for doubtful accounts and
returns............................... -- -- 25,130 -- 1,014
Loss on disposal/impairment of assets... -- 44,703 33,229 -- --
Depreciation and amortization........... 52,471 55,614 13,704 3,426 1,357
Expenses paid by principal
shareholder........................... -- 649,949 1,507,238 195,640 420,436
Issue of warrants....................... 129,000 -- 275,000 -- --
Changes in current assets and
liabilities:
Accounts receivable................... (107,328) 3,203 (57,162) (55,088) (57,222)
Other receivable...................... -- -- (5,000) -- --
Accounts payable...................... 48,383 14,545 (85,670) (83,171) --
Interest payable...................... -- 5,360 (5,360) 1,602 --
Due (to) from related party........... -- (2,454) 172,827 9,230 (141,274)
Accrued liabilities................... -- -- 41,878 8,358 140,431
Deferred revenue...................... -- 2,913 77,712 53,781 170,018
--------- ----------- ----------- -------- ---------
Net cash provided by (used in)
operating activities............. (813,029) (320,605) 792,667 62,375 187,876
--------- ----------- ----------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets.......... -- (5,000) -- -- --
Purchase of property and equipment........ (71,780) -- -- -- --
--------- ----------- ----------- -------- ---------
Net cash (used in) investing
activities....................... (71,780) (5,000) -- -- --
--------- ----------- ----------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of member units.... -- 250,000 -- -- --
Proceeds from (repayment of) note
payable................................. -- 100,000 (100,000) (50,000) --
--------- ----------- ----------- -------- ---------
Net cash provided by (used in)
financing activities............. -- 350,000 (100,000) (50,000) --
--------- ----------- ----------- -------- ---------
Net increase (decrease) in cash and cash
equivalents............................... (884,809) 24,395 692,667 12,375 187,876
Cash and cash equivalents at beginning of
period.................................... 896,062 11,253 35,648 35,648 728,315
--------- ----------- ----------- -------- ---------
Cash and cash equivalents at end of
period.................................... $ 11,253 $ 35,648 $ 728,315 $ 48,023 $ 916,191
========= =========== =========== ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................... $ -- $ 3,000 $ 6,829 $ -- $ --
========= =========== =========== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 104
GOLF.COM, L.L.C.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
Golf.com, L.L.C. (the "Company" or "Golf"), a Delaware limited liability
company was formed on June 6, 1996 between GolfData Corporation ("GolfData") and
NBC Multimedia, Inc. ("NBC"). GolfData contributed to the Company certain assets
and liabilities and NBC contributed a license agreement to use various NBC
materials, including the use of the NBC trademark and promotional activities.
On August 9, 1996, the New York Times Company Magazine Group, Inc.
("NYTMAG") and Media One Interactive Services, Inc. ("Media One") became parties
of the Company. NYTMAG contributed a license agreement to use any and all of
Golf Digest and Golf World magazines and other content on the site and Media One
contributed $1,620,000.
Both the NBC and NYTMAG license agreements have a three-year term and
automatically renew for successive three-year terms unless terminated by
providing 90 days notice of the intent not to renew. On January 12, 1999, Golf
and NYTMAG terminated their license agreement. As a result of the termination,
all NYTMAG materials and trademarks were removed from the web site and in return
NYTMAG paid Golf $130,548. NYTMAG retained its ownership interest in Golf.
On July 29, 1998, Total Sports Inc. ("Total Sports") contributed $250,000
and entered into a services agreement in return for an ownership interest in the
Company. Under the services agreement, Golf outsourced the hosting, operation
and management of its web site to Total Sports. In addition, it assigned its
rights to acquire content under various license agreements to Total Sports.
Total Sports operates and maintains the web site at its own expense, however,
these expenses have been recorded in the Golf financial statements as an expense
of the Company with an offsetting increase in contributed capital.
In January 1999, Golf entered into an advertising sales representation
agreement with Total Sports, Inc. Under the terms of the agreement Golf
appointed Total Sports as its exclusive advertising sales representative to sell
all on-line advertising and sponsorship. In consideration for this appointment,
Total Sports paid Golf $25,000 on January 1, 2000 and will pay such amount each
January 1 thereafter until the agreement is terminated. In consideration for
Total Sports providing this service, commencing April 1, 1999 Golf is obligated
to pay a fee equal to 20% of the net advertising revenues collected. Both the
services and advertising sales agreements shall terminate on June 15, 2003
unless terminated at an earlier date.
The Company is in the business of developing, marketing and distributing a
golf related electronic on-line service to be accessed via the World Wide Web
portion of the Internet. The Company's existence shall continue from June 1996
until the earlier of December 31, 2035 or the Company's dissolution. Upon
dissolution, the Company will wind up its affairs, distribute its assets and
file a certificate of cancellation to cancel the Certificate of Formation
according to Article 19 of the operating agreement. Assets will be distributed
first to creditors, then to the establishment of any reserves for any contingent
or unforeseen liabilities or obligations and finally to the holders of the units
in proportion to their capital accounts.
Net income or loss for each fiscal year will be allocated to the holders of
units, except for Total Sports, in proportion to their holdings of units on the
date chosen by the Board of Managers as the determination date for such
allocation. The allocation of net income or loss to Total Sports is equal to a
predetermined fraction, provided that Total Sports has achieved certain
measurements including page views and operating revenues, as stated in Article
13 of the operating agreement.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original or remaining maturity of three months or less at the date of purchase
to be cash equivalents.
F-27
<PAGE> 105
GOLF.COM, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ACCOUNTS RECEIVABLE
The accounts receivable balances at December 31, 1999 and March 31, 2000
are recorded net of an allowance for doubtful accounts of $25,130 and $26,144
respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Fixed assets are depreciated on a straight-line basis over the
estimated useful life of three years. Property and equipment purchased under
capital leases are amortized on a straight-line basis over the lesser of the
estimated useful life of the asset or the lease term.
Maintenance and repairs, which neither materially add to the value of the
property nor prolong its life, are charged to expense as incurred. Gains or
losses on dispositions of capital assets are included in income in the year of
disposition (see Note 2).
REVENUE RECOGNITION
The Company earns its advertising revenue from the sale of web site
advertisements on short-term contracts. Advertising revenue is recognized
ratably over the period in which the advertisement is displayed. Deferred
revenue results from billings in excess of recognized revenue. Prior to 1999,
the Company recognized revenue on a gross basis since it was directly
responsible for the sales effort. After signing the advertising sales agreement
in 1999, revenue was recognized at 80% of gross sales revenue, since Total
Sports assumed the primary risks and acted as the principal in the related
transactions.
The Company earns its e-commerce revenue from the sale of sports equipment,
apparel and memorabilia through its online retail store. E-commerce revenues are
recognized from product sales, net of estimated sales returns, when the products
are shipped to customers. Gross outbound standard shipping and handling charges
are included in net sales. The Company provides an allowance for sales returns,
which is based on historical experience. For all product sales transactions with
its customers, the Company acts as a principal, takes title to all products sold
upon shipment, bears credit risk, and bears inventory risk of loss for returned
products that are not eligible to be returned to suppliers.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash and cash equivalents and
accounts receivable. Cash and cash equivalents are deposited with high credit
quality financial institutions. Advertising and e-commerce sales to customers
located predominantly in the U.S. comprise substantially all of the Company's
revenue. Payments made by e-commerce customers are settled through customer
credit cards and, as a result, collection is made upon processing of the credit
card transactions. For the year ended December 31, 1999, one customer and a
related party, NBC, accounted for 15% of total revenues of Golf. At December 31,
1999, there were no receivables from this customer. For the year ended December
31, 1998, one customer, Golf Digest, accounted for 57.6% of total revenues. At
December 31, 1998, there were no receivables from this customer. No one customer
represented more than 10% of the Company's total revenue for the year ended
1997. The 1997 and 1998 information presented is unaudited.
PRODUCT AND WEB SITE DEVELOPMENT COSTS
Product development costs include expenses incurred by the Company to
develop and enhance the Company's web site. Product development costs are
expensed as incurred. The Company recognizes web site development costs in
accordance with the Statement of Position ("SOP") 98-1 "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." As such, the
Company expenses all costs
F-28
<PAGE> 106
GOLF.COM, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
incurred in the planning and post implementation phases of development. The
Company also expenses costs associated with the insignificant modifications to
the existing site and the development of web site content as incurred.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. There are no
advertising costs for the year ended December 31, 1999. Advertising costs for
the years ended December 31, 1998 and 1997 were $18,661 (unaudited) and $11,021
(unaudited), respectively.
USE OF ESTIMATES AND ASSUMPTIONS
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
disclosures of contingent assets and liabilities at the date of the financial
statements and that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically evaluates its long-lived assets for financial
impairment and continues to evaluate them as events or changes in circumstances
indicate that the carrying amount of such assets may not be fully recoverable.
The Company evaluates the recoverability of long-lived assets by measuring the
carrying amount of such assets against the estimated undiscounted future cash
flows associated with these assets. At the time such evaluations indicate that
the future undiscounted cash flows of certain long-lived assets are not
sufficient to recover the carrying value of such assets, the carrying value of
the assets are reduced to their fair values. In 1999, an impairment loss was
recognized (see Note 2).
COMPREHENSIVE INCOME
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," effective January 1, 1998.
This Statement requires the disclosure of comprehensive income and its
components in a full set of general-purpose financial statements. Comprehensive
income is the change in equity from transactions and other events and
circumstances other than those resulting from investments by owners and
distributions to owners. This Statement had no impact on the Company and,
accordingly, no separate statement of comprehensive income has been presented.
SEGMENT INFORMATION
The Company has adopted Statement of Financial Accounting Standards No. 131
("SFAS No. 131"), "Disclosures about Segments of an Enterprise and Related
Information," which is effective for fiscal years beginning after December 31,
1997. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
No. 131 also requires disclosures about products and services, geographic areas,
and major customers. Management uses one measurement of profitability and does
not desegregate its business for internal reporting.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities,"
F-29
<PAGE> 107
GOLF.COM, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
which establishes accounting and reporting standards for derivative instruments
and hedging activities. The Statement, which is effective for the Company in
2000, requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measures those instruments at fair value.
The Company is assessing the requirements of SFAS No. 133 and the effects, if
any, on the Company's financial position, results of operations and cash flows.
In July 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 ("SFAS No. 137"), "Accounting with
Derivative Instruments and Hedging Activities Deferral of the Effective Date of
FASB Statement No. 133," which deferred the effective date until the first
fiscal quarter ending June 30, 2000. The Company will adopt SFAS No. 133 in its
quarter ending June 30, 2000. The Company has not engaged in hedging activities
or invested in derivative instruments.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles ("GAAP") to revenue recognition in
financial statements. The adoption of SAB No. 101 did not have a material effect
on the Company's financial statements.
In April 2000, FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation -- an interpretation of APB Opinion
No. 25" ("FIN No. 44") was issued. FIN No. 44 clarifies the application of APB
No. 25 for only certain issues. Among other issues, FIN No. 44 clarifies the
definition of employee for purposes of applying APB No. 25, the criteria for
determining whether a plan qualifies as a non-compensatory plan, the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award, and the accounting for an exchange of stock compensation awards
in a business combination. FIN No. 44 is effective July 1, 2000, but certain
conclusions in this interpretation cover specific events that occur after either
December 15, 1998 or January 12, 2000. The adoption of certain of the
conclusions of FIN No. 44 covering events occurring during the period after
December 15, 1998 or January 12, 2000 did not have a material impact on the
Company's financial position and results of operations. The Company does not
expect that the adoption of the remaining conclusions will have a material
effect on the financial statements.
2. NON-RECURRING CHARGES
In 1999, the Company determined that its license to use the GMAP
photography program was other than temporarily impaired and as such wrote off
the balance in the amount of $33,229.
In 1998, the Company disposed of certain fixed assets in connection with
the closing of the Arlington, Virginia office. Upon the sale of the fixed
assets, the Company recognized a loss on the disposal in the amount of $44,703.
3. INCOME TAXES
No provision for federal and state income taxes was recorded from inception
through December 31, 1999 as the Company has elected to be taxed as a
partnership. Therefore, the federal and state tax effects of the Company's
results of operations are recorded by the Members in their respective income tax
returns.
4. NOTES PAYABLE
In 1998, the Company had a promissory note from NBC in the amount of
$100,000 for the purpose of a general loan. The interest rate of the note was 2%
over the prime rate and was payable on March 1, 1999. The amount was repaid in
1999.
F-30
<PAGE> 108
GOLF.COM, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. MEMBERS' EQUITY
Each member shall be entitled to one vote for each unit held. The number of
units held at December 31, 1999 are as follows:
<TABLE>
<S> <C> <C>
NBC................................................. 48.0 units 29.6%
GolfData............................................ 48.5 units 29.9%
Media One........................................... 19.5 units 12.1%
NYTMAG.............................................. 5.0 units 3.1%
Total Sports........................................ 41.0 units 25.3%
</TABLE>
NBC and GolfData are entitled to designate two of the six individuals to
the Board of Managers and Media One and Total Sports are entitled to designate
one individual. Additionally, NYTMAG is entitled to designate one observer to
the Board of Managers who has no voting rights. However, if NYTMAG exercises its
option to purchase additional units, NYTMAG shall be entitled to designate a
seventh individual to the Board of Managers.
WARRANTS
On September 16, 1996, Golf granted Otto Candies L.L.C., an unrelated
entity, a fully vested and exercisable warrant to purchase two membership units
at a price of $25,000 per unit. The warrant had a three year exercise term. The
fair value of this warrant was determined to be $129,000 calculated using the
Black-Scholes option pricing model using the following assumptions: risk-free
interest rate 5.0%, volatility 70%, a dividend yield of zero and a unit price of
$83,075, which is based upon the price per unit paid by Media One just one month
earlier. This warrant expired unexercised.
On September 27, 1999, a new fully vested and exercisable warrant was
granted to Otto Candies L.L.C. with an exercise period of two years. The fair
value of this warrant was $275,000 determined using the Black-Scholes model with
the following assumptions: risk-free interest rate 6.1%, volatility 70%, a
dividend yield of zero and a unit price of $159,000, which is based upon the
ramp between the Media One valuation and the value of the Company established by
Quokka (see Note 6).
6. SUBSEQUENT EVENTS
On May 30, 2000, Otto Candies L.L.C. exercised their warrant to purchase
two membership units of Golf for an aggregate price of $50,000, as provided in
the membership units purchase warrant agreement (see Note 5).
On June 7, 2000, Quokka Sports, Inc. ("Quokka") signed a definitive
agreement to acquire a controlling interest in the Company. Quokka will issue
approximately 3.9 million shares of common stock in exchange for 71% of the
ownership interest. NBC will retain its 29% ownership of the Company. The
transaction is subject to approval by Quokka's stockholders.
F-31
<PAGE> 109
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF TOTAL SPORTS INC.:
Independent Auditors' Report................................ F-33
Consolidated Balance Sheets as of December 31, 1998 and 1999
(As Restated), and March 31, 2000 (unaudited)............. F-34
Consolidated Statements of Operations for the period
February 20, 1997 (date of inception) through December 31,
1997, and the years ended December 31, 1998 and 1999 (As
Restated), and the three months ended March 31, 1999 and
2000 (unaudited).......................................... F-36
Consolidated Statements of Stockholders' Equity (Deficiency)
for the period February 20, 1997 (date of inception)
through December 31, 1997, and the years ended December
31, 1998 and 1999 (As Restated), and the three months
ended March 31, 2000 (unaudited).......................... F-37
Consolidated Statements of Cash Flows for the period
February 20, 1997 (date of inception) through December 31,
1997, and the years ended December 31, 1998 and 1999 (As
Restated), and the three months ended March 31, 1999 and
2000 (unaudited).......................................... F-39
Notes to Consolidated Financial Statements.................. F-42
</TABLE>
F-32
<PAGE> 110
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Total Sports Inc.
Raleigh, North Carolina
We have audited the accompanying consolidated balance sheets of Total
Sports Inc. and subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for the period February 20, 1997 (date of inception) through December
31, 1997 and the years ended December 31, 1998 and 1999. These financial
statements are the responsibility of Total Sports' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Total Sports Inc. and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for the period February 20, 1997 (date of
inception) through December 31, 1997 and the years ended December 31, 1998 and
1999, in conformity with accounting principles generally accepted in the United
States of America.
We have not audited any financial statements of Total Sports for any period
subsequent to December 31, 1999. However, as discussed in Note 1 to the
financial statements, Total Sports has continued to experience recurring losses
from operations and negative cash flows during the three months ended March 31,
2000. These matters raise substantial doubt about Total Sports' ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in Note 19, the accompanying consolidated financial statements
have been restated.
/s/ DELOITTE & TOUCHE LLP
Raleigh, North Carolina
January 24, 2000
(June 23, 2000 as to the going concern
discussion in Note 1 and Note 19)
F-33
<PAGE> 111
TOTAL SPORTS INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED AS TO MARCH 31, 2000 INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1998 1999 2000
------------- ------------- ------------
(AS RESTATED, (AS RESTATED,
SEE NOTE 19) SEE NOTE 19)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................ $ 684,777 $ 17,671,279 $ 6,626,200
Accounts receivable (less allowance for doubtful
accounts; 1998 -- $25,000; 1999 -- $36,000;
2000 -- $37,000)....................................... 1,039,755 1,197,013 2,284,663
Accounts receivable from employees and affiliates (Note
18).................................................... 13,800 229,878 80,464
Inventory (less allowance for obsolescence;
1998 -- $144,000; 1999 -- $536,000;
2000 -- $577,000)...................................... 168,396 294,127 371,319
Deferred publishing costs (Note 4)....................... 97,049 373,859 566,329
Prepaid assets........................................... 184,465 240,525 1,514,754
Other current assets..................................... 16,965 1,106,882 1,034,042
------------ ------------ ------------
Total current assets.............................. 2,205,207 21,113,563 12,477,771
Investment in Affiliate (Note 3)........................... 91,116 134,565
Deferred Publishing Costs (Note 4)......................... 392,688 690,670 1,218,716
Property and Equipment, Net (Notes 3, 5, 7 and 8).......... 1,307,403 3,438,395 5,417,376
Goodwill (less accumulated amortization;
1998 -- $1,262,000; 1999 -- $3,379,000;
2000 -- $4,127,000) (Note 3)............................. 1,425,623 2,636,271 1,887,657
Databases (less accumulated amortization; 1998 -- $113,000;
1999 -- $206,000; 2000 -- $230,000) (Note 3)............. 541,407 447,921 424,550
Other Assets............................................... 66,679 20,491 20,491
------------ ------------ ------------
Total Assets............................................... $ 5,939,007 $ 28,438,427 $ 21,581,126
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable......................................... $ 615,804 $ 1,279,879 $ 3,547,184
Accrued expenses......................................... 1,373,448 3,427,477 9,424,087
Accrued expenses -- related parties (Note 18)............ 335,566 129,248 433,061
Deferred revenues........................................ 58,173 511,152 801,453
Reserve for sales returns................................ 415,733 1,004,835 1,034,041
Excess of affiliate losses over cost (Note 3)............ 9,077
Line of credit (Note 6).................................. 3,083,483
Current maturities of notes payable (Note 7)............. 42,392 43,241 46,229
Current maturities of notes payable -- related parties
(Note 7)............................................... 58,307 38,307
Current maturities of capital lease obligations (Note
8)..................................................... 73,972 282,867 288,663
------------ ------------ ------------
Total current liabilities......................... 6,007,648 6,737,006 15,613,025
Notes payable, net of current maturities (Note 7).......... 301,111 258,231 245,895
Notes payable -- related parties, net of current maturities
(Note 7)................................................. 51,077 41,777
Capital lease Obligations, net of current maturities (Note
8)....................................................... 121,658 268,849 174,775
Series A redeemable preferred stock (Notes 10 and 12)
$10.00 par value; 125,000 shares authorized, issued and
outstanding at December 31, 1998 and 1999 and March 31,
2000 ($1,250,000 aggregate liquidation value at December
31, 1998 and 1999 and March 31, 2000).................... 1,342,824 1,536,829 1,585,349
Commitments and Contingencies (Notes 8 and 17)
</TABLE>
F-34
<PAGE> 112
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1998 1999 2000
------------- ------------- ------------
(AS RESTATED, (AS RESTATED,
SEE NOTE 19) SEE NOTE 19)
<S> <C> <C> <C>
Stockholders' Equity (Deficiency) (Notes 3, 10, 11 and 12):
Preferred stock, $.001 par value; 1,925,000 shares
authorized at December 31, 1998 and 761,903 shares
authorized at December 31, 1999 and March 31, 2000; no
shares issued and outstanding at December 31, 1998 and
1999 and March 31, 2000................................
Series B convertible preferred stock, $4.49 par value;
650,000 shares authorized at December 31, 1998 and
518,841 shares authorized at December 31, 1999 and
March 31, 2000; 445,263 shares issued and outstanding
at December 31, 1998 and 1999 and March 31, 2000
($2,000,000 aggregate liquidation value at December 31,
1998 and 1999 and March 31, 2000)...................... 1,936,935 1,936,935 1,936,935
Series C convertible preferred stock, $.001 par value;
1,500,000 shares authorized at December 31, 1998 and
1,418,200 shares authorized at December 31, 1999 and
March 31, 2000; 1,418,200 shares issued and outstanding
at December 31, 1998 and 1999 and March 31, 2000
($10,077,729 aggregate liquidation value at December
31, 1998 and 1999 and March 31, 2000).................. 1,418 1,418 1,418
Series C1 convertible preferred stock, $.001 par value;
800,000 shares authorized at December 31, 1998; 630,756
shares authorized, issued and outstanding at December
31, 1999 and March 31, 2000 ($5,985,874 aggregate
liquidation value at December 31, 1999 and March 31,
2000).................................................. 631 631
Series D convertible preferred stock, $.001 par value;
2,230,260 shares authorized; 2,140,873 shares issued
and outstanding at December 31, 1999 and March 31, 2000
($71,034,166 aggregate liquidation value at December
31, 1999 and March 31, 2000)........................... 2,141 2,141
Series D1 convertible preferred stock, $.001 par value;
1,003,617 shares authorized; no shares issued and
outstanding at December 31, 1999 and March 31, 2000....
Series E convertible preferred stock, $.001 par value;
811,423 shares authorized, issued and outstanding at
December 31, 1999 and March 31, 2000 ($26,054,793
aggregate liquidation value at December 31, 1999 and
March 31, 2000)........................................ 811 811
Common stock, $.001 par value; 20,000,000 shares
authorized at December 31, 1998 and 1999 and March 31,
2000; 1,755,180 shares issued and outstanding at
December 31, 1998; 2,882,663 shares issued and
outstanding at December 31, 1999; 2,891,862 shares
issued and outstanding March 31, 2000.................. 1,755 2,882 2,891
Stock issued for prepaid advertising..................... (12,584,821) (11,897,434)
Additional paid-in capital............................... 12,354,277 68,181,786 68,178,949
Deficit.................................................. (16,128,619) (37,955,348) (54,306,037)
------------ ------------ ------------
Total stockholders' equity (deficiency)........... (1,834,234) 19,586,435 3,920,305
------------ ------------ ------------
Total Liabilities and Stockholders' Equity
(Deficiency).................................... $ 5,939,007 $ 28,438,427 $ 21,581,126
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE> 113
TOTAL SPORTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
<TABLE>
<CAPTION>
PERIOD
FEBRUARY THREE THREE
20, 1997 MONTHS MONTHS
THROUGH YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1999 1999 2000
------------ ------------ ------------ ----------- ------------
(AS (AS (AS
RESTATED, RESTATED, RESTATED,
SEE NOTE 19) SEE NOTE 19) SEE NOTE 19)
<S> <C> <C> <C> <C> <C>
Revenues:
Digital publishing (Note 18)
(including revenue from non-cash barter
transactions for the period ended December
31, 1997 -- $0; December 31,
1998 -- $572,000; December 31,
1999 -- $1,210,000; March 31,
1999 -- $175,000; March 31,
2000 -- $60,000).......................... $ 920,636 $ 1,930,330 $ 5,396,906 $ 1,525,796 $ 2,867,546
E-Commerce (Note 18).......................... 13,586 435,172 1,355,569 296,092 368,833
----------- ------------ ------------ ----------- ------------
Total revenues.......................... 934,222 2,365,502 6,752,475 1,821,888 3,236,379
Cost of Revenues:
Digital publishing (Note 18).................. 1,378,980 3,570,438 8,765,125 1,625,670 3,045,533
(including expenses from non-cash barter
transactions for the period ended December
31, 1997 -- $0; December 31,
1998 -- $572,000; December 31,
1999 -- $1,210,000; March 31,
1999 -- $175,000; March 31,
2000 -- $60,000)..........................
E-Commerce (Note 18).......................... 1,249 331,720 1,191,376 260,472 334,919
----------- ------------ ------------ ----------- ------------
Total cost of revenues.................. 1,380,229 3,902,158 9,956,501 1,886,142 3,380,452
----------- ------------ ------------ ----------- ------------
Gross Profit (Loss)............................. (446,007) (1,536,656) (3,204,026) (64,254) (144,073)
Operating Expenses (Notes 15, 16 and 17):
Product development (Note 18)................. 1,310,516 2,550,459 4,033,226 820,428 1,524,432
Sales and marketing (Note 18)................. 576,738 2,728,502 5,216,987 627,657 5,877,401
General and administrative (Note 18).......... 355,842 1,879,587 3,745,341 532,717 1,488,406
Amortization (Note 3)......................... 321,631 572,250 1,906,449 169,491 696,020
----------- ------------ ------------ ----------- ------------
Total operating expenses................ 2,564,727 7,730,798 14,902,003 2,150,293 9,586,259
----------- ------------ ------------ ----------- ------------
Operating Loss.................................. (3,010,734) (9,267,454) (18,106,029) (2,214,547) (9,730,332)
Other Income (Expense):
Minority interest in joint venture losses
(earnings) (Note 18)........................ (138,341) 41,492
Equity in earnings (loss) of affiliate (Note
3).......................................... (24,076) 100,193 13,725 43,450
Interest income............................... 5,120 18,332 87,718 2,321 80,868
Interest expense (Note 12).................... (100,336) (507,348) (638,300) (50,226) (82,560)
Other income.................................. -- 31,669 31,535 1,400 --
----------- ------------ ------------ ----------- ------------
Other income (expense), net............... (233,557) (439,931) (418,854) (32,780) 41,758
----------- ------------ ------------ ----------- ------------
Loss from continuing operations................. (3,244,291) (9,707,385) (18,524,883) (2,247,327) (9,688,574)
Loss from the operations of discontinued segment
(Note 2)...................................... (903,148) (2,129,615) (3,301,846) (137,765) (1,242,115)
Loss on disposal of discontinued segment........ -- -- -- -- (5,420,000)
----------- ------------ ------------ ----------- ------------
Net loss........................................ (4,147,439) (11,837,000) (21,826,729) (2,385,092) (16,350,689)
Dividends on preferred stock.................... (144,180) (197,645) (194,005) (48,453) (48,520)
----------- ------------ ------------ ----------- ------------
Net loss applicable to common stockholders...... $(4,291,619) $(12,034,645) $(22,020,734) $(2,433,545) $(16,399,209)
=========== ============ ============ =========== ============
Basic and diluted loss from continuing
operations per common share (Note 13)......... $ (2.79) $ (6.35) $ (10.52) $ (1.31) $ (5.33)
=========== ============ ============ =========== ============
Basic and diluted loss per common share (Note
13)........................................... $ (3.53) $ (7.71) $ (12.38) $ (1.39) $ (8.97)
=========== ============ ============ =========== ============
</TABLE>
See notes to consolidated financial statements.
F-36
<PAGE> 114
TOTAL SPORTS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 2000 INFORMATION)
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES C1 SERIES D
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
-------------------- ------------------ ----------------- -----------------
NUMBER NUMBER NUMBER NUMBER
OF OF OF OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ---------- --------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 20, 1997............... $ $ $ $
Issuance of shares to founders..........
Additional equity contributions from
shareholder...........................
Issuance of common stock for Sports
Extra acquisition.....................
Issuance of warrants in connection with
sale of Series A redeemable preferred
stock.................................
Advance from stockholder reclassified as
equity contribution...................
Issuance of Series B convertible
preferred stock....................... 445,263 1,936,935
Issuance of common stock for DesigNet
acquisition...........................
Accrued dividends on Series A redeemable
preferred stock.......................
Discount accretion on Series A
redeemable preferred stock............
Net loss (as restated) (Note 19)........
------- ---------- --------- ------ -------- ------ -------- ------
Balance, January 1, 1998 (as restated)
(Note 19)............................... 445,263 1,936,935
------- ---------- --------- ------ -------- ------ -------- ------
Issuance of common stock for Total
College Communications acquisition....
Exercise of common options..............
Issuance of common stock................
Issuance of Series C convertible
Preferred stock, net of offering costs
of $301,758........................... 1,418,200 1,418
Advance for Series C1 convertible
Preferred stock.......................
Issuance of Series B cumulative
warrants..............................
Issuance of common stock options........
Accrued dividends on Series A Redeemable
preferred stock.......................
Discount accretion on Series A
Redeemable preferred stock............
Net loss (as restated) (Note 19)........
------- ---------- --------- ------ -------- ------ -------- ------
Balance, December 31, 1998 (as restated)
(Note 19)............................... 445,263 1,936,935 1,418,200 1,418
------- ---------- --------- ------ -------- ------ -------- ------
<CAPTION>
SERIES E
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
----------------- ------------------
NUMBER NUMBER STOCK ISSUED ADDITIONAL
OF OF FOR PREPAID PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT ADVERTISING CAPITAL DEFICIT
-------- ------ --------- ------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 20, 1997............... $ $ $ $ $
Issuance of shares to founders.......... 961,291 961
Additional equity contributions from
shareholder........................... 648,738
Issuance of common stock for Sports
Extra acquisition..................... 290,323 290 133,258
Issuance of warrants in connection with
sale of Series A redeemable preferred
stock................................. 179,000
Advance from stockholder reclassified as
equity contribution................... 125,000
Issuance of Series B convertible
preferred stock.......................
Issuance of common stock for DesigNet
acquisition........................... 33,142 33 16,538
Accrued dividends on Series A redeemable
preferred stock....................... (127,500)
Discount accretion on Series A
redeemable preferred stock............ (16,680)
Net loss (as restated) (Note 19)........ (4,147,439)
-------- ------ --------- ------ ----------- ----------- ------------
Balance, January 1, 1998 (as restated)
(Note 19)............................... 1,284,756 1,284 1,102,534 (4,291,619)
-------- ------ --------- ------ ----------- ----------- ------------
Issuance of common stock for Total
College Communications acquisition.... 418,971 419 462,278
Exercise of common options.............. 280 1 140
Issuance of common stock................ 51,173 51 60,373
Issuance of Series C convertible
Preferred stock, net of offering costs
of $301,758........................... 9,774,553
Advance for Series C1 convertible
Preferred stock....................... 1,000,000
Issuance of Series B cumulative
warrants.............................. 146,162
Issuance of common stock options........ 5,882
Accrued dividends on Series A Redeemable
preferred stock....................... (150,000)
Discount accretion on Series A
Redeemable preferred stock............ (47,645)
Net loss (as restated) (Note 19)........ (11,837,000)
-------- ------ --------- ------ ----------- ----------- ------------
Balance, December 31, 1998 (as restated)
(Note 19)............................... 1,755,180 1,755 12,354,277 (16,128,619)
-------- ------ --------- ------ ----------- ----------- ------------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIENCY)
-------------
<S> <C>
Balance, February 20, 1997............... $
Issuance of shares to founders.......... 961
Additional equity contributions from
shareholder........................... 648,738
Issuance of common stock for Sports
Extra acquisition..................... 133,548
Issuance of warrants in connection with
sale of Series A redeemable preferred
stock................................. 179,000
Advance from stockholder reclassified as
equity contribution................... 125,000
Issuance of Series B convertible
preferred stock....................... 1,936,935
Issuance of common stock for DesigNet
acquisition........................... 16,571
Accrued dividends on Series A redeemable
preferred stock....................... (127,500)
Discount accretion on Series A
redeemable preferred stock............ (16,680)
Net loss (as restated) (Note 19)........ (4,147,439)
------------
Balance, January 1, 1998 (as restated)
(Note 19)............................... (1,250,866)
------------
Issuance of common stock for Total
College Communications acquisition.... 462,697
Exercise of common options.............. 141
Issuance of common stock................ 60,424
Issuance of Series C convertible
Preferred stock, net of offering costs
of $301,758........................... 9,775,971
Advance for Series C1 convertible
Preferred stock....................... 1,000,000
Issuance of Series B cumulative
warrants.............................. 146,162
Issuance of common stock options........ 5,882
Accrued dividends on Series A Redeemable
preferred stock....................... (150,000)
Discount accretion on Series A
Redeemable preferred stock............ (47,645)
Net loss (as restated) (Note 19)........ (11,837,000)
------------
Balance, December 31, 1998 (as restated)
(Note 19)............................... (1,834,234)
------------
</TABLE>
F-37
<PAGE> 115
TOTAL SPORTS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 2000
INFORMATION) -- (CONCLUDED)
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES C1 SERIES D
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
-------------------- ------------------ ----------------- -----------------
NUMBER NUMBER NUMBER NUMBER
OF OF OF OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ---------- --------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 (as restated)
(Note 19).............................. 445,263 $1,936,935 1,418,200 $1,418 $ $
Issuance of common stock...............
Exercise of common stock options.......
Issuance of Series C1 convertible
Preferred stock...................... 630,756 631
Issuance of common stock for Long
Distance Technologies acquisition....
Issuance of common stock options.......
Issuance of warrants in connection with
Convertible promissory notes
payable..............................
Issuance of Series D convertible
Preferred stock...................... 2,140,873 2,141
Issuance of Series E convertible
Preferred stock and common stock for
the NBC Sports agreement.............
Advertising received from NBC Sports as
payment for common stock.............
Accrued dividends on Series A
Redeemable preferred stock...........
Discount accretion on Series A
Redeemable preferred stock...........
Net loss (as restated) (Note 19).......
------- ---------- --------- ------ -------- ---- -------- ------
Balance, January 1, 2000 (as restated)
(Note 19).............................. 445,263 1,936,935 1,418,200 1,418 630,756 631 2,140,873 2,141
------- ---------- --------- ------ -------- ---- -------- ------
Exercise of common stock options.......
Issuance of common stock options.......
Advertising received from NBC Sports...
Accrued dividends on Series A
Redeemable preferred stock...........
Discount accretion on Series A
Redeemable preferred stock...........
Net loss...............................
------- ---------- --------- ------ -------- ---- -------- ------
Balance, March 31, 2000................. 445,263 $1,936,935 1,418,200 $1,418 630,756 $631 2,140,873 $2,141
======= ========== ========= ====== ======== ==== ======== ======
<CAPTION>
SERIES E
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
----------------- ------------------
NUMBER NUMBER STOCK ISSUED ADDITIONAL
OF OF FOR PREPAID PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT ADVERTISING CAPITAL DEFICIT
-------- ------ --------- ------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 (as restated)
(Note 19).............................. $ 1,755,180 $1,755 $ $12,354,277 $(16,128,619)
Issuance of common stock............... 18,550 19 28,734
Exercise of common stock options....... 13,109 13 14,589
Issuance of Series C1 convertible
Preferred stock...................... 4,779,725
Issuance of common stock for Long
Distance Technologies acquisition.... 284,401 284 3,227,667
Issuance of common stock options....... 106,174
Issuance of warrants in connection with
Convertible promissory notes
payable.............................. 378,379
Issuance of Series D convertible
Preferred stock...................... 34,026,360
Issuance of Series E convertible
Preferred stock and common stock for
the NBC Sports agreement............. 811,423 811 811,423 811 (13,461,508) 13,459,886
Advertising received from NBC Sports as
payment for common stock............. 876,687
Accrued dividends on Series A
Redeemable preferred stock........... (150,000)
Discount accretion on Series A
Redeemable preferred stock........... (44,005)
Net loss (as restated) (Note 19)....... (21,826,729)
-------- ---- --------- ------ ------------ ----------- ------------
Balance, January 1, 2000 (as restated)
(Note 19).............................. 811,423 811 2,882,663 2,882 (12,584,821) 68,181,786 (37,955,348)
-------- ---- --------- ------ ------------ ----------- ------------
Exercise of common stock options....... 9,199 9 9,480
Issuance of common stock options....... 36,203
Advertising received from NBC Sports... 687,387
Accrued dividends on Series A
Redeemable preferred stock........... (37,500)
Discount accretion on Series A
Redeemable preferred stock........... (11,020)
Net loss............................... -- (16,350,689)
-------- ---- --------- ------ ------------ ----------- ------------
Balance, March 31, 2000................. 811,423 $811 2,891,862 $2,891 $(11,897,434) $68,178,949 $(54,306,037)
======== ==== ========= ====== ============ =========== ============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIENCY)
-------------
<S> <C>
Balance, January 1, 1999 (as restated)
(Note 19).............................. $ (1,834,234)
Issuance of common stock............... 28,753
Exercise of common stock options....... 14,602
Issuance of Series C1 convertible
Preferred stock...................... 4,780,356
Issuance of common stock for Long
Distance Technologies acquisition.... 3,227,951
Issuance of common stock options....... 106,174
Issuance of warrants in connection with
Convertible promissory notes
payable.............................. 378,379
Issuance of Series D convertible
Preferred stock...................... 34,028,501
Issuance of Series E convertible
Preferred stock and common stock for
the NBC Sports agreement.............
Advertising received from NBC Sports as
payment for common stock............. 876,687
Accrued dividends on Series A
Redeemable preferred stock........... (150,000)
Discount accretion on Series A
Redeemable preferred stock........... (44,005)
Net loss (as restated) (Note 19)....... (21,826,729)
------------
Balance, January 1, 2000 (as restated)
(Note 19).............................. 19,586,435
------------
Exercise of common stock options....... 9,489
Issuance of common stock options....... 36,203
Advertising received from NBC Sports... 687,387
Accrued dividends on Series A
Redeemable preferred stock........... (37,500)
Discount accretion on Series A
Redeemable preferred stock........... (11,020)
Net loss............................... (16,350,689)
------------
Balance, March 31, 2000................. $ 3,920,305
============
</TABLE>
See notes to consolidated financial statements.
F-38
<PAGE> 116
TOTAL SPORTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
<TABLE>
<CAPTION>
PERIOD THREE THREE
FEBRUARY 20, 1997 MONTHS MONTHS
THROUGH YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1999 1999 2000
------------------- ------------- ------------- ----------- ------------
(AS RESTATED, (AS RESTATED, (AS RESTATED,
SEE NOTE 19) SEE NOTE 19) SEE NOTE 19)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net loss....................................... $(4,147,439) $(11,837,000) $(21,826,729) $(2,385,092) $(16,350,689)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 703,301 1,357,641 4,014,198 434,946 1,550,957
Loss on sale of property and equipment....... 7,212 7,433 47,729 35,428
Loss on disposal of discontinued operations
(Note 2)................................... 5,420,000
Compensation expense for common stock and
options granted............................ 23,474 106,174 36,203
Interest expense on line of credit
guarantee.................................. 42,665 28,753
Amortization of debt discount................ 146,162 105,337
Interest expense on notes payable converted
into equity................................ 125,918
Advertising received as payment for common
stock...................................... 876,687 687,387
Provisions for doubtful accounts............. 20,000 4,832 11,635 715
Reserve for sales returns.................... 14,820 400,913 589,102 251,041 29,206
Provisions for inventory obsolescence........ 37,138 106,845 392,162 185,099 41,115
Computer equipment received as payment for
advertising sales.......................... (100,000) (100,000)
Undistributed (earnings) losses of
affiliates................................. 24,077 (100,193) (13,725) (43,449)
Minority interest in joint venture earnings
(losses)................................... (138,341) 41,493
Changes in operating assets and liabilities:
Accounts receivable.......................... (266,448) (742,092) (373,753) (1,103,712) (938,951)
Inventory.................................... (200,557) (111,822) (498,910) (194,559) (118,307)
Deferred publishing costs.................... (124,910) (364,827) (1,436,375) (3,272) (1,010,878)
Prepaid expenses and other current assets.... (66,543) (201,611) (966,378) (326,968) (1,201,389)
Accounts payable............................. 337,097 349,430 (333,458) 2,267,305
Accrued expenses............................. 343,586 820,485 1,694,741 (86,156) 880,423
Deferred revenues............................ 58,173 452,979 290,301
----------- ------------ ------------ ----------- ------------
Net cash used in operating activities.... (3,825,393) (9,860,365) (16,673,707) (3,528,127) (8,424,623)
Investing Activities:
Purchases of property and equipment............ (357,371) (740,824) (2,154,442) (380,445) (2,503,019)
Equity investment in Golf.Com.................. (250,000)
Cash from acquired companies................... 26,880 36,388
Acquisition of KOZ sports content business..... (1,414,240)
----------- ------------ ------------ ----------- ------------
Net cash used in investing activities.... (1,771,611) (963,944) (2,118,054) (380,445) (2,503,019)
Financing Activities:
Borrowings (repayments) on line of credit,
net.......................................... 2,330,000 753,483 (3,083,483) (235,579)
Proceeds from issuance of notes payable and
short-term advances.......................... 3,453,838 6,606,626 106,900
Principal repayments on notes payable and
short-term advances.......................... (12,847) (102,016) (492,568) (38,648)
Principal repayments on capital leases......... (29,524) (167,187) (76,869) (88,278)
Proceeds from issuance of common stock and cash
contributions................................ 649,699 308 14,602 9 9,489
Proceeds from issuance of Series A redeemable
preferred stock, net......................... 750,998
Proceeds from issuance of warrants in
connection with preferred stock offerings and
convertible notes payable.................... 179,000 146,162 10,957,452
Proceeds from issuance of Series B Convertible
Preferred stock, net......................... 1,936,935
Proceeds from issuance of Series C Convertible
Preferred stock, net......................... 6,050,054
Proceeds from issuance of Series C1 Convertible
Preferred stock.............................. 1,000,000 4,780,356 4,738,881
Proceeds from issuance of Series D Convertible
Preferred stock.............................. 17,162,465
----------- ------------ ------------ ----------- ------------
Net cash provided by (used in) financing
activities.............................. 5,833,785 11,272,305 35,778,263 4,533,342 (117,437)
Net Increase (Decrease) in Cash and Cash
Equivalents.................................... 236,781 447,996 16,986,502 624,770 (11,045,079)
Cash and Cash Equivalents, Beginning of
Period......................................... 236,781 684,777 684,777 17,671,279
----------- ------------ ------------ ----------- ------------
Cash and Cash Equivalents, End of Period........ $ 236,781 $ 684,777 $ 17,671,279 $ 1,309,547 $ 6,626,200
=========== ============ ============ =========== ============
</TABLE>
See notes to consolidated financial statements.
F-39
<PAGE> 117
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION FOR PERIOD ENDED:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1999 1999 2000
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Cash paid for interest.......... $37,287 $108,805 $577,415 $ 154,905 $68,159
======= ======== ======== ========= =======
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Period February 20, 1997 through December 31, 1997:
As discussed in Note 3, Total Sports issued 290,323 shares of common stock
valued at $133,548 as consideration for the purchase of the assets and
liabilities of Sports Extra, Inc. In connection with the Sports Extra
acquisition, Total Sports forgave a note receivable of $100,000 from Sports
Extra. Also related to the Sports Extra acquisition, Total Sports assumed two
notes payable, totaling $93,046, including accrued interest, related to
databases acquired from Sports Extra.
As also discussed in Note 3, Total Sports issued 33,142 shares of common
stock valued at $16,571 as consideration for the purchase of the assets and
liabilities of DesigNet.
In connection with the Series A redeemable preferred stock offering, Total
Sports converted an advance from a stockholder of $250,000 into 25,000 shares of
Series A redeemable preferred stock.
Total Sports reclassified an advance from a founding stockholder of
$125,000 as paid-in capital.
Total Sports accrued dividends of $127,500 and discount accretion of
$16,680 relating to the Series A redeemable preferred stock.
Year Ended December 31, 1998:
As also discussed in Note 3, Total Sports issued 418,971 shares of common
stock valued at $481,817 as consideration for the remaining 50% ownership of
Total College Communications Company.
Total Sports acquired certain computer databases for $361,359 by issuing a
note payable.
Total Sports acquired certain computer hardware valued at $225,154 by
entering into noncancelable capital leases.
Total Sports accrued dividends of $150,000 and discount accretion of
$47,645 relating to the Series A redeemable preferred stock.
Notes payable and accrued interest totaling $3,725,918 were converted into
Series C convertible preferred stock.
Year Ended December 31, 1999:
As discussed in Note 3, Total Sports issued 284,401 shares of common stock
valued at $3,227,951 as consideration for the purchase of the assets and
liabilities of Long Distance Technologies, Inc. d/b/a Motortrax Interactive.
Total Sports acquired certain computer hardware valued at $523,273 by
entering into noncancelable capital leases.
Total Sports acquired certain computer equipment valued at $114,921 by
entering into a 3-year promissory note with First Raleigh Telex.
Total Sports accrued dividends of $150,000 and discount accretion of
$44,005 relating to the Series A redeemable preferred stock.
Notes payable totaling $6,500,000 were converted into Series D convertible
preferred stock.
F-40
<PAGE> 118
In connection with the NBC Sports, Inc. agreement discussed in Note 11,
Total Sports issued 811,423 stock units valued at $16.59 per unit in exchange
for prepaid advertising. Each stock unit consists of one share of common stock
and one share of Series E preferred stock.
See notes to consolidated financial statements.
F-41
<PAGE> 119
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Total Sports is an event-centered, online sports media company. Total
Sports provides sports fans and enthusiasts with live, or real-time, simulcasts
of events in eight collegiate and professional sports, game summaries, in-depth
statistical analysis, breaking news and the opportunity to purchase
sports-related merchandise. Total Sports' networks provide online sponsorship
and e-commerce opportunities for advertisers and merchants associated with
specific sports, leagues, teams and events. Total Sports also publishes
encyclopedias, fan guides and other hard and soft cover books.
Total Sports Inc. was originally incorporated on February 20, 1997 as Total
Ltd., a North Carolina corporation. Prior to March 31, 1997, Total Ltd.
conducted no business and had no activity. Concurrent with the acquisition (see
Note 3), Total Ltd. began its principal operations.
On May 29, 1998, Total Sports Inc. was incorporated in the State of
Delaware. The capital structure of Total Sports Inc. was identical to Total
Ltd.'s in terms of the authorized number of shares, dividends, voting rights,
liquidation preference and redemption rights, except that the new capital
structure authorized Total Sports Inc. to issue up to 5,000,000 shares of
preferred stock.
On June 2, 1998, Total Ltd. was merged with and into Total Sports Inc. The
separate existence of Total Ltd. ceased, and Total Sports Inc. became the
surviving corporation. Prior to the merger, Total Sports Inc. had no operations
or activity. As part of the merger, each share of Total Ltd.'s issued and
outstanding Series A redeemable, Series B convertible, and common stock was
converted into and exchanged for one share of Total Sports Inc.'s Series A
redeemable preferred stock, Series B convertible preferred stock, and common
stock, respectively. The shareholders of the two companies were exactly the same
prior to and after the merger. As the ownership structures of the entities did
not change, the assets and liabilities transferred in the merger were recorded
at Total Ltd.'s historical book values with no goodwill or other step-up in
basis recorded.
Going Concern Discussion
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the consolidated
financial statements, Total Sports has experienced a substantial increase in
operating expenses since inception in connection with the growth of its
operations and staffing and the expansion of its service offerings. From its
inception, Total Sports has incurred net losses of more than $54.2 million,
including losses of approximately $21.8 million in 1999 and $16.4 million during
the three months ended March 31, 2000. Total Sports expects to continue to incur
net losses for the foreseeable future as it implements its business strategy. In
addition, the Company had a working capital deficiency at March 31, 2000 and net
cash used in operating activities during the three months ended March 31, 2000
totaled $8.4 million. These factors among others may indicate that the Company
will be unable to continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should Total Sports be
unable to continue as a going concern.
As of March 31, 2000, Total Sports had approximately $6.6 million in cash
and cash equivalents. Management has determined that it must raise additional
funds to support its operations and implement its business strategy over the
next twelve months, and is undertaking efforts to raise additional capital.
These efforts include obtaining bridge financing and additional capital
contributions from existing stockholders (see Note 20). Although no assurances
can be given that the Company will be successful in raising additional capital
sufficient to continue its operations, based on Total Sports' history of raising
equity, management believes that it can successfully raise funds necessary to
support its plans on its intended timetable. In the event that Total Sports is
not able to raise such additional funds, management has prepared a contingency
operating plan that consists of reductions in personnel and marketing
expenditures which, in the opinion of
F-42
<PAGE> 120
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
management, could be implemented and could allow Total Sports to continue its
operations for a reasonable period of time. However, the full implementation of
this contingency plan could have material adverse effects on Total Sports'
long-term operations.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Financial Statements
The consolidated financial statements as of March 31, 2000 and for the
three months ended March 31, 1999 and 2000 are unaudited. In addition,
disclosure information subsequent to January 24, 2000 (the original issuance
date of our 1999 financial statements) is unaudited (except for the going
concern discussion in Note 1 and Note 19). In the opinion of management, the
unaudited consolidated balance sheet at March 31, 2000, and the unaudited
consolidated statements of operations, stockholders' equity, and cash flows for
the three months ended March 31, 1999 and 2000, include all adjustments, which
include only normal recurring adjustments, necessary to present the financial
position and results of operations and cash flows for the periods then ended in
accordance with accounting principles generally accepted in the United States of
America.
The results of operations for the three months ended March 31, 1999 and
2000 are not necessarily indicative of results to be expected for the full
fiscal year or any other period. The results of operations and comparisons with
prior and subsequent interim periods are materially impacted by the results of
operations of businesses acquired. Furthermore, Total Sports experiences higher
levels of revenues during the first quarter than during the second or third
quarters. Historically, Total Sports has achieved its highest revenues in its
first quarter.
Principles of Consolidation
The accompanying consolidated financial statements are prepared on the
accrual basis of accounting and include the accounts of Total Sports and its
wholly-owned subsidiary, Sports Extra Acquisition Corporation.
The consolidated financial statements for the year ended December 31, 1999
also include the accounts of Total Motorsports, Inc., a wholly-owned subsidiary,
which was formed during 1999 and acquired Long Distance Technologies, Inc. on
June 4, 1999, and Total Sports Publishing, Inc., a wholly-owned subsidiary,
which was also formed during 1999. All of the assets related to Total Sports'
print publishing segment were transferred to Total Sports Publishing, Inc., as
of June 30, 1999. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Total Sports' 50% investment in Total College Communications Company is
accounted for by the equity method of accounting. As discussed in Note 3, Total
Sports acquired the remaining 50% of Total College Communications in June 1998
and began consolidating Total College Communications at that date. All
intercompany transactions have been eliminated in consolidation.
Total Sports' investment in Golf.Com is accounted for by the equity method
of accounting as Total Sports exerts significant influence over this entity.
Cash and Cash Equivalents
The Company considers all money market accounts, debt instruments purchased
with an original maturity of three months or less, and other highly liquid
investments to be cash equivalents.
Concentration of Credit Risk
Total Sports relied on a single distributor for sales of all print titles
during 1997 and 1998. This distributor collected all sales proceeds and remitted
these monies, less the distribution fees, on a monthly basis. Effective
F-43
<PAGE> 121
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
February 1999, Total Sports entered into a termination agreement with the
distributor that allows Total Sports to utilize another national distributor for
all of its titles except Total Hockey, with the original distributor receiving
from 3% to 5% of sales for all titles through June 2000. Total Sports paid
approximately $77,000 during 1999 and $10,000 during the three months ended
March 31, 2000 to the original distributor under the terms of the termination
agreement.
Inventory
Inventory consists primarily of the direct costs associated with the
printing of finished books, such as printing, jacket costs, etc. Costs are
recorded as titles are developed and are expensed on a per unit basis when sold.
Total Sports establishes an allowance for obsolete inventory based on historical
and industry experience. All book inventories are fully reserved upon the
one-year anniversary of the book's release.
Deferred Publishing Costs
Total Sports' investment in publishing costs is capitalized and amortized
over the estimated selling period of one year using the sum-of-the-months digits
method beginning on the release date of the related book. Costs incurred for
titles that have not been released are classified as long-term deferred
publishing costs. Amortization expense was approximately $29,000 in 1997,
$574,000 in 1998, $862,000 in 1999, $140,000 for three months ended March 31,
1999 and $290,000 for the three months ended March 31, 2000.
Property and Equipment
Property and equipment is carried at historical cost and is being
depreciated using the straight-line method over the estimated useful lives of
the related assets over periods ranging from one to seven years.
Maintenance and repairs are charged to expense when incurred; improvements
are capitalized. Upon the sale or retirement of assets, the cost and accumulated
depreciation are removed from the account and any gain or loss is recognized.
Goodwill
Goodwill is amortized on a straight-line basis over the periods that
expected economic benefits will be provided, ranging from 19 months to 5 years.
Management estimates the period of economic benefit considering factors such as
existing contracts and estimated lives of other operating assets acquired. Total
Sports evaluates the realizability of goodwill when events or circumstances
indicate a possible inability to recover the carrying amount. Events which could
indicate an impairment of goodwill include loss of key contracts with sports
leagues such as the NCAA and NASCAR, a disposal of a segment or business line,
and the effects of obsolescence, demand, and competition on our products and
services.
In the event of a possible impairment, Total Sports evaluates enterprise
level goodwill using a market capitalization method based on quoted prices or
cash transactions of equity securities. If an impairment is indicated, the
impairment is measured as the net book value of Total Sports less the market
value of Total Sports' equity securities. Total Sports evaluates goodwill
attributable to an acquired business whose operations are separately
identifiable and which has not been incorporated into Total Sports' general
operations based on cash flow of the existing business, discounted at rates
commensurate with the risks involved. Such discount rates are determined after
considering Total Sports' cost of capital and incremental borrowing rates. If an
impairment of goodwill from a separate business is indicated, the impairment is
measured as the excess of the carrying value of goodwill of the separate
business over the fair value, as measured by the total discounted cash flows of
the business. The analyses require significant management judgment to evaluate
the capacity of an acquired business to perform within projections.
F-44
<PAGE> 122
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
As of December 31, 1999, net goodwill summarized by amortization period is
as follows:
<TABLE>
<S> <C>
19 months - 3 years...................................... $2,101,565
3 - 5 years.............................................. 534,706
----------
$2,636,271
==========
</TABLE>
Databases
Databases represent the cost of acquiring historical statistical
information from outside parties in electronic formats. Databases are amortized
on a straight-line basis over a period of 7 years. Internal costs incurred to
accumulate statistical information are expensed as incurred.
Income Taxes
Deferred income taxes are recognized for the tax consequences of
"temporary" differences by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities and for the tax effect of net
operating and economic loss carryforwards under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount that management believes is more likely than not to be
realized. As of December 31, 1998 and 1999 and March 31, 2000, the net deferred
tax assets have been fully reserved.
Revenue Recognition
Total Sports derives revenues from three primary sources: digital
publishing; print publishing; and e-commerce. Digital publishing revenues result
from the sale of sponsorships and of banner advertisements, licensing of
statistical data and content, and providing web site development services for
third parties. Sponsorship revenues generally relate to specific sporting
championship events, such as the NCAA men's basketball championships.
Advertising revenues are typically derived from sales of banner advertisements
on Total Sports' Web sites. Sponsorship revenues are recognized in the period
that the sponsored event occurs and the sponsorship is displayed, provided that
no significant obligations remain, such as unmet commitments for guaranteed
minimum impressions ("page views" or "hits"). Advertising revenues are
recognized ratably over the period in which the advertisement is displayed,
provided that no significant obligations remain. In the event that sponsorships
or advertising contracts contain minimum impressions guarantees, revenue is
recognized as progress is made toward the minimum impression commitments or
using the straight-line method, whichever is less.
Licensing revenue for statistical data is recognized when the statistical
data has been delivered and Total Sports has no further obligations. Content
licensing revenue is recognized over the period of the license agreement as
Total Sports delivers the content. Web site development revenue is recognized as
the services are performed, provided that no significant obligations remain. If
Web site development fees relate to or originate from an agreement to license
content, the development fees revenue is recognized over the content license
period. Amounts billed or received for which services have not yet been provided
are recorded as deferred revenue in the current liabilities section of the
balance sheets.
Print publishing revenues are derived from the sale of encyclopedias and
other hard cover and soft cover books. For titles Total Sports publishes, print
publishing revenue is recognized upon the sale of books by a third-party
distributor. For books that Total Sports co-published, revenue is recognized as
Total Sports earns fixed advances that are paid by the co-publisher. Upon the
sale of books where Total Sports is the publisher, a reserve for right of
returns, based on historical and industry averages, of approximately 37.0% is
established.
F-45
<PAGE> 123
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
Allowance for sales returns of books totaled approximately $416,000 at December
31, 1998 and $985,000 at December 31, 1999, and $1,017,000 at March 31, 2000.
E-commerce revenues represent sales of sports equipment, apparel and
memorabilia through online stores and through live event merchandising.
E-commerce revenue is recognized upon the delivery to and acceptance of goods to
our customers, which occurs only after credit card authorization. During 1998
and 1999, approximately 75% of goods used to fulfill customer orders were
purchased by Total Sports from third-party manufacturers or distributors after
Total Sports received customer orders. For all e-commerce sales, Total Sports
assumes credit risk and is responsible for pricing, processing orders, arranging
or authorizing delivery, processing all merchandise returns, providing all
customer support related to the transaction, and resolving customer disputes.
Title to goods held on hand at Total Sports' offices transfers to Total Sports
at the time the goods are received by Total Sports from its suppliers. Title to
goods purchased from distributors and shipped directly to customers transfers to
Total Sports at the time the goods are shipped from the distributor. Title
transfers from Total Sports to the final customer at the time the goods are
delivered to and accepted by the customer. In the event goods are lost or
damaged during shipment from or return to the distributor and coverage is denied
by the commercial shipping company, Total Sports bears the risk of loss. Credit
card sales account for approximately 100% of total e-commerce sales in 1998 and
1999. Total Sports' policy is to record a sales returns reserve for anticipated
future returns; however, prior to quarter ended June 30, 1999, e-commerce sales
returns were insignificant and were netted from e-commerce revenue as incurred.
Subsequent to June 30, 1999, Total Sports has provided for estimated e-commerce
returns at the time of shipment based on historical data. Allowance for
e-commerce returns totaled approximately $20,000 at December 31, 1999 and
$17,000 at March 31, 2000.
Barter Transactions
Total Sports recognizes advertising revenue as a result of barter
transactions for advertising and direct links to Total Sports' TotalCasts for
baseball and other sports. Such revenue is recognized based on the fair value of
the consideration received, which generally consists of advertising and computer
equipment. Barter revenue and the corresponding expense are recognized in the
period the advertising is displayed. Management determines the fair value of
barter transactions based on currently available advertising rates for similar
advertising (i.e., size of advertisement, type of publication, etc.) or the
current cost of similar computer equipment.
As discussed in Note 11, during 1999 Total Sports entered into an agreement
with NBC Sports, Inc. for promotional and advertising services. Under the
agreement, NBC Sports will provide $17.4 million in on-air promotion and
marketing of all Total Sports' TotalCasts for which it has broadcast rights over
a 51-month period. The promotion and advertising received by Total Sports under
this agreement will be recognized as sales and marketing expense in the
consolidated financial statements as the services are provided by NBC Sports.
The $17.4 million of promotion and advertising is expected to be received by
Total Sports in the following periods: 1999 - 6%; 2000 - 20%; 2001 - 30%;
2002 - 22%; and 2003 - 22%.
Cost of Revenues
Digital publishing cost of revenues consists primarily of compensation and
benefits for the editorial and operations staff, contract labor, commissions,
royalty and license payments, content fees, and allocations of facilities and
other shared costs such as depreciation, telecommunications and computer-related
expenses.
To provide content for its digital publishing activities, Total Sports
acquires statistical data and content from newspaper wire feeds. In addition,
Total Sports has the right to accumulate statistical data and content through
license agreements with sports leagues. Wire feeds are expensed as cost of sales
when incurred. Content licensing costs are paid at the beginning of the license
period and expensed as cost of sales ratably
F-46
<PAGE> 124
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
over the license period. Costs incurred for wire feeds and content licensing
costs totaled approximately $308,000, $786,000 and $1,163,000 for the periods
ended December 31, 1997, 1998, and 1999 and $144,000 and $349,000 for the three
months ended March 31, 1999 and 2000.
Print publishing cost of revenues consists primarily of the direct costs of
books sold to customers, product fulfillment, amortization of deferred
publishing costs such as author fees and royalty payments, license fees, and
allocations of facilities and other shared costs.
E-commerce cost of revenues consists primarily of the direct costs of
merchandise sold to customers, and costs associated with credit card and other
commissions, product fulfillment, outbound shipping and handling costs, and
allocations of facilities and other shared costs.
Product Development Costs
During its development and modification in 1997 and 1998, Total Sports'
TotalCast software was intended for internal use only and not for sale to
third-parties. As such, during that time Total Sports expensed all development
costs related to the TotalCast software as incurred. During 1999, Total Sports
adopted the provisions of AICPA Statement of Position 98-1, Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use, which requires
specified costs of developing or obtaining internal-use software to be
capitalized and amortized. Due to Total Sports' history of complete revisions to
its TotalCast software and the substantial uncertainty surrounding future
technological requirements, Total Sports expenses as incurred the costs of
internally developed software with either expected useful lives of six months or
less or total project costs of $5,000 or less.
Advertising
Total Sports expenses advertising costs as incurred. Advertising expense
was approximately $86,000 for the period February 20, 1997 through December 31,
1997, $835,000 for the year ended December 31, 1998, $1,358,000 for the year
ended December 31, 1999, $206,000 for three months ended March 31, 1999 and
$3,224,000 for three months ended March 31, 2000. There were no advertising
costs reported as assets at December 31, 1998. At December 31, 1999 and March
31, 2000, there were advertising costs totaling approximately $14,000 reported
as prepaid assets.
Stock Compensation
Total Sports' stock option plan is accounted for in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Total Sports follows the disclosure requirements of SFAS No. 123,
Accounting for Stock Based Compensation.
Warrants
Stock purchase warrants issued in connection with debt and equity
financings are recorded at amounts based on their relative estimated fair values
at time of issuance and credited to additional paid-in capital. Any resulting
debt discount is amortized to interest expense over the term of the related debt
using the interest method.
Fair Value of Financial Instruments
Total Sports' financial instruments consist of cash and cash equivalents,
trade receivables, trade payables, line of credit and notes payable. The
carrying values of cash and cash equivalents, trade receivables and trade
payables approximate fair value because of the short-term nature of these assets
and liabilities. The carrying values of the revolving line of credit
approximates fair value because the related interest rate is based on
F-47
<PAGE> 125
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
LIBOR. The estimated fair values of notes payable, which consist of fixed-rate
borrowings, are based on future cash flows discounted at 7.75%. The estimated
fair value of notes payable, including current maturities, at December 31, 1998
is approximately $337,000, as compared to a carrying value of $343,503. The
estimated fair value of notes payable at December 31, 1999 is approximately
$417,000, as compared to a carrying value of $410,580. The estimated fair value
of notes payable at March 31, 2000 is approximately $375,000, as compared to a
carrying value of $372,208.
Net Loss Per Share
Total Sports computes net loss per share in accordance with SFAS No. 128,
Earnings Per Share. Basic and diluted net loss per share is computed by dividing
the net loss applicable to common stockholders for the period by the
weighted-average number of shares of common stock outstanding during the period.
The calculation of diluted net loss per share excludes potential shares of
common stock if the effect is antidilutive. Potential shares of common stock are
composed of incremental shares of common stock issuable upon the exercise of
potentially dilutive stock options and warrants using the treasury stock method
and upon conversion of Total Sports' preferred stock. Diluted net loss per share
presented in the accompanying consolidated financial statements is the same as
basic net loss per share because Total Sports had losses for all periods
presented and inclusion of potential shares would therefore be antidilutive.
Accounting Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 amounts could differ from these
estimates.
Presentation
Certain amounts for 1997 and 1998 have been reclassified to conform to the
1999 presentation.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, and No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet. Total Sports has adopted SFAS No. 130 as of
January 1, 1998; however, this standard does not currently impact disclosures.
SFAS No. 131 requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. This
statement defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. Total Sports has adopted SFAS No. 131 as of January 1,
1998.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 is effective for
financial statements for the years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The adoption of SOP 98-1 during the
F-48
<PAGE> 126
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
year ended December 31, 1999 did not have a significant effect on the reported
results of operations, financial position or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, the Financial Accounting Standards Board issued
SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133. This
statement postpones the effective date of SFAS No. 133. Total Sports will be
required to adopt the new reporting guidelines for the fiscal year beginning
January 1, 2001. Total Sports has not fully analyzed the provisions of this
statement or its effects on Total Sports.
On December 3, 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain views
of the SEC staff in applying accounting principles generally accepted in the
United States of America to revenue recognition in financial statements. The SEC
issued Staff Accounting Bulletin No. 101B on June 26, 2000, which delays the
implementation date of SAB 101 until no later than the fourth fiscal quarter of
fiscal years beginning after December 15, 1999. Total Sports adopted SAB 101 as
of January 1, 2000; however, this bulletin does not have a significant impact on
Total Sports' revenues.
In January 2000, the Emerging Issues Task Force ("EITF"), the EITF reached
a consensus on EITF 99-1, Accounting for Advertising Barter Transactions (the
"Issue"). This Issue states that revenue and expense should be recognized at
fair value from an advertising barter transaction only if the fair value of the
advertising surrendered in the transaction is determinable based on the entity's
own historical practice of receiving cash, marketable securities, or other
consideration that is readily convertible to a known amount of cash for similar
advertising from buyers unrelated to the counterparty in the barter transaction.
If the fair value of the advertising surrendered in the barter transaction is
not determinable within the limits of this Issue, the barter transaction should
be recorded based on the carrying amount of the advertising surrendered, which
likely will be zero. This Issue may be applied either prospectively to
transactions after January 20, 2000, or as a change in accounting principle.
Total Sports has elected to adopt the provisions of the Issue prospectively. Had
Total Sports adopted the provisions of EITF 99-1 as of February 20, 1997 (date
of inception), reported barter revenues would have decreased by $-0- in 1997,
$427,000 in 1998 and $1,110,000 in 1999.
2. DISCONTINUED OPERATIONS
On March 27, 2000, management of Total Sports adopted a plan to sell its
wholly-owned subsidiary, Total Sports Publishing, which comprises the entire
operations of Total Sports' print publishing segment. The revenues from the
print publishing segment were $257,344, $1,314,692, and $1,831,208, for 1997,
1998, and 1999, respectively, and $789,730 and $272,469 for the three months
ended March 31, 1999 and 2000. Total Sports is currently in negotiations to sell
Total Sports Publishing to a related party who is minority shareholder of the
Company. However, there is significant uncertainty as to whether the
negotiations will yield an agreement. As such, the loss recorded at March 31,
2000 assumes a termination of the print business. Accordingly, the operations of
the discontinued print publishing business have been segregated in the
accompanying statements of operations. Net revenues, cost of sales, and
operating expenses associated with the discontinued operations have been
reclassified from all periods presented. No allocation of interest income or
interest expense has been attributed to the discontinued operations. In
addition, segregated operations of the print publishing business and the
expected loss on disposal reflect no income tax benefit.
F-49
<PAGE> 127
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
The assets of the print publishing business to be disposed of at March 31,
2000, are as follows:
<TABLE>
<CAPTION>
MARCH 31,
2000
----------
<S> <C>
Accounts receivable...................................... $ 176,798
Inventories.............................................. 341,319
Prepaid expenses......................................... 33,870
Deferred publishing costs................................ 1,785,045
Property and equipment................................... 159,508
----------
Net assets held for disposition.......................... $2,496,540
==========
</TABLE>
3. BUSINESS ACQUISITIONS AND EQUITY INVESTMENTS
KOZ Acquisition
On March 31, 1997, Total Sports purchased certain assets and assumed
certain liabilities of the sports content business of KOZ inc., a related
company, for an aggregate cash purchase price of $1,414,240. This acquisition
was financed by borrowings under a line of credit (see Note 6). The KOZ
acquisition has been accounted for in accordance with the purchase method of
accounting and the accompanying consolidated financial statements of Total
Sports reflect the purchase price allocated to assets acquired and liabilities
assumed based on their fair values as of the acquisition date. Goodwill
resulting from the KOZ acquisition is being amortized over 3 years. The
following is a summary of the purchase price allocation in connection with the
KOZ inc. acquisition:
<TABLE>
<S> <C>
Current assets......................................... $ 120,546
Property and equipment................................. 557,172
Goodwill............................................... 1,286,522
Liabilities assumed.................................... (550,000)
----------
$1,414,240
==========
</TABLE>
Sports Extra Acquisition
Concurrent with the KOZ acquisition, Total Sports purchased all the assets
and assumed all the liabilities of Sports Extra, Inc., an unrelated company, for
an aggregate purchase price of $233,548. The Sports Extra acquisition was funded
by forgiveness of a note receivable from Sports Extra of $100,000 and the
issuance of 290,323 shares of Total Sports' common stock valued at $133,548.
Sports Extra was merged into Sports Extra Acquisition Corporation, the surviving
corporation. The Sports Extra acquisition has been accounted for in accordance
with the purchase method of accounting and the accompanying consolidated
financial statements of Total Sports reflect the purchase price allocated to
assets acquired and liabilities assumed based on their fair values as of the
acquisition date. Goodwill resulting from the Sports Extra acquisition is being
amortized over 3 years. The following is a summary of the purchase price
allocation in connection with the Sports Extra acquisition:
<TABLE>
<S> <C>
Property and equipment................................... $ 7,049
Goodwill................................................. 631,142
Databases................................................ 293,039
Liabilities assumed...................................... (697,682)
---------
$ 233,548
=========
</TABLE>
F-50
<PAGE> 128
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
Total College Communications Acquisition
In June 1998, Total Sports acquired the remaining 50% interest that it did
not own of Total College Communications Company. Total Sports issued Host
Communications 418,971 shares of common stock valued at $481,817 for Host's 50%
interest in Total College Communications. Total College Communications was then
merged into Total Sports. The Total College Communication acquisition has been
accounted for in accordance with the purchase method of accounting and the
accompanying consolidated financial statements of Total Sports reflect the
purchase price allocated to assets acquired and liabilities assumed based on
their fair values as of the acquisition date. Goodwill resulting from the Total
College Communication acquisition is being amortized over three years. The
following is a summary of the purchase price allocation of the Total College
Communication acquisition:
<TABLE>
<S> <C>
Goodwill.................................................. $496,384
Extinguishment of minority interest payable to joint
venture partner......................................... 28,152
Liabilities incurred in acquisition....................... (42,719)
--------
$481,817
========
</TABLE>
Golf.Com L.L.C. Investment
In May and July 1998, Total Sports invested a total of $250,000 for a 25%
voting interest in Golf.Com L.L.C. At the time of the investment, Total Sports'
underlying ownership of Golf.Com's net assets approximated $15,000. The $235,000
difference has been accounted for as goodwill and is being amortized over three
years. Total Sports is using the equity method of accounting for the Golf.Com
investment. As part of this investment, Total Sports assumed full control over
the managerial and operation functions of the Golf.Com Web site. In addition,
Total Sports entered into an operating agreement with Golf.Com in which it
assumed the liability for all operating expenses of running the web site for a
five-year period. Total expenses charged to operations from outside third
parties under the agreement, excluding the cost of e-commerce merchandise, were
approximately $630,000 for 1998 and approximately $1,312,000 for 1999.
Under the agreement, Total Sports initially receives a 15% stake in
Golf.Com's net profits and losses. If under Total Sports management the Golf.Com
Web site meets performance thresholds for both operating revenues and total Web
page views, Total Sports will receive an annual 2.5% increase in its share of
Golf.Com's net profits and losses with a maximum aggregate increase of 10%. The
performance thresholds consist of achieving annual operating revenues
progressing from $1,160,000 to $2,106,000 and achieving annual page views of
approximately 47,000,000 to 85,300,000 over a four-year period. If the
performance thresholds are not met in any single year, but the thresholds are
met in a subsequent year, Total Sports will receive the current year's 2.5%
increase as well as all prior year's increases not previously granted. For the
six months ended December 31, 1998, Total Sports recorded as equity in earnings
(loss) of affiliate 15.0% of Golf.Com's net loss before deduction of expenses
required under the operating agreement, totaling approximately $24,000. For the
year ended December 31, 1999 and the three months ended March 31, 2000, Total
Sports recorded 15.0% of Golf.Com's net earnings before deduction of expenses
required under the operating agreement, totaling approximately $100,000 and
$43,000, respectively. All costs incurred by Total Sports as required under the
operating agreement were expensed as incurred. Total Sports is primarily
responsible for operating the Golf.Com Web site and selling and arranging
advertising and sponsorships to be included on the Web site. Summarized
financial information of Golf.Com as of December 31, 1999 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Total assets............................................ $ 983,527
Total liabilities....................................... $ 292,876
Net loss for the year ended December 31, 1999........... $(1,200,859)
</TABLE>
F-51
<PAGE> 129
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
As discussed in Note 20, Total Sports entered into an agreement to sell its
17.5% ownership in Golf.Com to Quokka Sports, Inc. on June 8, 2000.
Long Distance Technologies Acquisition
On June 4, 1999, Total Sports acquired 100% of the common stock of Long
Distance Technologies, Inc. d/b/a Motortrax Interactive and subsequently merged
it into a wholly-owned subsidiary of Total Sports named Total Motorsports, Inc.
The Long Distance Technologies acquisition was funded by issuance of 284,401
shares of Total Sports' common stock valued at $3,227,951. The acquisition was
accounted for in accordance with the purchase method of accounting. The final
purchase price allocation has not been finalized. Preliminary goodwill resulting
from the purchase of Long Distance Technologies is being amortized over a period
of 19 months, the remaining life of its contract with NASCAR. The following is a
summary of the preliminary purchase price allocation of the Long Distance
Technologies acquisition:
<TABLE>
<S> <C>
Current assets........................................... $ 127,001
Property and equipment................................... 110,896
Goodwill................................................. 3,327,478
Liabilities assumed...................................... (337,424)
----------
$3,227,951
==========
</TABLE>
Total Sports also acquired deferred tax assets of approximately $394,000
relating to net operating and economic loss carryforwards in the acquisition.
These deferred tax assets were fully reserved at the acquisition date as
management determined it was more likely than not the loss carryforwards would
not be realized.
The 284,401 shares of Total Sports' common stock issued as consideration in
the Long Distance Technologies acquisition are being held in escrow until any
and all indemnification claims or disputed claims notices have been satisfied.
One-third of the shares held in escrow, less any portion to be forfeited to
satisfy any indemnification claims, are due to be released on June 4, 2000,
subject to the occurrence of a significant event. The escrow agreement defines a
significant event as the effectiveness of a registration statement for the sale
of the shares held in escrow in a underwritten public offering registered under
the Securities Act of 1933, or the consummation of a transaction or series of
events that result in the escrowed shares becoming publicly traded. If such a
significant event occurs before June 4, 2000, then at that date escrowed shares
with a value in excess of $4.0 million shall be released from escrow, less any
portion subject to a disputed claims notice. Upon the occurrence of a
significant event after June 4, 2000, an additional amount of escrowed shares
then in excess of $4.0 million shall be released, less any portion subject to a
disputed claims notice. The remainder of the escrowed shares shall be released
December 4, 2000, to the extent the escrowed shares are not required to be
forfeited in satisfaction of indemnification claims or disputed claims notices.
In accordance with the escrow agreement, 94,800 shares were released from escrow
effective June 4, 2000.
The following unaudited pro forma information presents a summary of the
consolidated results of operations of Total Sports as if the Long Distance
Technologies acquisition occurred at January 1, 1998:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Total Revenues.......................................... $ 2,480,000 $ 6,799,000
Loss before preferred dividends......................... $(12,982,000) $(22,172,000)
Net loss applicable for common shareholders............. $(13,180,000) $(22,364,000)
Net loss per share -- basic and diluted................. $ (8.44) $ (12.57)
</TABLE>
F-52
<PAGE> 130
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
In management's opinion, the unaudited pro forma information is not
necessarily indicative of actual results that would have occurred had the
acquisition been consummated at January 1, 1998, or of future operations of the
combined companies.
4. DEFERRED PUBLISHING COSTS
Deferred publishing costs at December 31, 1998, 1999 and March 31, 2000 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Author fees........................................ $520,676 $611,513 $955,936
License and content fees........................... 68,219 377,411 435,555
Design costs....................................... 474,842 901,485 1,094,453
-------- -------- --------
Total deferred publishing costs.......... 1,063,737 1,890,409 2,485,944
Less long-term portion............................. 392,688 690,670 1,218,716
-------- -------- --------
Total current deferred publishing
costs.................................. 671,049 1,199,739 1,267,228
Less accumulated amortization...................... (574,000) (825,880) (700,899)
-------- -------- --------
Current deferred publishing costs, net... $ 97,049 $373,859 $566,329
======== ======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1999 and March 31, 2000 are
summarized as follows:
<TABLE>
<CAPTION>
DEPRECIABLE
LIVES 1998 1999 2000
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Fixtures and furniture................... 7 years $ 108,502 $ 190,882 $ 201,992
Computer equipment....................... 3 years 1,728,240 3,747,937 5,435,063
Software (external and internally
developed)............................. 1-3 years 251,749 1,126,662 1,454,005
Leasehold improvements................... 3-7 years 12,815 144,560 400,403
---------- ----------- -----------
Total.................................... 2,101,306 5,210,041 7,491,463
---------- ----------- -----------
Less accumulated depreciation............ (793,903) (1,771,646) (2,074,087)
---------- ----------- -----------
Property and equipment, net.............. $1,307,403 $ 3,438,395 $ 5,417,376
========== =========== ===========
</TABLE>
Certain property and equipment is pledged as collateral for notes payable
and capital leases.
6. CREDIT FACILITY
During 1998 and part of 1999 Total Sports maintained a line of credit
facility with a commercial lending institution in the amount of $3,500,000. This
line of credit bore interest at the LIBOR Market Index Rate plus 1.50% (6.60% at
December 31, 1998). Subsequent to December 31, 1998, Total Sports entered into a
series of renewals for the credit facility, which extended the maturity date to
November 30, 1999 and increased the facility by $500,000 until October 5, 1999
at the same terms and conditions. This credit facility was secured by Total
Sports' property and equipment and personally guaranteed by Total Sports'
Chairman and Chief Executive Officer. The line of credit facility was paid in
full during November 1999 with the proceeds of the Series D preferred stock
offering.
In March 1999, Total Sports renewed an irrevocable letter of credit for the
benefit of an office equipment vendor in the amount of $47,000. This letter of
credit expired on February 2, 2000.
F-53
<PAGE> 131
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
7. NOTES PAYABLE
Notes payable outstanding at December 31, 1998, 1999 and March 31, 2000 are
as follows:
<TABLE>
<CAPTION>
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Notes Payable:
Note payable for baseball publication assumed in Sports
Extra acquisition, payable in annual installments of
$6,992 each January 1 through 2001, including interest at
7.2%..................................................... $ 18,287 $ 12,886 $ 6,799
Note payable for baseball, football and basketball
databases, payable in $5,000 installments on January 1
and June 1 each year through June 1, 2005, including
interest at 7.2%......................................... 54,109 47,913 44,928
Note payable for hockey database license, payable in annual
installments of $50,000 on August 1 through 2002, and
payments of $75,000 on August 1, 2003 and 2004, including
interest at 7.2%......................................... 271,107 240,673 240,397
-------- -------- --------
Total notes payable:............................. 343,503 301,472 292,124
Less current maturities of notes payable................... 42,392 43,241 46,229
-------- -------- --------
Notes payable, net of current maturities................... $301,111 $258,231 $245,895
======== ======== ========
Notes Payable -- Related Parties:
Promissory note payable to First Raleigh Telex, payable
monthly through March 2002 with interest at 9.0%,
collateralized by computer/digital equipment............. $ -- $ 89,384 $ 80,084
Note payable to related party due December 31, 1999, with
interest at 8%........................................... -- 20,000 --
-------- -------- --------
Total notes payable -- related parties........... -- 109,384 80,084
Less current maturities of notes payable--related
parties.................................................. -- 58,307 38,307
-------- -------- --------
Notes payable -- related parties, net of current
maturities............................................... $ -- $ 51,077 $ 41,777
======== ======== ========
</TABLE>
Long-term debt maturing after one year as of December 31, 1999 is as
follows: 2000 - $101,548; 2001 - $92,764; 2002 - $54,810; 2003 - $73,493;
2004 - $78,782 and thereafter - $9,459.
In conjunction with the note payable for hockey databases, Total Sports
issued a warrant for 20,000 shares of common stock at an exercise price of
$7.106 per share, exercisable within 10 years.
8. LEASE COMMITMENTS
Total Sports leases certain equipment under various operating leases. These
leases contain renewal clauses for terms of one to three years, with adjustments
in annual rentals for inflationary increases. Rental expense charged to
operations for all operating leases totaled approximately $102,000 during 1997,
$371,000 during 1998 and $649,000 during 1999. As of December 31, 1999, future
minimum lease commitments on leases that had initial or remaining non-cancelable
lease terms of one year or longer, are as follows:
<TABLE>
<S> <C>
2000..................................................... $ 613,800
2001..................................................... 605,506
2002..................................................... 597,483
2003..................................................... 534,762
2004..................................................... 497,130
----------
Total minimum lease payments........................ $2,848,681
==========
</TABLE>
Total Sports leases certain computer equipment under noncancelable leasing
arrangements, collateralized by the equipment, which are classified as capital
leases. The asset balance related to capital leases totaled
F-54
<PAGE> 132
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
$252,153 and $775,426 at December 31, 1998 and 1999. Amortization expense
related to assets from capitalized leases was $36,696 and $145,094 for the years
ended December 31, 1998 and 1999.
As of December 31, 1999, future minimum lease payments for capital leases
that have initial or remaining terms in excess of one year are as follows:
<TABLE>
<S> <C>
2000...................................................... $372,120
2001...................................................... 244,065
2002...................................................... 34,931
--------
Total minimum lease payments.............................. 651,116
Less amount representing executory costs.................. 18,253
--------
Net minimum payments due.................................. 632,863
Less amount representing interest (11% to 26%)............ 81,147
--------
Present value of future minimum lease payments............ 551,716
Less current portion...................................... 282,867
--------
Long-term portion of capital lease obligations............ $268,849
========
</TABLE>
On August 8, 1999, Total Sports entered into a ten-year lease for office
space with First Raleigh Telex, LLC. Frank Daniels, Jr., a Total Sports director
and stockholder, is the beneficial owner of First Raleigh Telex.
9. INCOME TAXES
The components of Total Sports' net deferred tax asset (liability) as of
December 31, 1998 and 1999, is as follows:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 5,355,000 $ 12,533,000
Accrued vacation and salaries.......................... 98,000 218,000
Bad debt and sales return reserves..................... 173,000 407,000
Inventory allowance.................................... 129,000 210,000
Depreciation........................................... 79,000 64,000
Amortization of goodwill............................... 255,000 391,000
Capitalized development costs.......................... 98,000
Other.................................................. 43,000 55,000
----------- ------------
Total deferred tax assets.............................. 6,132,000 13,976,000
Valuation allowance.................................... (6,132,000) (13,976,000)
----------- ------------
Net deferred tax assets........................ $ -- $ --
=========== ============
</TABLE>
Based on management's evaluation of the positive and negative evidence
impacting the realizability of the deferred tax assets, a valuation allowance
has been provided. Management has considered Total Sports' history of losses and
concluded that as of December 31, 1998 and 1999, and March 31, 2000, the net
deferred tax assets should be fully reserved as it is more likely than not the
deferred tax assets will not be realized.
F-55
<PAGE> 133
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
For the periods ended December 31, 1997, 1998 and 1999, reported income
taxes differ from income tax benefit that would result from applying the federal
statutory rate of 34% to pretax loss due to the following:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected tax benefit............... $(1,411,000) $(4,026,000) $(7,422,000)
State income tax benefit, net of federal
benefit................................... (212,000) (605,000) (1,116,000)
Amortization................................ 62,000 85,000 571,000
Advertising................................. -- -- 298,000
Other....................................... 7,000 (32,000) 219,000
Change in valuation allowance............... 1,554,000 4,578,000 7,450,000
----------- ----------- -----------
Income tax benefit.......................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
During 1999, Total Sports acquired deferred tax assets relating to net
operating loss carryforwards of approximately $394,000 from the Long Distance
Technologies acquisition. These deferred tax assets were fully reserved for at
the acquisition date as it was more likely than not the assets would not be
realized.
Total Sports has operating and economic loss carryforwards of approximately
$32,000,000 at December 31, 1999 expiring 2012 through 2019, which can be offset
against future federal and state taxable income. Under the Tax Reform Act of
1986, the amounts of and benefits from net operating losses carried forward may
be impaired or limited in certain circumstances. Events which might cause
limitations in the amount of net operating losses that Total Sports may utilize
in any one year include, but are not limited to, a cumulative change in
ownership of more than 50% over a three-year period. At December 31, 1999, the
effect of such limitations, if imposed, is not expected to be significant.
10. SERIES A REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Series A Redeemable Preferred Stock
In June 1997, Total Sports raised net proceeds of $750,998 from the
issuance of 100,000 shares of Series A redeemable preferred stock and $179,000
from the issuance of warrants to purchase 365,218 shares of common stock at
$0.01 per share to one institutional investor and one individual investor. These
warrants expire in June 2007 and are exercisable upon the occurrence of an
extraordinary event. An extraordinary event is defined as follows:
- A merger, consolidation, sale or reorganization in which Total Sports or
any of its subsidiaries is not the surviving corporation and in which the
warrant holders receive cash or securities.
- The consummation of a registered public offering of common stock or other
equity interests of Total Sports.
- A sale, lease or exchange, directly or indirectly, of all or
substantially all of the property and assets of Total Sports, whether or
not in the ordinary course of business, in which the warrant holders
receive cash or securities.
In conjunction with the execution of the Series A offering, Total Sports
issued to the placement agent warrants to purchase 6,598 shares of common stock
with an exercise price of $3.44 per share. The warrants expire upon the earliest
to occur of (a) June 2002, (b) the acquisition of Total Sports or (c) the
consummation of an initial public offering of common stock or other equity
interests of Total Sports. Concurrent with the Series A offering, an advance
from a stockholder of $250,000 was converted into 25,000 shares of Series A
stock.
Unless previously redeemed, all shares of Series A stock shall, at the
option of the holders of a majority of the issued and outstanding shares of
Series A stock, be redeemed by Total Sports at a price per share of $10.00
F-56
<PAGE> 134
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
plus all accrued and unpaid dividends upon the earlier of (a) June 2, 2002 or
(b) an extraordinary or liquidating event, as defined above. The carrying value
of the Series A stock is increased by periodic accretion, in the form of accrued
dividends, so that the carrying value will equal the mandatory redemption value
on the mandatory redemption date of June 2, 2002. Such accretion totaled $16,680
in 1997, $47,645 in 1998, $44,005 in 1999, $10,953 for the quarter ended March
31, 1999 and $11,020 for the quarter ended March 31, 2000.
Upon the occurrence of an extraordinary event, as defined above, Series A
stockholders will calculate the annual internal rate of return on the common
stock exercisable under their warrants. If the internal rate of return is less
than 45%, then the stockholders may require redemption by Total Sports at a
price per share of $10.00 plus all accrued and unpaid dividends. If the internal
rate of return is greater than 45%, then Total Sports may redeem the Series A
stock and all accrued and unpaid dividends at the extraordinary event redemption
price of $0.01 per share. At December 31, 1999, the price per share required to
achieve greater than 45% internal rate of return was $8.67.
Series B Convertible Preferred Stock
In November 1997, Total Sports raised net proceeds of $1,936,935 from the
issuance of 445,263 shares of Series B stock to an institutional investor and
several individual investors. In conjunction with this transaction, Total Sports
issued to the placement agent warrants to purchase 8,285 shares of common stock
with an exercise price of $4.94 per share. Such warrants expire upon the
earliest to occur of (a) June 2002, (b) the acquisition of Total Sports or (c)
the consummation of an initial public offering of common stock or other equity
interests of Total Sports.
Series C Convertible Preferred Stock
In August 1998, Total Sports raised net proceeds of $9,775,971 from the
issuance of 1,418,200 shares of Series C stock to both institutional and
individual investors. In conjunction with this transaction, Total Sports issued
to the placement agent warrants to purchase 31,458 shares of common stock with
an exercise price of $7.82 per share. Such warrants expire upon the earliest to
occur of (a) June 2003, (b) the acquisition of Total Sports or (c) the
consummation of an initial public offering of common stock or other equity
interests of Total Sports.
Series C1 Convertible Preferred Stock
In December 1998, Total Sports received a $1,000,000 contribution of
capital towards the purchase of Series C1 stock from several existing
stockholders. In January and April 1999, Total Sports raised net proceeds of
$5,780,356, $1,000,000 of which was advanced by existing stockholders in
December 1998, from the issuance of 630,756 shares of Series C1 stock to both
institutional and individual investors. In conjunction with these transactions,
Total Sports issued to the placement agent warrants to purchase 12,907 shares of
common stock with an exercise price of $10.44 per share. Such warrants expire
upon the earliest to occur of (a) January 2004, (b) the acquisition of Total
Sports or (c) the consummation of an initial public offering of common stock or
other equity interests of Total Sports.
Series D Convertible Preferred Stock
On November 12, 1999, Total Sports raised net proceeds of $23,449,428 from
the issuance of 2,140,873 shares of Series D preferred stock and $10,579,073
from the issuance of warrants exercisable for an aggregate 963,370 shares of
Series D1 preferred stock, at an exercise price of $16.59 per share, to a
venture capital fund, various companies and several individual investors. The
Series D and D1 preferred stock is initially convertible into common stock on a
ratio of one-to-one. In the event that the per share price of common stock sold
in an initial public offering is less than $33.18, the conversion ratio of the
Series D preferred stock will be adjusted
F-57
<PAGE> 135
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
so that holders of Series D preferred stock will be entitled to receive
additional common stock so that each preferred share will be convertible into
$33.18 of common stock. Under the provision of Emerging Issues Task Force
Abstract 98-5, Accounting for Convertible Securitieswith Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios, in the event of an
initial public offering, Total Sports will be required to record the beneficial
conversion features associated with the Series D preferred as a dividend of
$24,938,000. This non-cash dividend will be credited to additional paid in
capital. In conjunction with this transaction, Total Sports issued 46,004 agents
warrants to purchase common stock at an exercise price of $18.25 per share. Such
warrants are exercisable upon the occurrence of an extraordinary event, as
defined above, and expire in November 2003.
Series E Convertible Preferred Stock
In connection with the NBC Sports advertising and promotion agreement
discussed in Note 10, NBC Sports received 811,423 stock units of Total Sports
valued at $16.59 per unit. Each stock unit consisted of one share each of Total
Sports' common stock and Series E Convertible Preferred Stock. The Series E
stock provides NBC Sports with a liquidation preference above common
shareholders but subordinate to all other preferred shareholders in the event of
a merger, acquisition or other liquidating event. The Series E shares are
convertible into one share of common stock for every 100,000 shares of Series E
stock at the option of NBC Sports at any time, and automatically convert into
common shares upon completion of an initial public offering by Total Sports. The
Series E shares are not entitled to dividends and have voting rights limited to
matters that would adversely affect the rights of the Series E shares.
Preferred Stock Conversion Rights
Each holder of Series B, Series C, and Series C1 stock shall have the right
to convert all or any portion of such shares at any time into shares of Total
Sports' common stock at an initial conversion rate of 1:1. Upon either
completion of a public offering of common stock of at least $20 million and a
per share price greater than $7.106 or the written consent of 80% of the Series
B, Series C, and Series C1 stockholders, all of the outstanding Series B, Series
C, and Series C1 shares automatically convert into shares of common stock at the
conversion rate then in effect. As discussed above, the Series D stock has
beneficial conversion features contingent upon the per share price of common
stock sold in an initial public offering. The Series E stock automatically
converts into one share of common stock for every 100,000 shares of Series E
stock upon completion of an initial public offering.
Preferred Stock Dividend Rights
The holders of the Series A stock are entitled to receive cumulative
dividends of $1.20 per share per annum, payable quarterly, when and if declared
by Total Sports' Board of Directors. To the extent not paid on the quarterly
payment date, all dividends which have accrued on each share of Series A stock
outstanding during the period ending upon each quarterly payment date shall be
accumulated and remain accumulated dividends with respect to such shares until
paid to holders thereof. So long as any share of Series A stock remains
outstanding, no dividends shall be paid upon, or declared or set apart for, the
Series B convertible preferred stock, the Series C convertible preferred stock,
the Series C1 convertible preferred stock, the Series D convertible preferred
stock or common stock or any other class of stock, unless and until all
cumulative dividends on the then outstanding Series A stock for all past
dividend periods have been or concurrently shall be paid. Dividends of $127,500,
$150,000 and $150,000 were accrued on the Series A stock in 1997, 1998 and 1999,
respectively. These dividends, in addition to the accreted dividends discussed
above, are reflected as the total increases in the carrying value of Series A
stock in the accompanying consolidated financial statements.
F-58
<PAGE> 136
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
After all cumulative dividends on the then outstanding shares of Series A
stock for all past dividend periods have been paid, the holders of Series B,
Series C, Series C1 and Series D stock are entitled to receive the following
pro-rata annual dividends per share, payable quarterly, when declared by Total
Sports' Board of Directors:
<TABLE>
<S> <C>
Series B.................................................... $0.54
Series C.................................................... $0.85
Series C1................................................... $1.14
Series D.................................................... $1.99
Series D1................................................... $1.99
</TABLE>
To the extent not paid on the quarterly payment date, all dividends which
have accrued on each share of Series B, Series C, Series C1, Series D and Series
D1 stock outstanding during the period ending upon each quarterly payment date
shall be accumulated and remain accumulated dividends with respect to such
shares until paid to holder thereof or converted into shares of common stock in
accordance with the conversion privileges. Upon conversion of Series B, Series
C, Series C1, Series D and Series D1 stock into shares of common stock in
accordance with the conversion privileges, any outstanding accumulated dividends
shall be forfeited upon such conversion. Subject to the restrictions referred to
above related to Series A dividends, if any shares of Series B, Series C, Series
C1, Series D and Series D1 stock remain outstanding on September 30, 2004, then
all accumulated and unpaid dividends on Series B, Series C, Series C1, Series D
and Series D1 stock shall be paid in cash to the holders thereof.
At December 31, 1999, cumulative unpaid dividends on the Series B, Series
C, Series C1, Series D and Series D1 stock were as follows:
<TABLE>
<S> <C>
Series B................................................. $ 721,326
Series C................................................. 1,899,926
Series C1................................................ 745,168
Series D................................................. 1,632,357
Series D1................................................ --
----------
Total.......................................... $4,998,778
==========
</TABLE>
No dividends have been declared on the Series B, Series C, Series C1,
Series D and Series D1 stock and accordingly no liability has been recorded.
The Series E convertible preferred stock is not entitled to dividends.
Preferred Stock Liquidation Privileges
Upon the dissolution, liquidation, or winding up of Total Sports, whether
voluntary or involuntary, the holders of outstanding Series A stock shall be
entitled to receive $10 in cash for each share of Series A stock, together with
all accrued and unpaid dividends. If upon such liquidating event the assets of
Total Sports are insufficient to permit the payment of the Series A liquidation
value, the assets of Total Sports shall be distributed to the holders of Series
A stock ratably until the holders shall have received the full amount to which
they would otherwise be entitled.
F-59
<PAGE> 137
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
Upon the dissolution, liquidation, or winding up of Total Sports, whether
voluntary or involuntary, the holders of outstanding Series B, Series C, Series
C1, Series D and Series D1 stock shall be entitled to receive, after all
obligations to the Series A stockholders have been satisfied, the following
liquidation rates in cash for each share of Series B, Series C, Series C1,
Series D and Series D1 stock, together with all accrued and unpaid dividends:
<TABLE>
<S> <C>
Series B................................................... $ 4.492
Series C................................................... $ 7.106
Series C1.................................................. $ 9.490
Series D................................................... $33.180
Series D1.................................................. $16.590
</TABLE>
If upon such liquidating event, the assets of Total Sports are insufficient
to permit the payment of the Series B, Series C, Series C1, Series D and Series
D1 liquidation values, the assets of Total Sports shall be distributed to the
holders of Series B, Series C, Series C1, Series D and Series D1 stocks ratably
until the holders shall have received the full amount to which they would
otherwise be entitled.
Upon the dissolution, liquidation, or winding up of Total Sports, whether
voluntary or involuntary and after the payment in full of the Series A, Series
B, Series C, Series C1, Series D and Series D1 liquidation preferences, the
holders of outstanding Series E stock shall be entitled to receive for each
share of Series E preferred stock cash for the amount by which $32.11 exceeds
the amount distributable to each share of common stock.
Preferred Stock Covenants
All of Total Sports' preferred stock investment agreements contain
covenants restricting the ability of Total Sports and any of its subsidiaries
without prior written consent to among other things:
- Incur or assume additional indebtedness or obligations
- Incur liens
- Engage in mergers, acquisitions or asset sales
- Declare dividends or redeem or repurchase capital stock
- Engage in transactions with affiliates
Common Stock
Total Sports was originally capitalized with cash of $650,000 from a
founding stockholder. In February 1997, Total Sports issued 961,291 shares to
founders and related parties in connection with the incorporation of Total
Sports.
As discussed in Note 3, Total Sports has issued common stock as
consideration in connection with the following acquisitions:
<TABLE>
<CAPTION>
NUMBER OF
ACQUIRED ENTITY TRANSACTION DATE COMMON SHARES
--------------- ----------------- -------------
<S> <C> <C>
Sports Extra................................ March 31, 1997 290,323
DesigNet.................................... December 22, 1997 33,142
Total College Communications................ June 2, 1998 418,971
Long Distance Technologies.................. June 4, 1999 284,401
</TABLE>
F-60
<PAGE> 138
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
In May 1997, Total Sports issued warrants to purchase 16,200 shares of
common stock to two founding stockholders exercisable at $3.42 per share and
expiring upon the earliest to occur of (a) May 2007, (b) the acquisition of
Total Sports or (c) the consummation of an initial public offering of common
stock or other equity interests of Total Sports. No value was attributed to
these warrants using the Black-Scholes model, because the exercise price was
significantly greater than the market value of the common stock on the date of
grant. The fair value of the common stock warrants was calculated on the date of
the grant with the following assumptions: dividend yield of 0%; volatility of
70%; risk-free rates of approximately 6%; and expected lives of 10 years.
During 1998, the Chairman and Chief Executive Officer received 37,100
shares of common stock valued at $1.15 per share for his personal guarantee of
Total Sports' line of credit. The total value of these shares, as determined by
independent valuations, has been included in interest expense for the year ended
December 31, 1998.
On March 26, 1999, in connection with the refinancing of the $3,500,000
line of credit as discussed in Note 6, Total Sports' Board of Directors approved
the issuance of 18,550 shares of common stock valued at $1.55 per share to its
Chairman and Chief Executive Officer. The Chairman and Chief Executive Officer
received these shares for his personal guarantee of Total Sports' line of credit
until July 15, 1999. The total value of these shares has been included in
interest expense for the year ended December 31, 1999.
The terms of Total Sports' Restated Certificate of Incorporation prohibit
the payment of dividends to common stockholders prior to payment of all
accumulated dividends on preferred stock.
11. NBC SPORTS AGREEMENT
On November 12, 1999, Total Sports entered into an agreement with NBC
Sports, Inc. for promotion and advertising services. NBC Sports received 811,423
stock units of Total Sports valued at $16.59 per stock unit in exchange for
$17.4 million of on-air promotion and marketing of all of Total Sports'
TotalCasts for which it has the broadcast rights over a 51-month period. NBC
Sports will calculate the value of the promotion delivered at 100% of the rate
charged by NBC Sports to other customers for similar promotions during the time
period. Each stock unit issued to NBC Sports consisted of one share each of
Total Sports' common stock and Series E convertible preferred stock. NBC Sports
also received one seat on the Board of Directors of Total Sports. See Note 10
for discussion of the rights and privileges of the Series E preferred stock.
The original stock units issued to NBC Sports are "earned" as NBC Sports
provides advertising to Total Sports. Advertising expense relating to the earned
shares will be valued and recorded by Total Sports at the average fair value of
the common stock during the period in which the advertising was provided, up to
$21.41 per share. The prepaid advertising from NBC Sports and the unearned
shares outstanding at each reporting date will be remeasured at the then-current
fair value of the common stock, up to $21.41 per share. The prepaid advertising
due from NBC Sports has been recorded as a debit to prepaid advertising within
the stockholders' equity (deficiency) section of the accompanying balance sheet
for the year ended December 31, 1999. Total Sports recognized a non-cash charge
to advertising expense of approximately $877,000 in 1999 and $687,000 during the
three months ended March 31, 2000 relating to advertising provided by NBC Sports
under the agreement.
To the extent that NBC Sports does not meet the scheduled amount of
promotion during any quarter, NBC Sports will make up such shortfall the next
quarter or by June 30 of the following year. In the event any shortfall has not
been made up, NBC Sports is required to either pay the amount of such shortfall
back to Total Sports in cash or return common stock (plus any "Additional
Shares" issued in respect thereof as described below) equal to the amount of
such shortfall calculated using a value of $21.41 per share. If NBC
F-61
<PAGE> 139
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
Sports returns common stock under the above terms, they must also return a pro
rata portion of the 811,423 Series E preferred shares.
If an advertising shortfall occurs that is not resolved to the satisfaction
of both parties, management of Total Sports expects NBC Sports to return common
stock if the fair value of the common stock is less than $21.41 per share. If
the fair value of the common stock exceeds $21.41 per share, management expects
NBC Sports to pay cash equal to the advertising shortfall. This expectation is
based on the economic benefit that NBC Sports will receive from remitting either
common stock or cash as consideration for the advertising shortfall, whichever
has the lowest fair value. In instances where the fair value of Total Sports'
common stock exceeds $21.41 per share, then the stock to be returned under the
agreement (calculated using $21.41 per share) would have a higher fair value
than the required cash payment. In this event, NBC Sports would remit the cash
payment. The practical obligation of NBC Sports to pay cash for an advertising
shortfall if the fair value of the common stock is greater than $21.41 per share
is deemed to be a disincentive for nonperformance sufficiently large enough so
as to constitute a performance commitment on the part of NBC Sports. Therefore,
in accordance with Emerging Issues Task Force Abstract 96-18, Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services, the shares earned by NBC Sports
will be valued and recorded at the average fair value of the common stock during
the period in which the advertising was provided, up to $21.41 per share. When
the fair value of the common stock exceeds $21.41 per share, the value of the
advertising provided is capped at $21.41 per share.
In the event that an initial public offering of Total Sports common stock
is consummated at a price less than $32.11 per share, then Total Sports will
issue additional shares of common stock ("Additional Shares") to NBC Sports in
an amount such that NBC Sports receives stock worth $32.11 for each share
originally issued to them. The issuance of Additional Shares would result in a
credit to common stock for the fair value of the Additional Shares, a debit to
prepaid advertising, and a debit to advertising expense equal to the pro rata
portion of the original stock units issued to NBC Sports that have been earned.
The Additional Shares will be remeasured at each reporting date based on the
then-current fair value of the common stock. If Additional Shares are issued,
the per share price at which NBC Sports has a disincentive to return the shares
will be lowered from $21.41 per share to a calculated value based on the total
number of shares issued. However, in no case will shares issued with a fair
value greater than $21.41 per share be remeasured to a lower per share value
until the fair value of the common stock drops below that per share price.
If Total Sports secures rights from the National Basketball Association
(the "NBA") to provide events coverage of NBA and Women's NBA (the "WNBA")
regular season games before July 31, 2000 (the "NBA Rights"), NBC Sports will
commit to deliver an additional $8.0 million of promotion of Total Sports'
coverage of NBA/WNBA events, subject to NBC Sports' ownership of television
broadcast rights for those events and NBC Sports' receipt of permission from the
NBA (at no cost to NBC Sports) to run the promotion. The value of the additional
promotion will be calculated by NBC Sports at 100% of the rate charged by NBC
Sports to other customers for similar promotions during the time period. Within
60 days of Total Sports' receiving the events coverage rights from the NBA, NBC
Sports and Total Sports shall agree on a schedule for the additional promotion
commitment.
In return for its additional NBA/WNBA promotion commitment described above,
NBC Sports would receive $8.0 million in additional shares of Total Sports'
common stock. If Total Sports' common stock is not publicly traded on a
nationally recognized exchange, the additional shares will be granted at price
per share equal to the lower of (1) $25.69 or (2) the price per share associated
with Total Sports' round of private cash financing of at least $10.0 million
completed most recently prior to the acquisition of such NBA Rights, with such
price per share increased at a rate of 1% per month, compounded monthly, with
such increase commencing on the date of the closing of the private financing. If
shares of Total Sports' common stock are
F-62
<PAGE> 140
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
publicly traded on a nationally recognized exchange, the additional shares would
be granted at the 30-day trailing average closing price as of the date on which
Total Sports obtained the NBA Rights in writing.
As of August 1, 2000, Total Sports had not secured the NBA Rights.
12. STOCK OPTIONS AND WARRANTS
Stock Options
Total Sports has a stock option plan pursuant to which employees, officers,
and directors of Total Sports may be granted stock options to acquire up to a
maximum of 1,185,000 shares of Total Sports' common stock. On March 26, 1999,
the Board of Directors approved an increase in the employee option pool to 10%
of fully diluted shares outstanding. This resulted in an increase of
approximately 470,000 shares. Generally, options granted vest over a three-year
period as follows: 25% at the end of year one, an additional 25% at the end of
year two and the remaining 50% at the end of year three. Certain 1999 and 2000
grants vest monthly over a 3-year period. Incentive stock option exercise prices
are no less than 100% of the fair market value of the common stock at the date
of grant, as determined by Total Sports' Board of Directors. Non-qualified stock
options issued to directors have an exercise price of $0.01. Vested options may
be exercised for a period of up to ten years from the date of grant.
A summary of the changes in Total Sports' option plan as of and for the
periods ended December 31, 1997, 1998 and 1999 and March 31, 1999 and 2000 is
presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999 MARCH 31, 1999 MARCH 31, 2000
------------------ ------------------ ------------------- ------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year.... -- $ -- 20,538 $0.50 90,613 $ 0.66 90,613 $0.66 468,773 $ 9.37
Granted.............. 20,538 0.50 77,444 0.71 405,207 10.99 7,824 0.47 674,357 12.00
Exercised............ -- -- (280) 0.50 (13,109) 1.13 (11,163) 0.66 (9,199) 1.52
Terminated........... -- -- (7,089) 0.71 (13,938) 7.84 (128) 0.75 (3,841) 12.52
------ ------ ------- ------- ---------
Outstanding at end of
year or quarter...... 20,538 $0.50 90,613 $0.66 468,773 $ 9.37 87,146 $0.64 1,130,090 $10.99
====== ====== ======= ======= =========
Options exercisable at
year-end or
quarter.............. -- $ -- 9,437 $0.50 62,217 $ 7.07 8,034 $0.56 106,597 $ 8.57
====== ====== ======= ======= =========
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------------------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.01..................................... 27,600 9 $ 0.01 3,461 $ 0.01
0.50..................................... 19,328 8 0.50 6,972 0.50
0.55..................................... 11,131 3 0.55 5,566 0.55
0.75..................................... 31,197 8 0.75 2,288 0.75
1.25..................................... 8,267 9 1.25 2,067 1.25
1.50..................................... 2,424 9 1.50 606 1.50
10.20.................................... 278,843 9 10.20 40,104 10.20
16.59.................................... 89,983 10 16.59 1,153 16.59
------- ------
468,773 9 $ 9.37 62,217 $ 7.07
======= ======
</TABLE>
F-63
<PAGE> 141
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
The following table summarizes information about fixed stock options
outstanding at March 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.01..................................... 27,600 9 $ 0.01 5,750 $ 0.01
0.50..................................... 13,916 9 0.50 4,030 0.50
0.55..................................... 13,495 2 0.55 5,566 0.55
0.75..................................... 25,756 8 0.75 6,676 0.75
1.25..................................... 8,210 8 1.25 2,010 1.25
1.50..................................... 1,951 9 1.50 133 1.50
10.20..................................... 277,122 9 10.20 62,412 10.20
12.00..................................... 674,357 10 12.00 14,892 12.00
16.59..................................... 87,683 10 16.59 5,128 16.59
--------- -------
1,130,090 10 10.97 106,597 8.57
========= =======
</TABLE>
During 1997, 1998, 1999, and the three months ended March 31, 1999 and 2000
the fair value of each option grant was estimated on the date of the grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
DECEMBER DECEMBER DECEMBER MARCH MARCH
1997 1998 1999 1999 2000
-------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Exercise price less than market
price on date of grants:
Weighted-average exercise
price........................ $ -- $0.71 $ 9.40 $0.47 $ --
Weighted-average grant-date fair
value........................ $ -- $0.42 $ 3.01 $1.14 $ --
Exercise price equal to market
price on date of grants:
Weighted-average exercise
price........................ $0.50 $ -- $16.59 $ -- $12.00
Weighted-average grant-date fair
value........................ $0.47 $ -- $ 2.17 $ -- $ 1.95
Dividend yield.................... 0% 0% 0% 0% 0%
Risk-free interest rate........... 6% 5% 6% 6% 6%
Expected lives.................... 4 years 3 years 1 to 3 years 1 year 3 years
</TABLE>
Total Sports recognized compensation expense for stock-based compensation
awards of approximately $146,000 in 1998 and $106,000 in 1999, $2,000 in the
three months ended March 31, 1999 and $47,000 in the three months ended March
31, 2000. No compensation expense for stock-based awards was recognized in 1997.
Had compensation cost for stock options granted in 1997, 1998 and 1999 been
determined consistent with SFAS No. 123, the effect on Total Sports' net loss
for the years ended December 31, 1997, 1998 and 1999 and the quarters ended
March 31, 1999 and 2000 would have been to increase the net loss by $500 in
1997, $7,000 in 1998, $89,000 in 1999, $100 in the quarter ended March 31, 1999
and $83,000 in the quarter ended 2000 and would not have changed basic or
diluted net loss per share in 1997, 1998 or the first quarter of 1999. Basic and
diluted loss from continuing operations per share would change for the year
ended December 31, 1999 from $10.52 to $10.57 and for the three months ended
March 31, 2000 from $5.33 to $5.37.
F-64
<PAGE> 142
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
Common Stock Warrants
Total Sports granted common stock warrants to preferred stockholders and
issued agent's warrants in connection with financing transactions during 1997,
1998 and 1999. All warrants granted have terms of five to ten years. All
warrants are fully exercisable at December 31, 1999 and March 31, 2000 except
for 365,218 warrants that are exercisable upon an extraordinary event defined as
a reorganization, merger, initial public offering, sale of all assets or sale of
substantially all assets. A summary of the outstanding common stock warrants as
of December 31, 1997, 1998 and 1999 and March 31, 1999 and 2000 and changes
during the period February 20, 1997 through December 31, 1997, the years ended
December 31, 1998 and 1999, and three months ended March 31, 1999 and 2000 is
presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999 MARCH 31, 1999
-------------------- -------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
WARRANTS PRICE WARRANTS PRICE WARRANTS PRICE WARRANTS PRICE
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year or quarter........... -- $ -- 396,301 $0.31 773,527 $ 3.63 773,527 $ 3.63
Granted................. 396,301 0.31 377,226 7.22 134,255 16.57 7,940 10.44
------- ------- ------- -------
Outstanding at end of year
or quarter................ 396,301 $0.31 773,527 $3.63 907,782 $ 5.54 781,467 $ 3.70
------- ------- ------- -------
<CAPTION>
MARCH 31, 2000
--------------------
WEIGHTED-
AVERAGE
EXERCISE
WARRANTS PRICE
-------- ---------
<S> <C> <C>
Outstanding at beginning of
year or quarter........... 907,782 $5.54
Granted.................
-------
Outstanding at end of year
or quarter................ 907,782 $5.54
-------
</TABLE>
The estimated weighted-average grant-date fair value of common stock
warrants granted during the period February 20, 1997 through December 31, 1997,
the years ended December 31, 1998 and 1999, and three months ended March 31,
1999 and 2000 are as follows:
<TABLE>
<CAPTION>
DECEMBER DECEMBER DECEMBER MARCH MARCH
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Exercise price less than market price on date of
grants:
Weighted-average exercise price............... $0.01 $ -- $ -- $ -- $--
Weighted-average grant-date fair value........ $0.49 $ -- $ -- $ -- $--
Exercise price greater than market price on date
of grant:
Weighted-average exercise price............... $3.43 $7.12 $16.57 $10.44 $--
Weighted-average grant-date fair value........ $ -- $ -- $ 4.42 $ -- $--
</TABLE>
The fair value of the common stock warrants was calculated on the dates of
grant with the following assumptions: volatility of approximately 70%; dividend
yield of 0%; risk-free rates of approximately 5-6%; and lives of five to ten
years.
F-65
<PAGE> 143
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
The following table summarizes information about common stock warrants
outstanding at December 31, 1999 and March 31, 2000:
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS OUTSTANDING
-------------------------------------
WEIGHTED-
AVERAGE WEIGHTED-
REMAINING AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE
--------------- ----------- ----------- ---------
<S> <C> <C> <C>
$ 0.01.. 365,218 7 $ 0.01
$ 3.42 - $ 3.44.. 22,798 7 3.43
$ 4.49 - $ 4.94.. 15,553 3 4.73
$ 7.11 - $ 7.82.. 369,958 5 7.17
$ 10.44.. 12,907 4 10.44
$16.59 - $18.25.. 121,348 7 17.22
-------
907,782 6 $ 5.54
=======
</TABLE>
In connection with the Series C1 financing, Total Sports issued to the
placement agent warrants to purchase 12,907 shares of common stock with an
exercise price of $10.44 per share during January and April 1999.
Total Sports granted warrants to purchase 39,888 shares of common stock
with an exercise price of $25.07 per share in connection with the $4,000,000
convertible promissory note payable issued during 1999. The note was converted
into equity during the Series D round of preferred financing. The warrants were
subsequently adjusted to be exercisable for 60,277 shares of common stock at an
exercise price of $16.59 per share upon the sale of Series D preferred stock by
Total Sports. The fair value of the warrants, $302,000, was calculated on the
date of grant and is being amortized to interest expense over the life of the
note payable. These warrants were immediately exercisable for Total Sports'
common stock and expire on May 31, 2009.
Total Sports granted warrants to purchase 18,083 shares of common stock
with an exercise price of $16.59 per share in connection with $2,500,000 of
convertible promissory notes payable issued during 1999. The notes were
converted into equity during the Series D round of preferred financing. The fair
value of the warrants, approximately $187,000, was calculated on the date of the
grants using the Black-Scholes option pricing model with the following
assumptions; volatility of approximately 70%; dividend yield of 0%; risk-free
rate of approximately 5% and lives of ten years. The fair value is being
amortized to interest expense through the date the notes payable are converted
into equity. These warrants were immediately exercisable for Total Sports'
common stock and expire on May 31, 2009.
In connection with the Series D financing, Total Sports issued to the
placement agent warrants to purchase 46,004 shares of common stock with an
exercise price of $18.25 per share during November 1999. The fair value of the
warrants, $467,000, was calculated on the date of the grants using the
Black-Scholes option pricing model with the following assumptions; volatility of
approximately 70%; dividend yield of 0%; risk-free rate of approximately 6% and
lives of five years.
Series B Preferred Warrants
Total Sports granted warrants to purchase 73,578 shares of Series B stock
to preferred stockholders in connection with bridge financing transactions
during 1998. All warrants granted are immediately exercisable and have terms of
ten years. The warrants have an exercise price of $4.49 per share, grant date
fair values ranging from $0.42 - $2.25, and remaining contractual lives of
approximately eight years. The fair value was calculated on the date of the
grant with the following assumptions: volatility of approximately 27%; dividend
F-66
<PAGE> 144
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
yield of 0%; risk-free rates of approximately 5%; and expected lives of ten
years. These warrants will be exercisable for Total Sports' common stock upon
conversion of the Series B stock.
Series D1 Preferred Warrants
Total Sports granted warrants to purchase 963,370 shares of Series D1 stock
to a venture capital fund, various companies and several individual investors in
connection with the Series D financing during 1999. All warrants granted are
immediately exercisable and have a term of five years. The warrants have an
exercise price of $16.59 per share, with a grant date fair value of $10.50, and
remaining contractual lives of approximately five years. The fair value was
calculated on the date of the grant with the following assumptions: volatility
of approximately 70%; dividend yield of 0%; risk-free rates of approximately 6%;
and expected live of fives years. These warrants will be exercisable for Total
Sports' common stock upon conversion of the Series D stock.
13. LOSS PER SHARE
Total Sports computes loss per share data in accordance with the
requirements of Statement of Financial Accounting Standards No. 128, Earnings
per share. The following table reflects the calculation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
PERIOD
FEBRUARY 20, THREE MONTHS THREE MONTHS
1997 THROUGH YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net loss applicable to common
shareholders:
Net loss from continuing
operations.............. $(3,244,291) $ (9,707,385) $(18,524,883) $(2,247,327) $ (9,688,574)
Dividends on preferred
stock................... (144,180) (197,645) (194,005) (48,453) (48,520)
----------- ------------ ------------ ----------- ------------
Loss from continuing
operations applicable to
common shareholders..... (3,388,471) (9,905,030) (18,718,888) (2,295,780) (9,737,094)
Loss from discontinued
operations.............. (903,148) (2,129,615) (3,301,846) (137,765) (6,662,115)
----------- ------------ ------------ ----------- ------------
Net loss applicable to common
shareholders............... $(4,291,619) $(12,034,645) $(22,020,734) $(2,433,545) $(16,399,209)
=========== ============ ============ =========== ============
Loss per share -- basic and
diluted -- Weighted-average
shares outstanding......... 1,214,419 1,560,903 1,778,670 1,756,211 1,828,339
=========== ============ ============ =========== ============
Loss from continuing
operations -- basic and
diluted.................... $ (2.79) $ (6.35) $ (10.52) $ (1.31) $ (5.33)
=========== ============ ============ =========== ============
Net loss per share -- basic
and diluted................ $ (3.53) $ (7.71) $ (12.38) $ (1.39) $ (8.97)
=========== ============ ============ =========== ============
</TABLE>
F-67
<PAGE> 145
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
The following securities and number of shares have been excluded from the
diluted per share computation as they are antidilutive:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1999 1999 2000
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Redeemable preferred stock -- Series
A................................... 125,000 125,000 125,000 125,000 125,000
Convertible preferred stock -- Series
B................................... 445,263 445,263 445,263 445,263 445,263
Convertible preferred stock -- Series
C................................... -- 1,418,200 1,418,200 1,418,200 1,418,200
Convertible preferred stock -- Series
C1.................................. -- -- 630,756 428,133 630,756
Convertible preferred stock -- Series
D................................... -- -- 2,140,873 -- 2,140,873
Convertible preferred stock -- Series
E................................... -- -- 811,423 -- 811,423
Preferred stock warrants -- Series
B................................... -- 73,578 73,578 73,578 73,578
Preferred stock warrants -- Series
D1.................................. -- -- 963,370 -- 963,370
Common stock held in escrow........... -- -- 284,401 -- --
Common stock warrants................. 396,301 773,527 907,782 781,467 907,782
Common stock options.................. 20,538 90,613 468,773 87,146 1,130,090
Unearned common stock issued to NBC
Sports.............................. -- -- 758,579 -- 717,145
</TABLE>
14. SEGMENT INFORMATION
Total Sports is engaged primarily in digital and print publishing and
e-commerce. Significantly all of Total Sports' revenues are to customers located
within the United States and significantly all long-lived assets are in the
United States.
<TABLE>
<CAPTION>
PERIOD FEBRUARY 20, 1997
THROUGH DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1998
------------------------------------ ------------------------------------
DIGITAL PRINT E-COMMERCE DIGITAL PRINT E-COMMERCE
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $ 920,636 $ 257,344 $ 13,586 $1,930,330 $1,314,692 $435,172
Depreciation and
amortization expense.... 540,989 161,513 799 1,102,813 234,530 20,298
Equity in earnings
(losses)
of affiliates........... -- -- -- (24,076) -- --
Interest Income........... 3,814 1,305 -- 8,158 10,174 --
Interest Expense.......... 74,750 25,586 -- 228,307 279,041 --
Net Loss.................. 2,286,988 1,648,646 211,805 6,211,882 4,867,454 757,664
Assets.................... 1,609,226 977,418 51,571 4,164,330 1,694,889 79,788
Capital expenditures...... 267,677 59,938 29,756 685,431 42,884 12,509
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------------
DIGITAL PRINT E-COMMERCE
----------- ---------- ----------
<S> <C> <C> <C>
Revenues.............................................. $ 5,396,906 $1,831,208 $1,355,569
Depreciation and amortization expense................. 2,711,556 1,175,732 126,910
Equity in earnings (losses) of affiliates............. 100,193 -- --
Interest Income....................................... 79,076 8,642 --
Interest Expense...................................... 575,416 62,884 --
Net Loss.............................................. 14,860,048 5,191,928 1,774,753
Assets................................................ 26,039,811 2,371,146 27,470
Capital expenditures.................................. 2,725,156 178,376 --
</TABLE>
F-68
<PAGE> 146
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 THREE MONTHS ENDED MARCH 31, 2000
---------------------------------- ------------------------------------
DIGITAL PRINT E-COMMERCE DIGITAL PRINT E-COMMERCE
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $1,525,796 $789,730 $296,092 $2,867,546 $ 272,469 $368,833
Depreciation and
amortization expense..... 304,643 69,465 21,075 1,040,364 470,765 39,828
Interest Income............ 1,770 551 -- 54,832 17,707 8,329
Interest Expense........... 38,295 11,931 -- 62,407 20,153 --
Net Loss................... 1,775,061 384,976 225,055 7,380,207 8,128,380 842,102
</TABLE>
Barter revenues from one customer of Total Sports' digital publishing
segment represents approximately $336,800 or 12% of 1998 consolidated revenues.
Geographic information for sales by countries is determined by the location
of the customer. Total Sports had sales to the following countries for years
ended December 31, 1997, 1998 and 1999 and three months ended March 31, 1999 and
2000:
<TABLE>
<CAPTION>
DECEMBER DECEMBER DECEMBER MARCH MARCH
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
United States........ $ 990,251 $3,437,220 $8,303,466 $1,792,028 $3,178,374
Canada............... 395,623 230,717 728 2,536
Other countries...... 18,698 -- 49,500 29,132 55,469
---------- ---------- ---------- ---------- ----------
$1,008,949 $3,832,843 $8,583,683 $1,821,888 $3,236,379
========== ========== ========== ========== ==========
</TABLE>
15. EMPLOYEE BENEFIT PLAN
Total Sports has a 401(k) plan for all eligible employees. Total Sports
provides a 50% matching contribution of up to 6% of employee contributions.
Employer contributions vest over a four-year period as follows: -0-% at the end
of year one, 33% at year two, 67% at year three, and 100% at year four. Total
Sports' contribution amounted to approximately $42,000 in 1997, $85,000 in 1998
and $106,000 in 1999.
16. HEALTH INSURANCE PLAN
During 1997, Total Sports began providing medical and health insurance to
its full-time employees under a partial self-insurance plan administered by an
outside insurer. Under the provisions of the plan, Total Sports is responsible
for claims filed by eligible employees up to $10,000 per employee per term year,
with a lifetime liability of $2,000,000 per employee. During the period February
20, 1997 to December 31, 1997, Total Sports incurred expenses related to the
plan of approximately $88,000. During the years ended December 31, 1998 and
1999, Total Sports incurred expenses related to the plan of approximately
$193,000 and $237,000 respectively. A liability of approximately $28,000 and
$30,000 was recorded for the amount of claims incurred but not paid prior to
December 31, 1998 and 1999, respectively.
17. COMMITMENTS AND CONTINGENCIES
Total Sports is involved in legal actions arising in the normal course of
business. In the opinion of management, based on a review of these legal
proceedings, the ultimate outcome of these actions will not have a material
effect on the consolidated financial statements.
F-69
<PAGE> 147
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
Total Sports has entered into employment agreements with several key
employees. The agreements generally provide annual base salary and termination
provisions. The minimum commitments under the agreements at December 31, 1999
are set forth in the following table:
<TABLE>
<S> <C>
2000...................................................... $312,500
2001...................................................... 220,000
2002...................................................... 155,834
--------
Total commitments............................... $688,334
========
</TABLE>
In January 2000, Total Sports entered into an operating lease agreement for
additional office space. In connection with the lease agreement, Total Sports
also entered into a letter of credit agreement for the benefit of the lessor in
the amount of approximately $433,000. The lease agreement was terminated early
during June 2000 with a payment of approximately $418,000.
During February and March 2000, Total Sports entered into employment
agreements with certain key employees. The agreements generally provide annual
base salary and termination provisions. The employment agreements call for total
compensation of $260,000 per annum for three years from the date of the
agreements.
On May 8, 2000, the Company entered into an employment agreement and a
compensation agreement with Gary Stevenson, a director of Total Sports and the
Company's new interim President and Chief Executive Officer. Under the
agreement, Mr. Stevenson will be compensated for his management services through
a one-time payment to occur upon the closing of any qualifying capital
transaction, as defined in the agreement. A qualifying capital transaction is
any business combination between the Company and another business, a sale of the
line of business or material asset of the Company, a sale or exchange of
securities under the Securities Act of 1933, any borrowings that results in
distributions to stockholders, or another transaction that results in a receipt
by the stockholder of consideration for their interest in the Company. In
addition, upon the termination of the agreement on May 8, 2001, the Company will
grant Mr. Stevenson shares of restricted preferred stock with a fair value equal
to 7.0% of the fair value of the Company on the issuance date, in exchange for
future consulting services. One-third of the restricted preferred stock will
vest and cease to be restricted on each of the first three anniversaries of the
grant date of the preferred stock.
18. RELATED PARTY TRANSACTIONS
KOZ inc., Total College Communications, Golf.Com, Host Communications
(joint venture partner until June 1998 and a stockholder until May 1999),
Winstar New Media (preferred stockholder), Bull Run Corporation Media (preferred
stockholder), Carolina Financial Services LLC (warrant holder and common
ownership), and the Josephus Group (common ownership) are considered related
parties of Total Sports.
Total Sports entered into a radio show and advertising agreement with an
affiliate of Winstar New Media as part of the Series C 1998 financing. The
agreement was for six months ending February 1999, and required the Winstar
affiliate to produce a Total Sports-branded radio show dedicated to a variety of
college and professional sports topics in exchange for $125,000. In addition,
Total Sports committed to purchase $375,000 of advertising over a six-month
period on the Winstar affiliate's radio programs. The advertising was valued at
the market rate for similar advertising in effect at the time the promotions
were delivered. In 1999, with the mutual consent of both parties, the agreement
was allowed to expire with the advertising commitment partially unfulfilled.
Total Sports incurred approximately $344,000 in expenses for the radio show
sponsorship and advertising during 1998 and $28,000 in 1999. During three months
ended March 31, 1999 and 2000, Total Sports recognized no advertising expenses
from Winstar. Included in accrued expenses -- related party at December 31, 1998
and 1999 was approximately $189,000 and $17,800, respectively, due to the
Winstar affiliate.
F-70
<PAGE> 148
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
Total Sports has exclusive rights, through Host Communications, to provide
TotalCasts of NCAA championship events and receive sponsorship revenues from
corporate sponsors of the NCAA. Host Communications serves as an agent to Total
Sports under these agreements, in which Total Sports recognized sponsorship
revenues of approximately $818,000 in 1998 and $1,235,000 in 1999. In connection
with these agreements, Total Sports paid commissions to Host Communications of
approximately $164,000 in 1998 and $296,000 in 1999. In addition, Total Sports
paid Host Communications for consulting services related to Web site development
of approximately $264,000 for the year ended December 31, 1999 and $66,000 for
the three months ended December 31, 1999 and 2000. At December 31, 1998, 1999
and March 31, 2000, Total Sports had approximately $66,000, $96,000 and $73,000
recorded in accrued expenses -- related party due to Host Communications. During
the three months ended March 31, 1999 and 2000, Total Sports recognized
approximately $939,000 and $1,649,000 in sponsorship revenues and incurred
$244,000 and $223,000 in commission expenses to Host Communications.
In connection with its management and sales agreements with Golf.Com, Total
Sports has exclusive rights to operate the Golf.Com online store. Total Sports
also has rights to sell advertising on the Golf.Com Web site, for which it pays
an annual license fee of $25,000 to Golf.Com. Total Sports recognized $1,074,000
in 1999 from sponsorship sales on the Golf.Com Web site. Total Sports recognized
$143,000 and $509,000 during the quarters ended March 31, 1999 and 2000,
respectively, from sales of sponsorships on the Golf.Com Web site. In connection
with these sponsorship sales, Total Sports paid commissions of approximately
$897,000 to Golf.Com during the year ended 1999, $118,000 during the three
months ended March 31, 1999 and $239,000 during the quarter ended March 31,
2000.
Total Sports recognized $240,000 in 1998 and $478,000 in 1999 from
e-commerce sales from the Golf.Com Web site. In connection with these e-commerce
sales, Total Sports paid commissions of approximately $34,000 in 1998, $2,000 in
1999, $15,000 in the quarter ended March 31, 1999 and $33,000 in the quarter
ended March 31, 2000 to Golf.Com. Total Sports had approximately $170,000 at
December 31, 1999 and $30,000 at March 31, 2000 in accounts receivable from
employees and affiliates due from Golf.com.
Total Sports incurred fees related to the different financing rounds from
Carolina Financial Services LLC totaling approximately $62,500 for the period
ended December 31, 1997, $249,000 for the year ended December 31, 1998,
$1,254,000 for the year ended December 31, 1999, $76,000 for the three months
ended March 31, 1999 and $-0- for the three months ended March 31, 2000.
During 1998, Total Sports recognized $25,000 in sponsorship revenue from
Rawlings, a company owned by the Bull Run Corporation Media.
Total Sports leased office space from the Josephus Group during 1997, 1998
and 1999. Total Sports incurred rent expense to the Josephus Group of
approximately $107,000 during the period February 20, 1997 through December 31,
1997, $75,000 during the year ended December 31, 1998, $108,000 during the year
ended December 31, 1999, $27,000 during the three months ended March 31, 1999
and $27,000 during the three months ended March 31, 2000.
During 1997, Total Sports accrued a liability of $75,000 for compensation
to its Chairman and Chief Executive Officer related to services performed prior
to February 20, 1997. For the period from February 20, 1997 to December 31, 1997
and the year ended December 31, 1998, the Chairman and Chief Executive Officer
did not receive any compensation. During the year ended December 31, 1999, the
Chairman and Chief Executive Officer received the $75,000 previously accrued.
During 1998, the Chairman and Chief Executive Officer received 37,100
shares of common stock valued at $1.15 per share for his personal guarantee of
Total Sports' line of credit. In connection with the refinancing of the line of
credit on January 15, 1999 as discussed in Note 6, Total Sports' Board of
Directors issued
F-71
<PAGE> 149
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
18,550 shares of common stock valued at $1.55 per share to its Chairman and
Chief Executive Officer for his personal guarantee of the line of credit.
On August 6, 1998, Total Sports entered into a consulting agreement with a
Total Sports director, whereby Total Sports issued 14,073 shares of common stock
valued at $1.25 per share to the director for consulting services previously
provided and to be provided. Either party has the right to terminate the
agreement at any time with at least thirty days prior written notice. Total
costs of this agreement charged to operations were $17,591. In addition, Total
Sports has an agreement with the director in which it receives a percentage of
rental income received by the director for certain business meetings. Total
Sports received payments of approximately $31,000 in 1999, which have been
included in other non-operating income.
During March 2000, Total Sports entered into a consulting agreement with
Onsport Strategies. Gary Stevenson, a Total Sports director at the time, is the
president and chief executive officer of Onsport Strategies. Under this
agreement, Total Sports paid $102,500 for consulting services during March 2000.
On August 8, 1999, Total entered into a 10-year lease for office space with
First Raleigh Telex, LLC. Frank Daniels, Jr., a Total Sports director and
stockholder, is the beneficial owner of First Raleigh Telex, LLC. The lease
terms call for monthly rent of approximately $25,000 until November 1, 1999 and
monthly rent of $29,733 thereafter. Total recognized approximately $231,000 in
rent expense to First Raleigh Telex, LLC during 1999. Total recognized
approximately $10,000 and $89,000, respectively, in rent expense to First
Raleigh Telex, LLC during the three months ended March 31, 1999 and 2000.
As discussed in Note 7, Total Sports entered into a three-year promissory
note with First Raleigh Telex in the amount of $114,921 during 1999. During
1999, Total made payments totaling approximately $29,000 on the note and
recognized interest expense of approximately $7,000. During the three months
ended March 31, 1999 and 2000, Total made payments totaling approximately $0 and
$11,000, respectively on the note and recognized interest expense of
approximately $0 and $2,000, respectively.
As discussed in Note 7, Total Sports assumed a $20,000 note payable during
the Long Distance Technologies acquisition. The note was payable to the
president of Long Distance Technologies, who became a stockholder of Total
Sports upon consummation of the acquisition. The note was due December 31, 1999
and was paid in January 2000.
In September 1999 and November 1999, Total Sports issued 10% convertible
promissory notes in the aggregate principal amount of $2,500,000 and warrants
exercisable for an aggregate of 15,067 shares of common stock at an exercise
price of $16.59 per share. Winstar Interactive Ventures, Piedmont Venture
Partners, and Nuray Telluride Properties Limited, all Total Sports shareholders,
participated in $2,000,000 of the $2,500,000 and received warrants for 12,053
shares of common stock.
During October and November 1999, Total Sports received non-interest
bearing advances from Golf.Com totaling $425,000. These advances were used to
pay amounts owed by Total Sports to its vendors in connection with the Golf.Com
management agreement (see Note 3). The advances were repaid to Golf.Com in
December 1999.
19. RESTATEMENT
Subsequent to the issuance of Total Sports' 1999 financial statements,
Total Sports' management determined that following transactions should be
restated.
- The excess of the purchase price over the fair value of the net assets
acquired in the KOZ acquisition in March 1997 (see Note 3), totaling
$1,286,000, should be recorded as goodwill and not as a charge to
stockholders' equity. The goodwill resulting from the Sports Extra
acquisition in March 1997 (see Note 3), totaling $631,000, should be
amortized over a period of three years instead of fifteen years.
F-72
<PAGE> 150
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
This increased amortization expense and net loss in the amounts of
$447,860, $597,146 and $597,146 for 1997, 1998 and 1999, respectively.
- The results of operations of Total College Communications Company for the
periods ended December 31, 1997 and 1998 should be accounted for under
the equity method of accounting and should not be consolidated with the
operations of Total Sports. This restatement resulted in reductions in
digital publishing revenues, and equal reductions in total digital
publishing cost of revenues, general and administrative expenses, and
other income and expense in the amount of $182,617 and $152,649 for 1997
and 1998, respectively.
- Liabilities to employees for services previously rendered of $76,181 in
1998 and $293,085 in 1999 totaling $369,266 should have been accrued
during the periods ending December 31, 1998 and 1999. The resulting
increase in accrued expenses at each reporting date also resulted in
increases in salary costs, net loss and retained deficit for all periods
presented.
As a result, the 1997, 1998 and 1999 consolidated financial statements have
been restated from amounts previously reported to appropriately account for such
transactions. The following table summarizes the effects of the restatement
changes:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------- --------------------------- ---------------------------
AS AS AS
PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31:
Goodwill.................. $ -- $ -- $ 1,184,106 $ 1,425,623 $ 2,991,900 $ 2,636,271
Accrued expenses.......... 1,297,267 1,373,448 3,118,216 3,427,477
Additional paid-in
capital................. 11,067,755 12,534,277 66,835,259 68,121,786
Retained deficit.......... (15,007,433) (16,128,169) (35,943,931) (37,955,348)
FOR THE PERIOD ENDED
DECEMBER 31:
Total revenues............ 1,008,949 934,222 3,832,843 2,365,502 8,583,683 6,752,475
Total cost of goods
sold.................... 1,806,544 1,380,229 6,273,645 3,902,158 13,130,667 9,956,501
Amortization expense...... 31,556 321,631 185,485 572,250 1,519,684 1,906,449
Total operating
expenses................ 2,945,109 2,564,727 8,199,955 7,730,798 16,030,665 14,902,003
Total other income
(expense)............... 43,124 (233,557) (522,916) (439,931) (358,849) (418,854)
Net loss.................. $(3,843,760) $(4,291,619) $(11,361,318) $(12,034,645) $(21,130,503) $(22,020,734)
Net loss per
share -- basic and
diluted................. $ (3.17) $ (3.53) $ (7.28) $ (7.71) $ (11.88) $ (12.38)
</TABLE>
20. SUBSEQUENT EVENTS (UNAUDITED)
On May 15, 2000, Total Sports canceled its plans for an initial public
offering of its common stock as a result of unfavorable financial market
conditions. The Company will recognize a loss of approximately $1,270,000 during
the three months ended June 30, 2000, relating of the write-off of costs
capitalized in connection with the proposed offering.
On May 15, 2000, Total Sports granted 3,199,756 options to employees for
the purchase of preferred stock. The options have an exercise price of $1.00 per
share, expire in ten years, and vest 25% every six months over two years.
During June 2000, the Company has entered into commitments to issue $4.2
million of convertible promissory notes to current shareholders and new
investors. The notes bear interest at 9.0% annually and are due on December 31,
2000. The notes are convertible on a 1:1 basis into shares of securities issued
in the
F-73
<PAGE> 151
TOTAL SPORTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO MARCH 31, 1999 AND 2000 INFORMATION)
Company's next round of equity financing with proceeds of at least $5,000,000,
or into Series D preferred stock at any time prior to the due date.
On June 8, 2000, the Company signed a definitive agreement to sell its
25.0% investment in Golf.Com to Quokka Sports, Inc. for approximately 1,375,000
shares of Quokka's common stock, valued at approximately $7.4 million. Total
Sports will continue to operate the Golf.com Web site in connection with its
existing operating agreement with Golf.Com.
On July 20, 2000, Total Sports entered into a definitive agreement with
Quokka to exchange all outstanding shares of its common and preferred stock for
15,000,000 shares of Quokka common stock, valued at approximately $138 million.
Under the terms of the definitive agreement, Quokka would acquire the net assets
and operations of Total Sports' digital and e-commerce segments. Quokka would
not acquire the net assets or operations of Total Sports' discontinued print
publishing segment. The definitive agreement expires on December 31, 2000. In
the event the sale is not consummated by December 31,2000, due to failure to
obtain approval of the acquisition by shareholders of Quokka or Total Sports or
either company's violation of certain requirements of the agreement, a penalty
of $7.5 million is payable to the breached party. The final purchase is subject
to working capital and other adjustments resulting from a closing balance sheet
audit to be performed within 45 days of the closing of the acquisition.
F-74
<PAGE> 152
INDEX TO ANNEXES
<TABLE>
<S> <C>
Purchase Agreement and Plan of Reorganization dated June 8,
2000 by and among Registrant, Golf.com, LLC, GolfData
Corporation, The New York Times Company Magazine Group,
Inc., Media One Interactive Services, Inc., Total Sports
Inc. and Otto Candies, LLC................................ Annex A
</TABLE>
<PAGE> 153
ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PURCHASE AGREEMENT
AND PLAN OF REORGANIZATION
AMONG:
QUOKKA SPORTS, INC.,
A DELAWARE CORPORATION;
GOLF.COM, L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY
GOLFDATA CORPORATION,
A TEXAS CORPORATION
THE NEW YORK TIMES COMPANY
MAGAZINE GROUP, INC.,
A DELAWARE CORPORATION;
MEDIA ONE INTERACTIVE SERVICES, INC.,
A COLORADO CORPORATION;
TOTAL SPORTS INC.,
A DELAWARE CORPORATION; AND
OTTO CANDIES, INC.
DATED AS OF JUNE 8, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 154
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Certain Definitions
Exhibit B Ownership Interests
Exhibit C Form of Escrow Agreement
Exhibit D Form of Member Certification
Exhibit E Form of Certificate of Non-Foreign Status
Exhibit F Form of Release
Exhibit G Form of Amended and Restated Investor Rights Agreement
Exhibit H GD Shareholder Certification
Exhibit I Form of Legal Opinion of Fulbright & Jaworski L.L.P., as
counsel to the Company
Exhibit J Form of Legal Opinion of counsel to each Selling Member
Exhibit K Form of Legal Opinion of Cooley Godward LLP
</TABLE>
<PAGE> 155
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 1. DESCRIPTION OF TRANSACTION................................ A-1
1.1 Acquisition of Ownership Interests.......................... A-1
1.2 Closing..................................................... A-1
1.3 Exchange of Ownership Interests for Parent Common Stock..... A-2
1.4 Escrow Shares............................................... A-2
1.5 Further Action.............................................. A-2
1.6 Liquidation and Dissolution of GD........................... A-2
1.7 Assignment of Website Content............................... A-2
1.8 Tax Treatment............................................... A-3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SELLING MEMBERS........................................... A-3
2.1 Representations of the Selling Members...................... A-3
(a) Authority; Binding Nature of Agreement.................. A-3
(b) No Restrictions......................................... A-3
(c) Non-Contravention; Consents............................. A-3
(d) Ownership Interest...................................... A-3
2.2 Representations of the Company and the Selling Members...... A-4
2.2.1 Due Organization; No Subsidiaries; Etc. .................... A-4
2.3 Certificate of Formation and Operating Agreement; Records... A-4
2.4 Ownership Interests......................................... A-4
2.5 Financial Statements........................................ A-5
2.6 Absence of Changes.......................................... A-5
2.7 Title to Assets............................................. A-6
2.8 Bank Accounts; Receivables.................................. A-7
2.9 Equipment; Leasehold........................................ A-7
2.10 Proprietary Assets.......................................... A-7
2.11 Contracts................................................... A-8
2.12 Liabilities................................................. A-9
2.13 Compliance with Legal Requirements.......................... A-9
2.14 Governmental Authorizations................................. A-10
2.15 Tax Matters................................................. A-10
2.16 Employee and Labor Matters; Benefit Plans................... A-11
2.17 Insurance................................................... A-12
2.18 Related Party Transactions.................................. A-12
2.19 Legal Proceedings; Orders................................... A-13
2.20 Authority; Binding Nature of Agreement...................... A-13
2.21 Non-Contravention; Consents................................. A-13
2.22 Full Disclosure............................................. A-14
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT.................. A-14
3.1 Authority; Binding Nature of Agreement...................... A-14
3.2 No Restrictions............................................. A-14
3.3 Non-Contravention; Consents................................. A-14
3.4 Valid Issuance.............................................. A-14
3.5 Parent Financial Statements................................. A-14
3.6 Offering Valid.............................................. A-15
3.7 Due Organization............................................ A-15
</TABLE>
i
<PAGE> 156
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
3.8 Absence of Changes.......................................... A-15
3.9 Amended and Restated Operating Agreement.................... A-15
SECTION 4. CERTAIN COVENANTS OF THE COMPANY AND THE SELLING
MEMBERS............................................................ A-15
4.1 Access and Investigation.................................... A-15
4.2 Operation of the Company's Business......................... A-15
4.3 Notification; Updates to Disclosure Schedule................ A-17
4.4 No Negotiation.............................................. A-17
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES....................... A-18
5.1 Filings and Consents; Nasdaq Application.................... A-18
5.2 Public Announcements........................................ A-18
5.3 Efforts..................................................... A-18
5.4 Amended and Restated Operating Agreement.................... A-18
5.5 Termination of Broadcast.com Agreements..................... A-18
5.6 Certificate of Non-Foreign Status........................... A-18
5.7 Release..................................................... A-18
5.8 Registration Rights......................................... A-18
5.9 GD Securities Law Compliance................................ A-19
5.10 Parent Stockholder Approval................................. A-19
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATION OF PARENT.............. A-19
6.1 Accuracy of Representations by the Company.................. A-19
6.2 Accuracy of Representations by each Selling Member.......... A-19
6.3 Performance of Covenants by the Company..................... A-19
6.4 Performance of Covenants by each Selling Member............. A-19
6.5 [Intentionally Omitted]..................................... A-19
6.6 Agreements and Documents.................................... A-19
6.7 No Restraints............................................... A-20
6.8 No Claims or Legal Proceedings.............................. A-20
6.9 Securities Compliance....................................... A-20
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND
SELLERS............................................................ A-20
7.1 Accuracy of Representations................................. A-20
7.2 Performance of Covenants.................................... A-21
7.3 Documents................................................... A-21
7.4 Listing..................................................... A-21
7.5 Investor Rights Agreement................................... A-21
7.6 No Restraints............................................... A-21
7.7 Distribution of Cash........................................ A-21
SECTION 8. TERMINATION............................................... A-21
8.1 Termination Events.......................................... A-21
8.2 Termination Procedures...................................... A-22
8.3 Special Termination Rights.................................. A-22
8.4 Effect of Termination....................................... A-22
SECTION 9. INDEMNIFICATION, ETC...................................... A-23
9.1 Survival of Representations, Etc............................ A-23
9.2 Indemnification by each Selling Member...................... A-23
9.3 Indemnification by Parent................................... A-23
9.4 Indemnification by the Company and Sellers.................. A-24
</TABLE>
ii
<PAGE> 157
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
9.5 Threshold................................................... A-24
9.6 No Contribution............................................. A-24
9.7 Defense of Third-Party Claims............................... A-24
9.8 Limitations on Liability.................................... A-25
9.9 Tax Contests................................................ A-25
9.10 Exercise of Remedies by Parent Indemnitees Other than
Parent...................................................... A-25
SECTION 10. MISCELLANEOUS PROVISIONS................................. A-26
10.1 Designated Agent............................................ A-26
10.2 Further Assurances.......................................... A-26
10.3 Fees and Expenses........................................... A-26
10.4 Attorneys' Fees............................................. A-27
10.5 Notices..................................................... A-27
10.6 Confidentiality............................................. A-28
10.7 Time of the Essence......................................... A-29
10.8 Headings.................................................... A-29
10.9 Counterparts................................................ A-29
10.10 Governing Law............................................... A-29
10.11 Successors and Assigns...................................... A-29
10.12 Remedies Cumulative; Specific Performance................... A-29
10.13 No Waiver................................................... A-29
10.14 Amendments.................................................. A-29
10.15 Severability................................................ A-29
10.16 Parties in Interest......................................... A-30
10.17 Entire Agreement............................................ A-30
10.18 Construction................................................ A-30
</TABLE>
iii
<PAGE> 158
PURCHASE AGREEMENT AND
PLAN OF REORGANIZATION
THIS PURCHASE AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made
and entered into as of June 8, 2000, by and among: Quokka Sports, Inc., a
Delaware corporation ("Parent"); Golf.com, L.L.C., a Delaware limited liability
company (the "Company"), and each of the following members of the Company: Total
Sports Inc., a Delaware corporation (the "Site Operator"), GolfData Corporation,
a Texas corporation ("GD"), The New York Times Company Magazine Group, Inc., a
Delaware corporation ("NYT"), Otto Candies Inc. ("Otto Candies") and Media One
Interactive Services, Inc., a Colorado corporation ("MediaOne") (each, a
"Selling Member" and collectively, the "Sellers" or "Selling Members").
NBC -- Golf.com Holding, Inc., a Delaware corporation and the
successor-in-interest to NBC Multimedia, Inc., a Delaware corporation ("NBC" or
the "Non-Selling Member") is a member of the Company that is not selling its
Ownership Interest. Certain other capitalized terms used in this Agreement are
defined in Exhibit A.
RECITALS
A. Selling Members and the Non-Selling Member collectively own all of the
membership interests, or units, in the Company (the "Ownership Interests") as
set forth in Exhibit B. Except as otherwise provided herein, each Selling Member
wishes to sell, and Parent wishes to purchase from each Selling Member, such
Selling Member's Ownership Interest in the Company as set forth in Exhibit B, on
the terms and subject to the conditions set forth in this Agreement (the
"Transaction").
B. Notwithstanding the foregoing Recital A, GD desires to transfer to
Parent, and Parent desires to acquire from GD, the Ownership Interest owned by
GD, which constitutes substantially all of the properties and assets of GD,
solely in exchange for 1,626,472 shares of the common stock, $0.0001 par value
of Parent, with Parent assuming no other liabilities of GD, all in a transaction
intended to qualify as a "reorganization" within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), it being
contemplated by GD and Parent that GD will thereafter, as an integral part of
the transaction, distribute such shares to its shareholders in complete
liquidation of GD and dissolve, all upon the terms and conditions set forth
herein.
C. This Agreement has been approved by the respective boards of directors
or comparable governing bodies of Parent and the Company. Each Selling Member
has also approved this Agreement and each Non-Selling Member whose approval is
required under the Company's Operating Agreement has also approved the sale of
the Ownership Interests by the Selling Members.
AGREEMENT
In consideration of the foregoing, and the mutual representations,
warranties, covenants and agreements contained herein, and intending to be
legally bound, the parties hereto agree as follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 Acquisition of Ownership Interests. At the Closing (as defined below)
and in accordance with the terms of this Agreement, each Selling Member shall
sell or otherwise transfer to Parent and Parent shall purchase or otherwise
acquire from each Selling Member, such Selling Member's Ownership Interest in
the Company as set forth in Exhibit B. Thereafter, Parent will own the Ownership
Interests in the Company sold by the Selling Members and the Non-Selling Member
will own the remainder of the Ownership Interests in the Company.
1.2 Closing. Subject to satisfaction or waiver of the conditions to
closing set forth in this Agreement, the consummation of the transactions
contemplated by this Agreement (the "Closing") will take place at the offices of
Cooley Godward LLP, One Maritime Plaza, 20th Floor, San Francisco, California
94111 at 10:00 a.m. on the later to occur of (a) July 18, 2000 or (b) four
business days after each of the conditions set
A-1
<PAGE> 159
forth in Sections 6 and 7 have been satisfied or waived, or at such other time
and date as Parent and Sellers may mutually agree, such agreement not to be
unreasonably withheld (the "Scheduled Closing Time"). The date on which the
Closing actually takes place is referred to in this Agreement as the "Closing
Date".
1.3 Exchange of Ownership Interests for Parent Common Stock. Upon the
Closing, in exchange for GD's transfer of the Ownership Interest it owns, which
constitutes substantially all of the properties and assets of GD, and each other
Selling Member's transfer of its Ownership Interest to Parent, each Selling
Member will be entitled to receive the number of whole shares of the common
stock of Parent, par value $0.0001 per share ("Parent Common Stock"), set forth
with respect to such Selling Member on Exhibit B. At or as soon as practicable
after the Closing, Parent shall cause to be issued to each Selling Member
certificates representing in the aggregate the number of shares of Parent Common
Stock to which each Selling Member is entitled pursuant to this Section 1.3.
1.4 Escrow Shares. Parent shall deposit Ten Percent (10%) of the aggregate
Share Consideration issuable to the Sellers hereunder (the "Escrow Shares") with
State Street Bank and Trust Company of California, N.A. (the "Escrow Agent") to
be held and disbursed by the Escrow Agent in accordance with the form of escrow
agreement (the "Escrow Agreement") attached as Exhibit C. Execution and delivery
of a Member Certification in substantially the form attached as Exhibit D and an
Escrow Agreement (with all documents required thereunder) by a Selling Member is
a condition precedent to such Selling Member receiving any certificate
evidencing Parent Common Shares. Subject to the preceding sentence, the Escrow
Shares will be represented by a certificate or certificates issued in the name
of each Selling Member in proportion to each such Selling Member's interest in
the Escrow Shares. To the extent that any dividend or distribution, or other
transaction, with respect to the Escrow Shares results in a liability for Tax,
such Tax liability shall be that of the Selling Members (in proportion to each
such Selling Member's interest in the Escrow Shares), and not of Parent or the
Company. Any and all voting rights with respect to the Escrow Shares shall be
exercisable by the Selling Members or their authorized agent as of the Closing
Date. Parent, the Company, and the Selling Members hereby agree and acknowledge
that the Escrow Shares shall be treated as transferred to and owned by the
Selling Members as of the Closing Date and at all times thereafter for all Tax
purposes.
1.5 Further Action. If, at any time after the Closing Date, any further
action is determined by Parent to be reasonably necessary to carry out the
purposes of this Agreement or to vest Parent with full right, title and
possession of and to the Ownership Interests of the Selling Members, the Selling
Members agree to take any actions reasonably necessary to accomplish such
objectives.
1.6 Liquidation and Dissolution of GD. From and after the Closing, GD will
not engage in any business, will promptly liquidate and dissolve as a
corporation, and, subject to compliance with Section 5.9 hereof, will distribute
the Parent Common Stock received by it to its shareholders in complete
cancellation of the shares of capital stock of GD held by its shareholders.
1.7 Assignment of Website Content. Site Operator hereby agrees that,
effective as of the Closing Date, it grants the Company a perpetual, fully paid,
worldwide, nonexclusive license to duplicate, display, perform, modify and
otherwise exploit any rights Site Operator may have, to the extent of Site
Operator's rights therein (and for this purpose without representation as to the
extent of such rights), in and to any of the text, images, video, audio,
graphics, trademarks and data (the "Content") created for and used on the
Company's www.golf.com website (the "Website"), and agrees to take all actions
necessary to enforce this provision, including ensuring that employees of and
consultants to Site Operator and the Company do not separately retain exclusive
ownership rights to the Content. Notwithstanding the foregoing, nothing in this
Section 1.7 is intended to assign, license or convey to the Company any rights
in or to the underlying technology and system architecture used by Site Operator
(and the employees of and consultants to Site Operator and the Company) in the
Website. Further Site Operator agrees that it will not in any media, without the
prior written consent of the Company, duplicate, display or perform the Content,
or major segments of the Content, substantially as an unmodified whole, to
produce or provide comprehensive coverage of golf-related sports events or
information, it being understood that Site Operator intends to use individual
components of the Content or modifications or extracts thereof to provide
general news coverage of golf-related sports events and information as part of
more
A-2
<PAGE> 160
general sports and news media offerings. In no event, however, may Site Operator
utilize any Content other than that which Site Operator owns or has an express
written license to use.
1.8 Tax Treatment. The parties hereto intend that the acquisition by
Parent of the GD ownership interest, which constitutes substantially all of the
properties and assets of GD, pursuant to this Agreement constitute and be
treated as a nontaxable reorganization for federal income tax purposes.
Accordingly, each of Parent and GD hereby agrees that it will report, and GD
agrees to use its reasonable efforts to cause GD's shareholders to report, for
all federal income tax purposes, the transactions contemplated by this Agreement
as a nontaxable reorganization pursuant to Section 368(a)(1)(C) of the Code.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING MEMBERS
2.1 Representations of the Selling Members. Subject to the limitations on
liability set forth in this Agreement, each of the Selling Members severally,
but not jointly, represents and warrants, for itself and not for any other
Selling Member, to and for the benefit of the Parent Indemnitees as follows in
this Section 2.1:
(a) Authority; Binding Nature of Agreement. Subject to the
requirements of the Operating Agreement, the Selling Member has the
absolute and unrestricted right, power and authority to enter into and to
perform its obligations under this Agreement; and the execution, delivery
and performance by the Selling Member of this Agreement has been duly
authorized by all necessary action on the part of the Selling Member and
its officers and directors. This Agreement constitutes the legal, valid and
binding obligation of the Selling Member, enforceable against the Selling
Member in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors,
and (ii) rules of law governing specific performance, injunctive relief and
other equitable remedies.
(b) No Restrictions. There is no suit, action, claim, investigation or
inquiry by any administrative agency or Governmental Body, and no legal,
administrative or arbitration proceeding pending or, to such Selling
Member's Knowledge, threatened against such Selling Member or any of such
Selling Member's properties or assets, with respect to the execution,
delivery and performance of this Agreement or the consummation of the
Transaction or any of the other transactions contemplated hereby or any
other agreement entered into by such Selling Member in connection with the
consummation of the Transaction or any of the other transactions
contemplated hereby.
(c) Non-Contravention; Consents. Except as set forth in the Disclosure
Schedule with respect to such Selling Member, neither (1) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, nor (2) the consummation of the Transactions
or any of the other transactions contemplated by this Agreement, will
directly or indirectly (with or without notice or lapse of time): (a)
result in a violation of (i) any of the provisions of the Selling Member's
organizational documents, or (ii) any resolution adopted by the Selling
Member's officers and directors; or (b) result in a violation of, or give
any Governmental Body or other Person the right to exercise any remedy or
obtain any relief against the Company under, any Legal Requirement or any
order, writ, injunction, judgment or decree to which the Selling Member is
subject.
Except as set forth in the Disclosure Schedule with respect to such
Selling Member, the Selling Member is not and will not be required to make
any filing with or give any notice to, or to obtain any Consent from, any
Person in connection with (x) the execution, delivery or performance by the
Selling Member of this Agreement or any of the other agreements referred to
in this Agreement, or (y) the consummation by the Selling Member of the
Transaction or any of the other transactions contemplated by this
Agreement.
(d) Ownership Interest. The Selling Member has good and valid title,
free and clear of all Liens, to the Ownership Interest it is selling or
otherwise transferring to Parent pursuant to this Agreement. The Ownership
Interest being sold by the Selling Member constitutes the entire membership
interest of the Selling Member in the Company. The Selling Member has no
outstanding options, warrants or other rights providing for the acquisition
or sale of any membership interests in the Company other than the Ownership
Interest being sold hereunder.
A-3
<PAGE> 161
2.2 Representations of the Company and the Selling Members. Subject to the
limitations on liability set forth in this Agreement and the Escrow Agreement,
the Company and each Selling Member (except Otto Candies) jointly and severally
represent and warrant to and for the benefit of the Parent Indemnitees the
matters set forth in this Section 2.2 and in the following Sections 2.3 through
2.22:
2.2.1 Due Organization; No Subsidiaries; Etc.
(a) The Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all necessary limited liability company power and authority: (i) to conduct its
business in the manner in which its business is currently being conducted; (ii)
to own and use its assets in the manner in which its assets are currently owned
and used; and (iii) to perform its obligations under all Material Contracts (as
defined in Section 2.11(a)).
(b) Except as set forth in the Disclosure Schedule, the Company has not
conducted any business under or otherwise used, for any purpose or in any
jurisdiction, any fictitious name, assumed name, trade name or other name, other
than the name "Golf.com," except for any such items that would not have a
Material Adverse Effect on the Company.
(c) The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in the Disclosure
Schedule, except where the failure to be so qualified, authorized, registered or
licensed has not had and would not have a Material Adverse Effect on the
Company. The Company is in good standing as a foreign corporation in each of the
jurisdictions identified in Part 2.2(c) of the Disclosure Schedule.
(d) The Disclosure Schedule accurately sets forth (i) the names of the
managers of the Company, (ii) the names of individuals on any committees of the
managers of the Company, and (iii) the names and titles of the Company's
officers.
(e) The Company does not own any controlling interest in any Entity and the
Company has never owned, beneficially or otherwise, any shares or other
securities of, or any direct or indirect equity interest in, any Entity. The
Company has not agreed and is not obligated to make any future investment in or
capital contribution to any Entity. The Company has not guaranteed and is not
responsible or liable for any obligation of any other Persons or Entities.
2.3 Certificate of Formation and Operating Agreement; Records. The Company
has delivered to Parent or its Representatives accurate and complete copies of:
(1) the Company's certificate of formation and operating agreement, including
all amendments thereto; and (2) the minutes and other records of the meetings
and other proceedings (including any actions taken by written consent or
otherwise without a meeting) of the members of the Company, the managers of the
Company and all committees of the managers of the Company. There have been no
formal actions of the members of the Company, the managers of the Company or any
committee of the managers of the Company that are not reflected in such minutes
or other records. To their Knowledge, there has not been any material violation
of any of the provisions of the Company's certificate of formation or operating
agreement. The books of account, stock or other equity records, minute books and
other records of the Company are accurate, up-to-date and complete in all
material respects.
2.4 Ownership Interests.
(a) Exhibit B sets forth the record ownership of all Ownership Interests in
the Company. Except as set forth in the Disclosure Schedule, there are no
outstanding options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, plans or other agreement of any character providing for the
purchase, issuance or sale of any membership interests in the Company.
(b) All outstanding Ownership Interests have been issued and granted in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements, and (ii) all material requirements set forth in applicable
Contracts.
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(c) To their Knowledge, the Company has never repurchased, redeemed or
otherwise reacquired any membership interests or other securities of the
Company.
2.5 Financial Statements.
(a) Set forth in the Disclosure Schedule are the following financial
statements and notes (collectively, the "Company Financial Statements"):
(i) the unaudited balance sheets of the Company as of December 31,
1997, 1998 and 1999, and the related unaudited income statements and
statements of cash flows of the Company for the years then ended;
(ii) the unaudited balance sheet of the Company as of March 31, 2000,
and the related unaudited income statement of the Company for the three
months then ended;
(iii) the unaudited balance sheet of the Company as of April 30, 2000
(the "Unaudited Interim Balance Sheet"), and the related unaudited income
statement of the Company for the one month then ended.
(b) Except as set forth in the Disclosure Schedule, the Company Financial
Statements are accurate and complete in all material respects and present fairly
the financial position of the Company as of the respective dates thereof and the
results of operations and (in the case of the financial statements referred to
in Section 2.5(a)(i)) cash flows of the Company for the periods covered thereby.
The Company Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered (except that the Company Financial Statements do not contain
footnotes and are subject to normal and recurring year-end audit adjustments
which would not reasonably be expected to have a Material Adverse Effect on the
Company.
2.6 Absence of Changes. To their Knowledge, except as set forth in the
Disclosure Schedule, since April 30, 2000:
(a) there has not been any material adverse change in the Company's
business, condition, assets, liabilities, operations or financial
performance that could reasonably be expected to have a Material Adverse
Effect on the Company, and no event specific to the Company (as opposed to
general economic conditions or industry trends) has occurred that could
reasonably be expected to have a Material Adverse Effect on the Company;
(b) there has not been any material loss, damage or destruction to, or
any material interruption in the use of any of the Company's material
assets (whether or not covered by insurance);
(c) except as otherwise contemplated herein, the Company has not
declared, accrued, set aside or paid any dividend or made any other
distribution in respect of any Ownership Interests, and has not
repurchased, redeemed or otherwise reacquired membership interests or other
securities;
(d) the Company has not sold, issued or authorized the issuance of (i)
any membership interest or other security, (ii) any option or right to
acquire any membership interest or any other security, or (iii) any
instrument convertible into or exchangeable for any membership interest or
other security;
(e) there has been no amendment to the Company's certificate of
formation or operating agreement, and the Company has not effected or been
a party to any Acquisition Transaction, recapitalization or similar
transaction;
(f) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(g) the Company has not made any capital expenditure which, when added
to all other capital expenditures made on behalf of the Company since April
30, 2000 exceeds $100,000;
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(h) the Company has not (i) entered into a Material Contract (as
defined in Section 2.11(a)), or (ii) amended or prematurely terminated, or
waived any material right or remedy under, any Material Contract;
(i) the Company has not (i) acquired, leased or licensed any material
right or other material asset from any other Person, (ii) sold or otherwise
disposed of, or leased or licensed, any material right or other material
asset to any other Person, or (iii) waived or relinquished any material
right, except in each case in the ordinary course of business and
consistent with the Company's past practices;
(j) the Company has paid its invoices in the ordinary course of
business and has not written off as uncollectible, or established any
extraordinary reserve with respect to, any account receivable or other
indebtedness;
(k) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except in the ordinary course of business and consistent with the Company's
past practices;
(l) the Company has not (i) lent money to any Person (other than
pursuant to routine travel advances made to employees in the ordinary
course of business), or (ii) incurred or guaranteed any indebtedness for
borrowed money that is still outstanding, except as reflected on the
Company Financial Statements;
(m) the Company has not (i) established or adopted any employee
benefit plan, (ii) paid any bonus or made any profit-sharing or similar
payment to, or increased the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of
its directors, officers, employees or consultants, or (iii) hired any new
employee or consultant;
(n) the Company has not changed any of its methods of accounting or
accounting practices in any respect, including discounting accounts
receivable for earlier cash payment outside the ordinary course of
business;
(o) the Company has not made any Tax election;
(p) the Company has not commenced or settled any Legal Proceeding;
(q) the Company has not entered into any material transaction or taken
any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(r) the Company has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(q)" above.
2.7 Title to Assets.
(a) The Company owns, and has good, valid and marketable title to, all
assets owned by it, including: (i) all assets reflected on the Unaudited Interim
Balance Sheet other than those that have been disposed of in the ordinary course
of business; (ii) all assets referred to in Sections 2.8(b) and 2.10 as being
owned by the Company and all of the Company's rights under the Contracts
identified in Part 2.11 of the Disclosure Schedule; and (iii) all other assets
reflected in the Company's books and records as being owned by the Company.
Except as set forth in the Disclosure Schedule, all of said assets are owned by
the Company free and clear of any liens or other Encumbrances, except for (x)
any lien for current taxes not yet due and payable, and (y) minor liens that
have arisen in the ordinary course of business and that do not (in any case or
in the aggregate) materially detract from the value of the assets subject
thereto or materially impair the operations of the Company.
(b) The Disclosure Schedule identifies all assets that are material to the
business of the Company and that are being leased or licensed to the Company.
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2.8 Bank Accounts; Receivables.
(a) To their Knowledge, the Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of the
Company at any bank or other financial institution.
(b) To their Knowledge, the Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of the Company as of April 30, 2000. To their Knowledge,
except as set forth in the Disclosure Schedule, all existing accounts receivable
of the Company (including those accounts receivable reflected on the Unaudited
Interim Balance Sheet that have not yet been collected and those accounts
receivable that have arisen since April 30, 2000 and have not yet been
collected) (i) represent valid obligations of customers of the Company arising
from bona fide transactions entered into in the ordinary course of business, and
(ii) are current and will be collected in full when due, without any
counterclaim or set off (net of an allowance for doubtful accounts not to exceed
$50,000 in the aggregate).
2.9 Equipment; Leasehold.
(a) To their Knowledge, all material items of equipment and other tangible
assets owned by or leased to the Company are adequate for the uses to which they
are being put, are in good condition and repair (ordinary wear and tear
excepted) and are adequate for the conduct of the Company's business in the
manner in which such business is currently being conducted.
(b) The Company does not own any real property or any interest in real
property other than a leasehold interest in office space.
2.10 Proprietary Assets.
(a) The Disclosure Schedule sets forth, with respect to each Company
Proprietary Asset registered with any Governmental Body or for which an
application has been filed with any Governmental Body, (i) a brief description
of such Proprietary Asset, and (ii) the names of the jurisdictions covered by
the applicable registration or application. The Disclosure Schedule identifies
and provides a brief description of all other Company Proprietary Assets. The
Disclosure Schedule identifies and provides a brief description of each
Proprietary Asset licensed to the Company by any Person (except for any
Proprietary Asset that is licensed to the Company under any third party software
license generally available to the public at a cost of less than $25,000), and
identifies the license agreement under which such Proprietary Asset is being
licensed to the Company. Except as set forth in the Disclosure Schedule, the
Company has good, valid and marketable title to all of the Company Proprietary
Assets identified in Part 2.10(a)(i) of the Disclosure Schedule (other than
domain names), free and clear of all liens and other Encumbrances, and has a
valid right to use all Proprietary Assets identified in Part 2.10(a)(ii) of the
Disclosure Schedule. The domain name www.golf.com is registered in the name of
the Company. Except as set forth in the Disclosure Schedule, the Company has
remained current in the payment of registration fees for the www.golf.com domain
name and has paid such registration fees through May 25, 2001. To their
Knowledge, no person has any rights to use the www.golf.com domain name other
than the Company. Except as set forth in the Disclosure Schedule, the Company is
not obligated to make any payment to any Person for the use of any Company
Proprietary Asset that could reasonably be expected to have a Material Adverse
Effect on the Company. Except as set forth in the Disclosure Schedule, to their
Knowledge the Company has not developed jointly with any other Person any
Company Proprietary Asset with respect to which such other Person has any
rights.
(b) Except as set forth in the Disclosure Schedule, to their
Knowledge, the Company has not (other than pursuant to license agreements
identified in the Disclosure Schedule) disclosed or delivered to any
Person, or permitted the disclosure or delivery to any Person of, (i) the
source code, or any portion or aspect of the source code, of any Company
Proprietary Asset, or (ii) the object code, or any portion or aspect of the
object code, of any Company Proprietary Asset.
(c) Except as set forth in the Disclosure Schedule, to their
Knowledge, none of the Company Proprietary Assets infringes or conflicts
with any Proprietary Asset owned or used by any other Person. Except as set
forth in the Disclosure Schedule, to their Knowledge, the Company is not
infringing,
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misappropriating or making any unlawful use of, and the Company has not at
any time infringed, misappropriated or made any unlawful use of, or
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person.
Except as set forth in the Disclosure Schedule, to their Knowledge, no
other Person is infringing, misappropriating or making any unlawful use of,
and no Proprietary Asset owned or used by any other Person infringes any
Company Proprietary Asset.
(d) Except as set forth in the Disclosure Schedule and except for
Proprietary Assets licensed to the Company under third party software
licenses generally available to the public, to their Knowledge, the Company
Proprietary Assets together with Proprietary Assets licensed to the Company
constitute all the Proprietary Assets necessary to enable the Company to
conduct its business in the manner in which such business is being
conducted as of the date hereof. Except as set forth in the Disclosure
Schedule, to their Knowledge, (i) the Company has not licensed any of the
Company Proprietary Assets to any Person on an exclusive basis, and (ii)
the Company has not entered into any covenant not to compete or Contract
materially limiting its ability to exploit any of its Proprietary Assets or
to transact business in any market or geographical area or with any Person.
(e) The Disclosure Schedule identifies the persons who have executed
and delivered to Site Operator a confidential inventions and assignment
agreement identical to the form previously delivered to Parent or its
Representatives.
2.11 Contracts.
(a) To their Knowledge, the Disclosure Schedule identifies all of the
following that exist as of June 8, 2000:
(i) each Company Contract relating to the employment of, or the
performance of services by, any employee, consultant or independent
contractor under which payments are reasonably expected to be in excess of
$50,000;
(ii) each Company Contract relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Proprietary Asset
under which payments are reasonably expected to be in excess of $50,000;
(iii) each Company Contract imposing any restriction on the Company's
right or ability (A) to compete with any other Person or (B) to acquire any
product or other asset or any services from any other Person, to sell any
product or other asset to or perform any services for any other Person or
to transact business or deal in any other manner with any other Person;
(iv) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship under
which payments are reasonably expected to be in excess of $50,000;
(v) each Company Contract relating to the acquisition, issuance or
transfer of any membership interests or other securities of the Company;
(vi) each Company Contract relating to the creation of any Encumbrance
with respect to any asset of the Company, except for (x) any lien for
current taxes not yet due and payable, and (y) liens that have arisen in
the ordinary course of business and that do not materially detract from the
value of the assets subject thereto or materially impair the operations of
the Company;
(vii) each Company Contract creating an obligation of the Company
under any guaranty, any pledge, any performance or completion bond, any
indemnity or any surety arrangement under which payments are reasonably
expected to be in excess of $50,000;
(viii) each Company Contract creating or relating to any partnership
or joint venture or any sharing of revenues, profits, losses, costs or
liabilities under which payments are reasonably expected to be in excess of
$50,000;
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(ix) each pending Company Contract relating to the purchase or sale of
any product or other asset by or to, or the performance of any services by
or for, any Related Party (as defined in Section 2.18) under which payments
are reasonably expected to be in excess of $50,000; and
(x) any other Company Contract under which there is reasonably
expected to be (A) the payment or delivery of cash or other consideration
in an amount or having a value in excess of $50,000 in the aggregate, or
(B) the performance of services having a value in excess of $50,000 in the
aggregate.
Contracts identified in the Disclosure Schedule in the respective categories
described in clauses "(i)" through "(x)" above are referred to in this Agreement
as "Material Contracts."
(b) The Company has delivered to Parent or its Representatives accurate and
complete copies of all written Material Contracts identified in Part 2.11 of the
Disclosure Schedule, including all amendments thereto. Part 2.11 of the
Disclosure Schedule provides an accurate description of the terms of each
Material Contract that is not in written form. To their Knowledge, each Material
Contract identified in Part 2.11 of the Disclosure Schedule is valid and in full
force and effect, and is enforceable by the Company in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(c) Except as set forth in the Disclosure Schedule, to their Knowledge:
(i) there is no continuing violation or breach by the Company or any
other Person of, or continuing default under, any Material Contract that
could reasonably be expected to have a Material Adverse Effect on the
Company;
(ii) no event has occurred, and no circumstance or condition exists,
that (with or without notice or lapse of time) could reasonably be expected
to (A) result in a violation or breach of any of the provisions of any
Material Contract, (B) give any Person the right to declare a default or
exercise any remedy under any Material Contract, (C) give any Person the
right to accelerate the maturity or performance of any Material Contract,
or (D) give any Person the right to cancel, terminate or modify any
Material Contract, and that in each case could reasonably be expected to
have a Material Adverse Effect on the Company;
(iii) since December 31, 1999, the Company has not received any
written notice or other communication regarding any actual or possible
violation or breach of, or default under, any Material Contract that could
reasonably be expected to have a Material Adverse Effect on the Company;
(iv) the Company has not waived any of its rights under any Material
Contract that could reasonably be expected to have a Material Adverse
Effect on the Company; and
(v) No Person is renegotiating, or has a right pursuant to the terms
of any Material Contract to renegotiate, any amount paid or payable to the
Company under any Material Contract or any other material term or provision
of any Material Contract.
2.12 Liabilities. The Company has no accrued, contingent or other
liabilities of any nature, either matured or unmatured that would be required to
be reflected in financial statements in accordance with generally accepted
accounting principles, whether due or to become due, and that could reasonably
be expected to have a Material Adverse Effect on the Company, except for:
(a) liabilities identified as such in the "liabilities" column of the Unaudited
Interim Balance Sheet; (b) accounts payable or accrued salaries that have been
incurred by the Company since April 30, 2000 in the ordinary course of business
and consistent with the Company's past practices; (c) liabilities under the
Material Contracts; and (d) other liabilities identified in the Disclosure
Schedule.
2.13 Compliance with Legal Requirements. To their Knowledge, the Company
is, and has at all times since December 31, 1998 been, in compliance with all
applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and could not reasonably be expected to have a
Material Adverse Effect on the Company. Except as set forth in the Disclosure
Schedule, to their Knowledge, since December 31, 1998, the Company has not
received any notice or other communication from any
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Governmental Body regarding any actual or possible violation of, or failure to
comply with, any Legal Requirement, except where such actual or possible
violation, or failure to comply, could not reasonably be expected to have a
Material Adverse Effect on the Company.
2.14 Governmental Authorizations. To their Knowledge, the Disclosure
Schedule identifies each material Governmental Authorization held by the
Company, and the Company has delivered to Parent or its Representatives accurate
and complete copies of all Governmental Authorizations held by the Company and
identified in the Disclosure Schedule. To their Knowledge, the Governmental
Authorizations held by the Company and identified in the Disclosure Schedule are
valid and in full force and effect, and collectively constitute all Governmental
Authorizations necessary to enable the Company to conduct its business in the
manner in which its business is currently being conducted as of the date hereof.
The Company is in substantial compliance with the terms and requirements of the
respective Governmental Authorizations held by the Company and identified in the
Disclosure Schedule. To their Knowledge, since December 31, 1998, the Company
has not received any written notice or other written communication from any
Governmental Body regarding (a) any actual or possible violation of or failure
to comply with any term or requirement of any Governmental Authorization, or (b)
any actual or possible revocation, withdrawal, suspension, cancellation,
termination or modification of any Governmental Authorization, in either case
that could reasonably be expected to have a Material Adverse Effect on the
Company.
2.15 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of the Company
with any Governmental Body with respect to any taxable period ending on or
before the Closing Date (the "Company Returns") (i) have been or will be filed
on or before the applicable due date (including any extensions of such due
date), and (ii) have been, or will be when filed, accurately and completely
prepared in all material respects in compliance with all applicable Legal
Requirements. All amounts shown on the Company Returns to be due on or before
the Closing Date have been or will be paid on or before the Closing Date. The
Company has delivered to Parent or its Representatives accurate and complete
copies of its 1998 and 1999 federal income tax returns previously filed.
(b) Except as set forth in the Disclosure Schedule, the Company Financial
Statements fully accrue all actual and contingent liabilities for Taxes with
respect to all periods through the dates thereof in accordance with generally
accepted accounting principles. The Company will establish, in the ordinary
course of business and consistent with its past practices, reserves adequate for
the payment of all Taxes for the period from April 30, 2000 through the Closing
Date, and the Company will disclose the dollar amount of such reserves to Parent
on or prior to the Closing Date.
(c) To their Knowledge, there have been no examinations or audits of any
Company Return. Except as set forth in the Disclosure Schedule, no extension or
waiver of the limitation period applicable to any of the Company Returns has
been granted (by the Company or any other Person), and no such extension or
waiver has been requested from the Company.
(d) Except as set forth in the Disclosure Schedule, no claim or Proceeding
is pending or, to their Knowledge, has been threatened against or with respect
to the Company in respect of any Tax. There are no unsatisfied liabilities for
Taxes (including liabilities for interest, additions to tax and penalties
thereon and related expenses) with respect to any notice of deficiency or
similar document received by the Company with respect to any Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or similar
document which are being contested in good faith by the Company and with respect
to which adequate reserves for payment have been established). There are no
liens for Taxes upon any of the assets of the Company except liens for current
Taxes not yet due and payable. The Company has not been, and the Company will
not be, required to include any adjustment in taxable income for any tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of transactions
or events occurring, or accounting methods employed, prior to the Closing.
(e) To their Knowledge, there is no agreement, plan, arrangement or other
Contract covering any employee or independent contractor or former employee or
independent contractor of the Company that,
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considered individually or considered collectively with any other such
Contracts, could reasonably be expected to, give rise directly or indirectly to
the payment of any amount that would not be deductible pursuant to Section 280G
or Section 162 of the Code. The Company is not, and has never been, a party to
or bound by any tax indemnity agreement, tax sharing agreement, tax allocation
agreement or similar Contract.
2.16 Employee and Labor Matters; Benefit Plans.
(a) Part 2.16(a) of the Disclosure Schedule identifies each salary, bonus,
deferred compensation, incentive compensation, severance pay, termination pay,
hospitalization, medical, life or other insurance, supplemental unemployment
benefits, profit-sharing, pension or retirement plan, program or agreement
(collectively, the "Plans") sponsored, maintained, contributed to or required to
be contributed to by the Company for the benefit of any employee of the Company
("Employee") or consultant to the Company since December 31, 1998, except for
Plans which would not require the Company to make payments or provide benefits
having a value in excess of $25,000 in the aggregate.
(b) To their Knowledge, the Company does not maintain, sponsor or
contribute to, and has not at any time in the past maintained, sponsored or
contributed to, any employee pension benefit plan (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not excluded from coverage under specific Titles or Merger Subtitles
of ERISA) for the benefit of Employees or former Employees (a "Pension Plan").
(c) To their Knowledge, the Company maintains, sponsors or contributes only
to those employee welfare benefit plans (as defined in Section 3(1) of ERISA,
whether or not excluded from coverage under specific Titles or Merger Subtitles
of ERISA) for the benefit of Employees or former Employees which are described
in Part 2.16(c) of the Disclosure Schedule (the "Welfare Plans"), none of which
is a multiemployer plan (within the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to Parent or its
Representatives:
(i) an accurate and complete copy of such Plan (including all
amendments thereto);
(ii) an accurate and complete copy of the annual report, if required
under ERISA, with respect to such Plan for the last two years;
(iii) an accurate and complete copy of the most recent summary plan
description, together with each Summary of Material Modifications, if
required under ERISA, with respect to such Plan;
(iv) if such Plan is funded through a trust or any third party funding
vehicle, an accurate and complete copy of the trust or other funding
agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof; and
(v) an accurate and complete copy of the most recent determination
letter received from the Internal Revenue Service with respect to such Plan
(if such Plan is intended to be qualified under Section 401(a) of the
Code).
(e) To their Knowledge, the Company is not required to be and has never
been required to be, treated as a single employer with any other Person under
Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the Code. The
Company has never been a member of an "affiliated service group" within the
meaning of Section 414(m) of the Code. To their Knowledge, the Company has never
made a complete or partial withdrawal from a multiemployer plan, as such term is
defined in Section 3(37) of ERISA, resulting in "withdrawal liability," as such
term is defined in Section 4201 of ERISA (without regard to subsequent reduction
or waiver of such liability under either Section 4207 or 4208 of ERISA).
(f) The Company does not have any plan or commitment to create any
additional Welfare Plan or any Pension Plan, or to modify or change any existing
Welfare Plan or Pension Plan (other than to comply with applicable law) in a
manner that would materially affect any Employee.
(g) Except as set forth in the Disclosure Schedule, no Welfare Plan
provides death, medical or health benefits (whether or not insured) with respect
to any current or former Employee after any such Employee's
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termination of service (other than (i) benefit coverage mandated by applicable
law, including coverage provided pursuant to Section 4980B of the Code, (ii)
deferred compensation benefits accrued as liabilities on the Unaudited Interim
Balance Sheet, and (iii) benefits the full cost of which are borne by current or
former Employees (or the Employees' beneficiaries)).
(h) With respect to each of the Welfare Plans constituting a group health
plan within the meaning of Section 4980B(g)(2) of the Code, the provisions of
Section 4980B of the Code ("COBRA") have been complied with, except where the
failure to so comply could not reasonably be expected to have a Material Adverse
Effect on the Company.
(i) Each of the Plans has been operated and administered in all material
respects in accordance with applicable Legal Requirements, including but not
limited to ERISA and the Code, except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect on the Company.
(j) Each of the Plans intended to be qualified under Section 401(a) of the
Code has received a favorable determination from the Internal Revenue Service.
(k) Except as set forth in the Disclosure Schedule, neither the execution,
delivery or performance of this Agreement, nor the consummation of the
Transaction or any of the other transactions contemplated by this Agreement,
will result in any payment (including any bonus, golden parachute or severance
payment) to any current or former Employee, manager or member of the Company
(whether or not under any Plan), or materially increase the benefits payable
under any Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(l) The Disclosure Schedule contains a list of all salaried employees of
the Company as of April 30, 2000, and correctly reflects, in all material
respects, their salaries, any other compensation payable to them (including
compensation payable pursuant to bonus, deferred compensation or commission
arrangements), their dates of employment and their positions. The Company is not
a party to any collective bargaining contract or other Contract with a labor
union involving any of its Employees or consultants. Except as set forth in the
Disclosure Schedule, all of the Company's employees are "at will" employees and
all consultants may be terminated at any time by the Company.
(m) The Disclosure Schedule identifies as of the date hereof each Employee
who is not fully available to perform work because of disability or other leave
and the anticipated date of return to full service.
(n) To their Knowledge, the Company is in compliance with all applicable
Legal Requirements and Contracts relating to employment, employment practices,
wages, bonuses and terms and conditions of employment, including employee
compensation matters, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect on the Company.
(o) Except as set forth in the Disclosure Schedule, the Company has good
labor relations, and, to their Knowledge, none of the Company's employees or
consultants intends to terminate his or her employment or consultant
relationship with the Company as a result of the consummation of the transaction
contemplated herein.
2.17 Insurance. The Disclosure Schedule identifies all material insurance
policies maintained by, at the expense of or for the benefit of the Company and
identifies any material claims made thereunder, and the Company has delivered to
Parent or its Representatives accurate and complete copies of the insurance
policies identified on the Disclosure Schedule. To their Knowledge, each of the
insurance policies identified in the Disclosure Schedule is in full force and
effect. To their Knowledge, since December 31, 1999, the Company has not
received any written notice regarding any actual or possible (a) cancellation or
invalidation of any insurance policy, (b) refusal of any coverage or rejection
of any claim under any insurance policy, or (c) material adjustment in the
amount of the premiums payable with respect to any insurance policy.
2.18 Related Party Transactions. Except as set forth in the Disclosure
Schedule, to their Knowledge: (a) no Related Party has, and no Related Party has
at any time since December 31, 1999 had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of the Company; (b)
no Related Party is, or has at any time since December 31, 1999 been, indebted
to the Company; (c) since
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December 31, 1999, no Related Party has entered into, or has had any direct or
indirect financial interest in (other than through de minimis stock ownership in
public companies), any material Contract, transaction or business dealing
involving the Company; and (d) no Related Party has any claim or right against
the Company (other than rights to receive compensation for services performed as
an employee of the Company). (For purposes of this Section 2.18 each of the
following will be deemed to be a "Related Party": (i) each individual who is, or
who has at any time since December 31, 1999 been, a manager or an officer of the
Company; (ii) each member of the immediate family of each of the individuals
referred to in clause "(i)" above; and (iii) any trust or other Entity (other
than the Company) in which any one of the individuals referred to in clauses
"(i)" and "(ii)" above holds (or in which more than one of such individuals
collectively hold), beneficially or otherwise, a material voting, proprietary or
equity interest.)
2.19 Legal Proceedings; Orders.
(a) Except as set forth in the Disclosure Schedule, there is no pending
Legal Proceeding, and, to their Knowledge, no Person has threatened to commence
any Legal Proceeding: (i) to which the Company is a party or to which any of the
assets owned or used by the Company are subject, in either case that could
reasonably be expected to have a Material Adverse Effect on the Company; or (ii)
that seeks to prevent, delay or make illegal the Transaction or any of the other
transactions contemplated by this Agreement.
(b) Except as set forth in the Disclosure Schedule, since December 31,
1998, no Legal Proceeding has been commenced by or has been pending against the
Company.
(c) To their Knowledge, there is no order, writ, injunction, judgment or
decree to which the Company, or any of the assets owned or used by the Company,
is subject, that in any case could reasonably be expected to have a Material
Adverse Effect on the Company.
2.20 Authority; Binding Nature of Agreement. The Company has the absolute
and unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement; and the execution, delivery and performance by
the Company of this Agreement have been duly authorized by all necessary action
on the part of the Company and its managers and members. This Agreement
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
2.21 Non-Contravention; Consents. Except as set forth in the Disclosure
Schedule, to their Knowledge, neither (1) the execution, delivery or performance
of this Agreement or any of the other agreements referred to in this Agreement,
nor (2) the consummation of the Transactions or any of the other transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(a) result in a violation of (i) any of the provisions of the
Company's certificate of formation or operating agreement, or (ii) any
resolution adopted by the Company's managers, members or any committee of
the managers of the Company;
(b) result in a violation of, or give any Governmental Body or other
Person the right to exercise any remedy or obtain any relief under, any
Legal Requirement or any order, writ, injunction, judgment or decree to
which the Company, or any of the assets owned or used by the Company, is
subject;
(c) result in a violation of any of the terms or requirements of, or
give any Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate or modify, any Governmental Authorization that is held by the
Company;
(d) result in a violation or breach of, or result in a default under,
any Company Contract that is or would constitute a Material Contract, or
give any Person the right to (i) declare a default or exercise any remedy
under any such Company Contract, (ii) accelerate the maturity or
performance of any such Company Contract, or (iii) cancel, terminate or
modify any such Company Contract; or
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(e) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by the Company (except for minor
liens that will not, in any case or in the aggregate, materially detract
from the value of the assets subject thereto or materially impair the
operations of the Company).
Except as set forth in the Disclosure Schedule, to their Knowledge, the Company
is not and will not be required to make any filing with or give any notice to,
or to obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (y) the consummation of the Transaction or any
of the other transactions contemplated by this Agreement.
2.22 Full Disclosure. To their Knowledge, this Agreement (including the
Disclosure Schedule) does not (i) contain any representation, warranty or
information that is false or misleading with respect to any material fact, or
(ii) omit to state any material fact or necessary in order to make the
representations, warranties and information contained and to be contained herein
and therein (in the light of the circumstances under which such representations,
warranties and information were or will be made or provided) not false or
misleading.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company and each Selling Member as
follows:
3.1 Authority; Binding Nature of Agreement. Parent has the absolute and
unrestricted right, power and authority to perform its obligations under this
Agreement; and the execution, delivery and performance by Parent of this
Agreement (including the contemplated issuance of Parent Common Stock in the
Transaction in accordance with this Agreement) has been duly authorized by all
necessary action on the part of Parent and its board of directors. This
Agreement constitutes the legal, valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
3.2 No Restrictions. To the Knowledge of Parent, there is no suit, action,
claim, investigation or inquiry by any administrative agency or Governmental
Body, and no legal, administrative or arbitration proceeding pending or, to
Parent's Knowledge, threatened against Parent or any of their properties or
assets, with respect to the execution, delivery and performance of this
Agreement or the consummation of the Transaction or any of the other
transactions contemplated hereby or any other agreement entered into by Parent
in connection with the consummation of the Transaction or any of the other
transactions contemplated hereby.
3.3 Non-Contravention; Consents. To the Knowledge of Parent, neither (1)
the execution, delivery or performance of this Agreement or any of the other
agreements referred to in this Agreement, nor (2) the consummation of the
Transactions or any of the other transactions contemplated by this Agreement,
will directly or indirectly (with or without notice or lapse of time): (a)
result in a violation of (i) any of the provisions of Parent's organizational
documents, or (ii) any resolution adopted by Parent's officers and directors;
(b) result in a violation of any Legal Requirement or any order, writ,
injunction, judgment or decree to which Parent is subject; or (c) result in a
violation of any of the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel, terminate or modify, any
Governmental Authorization that is held by Parent.
3.4 Valid Issuance. The Parent Common Stock to be issued in the
Transaction, when issued in accordance with the provisions of this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable, free and
clear of any preemptive rights or other rights to purchase held by any other
person.
3.5 Parent Financial Statements.
(a) The consolidated financial statements contained in the registration
statements and Forms 10-K and 10-Q filed by Parent with the SEC between July 27,
1999 and the date of this Agreement (the "Parent SEC Documents"): (i) complied
as to form in all material respects with the published rules and regulations of
the
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SEC applicable thereto; (ii) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered, except as may be indicated in the notes to such financial statements
and (in the case of unaudited statements) as permitted by Form 10-Q of the SEC,
and except that unaudited financial statements may not contain footnotes and are
subject to normal and recurring year-end audit adjustments; and (iii) fairly
presented the consolidated financial position of Parent and its subsidiaries as
of the respective dates thereof and the consolidated results of operations of
Parent and its subsidiaries for the periods covered thereby.
(b) As of the time it was filed with the SEC (or, if amended or superseded
by a filing prior to the date of this Agreement, then on the date of such
filing): (i) each of the Parent SEC Documents complied in all respects with the
applicable requirements of the Securities Act or the Exchange Act (as the case
may be); and (ii) none of the Parent SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
3.6 Offering Valid. Assuming the accuracy of the representations and
warranties of each Selling Member contained in the Member Certifications and of
each GolfData shareholder in the Shareholder Certifications, the offer, sale and
issuance of the Parent Common Stock in connection with the Transaction will be
exempt from the registration requirements of the Securities Act and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
3.7 Due Organization. The Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own and use its assets
in the manner in which its assets are currently owned and used; and (iii) to
perform its obligations under all of its material Contracts.
3.8 Absence of Changes. Since December 31, 1999, except as reflected in
Parent's SEC Documents, there has been no amendment to the Parent's Certificate
of Incorporation or Bylaws, and the Parent has not effected or been a party to
any Acquisition Transaction, recapitalization or similar transaction.
3.9 Amended and Restated Operating Agreement. Parent in good faith
believes that it already has reached agreement with NBC regarding the material
terms of the Amended and Restated Operating Agreement of the Company described
in NBC's approval paragraphs set forth on NBC's signature page to this
Agreement.
SECTION 4. CERTAIN COVENANTS OF THE COMPANY AND THE SELLING MEMBERS
4.1 Access and Investigation. During the period from the date of this
Agreement through the Closing Date (the "Pre-Closing Period"), the Company will
cause its Representatives to and each Selling Member will use its commercially
reasonable efforts to cause the Company and its Representatives to: (a) provide
Parent and Parent's Representatives with reasonable access to the Company's
Representatives, personnel and assets and to all existing books, records, Tax
Returns, work papers and other documents and information of the Company; (b)
provide Parent and Parent's Representatives with copies of such existing books,
records, Tax Returns, work papers and other documents and information of the
Company, and with such additional financial, operating and other data and
information of the Company, as Parent may reasonably request, in all cases
subject to the confidentiality letter between the Company and Parent dated April
3, 2000 and (c) provide Parent and its Representatives with such financial and
other records as they may reasonably request to commence preparation of audited
financial statements of the Company, and reasonably assist Parent, at Parent's
sole expense, in such undertaking.
4.2 Operation of the Company's Business. Except as otherwise approved by
Parent, which approval will not be unreasonably withheld, during the Pre-Closing
Period, the Company will comply with (and will use commercially reasonable
efforts to cause the Site Operator to comply with) the following provisions, and
each
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Selling Member will use commercially reasonable efforts to cause the Company to
comply with the following provisions:
(a) the Company will conduct its business and operations in the
ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement,
including paying its invoices in the ordinary course of business;
(b) the Company will use reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers, employees and consultants, and maintain its relations and good
will with all suppliers, customers, landlords, creditors, employees,
consultants and other Persons having business relationships with the
Company;
(c) the Company will keep in full force all insurance policies
identified in the Disclosure Schedule (or comparable substitute policies);
(d) the Company will cause its officers and managers to report
regularly to Parent concerning the status of the Company's business;
(e) except as set forth in Section 7.7, the Company will not declare,
accrue, set aside or pay any dividend or make any other distribution in
respect of any membership interests, and will not repurchase, redeem or
otherwise reacquire any membership interests or other securities;
(f) the Company will not sell, issue or authorize the issuance of (i)
any membership interest or other security, (ii) any option or right to
acquire any membership interest or other security, or (iii) any instrument
convertible into or exchangeable for any membership interest or other
security;
(g) except as contemplated by this Agreement, the Company will not
amend or permit the adoption of any amendment to the Company's articles of
organization or operating agreement, or effect or permit the Company to
become a party to any Acquisition Transaction, recapitalization or similar
transaction;
(h) the Company will not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(i) the Company will not make any capital expenditure outside of the
Company's approved budget, a copy of which has been provided to Parent,
except for capital expenditures that, when added to all other capital
expenditures made outside of the Company's approved budget, made on behalf
of the Company during the Pre-Closing Period, do not exceed $25,000 in
aggregate;
(j) the Company will not (i) enter into, or permit any of the assets
owned or used by it to become bound by, any Contract that is or would
constitute a Material Contract, or (ii) amend or prematurely terminate, or
waive any material right or remedy under, any Material Contract;
(k) the Company will not (i) acquire, lease or license any right or
other asset from any other Person, (ii) sell or otherwise dispose of, or
lease or license, any right or other asset to any other Person, or (iii)
waive or relinquish any right, except in each case for assets acquired,
leased, licensed or disposed of by the Company, and waivers by the Company,
in each case in the ordinary course of business or pursuant to Company
Contracts;
(l) the Company will not (i) lend money to any Person (except that the
Company may make routine travel advances to employees in the ordinary
course of business), or (ii) incur or guarantee any indebtedness for
borrowed money;
(m) the Company will not (i) establish, adopt or amend any employee
benefit plan, (ii) pay any bonus or make any profit-sharing payment, cash
incentive payment or similar payment to, or increase the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its managers, officers, employees or
consultants, or (iii) hire any new employee or consultant whose aggregate
annual cash compensation is expected to exceed $50,000;
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(n) the Company will not change any of its methods of accounting or
accounting practices in any material respect, including discounting
accounts receivable for earlier cash payment outside the ordinary course of
business;
(o) the Company will not make any Tax election;
(p) the Company will not commence or settle any material Legal
Proceeding;
(q) the Company will not agree or commit to take any of the actions
described in clauses "(e)" through "(p)" above.
Notwithstanding the foregoing, the Company may take any action described in
clauses "(e)" through "(q)" above if Parent gives its prior written consent to
the taking of such action by the Company, which consent will not be unreasonably
withheld (it being understood that Parent's withholding of consent to any action
will not be deemed unreasonable if Parent determines in good faith that the
taking of such action would not be in the best interests of Parent or would not
be in the best interests of the Company).
4.3 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, the Company and Sellers will promptly
notify Parent in writing of:
(i) the discovery by the Company or Sellers of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of
this Agreement and that caused or constitutes an inaccuracy in or breach of
any representation or warranty made by the Company or Sellers in this
Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or constitute
an inaccuracy in or breach of any representation or warranty made by the
Company or Sellers in this Agreement if (A) such representation or warranty
had been made as of the time of the occurrence, existence or discovery of
such event, condition, fact or circumstance, or (B) such event, condition,
fact or circumstance had occurred, arisen or existed on or prior to the
date of this Agreement;
(iii) any breach of any covenant or obligation of the Company or
Sellers; and
(iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any of the conditions set forth in Section 6 or
Section 7 impossible or unlikely.
(b) If the Company or the Selling Members have Knowledge of any event,
condition, fact or circumstance that is required to be disclosed pursuant to
Section 4.3(a) or that requires any change in the Disclosure Schedule, or if the
Company or the Selling Members have Knowledge of any event, condition, fact or
circumstance that would require a change assuming the Disclosure Schedule were
dated as of the date of the occurrence, existence or discovery of such event,
condition, fact or circumstance, then the Company and/or Sellers will promptly
deliver to Parent an update to the Disclosure Schedule specifying such change.
No such update will be deemed to supplement or amend the Disclosure Schedule for
the purpose of determining the accuracy as of the date of this Agreement of any
of the representations and warranties made by the Company or Sellers in this
Agreement solely for the purpose of determining whether any of the conditions
set forth in Section 6 has been satisfied. Such update will however be deemed to
supplement or amend the Disclosure Schedule for all other purposes under this
Agreement, provided that if an update is delivered to Parent within three (3)
days prior to the Closing, Parent may delay the Closing to such date that will
provide Parent a three (3) day period to review such update.
4.4 No Negotiation. During the Pre-Closing Period, the Company and Sellers
will not, directly or indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal or
offer from any Person (other than Parent) relating to a possible
Acquisition Transaction;
(b) participate in any discussions or negotiations or enter into any
agreement with, or provide any non-public information to, any Person (other
than Parent) relating to or in connection with a possible Acquisition
Transaction; or
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(c) consider, entertain or accept any proposal or offer from any
Person (other than Parent) relating to a possible Acquisition Transaction.
The Company and Sellers will promptly notify Parent in writing of any material
inquiry, proposal or offer relating to a possible Acquisition Transaction that
is received by the Company and/or Sellers during the Pre-Closing Period.
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 Filings and Consents; Nasdaq Application. As promptly as practicable
after the execution of this Agreement, each party to this Agreement (a) will
make all filings (if any) and give all notices (if any) required to be made and
given by such party in connection with the Transaction and the other
transactions contemplated by this Agreement (including any required anti-trust
filings by it or its affiliates under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the rules promulgated thereunder (the "HSR Act")),
and (b) will use all commercially reasonable efforts to obtain all Consents (if
any) required to be obtained (pursuant to any applicable Legal Requirement or
Contract, or otherwise) by such party in connection with the Transaction and the
other transactions contemplated by this Agreement. The Company and Sellers, on
the one hand, and Parent, on the other hand, will (upon request) promptly
deliver to the other a copy of each such filing made, each such notice given and
each such Consent obtained during the Pre-Closing Period. Parent shall promptly
submit a request to Nasdaq that the shares of Parent Common Stock to be issued
in the Transaction be approved for listing (subject to notice of issuance) on
the Nasdaq National Market and provide the Selling Members a copy thereof.
5.2 Public Announcements. During the Pre-Closing Period, (i) the parties
shall not (and will not permit any of their Representatives to) issue any press
release or make any public statement regarding this Agreement or the
Transaction, or regarding any of the other transactions contemplated by this
Agreement, without the other parties' prior written consent; provided, however,
that Parent may issue any press release or make any public statement regarding
this Agreement or the Transaction that it, or its Representatives, reasonably
determine is necessary to comply with applicable securities laws.
5.3 Efforts. During the Pre-Closing Period, (a) the Company will use its
commercially reasonable efforts to cause the conditions set forth in Section 6
to be satisfied on a timely basis, (b) each Selling Member will use its
commercially reasonable efforts to cause the conditions set forth in Section 6
to be satisfied on a timely basis and (c) Parent will use its commercially
reasonable efforts to cause the conditions set forth in Section 7 to be
satisfied on a timely basis.
5.4 Amended and Restated Operating Agreement. Parent will negotiate in
good faith with NBC to complete and execute, on or prior to June 22, 2000, an
Amended and Restated Operating Agreement as is required as a condition to NBC's
approval that is set forth on NBC's signature page to this Agreement.
5.5 Termination of Broadcast.com Agreements. Prior to the Closing the
Company will use reasonable commercial efforts to terminate the agreement, dated
April 27, 1999, between broadcast.com, Inc. and the Company, or to assist Parent
in terminating or renegotiating such agreement.
5.6 Certificate of Non-Foreign Status. On or prior to the Closing, each
Selling Member will execute and deliver to Parent a Certificate of Non-Foreign
Status, substantially in the form of Exhibit E.
5.7 Release. At the Closing, each Selling Member shall execute and deliver
to the Company a Release in the form of Exhibit F.
5.8 Registration Rights. Parent shall seek and use reasonable efforts to
obtain prior to Closing the stockholder consents necessary to amend, and if such
consents are obtained shall amend on or prior to the Closing, Parent's existing
Amended and Restated Investor Rights Agreement as set forth in the Amended and
Restated Investor Rights Agreement in substantially the form attached as Exhibit
G (the "Investor Rights Agreement"). If such consents cannot be obtained, Parent
shall grant to the Selling Members at Closing registration rights with respect
to the Parent Common Stock issued pursuant to this Agreement substantially
identical to, and pari pasu with, the rights set forth in the Investor Rights
Agreement.
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5.9 GD Securities Law Compliance. GD will, in accordance with its articles
of incorporation and bylaws and the applicable requirements of the corporation
laws of the State of Texas, promptly take all actions necessary (i) to cause
each of its shareholders who is not an "accredited investor" (as defined in Rule
501 under the Securities Act) to appoint a "purchaser representative" (as
defined in Rule 501 under the Securities Act) in connection with evaluating the
merits and risks of acquiring Parent Common Stock immediately after the Closing
of this Transaction, (ii) to cause each such shareholder and each other
shareholder approving the Transaction to complete, execute and deliver a
Shareholder Certification in substantially the form attached hereto as Exhibit
H, (iii) cause a copy of an information statement or other disclosure document
in such form as is reasonably approved by Parent (the "Information Statement")
to be delivered to each shareholder of the Company for their consideration of
the Transaction and (iv) call and hold such meetings (as promptly as
practicable) as may be necessary or appropriate under applicable securities laws
to enable GD's shareholders, including those who have appointed a "purchaser
representative", to consider and approve this Agreement and the Transaction.
Without limiting the generality of the foregoing, the board of directors of GD
will recommend to GD's shareholders a vote in favor of the adoption of this
Agreement and the Transaction.
5.10 Parent Stockholder Approval. Parent will promptly take all actions
necessary to obtain any approvals of its stockholders required in connection
with the transactions contemplated by this Agreement.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATION OF PARENT
The obligation of Parent to effect the Transaction and otherwise consummate
the transactions contemplated by this Agreement are subject to the satisfaction
or waiver, at or prior to the Closing, of each of the following conditions:
6.1 Accuracy of Representations by the Company. All of the
representations and warranties made by the Company in this Agreement (considered
collectively), and each of such representations and warranties (considered
individually), will have been accurate in all material respects as of the date
of this Agreement (except that all representations and warranties that are
subject to materiality or Material Adverse Effect qualifiers shall have been
accurate, subject to such qualifiers, in all respects), and will be accurate in
all material respects as of the Scheduled Closing Time as if made at the
Scheduled Closing Time.
6.2 Accuracy of Representations by each Selling Member. All of the
representations and warranties made by each Selling Member in this Agreement
(considered collectively), and each of such representations and warranties
(considered individually), will have been accurate in all material respects as
of the date of this Agreement (except that all representations and warranties
that are subject to materiality or Material Adverse Effect qualifiers shall have
been accurate, subject to such qualifiers, in all respects), and will be
accurate in all material respects as of the Scheduled Closing Time as if made at
the Scheduled Closing Time.
6.3 Performance of Covenants by the Company. All of the covenants and
obligations that the Company is required to comply with or to perform at or
prior to the Closing (considered collectively), and each of such covenants and
obligations (considered individually), will have been complied with and
performed in all material respects.
6.4 Performance of Covenants by each Selling Member. All of the covenants
and obligations that each Selling Member is required to comply with or to
perform at or prior to the Closing (considered collectively), and each of such
covenants and obligations (considered individually), will have been complied
with and performed in all material respects; provided, however, that Section
5.9(i) and (ii) shall be complied with and performed in all respects.
6.5 [Intentionally Omitted].
6.6 Agreements and Documents. Parent shall have received the following
agreements and documents, each of which will be in full force and effect:
(a) a certificate executed by the Company's Chief Executive Officer,
or comparable official, certifying that (1) each of the representations and
warranties set forth in Section 2 (other than Section 2.1) is accurate in
all material respects as of the Closing Date as if made on the Closing
Date,
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and (2) that the conditions set forth in Sections 6.1, 6.3 and 6.5 and, to
his actual knowledge, Sections 6.7 and 6.8 have been duly satisfied (the
"Company Closing Certificate");
(b) a certificate executed by an authorized officer of each Selling
Member, certifying that, as to such Selling Member, (1) each of the
representations and warranties of such Selling Member set forth in Section
2.1 is accurate in all material respects as of the Closing Date as if made
on the Closing Date, (2) to the Knowledge of such Selling Member each of
the representations and warranties set forth in Section 2 (other than
Section 2.1) is accurate in all material respects as of the Closing Date,
and (3) that the conditions set forth in Section 6.2, 6.4 and 6.9 have been
duly satisfied by such Selling Member (each such certificate being referred
to as a "Selling Member Closing Certificate");
(c) all Consents listed on Schedule 6.6(c) where failure to obtain the
same would have a Material Adverse Effect on the Company;
(d) the Certificate of Non-Foreign Status in the form of Exhibit E,
executed by the Company and each Selling Member;
(e) Releases in the form of Exhibit F, executed by each Selling
Member;
(f) the Escrow Agreement in the form of Exhibit C, executed by the
Designated Company Agent and Sellers;
(g) a legal opinion of Fulbright & Jaworski L.L.P., as counsel to the
Company, dated as of the Closing Date, in the form of Exhibit I and a legal
opinion of counsel to each Selling Member, dated as of the Closing Date, in
the form of Exhibit J;
(h) written resignations of all managers and officers of the Company,
effective as of the Closing Date, except for the managers of the Company
appointed by NBC; and
(i) certificates representing each Selling Member's Ownership
Interest, if any, for cancellation.
6.7 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
Transaction will have been issued by any court of competent jurisdiction and
remain in effect, and there will not be any Legal Requirement enacted or deemed
applicable to the Transaction that makes consummation of the Transaction
illegal. All filings, if any, required under the HSR Act shall have been made,
and all applicable waiting periods under the HSR Act shall have expired with no
adverse action having been taken by any applicable Governmental Authority, or
such waiting periods shall have been earlier terminated by the applicable
Governmental Authority pursuant to the HSR Act.
6.8 No Claims or Legal Proceedings. No Person will have filed any claims
or commenced or threatened in writing to commence any Legal Proceeding that may
materially and adversely affect the consummation of the Transaction or the
financial condition, business or operations of the Company.
6.9 Securities Compliance. Each Selling Member shall have completed,
executed and delivered a Member Certification in substantially the form attached
as Exhibit D hereto. Each shareholder of GD shall have completed, executed and
delivered a Shareholder Certification in substantially the form attached as
Exhibit H hereto. Each shareholder of GD that is not an "accredited investor"
shall have appointed a "purchaser representative" in connection with the
Transaction and the acquisition of Parent Common Stock immediately after the
Closing of the Transaction.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND SELLERS
The obligations of the Company and Sellers to effect the Transaction and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction or waiver, at or prior to the Closing, of the following
conditions:
7.1 Accuracy of Representations. All of the representations and warranties
made by Parent in this Agreement (considered collectively), and each of such
representations and warranties (considered individually), will have been
accurate in all material respects as of the date of this Agreement (except that
all
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representations and warranties that are subject to materiality or Material
Adverse Effect qualifiers shall have been accurate, subject to such qualifiers,
in all respects), and will be accurate in all material respects as of the
Scheduled Closing Time as if made at the Scheduled Closing Time.
7.2 Performance of Covenants. All of the covenants and obligations that
Parent is required to comply with or to perform at or prior to the Closing
(considered collectively), and each of such covenants and obligations
(considered individually), will have been complied with and performed in all
material respects.
7.3 Documents. The Sellers will have received the following documents:
(a) a legal opinion of Cooley Godward llp, dated as of the Closing
Date, in the form of Exhibit K; and
(b) a certificate executed by Parent's Chief Financial Officer
certifying that (1) each of the representations and warranties set forth in
Section 3 is accurate in all material respects as of the Closing Date as if
made on the Closing Date, (2) that the conditions set forth in Sections
7.1, 7.2, 7.4 and 7.5 and, to his actual knowledge, Section 7.6, have been
duly satisfied (the "Parent Closing Certificate") and (3) all board and
stockholder action of Parent necessary in connection with the issuance of
the Parent Common Stock hereunder has been duly and validly taken.
7.4 Listing. Parent will have filed with Nasdaq a notification form for
listing of additional shares on the Nasdaq National Market for the shares of
Parent Common Stock to be issued in the Transaction (subject to notice of
issuance).
7.5 Investor Rights Agreement. Parent shall have complied with the
requirements of Section 5.8.
7.6 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
Transaction will have been issued by any court of competent jurisdiction and
remain in effect, and there will not be any Legal Requirement enacted or deemed
applicable to the Transaction that makes consummation of the Transaction
illegal. All filings, if any, required under the HSR Act shall have been made,
and all applicable waiting periods under the HSR Act shall have expired with no
adverse action having been taken by any applicable Governmental Authority, or
such waiting periods shall have been earlier terminated by the applicable
Governmental Authority pursuant to the HSR Act.
7.7 Distribution of Cash. Notwithstanding anything to the contrary herein,
the Company shall have distributed to the Members, immediately prior to the
Closing Date, the cash, if any, in the Company that is in excess of the sum of
the following items of the Company: (a) any cash that is deferred revenue under
GAAP as of such distribution date, (b) outstanding liabilities, commitments and
other obligations, including invoices and off-balance sheet obligations, that
are past due by more than 30 days, except for good faith disputes; and (c) the
Third Party Expenses (as identified in Section 10.3) incurred that are unpaid at
Closing. The parties hereto agree that, within fifteen (15) business days of the
anticipated Closing Date, and no later than July 10, 2000 (unless otherwise
agreed), Parent, on the one hand, and the Selling Members, on the other hand,
will agree on the amount of the Company's liabilities, commitments and other
obligations described in clause (c) above as of such date (the "Liability
Amount") and, for purposes of the distribution of cash to the Members pursuant
to this Section 7.7, the Company may only distribute to the Members the cash in
the Company in excess of such Liability Amount. Nothing in this Section 7.7
shall be interpreted to require any Selling Member to contribute any amounts to
the Company.
SECTION 8. TERMINATION
8.1 Termination Events. This Agreement may be terminated prior to the
Closing:
(a) by Parent if it has not breached this Agreement and Parent
reasonably determines that the timely satisfaction of any condition set
forth in Section 6 has become impossible (other than as a result of any
failure on the part of Parent to comply with or perform any covenant or
obligation of Parent set forth in this Agreement);
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(b) by a majority in interest of the Sellers if they have not breached
this Agreement and they reasonably determine that the timely satisfaction
of any condition set forth in Section 7 has become impossible (other than
as a result of any failure on the part of the Company and the Sellers to
comply with or perform any covenant or obligation set forth in this
Agreement or in any other agreement or instrument delivered to Parent or
its Representatives);
(c) by Parent if the Closing has not taken place on or before July 31,
2000 (other than as a result of any failure on the part of Parent to comply
with or perform any covenant or obligation of Parent set forth in this
Agreement); provided, however, that such date shall be extended to August
31, 2000 in the event any of the following "Justified Delays" occur: (a)
Parent's proxy statement to its stockholders in compliance with Section
5.10 hereof is reviewed by the SEC and the SEC has not completed its review
in time to enable Parent to reasonably complete the stockholder
solicitation and meeting by July 31, 2000; (b) any filing under the HSR Act
is required and made and the Federal Trade Commission has not issued an
order clearing the Transaction under the HSR Act in time to enable a July
31, 2000 closing; or (c) Parent and/or its Representatives reasonably
determine that Parent's disclosure obligations under applicable federal and
state securities laws, as a result of proposed transactions involving any
Member or their affiliates that is consummated prior to July 15, 2000,
require either (i) a delay in distributing proxy statements to Parent's
stockholders in compliance with Section 5.10 hereof, (ii) an update to a
proxy statement already distributed to Parent's stockholders or already
filed with the SEC in compliance with Section 5.10 hereof, or (iii) a delay
in the meeting of Parent's stockholders at which the Transaction would be
approved.
(d) by a majority in interest of the Sellers if the Closing has not
taken place on or before July 31, 2000 (other than as a result of the
failure on the part of the Company and Sellers to comply with or perform
any covenant or obligation set forth in this Agreement or in any other
agreement or instrument delivered to Parent or its Representatives);
provided, however, that such date shall be extended to August 31, 2000 in
the event any Justified Delay occurs; or
(e) by the mutual consent of Parent, the Company and a majority in
interest of the Sellers.
8.2 Termination Procedures. If Parent wishes to terminate this Agreement
pursuant to Section 8.1(a) or Section 8.1(c), Parent will deliver to the Company
and Sellers a written notice stating that Parent is terminating this Agreement
and setting forth a brief description of the basis on which Parent is
terminating this Agreement. If the Company and a majority in interest of the
Sellers wish to terminate this Agreement pursuant to Section 8.1(b) or Section
8.1(d), the Company and such Sellers will deliver to Parent a written notice
stating that the Company and Sellers are terminating this Agreement and setting
forth a brief description of the basis on which the Company and Sellers are
terminating this Agreement.
8.3 Special Termination Rights. If the Selling Members have not received
from NBC, on or prior to June 22, 2000, a written notice stating that NBC has
executed with Parent an Amended and Restated Operating Agreement for the
Company, in form and substance reasonably acceptable to NBC, then at any time
after June 22, 2000 and prior to receipt by the Selling Members of such notice,
MediaOne, GD and the Site Operator may notify Parent (in a written notice
executed by all of such parties) of their intent to terminate this Agreement, in
which case this Agreement shall terminate at 5:00 p.m. Central time on the fifth
day (which may be extended by the unanimous agreement of MediaOne, GD and the
Site Operator) after delivery of such notice to Parent (the "Termination Time"),
unless prior to the Termination Time the Selling Members have received the
notice from NBC described above.
8.4 Effect of Termination. If this Agreement is terminated pursuant to
Section 8.1 or 8.3, all further obligations of the parties under this Agreement
will terminate; provided, however, that: (a) neither the Company nor Parent nor
Sellers will be relieved of any obligation or liability arising from any prior
breach by such party of any provision of this Agreement; (b) the parties will,
in all events, remain bound by and continue to be subject to the provisions set
forth in Section 10; and (c) the parties will, in all events, remain bound by
and continue to be subject to Section 5.3.
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SECTION 9. INDEMNIFICATION, ETC.
9.1 Survival of Representations, Etc.
(a) The representations and warranties made by the Company and Sellers, on
the one hand, and Parent, on the other hand, will survive the Closing and will
expire on the one year anniversary of the Closing Date (the "Survival Expiration
Date"); provided, however, that if, at any time on or prior to, but not after,
the Survival Expiration Date, any Parent Indemnitee delivers to the Designated
Company Agent (as defined in Section 10.1) or any Selling Member Indemnitee
delivers to Parent a written notice alleging the existence of an inaccuracy in
or a breach of any of the representations and warranties made by the Company or
Sellers or Parent, respectively (and setting forth in reasonable detail the
basis for the belief that such an inaccuracy or breach may exist) and asserting
a claim for recovery under this Section 9 based on such alleged inaccuracy or
breach, then the claim asserted in such notice will survive the Survival
Expiration Date until such time as such claim is fully and finally resolved.
(b) It is agreed by the parties that any Disclosure Schedule update made
prior to the Closing will be deemed to supplement or amend the Disclosure
Schedule for all purposes under this Agreement (other than determining the
satisfaction of the conditions to Closing set forth in Section 6), including for
purposes of determining the accuracy as of the date of this Agreement of any of
the representations and warranties made by the Company and Sellers or Parent, as
the case may be, in this Agreement. In addition and not by way of limitation,
notwithstanding anything to the contrary in this Agreement or in the documents
contemplated to be executed in connection herewith or in any Disclosure
Schedule, if a party proceeds with Closing and at such time actually knows that
a Disclosure Schedule or a representation or warranty or Closing document is
incorrect or untrue, or a covenant herein has not been complied with, then such
party shall not be entitled to any form of relief or indemnification or damages
for the misrepresentation, noncompliance or breach of which it had actual
knowledge at or prior to the time of Closing.
9.2 Indemnification by each Selling Member.
(a) Subject to the limitations on liability set forth in this Agreement and
in the Escrow Agreement, from and after the Closing Date (but subject to Section
9.1(a)), each Selling Member, severally and not jointly, shall defend,
indemnify, protect and hold harmless each of the Parent Indemnitees from and
against, and will compensate and reimburse each of the Parent Indemnitees for
any losses, damages, liabilities, claims, judgments, settlements, fines, costs
and expenses (including reasonable attorney's fees) ("Damages") to the extent
such Damages are directly or indirectly suffered or incurred by the Parent
Indemnitees (regardless of whether or not such Damages relate to any third-party
claim) and to the extent such Damages arise directly or indirectly from or as a
result of, any inaccuracy in or breach of any representation or warranty set
forth in Section 2.1 by such Selling Member or of the applicable Selling Member
Closing Certificate and any Legal Proceeding relating to any such inaccuracy or
breach (including any Legal Proceeding commenced by the Parent Indemnitees for
the purpose of enforcing any of its rights under this Section 9). As against the
Selling Members, indemnification pursuant to this Section 9.2 shall be the
exclusive remedy available to the Parent Indemnitees for Damages of the type
referred to in the foregoing sentence, provided however that such limitation
shall not apply as against a Selling Member in the event of fraud, willful
misstatements or willful omissions of such Selling Member or any of its
Representatives.
9.3 Indemnification by Parent. From and after the Closing Date (but
subject to Section 9.1(a), Parent shall defend, indemnify, protect and hold
harmless each Selling Member Indemnitee from and against, and will compensate
and reimburse each Selling Member Indemnitee for Damages which are directly or
indirectly suffered or incurred by any Selling Member Indemnitee (regardless of
whether or not such Damages relate to any third-party claim) and which arise
directly from or as a result of, any inaccuracy in or breach of any
representation or warranty set forth in Section 3 by Parent or of Parent's
Closing Certificate and any Legal Proceeding relating to any such inaccuracy or
breach (including any Legal Proceeding commenced for the purpose of enforcing
any rights under this Section 9).
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9.4 Indemnification by the Company and Sellers.
(a) Subject to the limitations on liability set forth in this Agreement and
in the Escrow Agreement, from and after the Closing Date (but subject to Section
9.1(a)), the Selling Members (by reason of their approval of the Transaction and
each such Selling Member's acceptance of the consideration provided for in
Section 1.3 of this Agreement), shall defend, indemnify, protect and hold
harmless each of Parent Indemnitees from and against, and will compensate and
reimburse each of Parent Indemnitees for any Damages to the extent such Damages
are directly or indirectly suffered or incurred by any of Parent Indemnitees
(regardless of whether or not such Damages relate to any third-party claim) and
which arise directly or indirectly from, or as a result of: (i) any inaccuracy
in or breach of any representation or warranty set forth in Section 2 (other
than Section 2.1) or in the Selling Members' Closing Certificate (other than
with respect to Section 2.1); (ii) any breach of any covenant or obligation of
the Company and Sellers under this Agreement (including the covenants set forth
in Section 1.7 and Sections 4 and 5); (iii) any claim by any individual or
entity of a membership interest or other security in the Company or in
connection with any agreement between the Company and any holder of a membership
interest or other security in the Company (other than the matters contemplated
by this Agreement or disclosed in the Disclosure Schedule); provided, however,
that any claim under this subsection (iii) relating to the Non-Selling Member's
membership interest shall be resolved between Parent and the Non-Selling Member
and any claim relating to a specific Selling Member shall be resolved between
Parent and such Selling Member pursuant to Section 9.2 hereof, and such claims
shall not be covered by this Section 9.4(a)(iii); or (iv) any Legal Proceeding
relating to any inaccuracy or breach of the type referred to in clause "(i),"
"(ii)" or "(iii)" above (including any Legal Proceeding commenced by Parent
Indemnitees for the purpose of enforcing any of its rights under this Section
9). As against the Company and the Sellers, indemnification pursuant to this
Section 9.4, subject to the limitations on liability set forth in this Agreement
and in the Escrow Agreement, shall be the exclusive remedy available to Parent
Indemnitees pursuant to this Agreement, provided however that such limitation
shall not apply in the event of fraud of the Company, Sellers or any of their
Representatives.
9.5 Threshold. Notwithstanding any other provisions of this Agreement,
Parent Indemnitees and Selling Member Indemnities shall be entitled to
indemnification only if the aggregate Damages that have been directly or
indirectly suffered or incurred by any one or more of such Indemnitees exceeds
Two Hundred Fifty Thousand Dollars ($250,000) (the "Threshold Amount"), provided
that at such time as the amount to which such Indemnitees are entitled to be
indemnified exceeds the Threshold Amount, such Indemnitees shall be entitled to
be indemnified up to the full Damages including the Threshold Amount, subject to
the limitations on liability set forth in this Agreement and the Escrow
Agreement. The Threshold Amount shall not apply to any Damages arising out of
fraud of the Company, Sellers, Parent or any of their Representatives or any
claim under Section 9.2 and 9.4(a)(iii).
9.6 No Contribution. The Company and Sellers waive, acknowledge and agree
that they will not have and will not exercise or assert (or attempt to exercise
or assert), any right of contribution, right of indemnity or other right or
remedy against the Company after the Closing in connection with any
indemnification obligation or any other liability to which the Company and
Sellers may become subject under or in connection with this Agreement or the
Company Closing Certificate.
9.7 Defense of Third-Party Claims. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Company, against Parent or against any other Person) with respect to which an
indemnifying party may become obligated to hold harmless, indemnify, compensate
or reimburse any indemnified party pursuant to this Section 9, the indemnifying
party(ies) will have the right, at its election, to proceed with the defense of
such claim or Legal Proceeding with counsel of its own choosing. Such election
must be made within thirty (30) days of the notice of claim or Legal Proceeding.
If the indemnified party so proceeds with the defense of any such claim or Legal
Proceeding:
(a) all reasonable expenses relating to the defense of such claim or
Legal Proceeding will be indemnifiable under Section 9.2, Section 9.3 or
Section 9.4(a)(iv);
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(b) the Designated Company Agent (defined below) or Parent, as
applicable, will make available to the indemnified party any documents and
materials in his possession or control that may be necessary to the defense
of such claim or Legal Proceeding; and
(c) the indemnified party will have the right to settle, adjust or
compromise such claim or Legal Proceeding only to the extent any
settlement, adjustment or compromise involves sums of money with the
consent of the Designated Company Agent, pursuant to Section 10.1, or
Parent, as applicable; provided, however, that such consent will not be
unreasonably withheld.
Parent will give the Designated Company Agent prompt notice of the commencement
of any such Legal Proceeding against Parent or the Company, and the Designated
Company Agent will give Parent prompt notice of the commencement of any such
Legal Proceeding against the Company or the Selling Members.
9.8 Limitations on Liability.
(a) The liability of the Selling Members pursuant to this Agreement,
including, but not limited to, this Section 9, shall in the aggregate be limited
as follows:
(i) The liability of each Selling Member with respect to fraud or any
breach by such Selling Member of the representations in Section 2.1 shall
be limited in all respects to Parent's actual Damages resulting thereby,
which may include, but is not limited to, any of the following: (a) the
fair market value as of the Closing Date of the Parent Company Stock
received by such Selling Member on the Closing Date pursuant to this
Agreement (including any such shares subject to the Escrow Agreement), (b)
the fair market value as of the enforcement of the remedy for such breach
of the Parent Company Stock received by such Selling Member on the Closing
Date pursuant to this Agreement (including any such shares subject to the
Escrow Agreement), (c) the fair market value of the ownership interest in
the Company claimed to be owned by a third party on the Closing Date or (d)
the fair market value of the ownership interest in the Company claimed to
be owned by a third party as of the enforcement of the remedy for such
breach.
(ii) The sole remedy of Parent and Parent Indemnitees for, and the
liability of the Company and the Selling Members for, all other matters
under or related to this Agreement or any other agreement or document
related hereto, including, but not limited to, breaches of representations
and warranties (other than those set forth in Section 2.1) and covenants
under this Agreement or the Company Closing Certificate or any Selling
Member Closing Certificate shall be limited to the right of Parent to
exercise its rights under the Escrow Agreement (subject to the dollar
limits set forth in the Escrow Agreement).
(b) The liability of Parent pursuant to this Agreement, including, but not
limited to, this Section 9, with respect to any breach by Parent of the
representations in Section 3 shall be limited in all respects to the higher of
(a) the fair market value as of the Closing Date of the Parent Company Stock
issued by Parent on the Closing Date pursuant to this Agreement (including any
such shares subject to the Escrow Agreement) and (b) the fair market value as of
the enforcement of the remedy for such breach of the Parent Company Stock issued
by Parent on the Closing Date pursuant to this Agreement (including any such
shares subject to the Escrow Agreement); provided, however, that no limitation
on liability set forth in this Section 9.8(b) shall apply in the event of fraud.
9.9 Tax Contests. The Selling Members (and Non-Selling Member, as
applicable) shall have the sole right to conduct any tax audit or other tax
contest relating to tax returns of the Company for tax periods involving periods
ending on or prior to the Closing Date.
9.10 Exercise of Remedies by Parent Indemnitees Other than Parent. No
Parent Indemnitee (other than Parent or any successor thereto or assign thereof)
will be permitted to assert any indemnification claim or exercise any other
remedy under this Agreement unless Parent (or any successor thereto or assign
thereof) will have consented to the assertion of such indemnification claim or
the exercise of such other remedy.
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SECTION 10. MISCELLANEOUS PROVISIONS
10.1 Designated Agent.
(a) The Company and Sellers (by reason of the approval of the Transaction
by the Sellers and the acceptance of the consideration provided for in Section
1.3 of this Agreement), hereby irrevocably appoint Danny Mills as their agent
for purposes of Section 9 (other than Section 9.2) (the "Designated Company
Agent"), and Danny Mills hereby accepts its appointment as the Designated
Company Agent.
(b) Sellers authorize the Designated Company Agent to act as their duly
constituted attorney-in-fact in connection with the Escrow Agreement. Sellers
acknowledge and agree that, except as otherwise provided in this Agreement and
the Escrow Agreement, any decision, act, consent or instruction of the
Designated Company Agent with respect to the Escrow Agreement shall constitute a
decision, act, consent or instruction of the Sellers with respect to the Escrow
Agreement and shall be final, binding and conclusive on the Sellers. Parent will
be entitled to deal exclusively with the Designated Company Agent on all matters
relating to Section 9 (other than Section 9.2), and will be entitled to rely
conclusively (without further evidence of any kind whatsoever) on any document
executed or purported to be executed on behalf of the Company and the Sellers by
the Designated Company Agent, and on any other action taken or purported to be
taken on behalf of the Company and the Sellers by the Designated Company Agent,
as fully binding upon the Company.
(c) Sellers agree to indemnify and hold harmless the Designated Company
Agent against and in respect of any Damages incurred by the Designated Company
Agent in respect of, as a result of, or in connection with the performance of
its duties hereunder or under the Escrow Agreement and any related agreements or
documents referenced herein or therein in good faith and without gross
negligence or willful misconduct.
(d) If the person acting as the representative of the Designated Company
Agent should die, become disabled or otherwise be unable to fulfill his
responsibilities as agent of the Company and Sellers, then a majority in
interest of the Sellers shall appoint a new representative to carry out the role
as the Designated Company Agent, and will promptly notify Parent of the identity
of such successor. Any such successor will become the "Designated Company Agent"
for purposes of Section 9 and this Section 10.1. Notwithstanding the foregoing,
the Designated Company Agent has no authority to bind a Selling Member in
connection with any matters relating to Section 9.2.
10.2 Further Assurances. Each party hereto will execute and cause to be
delivered to each other party hereto such instruments and other documents, and
will take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
10.3 Fees and Expenses. Each party to this Agreement will bear and pay all
fees, costs and expenses (including legal, accounting, financial advisory and
consulting fees) that have been incurred or that are incurred by such party in
connection with the transactions contemplated by this Agreement, including all
fees, costs and expenses incurred by such party in connection with or by virtue
of (a) the investigation and review conducted by Parent and its Representatives
with respect to the Company's business (and the furnishing of information to
Parent and its Representatives in connection with such investigation and
review), (b) the negotiation, preparation and review of this Agreement
(including the Disclosure Schedule) and all agreements, certificates, opinions
and other instruments and documents delivered or to be delivered in connection
with the transactions contemplated by this Agreement, (c) the preparation and
submission of any filing or notice required to be made or given in connection
with any of the transactions contemplated by this Agreement, and the obtaining
of any Consent required to be obtained in connection with any of such
transactions, and (d) the consummation of the Transaction (collectively, the
"Third Party Expenses"). Notwithstanding the foregoing, if the Transaction is
consummated, the Selling Members will assume, on a pro rata basis, the Third
Party Expenses incurred by the Company, which Third Party Expenses of the
Selling Members and the Company can be paid by the Company at or prior to the
Closing (with the Selling Members' Third Party Expenses being paid from funds
that would otherwise be distributable to them by the Company).
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10.4 Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party will be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
10.5 Notices. Any notice or other communication required or permitted to
be delivered to any party under this Agreement will be in writing and will be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party will
have specified in a written notice given to the other parties hereto):
IF TO PARENT:
Quokka Sports, Inc.
525 Brannan Street
San Francisco, CA 94107
Fax: (415) 908-4069
Attention: General Counsel
With a copy to:
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Fax: (415) 951-3699
Attention: Kenneth L. Guernsey, Esq.
IF TO THE COMPANY:
Golf.com, L.L.C.
133 Fayetteville Street Mall, 6th Floor
Raleigh, North Carolina 27601
Attention: Chief Executive Officer
With a copy to:
Fulbright & Jaworski L.L.P.
2200 Ross Avenue, 28th Floor
Dallas, Texas 75201
Fax: 214-855-8200
Attention: Kenneth L. Stewart, Esq.
IF TO THE SELLING MEMBERS:
GolfData Corporation
4639 N. 20th Place
Arlington, Virginia 22207
Attn: Alex Miceli
With a copy to:
Satex Investment Partners
10010 San Pedro, Suite 360
San Antonio, Texas 78216
Attn: Danny Mills
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Media One Interactive Services, Inc.
9000 E. Nichols Avenue, Suite 100
Englewood, Colorado 80112
Attn: Director of Finance
Fax: (303) 705-5163
With a copy to:
Media One Group, Inc.
188 Inverness Drive
Englewood, Colorado 80112
Attn: General Counsel
The New York Times Magazine Group, Inc.
5520 Park Avenue
Trumbull, Connecticut
Attn: Robert Carney
Fax: (203) 373-7170
With a copy to:
The New York Times Company
229 West 43rd Street
New York, New York 10036
Attn: Secretary
Fax: (212) 556-4634
Total Sports Inc.
133 Fayetteville Street Mall, 6th Floor
Raleigh, North Carolina 27601
Attn: Frank Daniels, III
Fax: (919) 755-8080
With a copy to:
J. Christopher Lynch
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
Fax: (919) 778-4865
Otto Candies
P.O. Box 25
Highway 90
Des Allemands, Louisiana 70030
Attn: Paul Candies
Fax: 504-469-7740
IF TO THE NON-SELLING MEMBER:
NBC -- Golf.com Holding, Inc.
30 Rockefeller Plaza
New York, New York 10012
Attn: Edmond Sanctis
Fax: (212) 245-4622
10.6 Confidentiality. Without limiting the generality of anything
contained in Section 5.4, on and at all times after the Closing Date, each party
hereto will keep confidential, and will not use or disclose to any other Person,
any non-public document or other non-public information in such party's
possession that relates to the
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business of the Company or Parent. Information will not be considered
confidential if (a) the information was in the public domain at the time it was
communicated to the recipient or its Representatives, (b) the information
entered the public domain after it was communicated to the recipient or its
Representatives, through no fault of the recipient or its Representatives, (c)
the information was in the recipient's or its Representative's possession, free
of any obligation of confidence, at the time it was communicated to the
recipient or its Representatives, (d) the information was rightfully
communicated to the recipient or its Representatives by a third party, free of
any obligation of confidence, subsequent to the time it was communicated to the
recipient or its Representatives, (e) the information was independently
developed by recipient or its Representatives or (f) the information is required
to be disclosed pursuant to a court order or pursuant to legal, regulatory or
similar process.
10.7 Time of the Essence. Time is of the essence of this Agreement.
10.8 Headings. The headings contained in this Agreement are for
convenience of reference only, will not be deemed to be a part of this Agreement
and will not be referred to in connection with the construction or
interpretation of this Agreement.
10.9 Counterparts. This Agreement may be executed in several counterparts,
each of which will constitute an original and all of which, when taken together,
will constitute one agreement.
10.10 Governing Law. This Agreement will be construed in accordance with,
and governed in all respects by, the internal laws of the State of Delaware
(without giving effect to principles of choice of law or conflict of laws).
10.11 Successors and Assigns. This Agreement will be binding upon: the
Company and its successors and assigns (if any); and Parent and its successors
and assigns (if any). This Agreement will inure to the benefit of: the Company,
the Sellers, Parent, the other Parent Indemnitees and Selling Member
Indemnitees; and the respective successors and assigns (if any) of the
foregoing. After Closing, Parent may freely assign any or all of its rights
under this Agreement (including its indemnification rights under Section 9), in
whole or in part, to any successor to Parent's business without obtaining the
consent or approval of any other party hereto or of any other Person.
10.12 Remedies Cumulative; Specific Performance. Except as set forth in
Section 9, the rights and remedies of the parties hereto will be cumulative (and
not alternative). The parties to this Agreement agree that, in the event of any
breach or threatened breach by any party to this Agreement of any covenant,
obligation or other provision set forth in this Agreement for the benefit of any
other party to this Agreement, such other party will be entitled (in addition to
any other remedy that may be available to it) to (a) a decree or order of
specific performance or mandamus to enforce the observance and performance of
such covenant, obligation or other provision, and (b) an injunction restraining
such breach or threatened breach.
10.13 No Waiver.
(a) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, will
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy will preclude any
other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No Person will be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver will not be applicable or have any effect except in
the specific instance in which it is given.
10.14 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
10.15 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
will be determined to be invalid, unlawful, void or
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unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, will not
be impaired or otherwise affected and will continue to be valid and enforceable
to the fullest extent permitted by law.
10.16 Parties in Interest. None of the provisions of this Agreement is
intended to provide any rights or remedies to any Person other than the parties
hereto and their respective successors and assigns (if any).
10.17 Entire Agreement. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof; provided, however, that the confidentiality letter
agreement executed on behalf of Parent and the Company effective as of April 3,
2000 will not be superseded by this Agreement and will remain in effect in
accordance with its terms until the earlier of (a) the Closing Date, or (b) the
date on which such Mutual Non-Disclosure Agreement is terminated in accordance
with its terms.
10.18 Construction.
(a) For purposes of this Agreement, whenever the context requires: the
singular number will include the plural, and vice versa; the masculine gender
will include the feminine and neuter genders; the feminine gender will include
the masculine and neuter genders; and the neuter gender will include the
masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party will not be
applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including," and
variations thereof, will not be deemed to be terms of limitation, but rather
will be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
[Signature Page Follows on Next Page]
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The parties hereto have caused this PURCHASE AGREEMENT AND PLAN OF
REORGANIZATION to be executed and delivered as of June , 2000.
PARENT:
QUOKKA SPORTS, INC.,
a Delaware corporation
Signature:
Printed Name:
Title:
THE COMPANY:
GOLF.COM, L.L.C.,
a Delaware limited liability company
Signature:
Alex Miceli
President
SELLERS:
GOLFDATA CORPORATION,
a Texas corporation
Signature:
Printed Name:
Title:
THE NEW YORK TIMES COMPANY
MAGAZINE GROUP, INC.,
a Delaware corporation
Signature:
Printed Name:
Title:
MEDIA ONE INTERACTIVE SERVICES, INC.,
a Colorado corporation
Signature:
Printed Name:
Title:
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TOTAL SPORTS INC.,
a Delaware corporation
Signature:
Printed Name:
Title:
OTTO CANDIES, INC.
Signature:
Printed Name:
Title:
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<PAGE> 190
The undersigned NBC -- Golf.com Holding, Inc., a Delaware corporation and
successor-in-interest to NBC Multimedia, Inc., a Delaware corporation ("NBC")
has executed this Agreement in the space provided below to (i) subject to the
conditions set forth below, hereby approve and consent to the purchase and other
acquisition by Purchaser of the Ownership Interests of the Selling Members as
contemplated by this Agreement, and the withdrawal of the Selling Members as
members of the Company and the substitution therefor and admission of Purchaser
as a member of the Company and (ii) make the representations, warranties and
covenants set forth below.
The approval and consent of NBC set forth in clause (i) above is
conditioned on, and will not be effective unless, an Amended and Restated
Operating Agreement for the Company, in form and substance reasonably acceptable
to NBC, is executed by and between NBC and Parent.
NBC hereby represents and warrants to the Selling Members that it in good
faith believes that it has already reached agreement in substance with Parent
regarding the material terms of the Amended and Restated Operating Agreement.
NBC covenants and agrees with the Selling Members that: (i) it will negotiate in
good faith with Parent to complete and execute an Amended and Restated Operating
Agreement, in form and substance reasonably acceptable to NBC, on or prior to
June 22, 2000, and (ii) will promptly notify the Selling Members in writing if
and when such agreement is executed, in which case the delivery of such notice
by NBC shall be conclusive evidence that the condition to NBC's approval and
consent set forth above has been satisfied and that the approval and consent is
valid and binding on NBC.
NBC hereby acknowledges that it has received good and valuable
consideration for its consent, representations, warranties and covenants set
forth above, and that the Selling Members are relying on the consent,
representations, warranties and covenants set forth above in entering into this
Agreement and the documents contemplated hereby or to be executed in connection
herewith.
NBC -- GOLF.COM HOLDING, INC.,
a Delaware corporation and
successor-in-interest to NBC
Multimedia, Inc., a Delaware
corporation
Signature:
Printed Name:
Title:
The undersigned, Danny Mills, has executed this Agreement in the space
provided below for the purposes of Section 10.1 of the Agreement.
DESIGNATED COMPANY AGENT:
Signature:
Danny Mills
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<PAGE> 191
AMENDMENT TO THE
PURCHASE AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT TO THE PURCHASE AGREEMENT AND PLAN OF REORGANIZATION (the
"Amendment") is entered into to be effective as of the 31st day of July, 2000,
by and among Quokka Sports, Inc., a Delaware corporation ("Parent"); Golf.com,
L.L.C., a Delaware limited liability company (the "Company"), and each of the
following members of the Company: Total Sports Inc., a Delaware corporation,
GolfData Corporation, a Texas corporation, The New York Times Company Magazine
Group, Inc., a Delaware corporation, Otto Candies L.L.C., and Media One
Interactive Services, Inc., a Colorado corporation (each, a "Selling Member" and
collectively, the "Sellers" or "Selling Members") pursuant to that certain
Purchase Agreement and Plan of Reorganization dated June 8, 1999 (the
"Agreement"), by and among Parent, the Company, and the Selling Members.
WHEREAS, Section 10.4 of the Agreement provides that the Agreement may not
be amended, modified, altered or supplemented other than by means of a written
instrument duly executed and delivered on behalf of all of the parties thereto;
and
WHEREAS, the parties wish to amend the Agreement and its exhibits to
correct a clerical error made at the time of the execution of the Agreement,
whereby the selling entity under the Agreement should have been Otto Candies
L.L.C. rather than Otto Candies Inc., as Otto Candies, L.L.C. is successor in
interest to Otto Candies, Inc. by a merger effective midnight, December 31,
1998;
NOW, THEREFORE, in consideration of the promises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties mutually agree:
1. AMENDMENT
A. That Otto Candies L.L.C. be substituted for Otto Candies Inc. as a
party to the Agreement and the exhibits thereto and that all references to Otto
Candies Inc. in the Agreement and the exhibits thereto be changed to Otto
Candies L.L.C.; and
B. That the termination date of the Agreement be changed to September 30,
2000 and the extended termination date of the Agreement in the event of a
Justified Delay be changed to October 31, 2000, such that Subsections 8.1(c) and
(d) are amended in their entirety to read as follows:
(c) by Parent if the Closing has not taken place on or before
September 30, 2000 (other than as a result of any failure on the part of
Parent to comply with or perform any covenant or obligation of Parent set
forth in this Agreement); provided, however, that such date shall be
extended to October 31, 2000 in the event any of the following "Justified
Delays" occur: (i) Parent's proxy statement to its stockholders in
compliance with Section 5.10 hereof is reviewed by the SEC and the SEC has
not completed its review in time to enable Parent to reasonably complete
the stockholder solicitation and meeting by September 30, 2000; or (ii) any
filing under the HSR Act is required and made and the Federal Trade
Commission has not issued an order clearing the Transaction under the HSR
Act in time to enable a September 30, 2000 closing;
(d) by a majority in interest of the Sellers if the Closing has not
taken place on or before September 30, 2000 (other than as a result of the
failure on the part of the Company and Sellers to comply with or perform
any covenant or obligation set forth in this Agreement or in any other
agreement or instrument delivered to Parent or its Representatives);
provided, however, that such date shall be extended to October 31, 2000 in
the event any Justified Delay occurs.
2. MISCELLANEOUS
A. Governing Law. This Amendment shall be governed in all respects by the
internal laws of the State of Delaware.
B. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which,
together, shall constitute one and the same instrument.
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C. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
D. Titles and Subtitles. The titles and subtitles used in this Amendment
are for convenience only and are not to be considered in construing or
interpreting this Amendment.
[Signature Pages Follow]
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The foregoing AMENDMENT TO THE PURCHASE AGREEMENT AND PLAN OF
REORGANIZATION is hereby executed and consented to effective as of the date
first above written.
PARENT:
QUOKKA SPORTS, INC.,
a Delaware corporation
Signature:
Printed Name:
Title:
THE COMPANY:
GOLF.COM, L.L.C.,
a Delaware limited liability company
Signature:
Alex Miceli
President
SELLERS:
GOLFDATA CORPORATION,
a Texas corporation
Signature:
Printed Name:
Title:
THE NEW YORK TIMES COMPANY
MAGAZINE GROUP, INC.,
a Delaware corporation
Signature:
Printed Name:
Title:
MEDIA ONE INTERACTIVE SERVICES, INC.,
a Colorado corporation
Signature:
Printed Name:
Title:
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<PAGE> 194
TOTAL SPORTS INC.,
a Delaware corporation
Signature:
Printed Name:
Title:
OTTO CANDIES, L.L.C., AS SUCCESSOR IN
INTEREST TO OTTO CANDIES, INC.
Signature:
Printed Name:
Title:
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<PAGE> 195
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
Acquisition Transaction. "Acquisition Transaction" will mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all or
substantially all of the Company's business or assets;
(b) the issuance, disposition or acquisition of (i) any membership
interest or other security of the Company, (ii) any option, call, warrant
or right (whether or not immediately exercisable) to acquire any membership
interest or other security of the Company, or (iii) any security,
instrument or obligation that is or may become convertible into or
exchangeable for any membership interest or other security of the Company;
or
(c) any merger, consolidation, business combination, reorganization or
similar transaction involving the Company.
Agreement. "Agreement" will mean the Purchase Agreement and Plan of
Reorganization to which this Exhibit A is attached (including the Disclosure
Schedule), as it may be amended from time to time.
Company Contract. "Company Contract" will mean any current Contract: (a) to
which the Company is a party; or (b) by which the Company or any of its assets
is bound or under which the Company has any obligation.
Company Proprietary Asset. "Company Proprietary Asset" will mean any
Proprietary Asset owned by the Company.
Consent. "Consent" will mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
Contract. "Contract" will mean any written, oral or other agreement,
contract, subcontract, lease, instrument, note, warranty, insurance policy,
benefit plan or legally binding commitment or undertaking of any nature.
Damages. "Damages" will include any loss, damage, injury, liability, claim,
demand, settlement, judgment, award, fine, penalty, Tax, fee (including
reasonable attorneys' fees), charge, cost (including costs of investigation) or
expense of any nature, but specifically excluding any consequential damages or
loss of profits.
Disclosure Schedule. "Disclosure Schedule" will mean the schedule (dated as
of the date of the Agreement) delivered to Parent or its Representatives on
behalf of the Company.
Encumbrance. "Encumbrance" will mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement, right of
first refusal, preemptive right, community property interest or similar
restriction (including any restriction on the voting of any security, any
restriction on the transfer of any security or other asset).
Entity. "Entity" will mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
Governmental Authorization. "Governmental Authorization" will mean any
permit, license, certificate, franchise, permission, clearance, registration,
qualification or authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
Governmental Body. "Governmental Body" will mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including
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any governmental division, department, agency, commission, instrumentality,
official, organization, unit, body or Entity and any court or other tribunal).
Indemnitees. "Indemnitees" will mean the Parent Indemnitees and/or Selling
Member Indemnitees, as the context requires.
Knowledge. "Knowledge", with respect to the Selling Members under Section
2.1 of this Agreement, means the actual knowledge of any present member of the
senior management of such Selling Member. "Knowledge", with respect to the
Selling Members and/or the Company for all other matters, means the actual
knowledge of any present member of the board of managers of the Company (other
than the members appointed by NBC: Lauren Donovan and Kevin Monaghan), any
present officer and employee of the Company (other than David Shedloski),
present senior management of Site Operator and present www.golf.com site editors
of Site Operator. With respect to Parent, "Knowledge" means the actual knowledge
of senior management of Parent.
Legal Proceeding. "Legal Proceeding" will mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
Legal Requirement. "Legal Requirement" will mean any federal, state, local,
municipal, foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
Material Adverse Effect. A violation or other matter will be deemed to have
a "Material Adverse Effect" on the Company if such violation or other matter
would have a material adverse effect on the Company's business, condition,
assets, liabilities, operations, financial performance or prospects, but
"Material Adverse Effect" shall not include any adverse effects of general
economic conditions or industry trends.
Parent Indemnitees. "Parent Indemnitees" will mean the following Persons:
(a) Parent; (b) Parent's current and future affiliates (including, after the
Closing Date, the Company); (c) the respective Representatives of the Persons
referred to in clauses "(a)" and "(b)" above; and (d) the respective successors
and assigns of the Persons referred to in clauses "(a)", "(b)" and "(c)" above;
provided, however, that the Selling Members immediately prior to the Closing
Date will not be deemed to be "Parent Indemnitees."
Person. "Person" will mean any individual, Entity or Governmental Body.
Proprietary Asset. "Proprietary Asset" will mean any: (a) registered
patent, patent application, trademark (whether registered or unregistered),
trademark application, trade name, fictitious business name, service mark
(whether registered or unregistered), service mark application, copyright
(whether registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right, domain name or other
intellectual property right or intangible asset, including, but not limited to,
the domain name www.golf.com; or (b) right to use or exploit any of the
foregoing.
Representatives. "Representatives" will mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" will mean the United States Securities and Exchange Commission.
Securities Act. "Securities Act" will mean the Securities Act of 1933, as
amended.
Selling Member Indemnitee. "Selling Member Indemnitee" will mean the
following persons: (a) any Selling Member; (b) any Selling Member's current and
future affiliates; (c) the respective Representatives of
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the Persons referred to in clauses "(a)" and "(b)" above; and (d) the respective
successors and assigns of the Persons referred to in clauses "(a)", "(b)" and
"(c)" above, including, in the case of GD, its shareholders.
Tax. "Tax" will mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
Tax Return. "Tax Return" will mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
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EXHIBIT B
OWNERSHIP INTERESTS
<TABLE>
<CAPTION>
OWNERSHIP PERCENTAGE PERCENTAGE
INTERESTS OF TOTAL SHARES OF PARENT OF TOTAL
IN THE OWNERSHIP COMMON STOCK SHARES TO
COMPANY INTERESTS TO BE ISSUED BE ISSUED
--------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
SELLING MEMBERS
GolfData Corporation........................................ 48.5 29.57% 1,626,472 41.81%
Total Sports Inc............................................ 41.0 25.00% 1,375,168 35.35%
Media One Interactive Services, Inc......................... 19.5 11.89% 653,934 16.81%
The New York Times Company Magazine Group, Inc.............. 5.0 3.05% 167,665 4.31%
Otto Candies, Inc........................................... 2.0 1.22% 66,911 1.72%
----- ------ --------- ------
Total Selling Member Units/Shares Issued.......... 116.0 70.73% 3,890,150 100.00%
===== ====== ========= ======
NON-SELLING MEMBERS
NBC -- Golf.com Holding, Inc., as successor-in-interest to
NBC Multimedia, Inc. ..................................... 48.0 29.27% N/A N/A
Total Non-Selling Member Units.................... 48.0 29.27% N/A N/A
Totals............................................ 164.0 100.00%
</TABLE>
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EXHIBIT C
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") is made and entered into as of
, 2000 by and among: QUOKKA SPORTS, INC., a Delaware corporation
("Parent"), the members of GOLF.COM, L.L.C., a Delaware limited liability
company (the "Company"), identified on Exhibit A hereto (the "Selling Members"),
Danny Mills, as the designated company agent appointed pursuant to the Purchase
Agreement ("Designated Company Agent"), and STATE STREET BANK AND TRUST COMPANY
of California, N.A., a national banking association (the "Escrow Agent").
RECITALS
A. Parent, the Selling Members and the Company have entered into a Purchase
Agreement and Plan of Reorganization dated as of June 8, 2000 (the "Purchase
Agreement"), pursuant to which Parent will purchase or otherwise acquire from
each Selling Member such Selling Member's Ownership Interest in the Company.
B. The Purchase Agreement contemplates the establishment of an escrow
arrangement to secure the indemnification and other obligations of the Company
and Selling Members under the Purchase Agreement.
C. Pursuant to Section 10.1 of the Purchase Agreement and Section 10 of
this Agreement, the Selling Members have irrevocably appointed Danny Mills, as
representative, to serve as Designated Company Agent for, among other things,
all matters set forth in Section 9 of the Purchase Agreement (other than Section
9.2 thereof).
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. Defined Terms. Capitalized terms used in this Agreement and not
otherwise defined shall have the meanings given to them in the Purchase
Agreement, a copy of which is attached hereto.
2. Escrow and Indemnification.
(a) Shares and Stock Powers Placed in Escrow. On the Closing Date, which
shall be set forth in a written notice by Parent and Designated Company Agent to
Escrow Agent: (i) Parent shall issue and deliver to Escrow Agent certificates
for shares of Parent Common Stock registered in the names of, and in the amounts
with respect to, the Selling Members as set forth on Exhibit A hereto,
evidencing the shares of Parent Common Stock to be held in escrow in accordance
with this Agreement and containing the following legend: "THE SHARES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO AN ESCROW AGREEMENT, DATED AS OF
, 2000, BY AND AMONG QUOKKA SPORTS, INC., CERTAIN MEMBERS OF
GOLF.COM, L.L.C. IDENTIFIED THEREIN, A DESIGNATED COMPANY AGENT IDENTIFIED
THEREIN AND STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A." (the
"Escrow Legend") and (ii) each of the Selling Members shall deliver to Escrow
Agent five original "assignments separate from certificate" ("Stock Powers")
endorsed by each such Selling Member in blank with signatures guaranteed by a
commercial bank or by a member of the New York Stock Exchange. The shares of
Parent Common Stock being held in escrow pursuant to this Agreement (the "Escrow
Shares") shall constitute an escrow fund (the "Escrow Fund") with respect to the
indemnification obligations of the Company and the Selling Members under the
Purchase Agreement. The Escrow Fund shall be held as a trust fund and shall not
be subject to any lien, attachment, trustee process or any other judicial
process of any creditor of any Selling Member or of any party hereto. The Escrow
Agent agrees to accept delivery of the Escrow Fund and Stock Powers and to hold
the Escrow Fund and Stock Powers in an escrow account (the "Escrow Account"),
subject to the terms and conditions of this Agreement.
(b) Voting of Escrow Shares. The record owner of the Escrow Shares shall be
entitled to exercise all voting rights with respect to such Escrow Shares.
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(c) Dividends, Etc. Parent and each of the Selling Members agree among
themselves, for the benefit of Parent and the Escrow Agent, that any securities
or other property distributable (whether by way of dividend, stock split or
otherwise) in a tax-free transaction in respect of or in exchange for any Escrow
Shares shall not be distributed to the record owners of such Escrow Shares, but
rather shall be distributed to and held by the Escrow Agent in the Escrow
Account. Ordinary cash dividends and any other taxable dividends, distributions
or exchange proceeds will be paid by Parent directly to the Selling Members and
not to the Escrow Agent. Unless and until the Escrow Agent shall actually
receive such additional securities or other property, it may assume without
inquiry that the Escrow Shares currently being held by it in the Escrow Account
are all that the Escrow Agent is required to hold. At the time any Escrow Shares
are required to be released from the Escrow Account to any Person pursuant to
this Agreement, any securities or other property previously received by the
Escrow Agent in respect of or in exchange for such Escrow Shares shall be
released from the Escrow to such Person.
(d) Transferability. The interests of the Selling Members in the Escrow
Account and in the Escrow Shares shall not be assignable or transferable, other
than by operation of law, or in connection with the liquidation of GolfData
Corporation (in which case, the Escrow Shares registered in the name of GolfData
Corporation shall remain Escrow Shares once distributed to GolfData
Corporation's shareholders). No transfer of any of such interests by operation
of law or in connection with the liquidation of GolfData Corporation shall be
recognized or given effect until Parent and the Escrow Agent shall have received
written notice of such transfer. Parent and Designated Company Agent shall
deliver to the Escrow Agent a revised Exhibit A to reflect any change as a
result of the distribution by GolfData Corporation of the Parent Common Stock it
received pursuant to the Purchase Agreement to GolfData Corporation's
shareholders.
(e) Fractional Shares. No fractional shares of Parent Common Stock shall be
retained in or released from the Escrow Account pursuant to this Agreement. In
connection with any release of Escrow Shares from the Escrow Account, Parent and
the Escrow Agent shall "round down" in order to avoid retaining any fractional
share in the Escrow Account and in order to avoid releasing any fractional share
from the Escrow Account. When shares are "rounded down", no cash-in-lieu
payments need to be made.
3. Administration of Escrow Account. Except as otherwise provided herein,
with respect to any claim pursuant to Section 9 of the Purchase Agreement (other
than Section 9.2 or Section 9.3), the Escrow Agent shall be entitled to rely on
the instructions of the Designated Company Agent on behalf of the Selling
Members and shall administer the Escrow Account as follows:
(a) If any Parent Indemnitee has or claims to have incurred or
suffered Damages for which it is or may be entitled to indemnification,
compensation or reimbursement under Section 9.4 of the Purchase Agreement,
such Parent Indemnitee may deliver a claim notice (a "Claim Notice") to the
Designated Company Agent and to the Escrow Agent, on or prior to, but not
after, the one year anniversary of the Closing Date under the Purchase
Agreement (such one year anniversary being referred to herein as the
"Termination Date"); provided, however, that if, at any time on or prior to
the Termination Date, any Parent Indemnitee (acting in good faith) delivers
to the Designated Company Agent and the Escrow Agent a Claim Notice, then
the claim asserted in such Claim Notice will survive the Termination Date
until such time as such claim is fully and finally resolved in accordance
with the provisions of this Section 3. The Escrow Agent shall not be deemed
to have knowledge of termination of this Agreement earlier than the
Termination Date unless notice in writing of such earlier date has been
provided by Parent. Each Claim Notice shall state that such Parent
Indemnitee believes that there is or has been a breach of a representation,
warranty or covenant contained in the Purchase Agreement or that such
Parent Indemnitee is otherwise entitled to indemnification, compensation or
reimbursement under Section 9.4 of the Purchase Agreement and shall contain
a brief description of the circumstances supporting such Parent
Indemnitee's belief that there is or has been such a breach or that such
Parent Indemnitee is so entitled to indemnification, compensation or
reimbursement and shall contain a non-binding, preliminary estimate of the
amount of Damages such Parent Indemnitee claims to have so incurred or
suffered (the "Claimed Amount").
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(b) Within 45 business days after receipt by the Designated Company
Agent of a Claim Notice, the Designated Company Agent may deliver to the
Parent Indemnitee who delivered the Claim Notice and to the Escrow Agent a
written response (the "Response Notice") in which the Designated Company
Agent: (i) agrees that a whole number of Escrow Shares having a "Stipulated
Value" (as defined below) equal to the full Claimed Amount may be released
from the Escrow Account to the Parent Indemnitee; (ii) agrees that Escrow
Shares having a Stipulated Value equal to part, but not all, of the Claimed
Amount (the "Agreed Amount") may be released from the Escrow Account to the
Parent Indemnitee or (iii) indicates that no part of the Claimed Amount may
be released from the Escrow Account to the Parent Indemnitee. Any part of
the Claimed Amount that is not to be released to the Parent Indemnitee
shall be the "Contested Amount." If a Response Notice is not received by
the Escrow Agent within such 45 business-day period, then the Designated
Company Agent shall be deemed to have agreed that Escrow Shares having a
Stipulated Value equal to the full Claimed Amount may be released to the
Parent Indemnitee from the Escrow Account, subject to the limitation set
forth in Section 5(d).
(c) If the Designated Company Agent delivers a Response Notice
agreeing that Escrow Shares having a Stipulated Value equal to the full
Claimed Amount may be released from the Escrow Account to the Parent
Indemnitee, or if the Designated Company Agent does not deliver a Response
Notice in accordance with Section 3(b) within the 45 business-day period
specified in Section 3(b), the Escrow Agent shall within five (5) business
days following the receipt of the Response Notice (or, if the Escrow Agent
has not received a Response Notice, within three (3) business days
following the expiration of the 45 business-day period referred to in
Section 3(b)), deliver or cause to be delivered to such Parent Indemnitee
such Escrow Shares, subject to the limitation set forth in Section 5(d).
Such payment shall be deemed to be made in full satisfaction of the claim
described in such Claim Notice and Escrow Agent shall not be liable for the
Claim Amount so released.
(d) If the Designated Company Agent delivers a Response Notice
agreeing that Escrow Shares having a Stipulated Value equal to part, but
not all, of the Claimed Amount may be released from the Escrow Account to
the Parent Indemnitee, the Escrow Agent shall within five (5) business days
following the receipt of the Response Notice deliver or cause to be
delivered to such Parent Indemnitee Escrow Shares having a Stipulated Value
equal to the Agreed Amount, subject to the limitation set forth in Section
5(d).
(e) If the Designated Company Agent delivers a Response Notice
indicating that there is a Contested Amount, the Designated Company Agent
and the Parent Indemnitee shall attempt in good faith to resolve the
dispute related to the Contested Amount. If the Parent Indemnitee and the
Designated Company Agent shall resolve such dispute, such resolution shall
be binding on all of the Selling Members and all of the Parent Indemnitees
and a settlement agreement shall be signed by the Parent Indemnitee and the
Designated Company Agent and sent to the Escrow Agent, who shall, within
five (5) business days following receipt thereof, if applicable, release
Escrow Shares from the Escrow Account in accordance with such agreement and
having a Stipulated Value equal to the amount set forth in such settlement
agreement (the "Settlement Amount"), subject to the limitation set forth in
Section 5(d).
(f) If the Designated Company Agent and the Parent Indemnitee are
unable to resolve the dispute relating to any Contested Amount within 45
business days after the delivery of the Claim Notice, then either party may
submit the claim described in the Claim Notice to be settled by binding
arbitration in the County of Los Angeles in the State of California in
accordance with the Commercial Arbitration Rules then in effect of the
American Arbitration Association (the "AAA Rules") by delivering written
notice of such submission (the "Submission Notice") to the other party.
Arbitration will be conducted by three arbitrators; one selected by Parent,
one selected by the Designated Company Agent and the third selected by the
first two arbitrators. If Parent or the Designated Company Agent fails to
select an arbitrator within 10 business days after the date of delivery of
the Submission Notice, then the other shall be entitled to select the
second arbitrator. The parties agree to use all reasonable efforts to cause
the arbitration hearing to be conducted within 90 calendar days after the
appointment of the last of the three arbitrators and to use all reasonable
efforts to cause the arbitrators' decision to be furnished within 120
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calendar days after the appointment of the last of the three arbitrators.
The parties further agree that discovery shall be completed at least 20
business days prior to the date of the arbitration hearing. The
arbitrators' decision shall relate solely to whether the Parent Indemnitee
is entitled to recover the Contested Amount (or a portion thereof), and the
portion of such Contested Amount the Parent Indemnitee is entitled to
recover. The final decision of the arbitrators shall be furnished to the
Designated Company Agent, the Parent Indemnitee and the Escrow Agent in
writing and shall be final and binding upon the Selling Members, the Parent
Indemnitees and the Escrow Agent. The non-prevailing party in any
arbitration shall pay the reasonable expenses (including attorneys' fees)
of the prevailing party, any additional reasonable fees and expenses
(including reasonable legal fees) of the Escrow Agent, and the fees and
expenses associated with the arbitration (including the arbitrators' fees
and expenses). For purposes of this Section 3(f), the prevailing party
shall be deemed to be the Parent Indemnitee if it is entitled to recover
more than 50% of the Contested Amount; otherwise it shall be the Selling
Members. Any amounts for fees and expenses payable by the Selling Members
under this subsection (f) shall be paid out of Escrow Shares, after payment
of any amounts then payable to Parent Indemnitees.
(g) The Escrow Agent shall release, subject to the limitation set
forth in Section 5(d), Escrow Shares from the Escrow Account in connection
with any Contested Amount within three (3) business days after the delivery
to it of: (i) a copy of a settlement agreement executed by the Parent
Indemnitee and the Designated Company Agent setting forth instructions to
the Escrow Agent as to the number of Escrow Shares, if any, to be released
from the Escrow Account, with respect to such Contested Amount or (ii) a
copy of the award of the arbitrators referred to and as provided in Section
3(f) setting forth instructions to the Escrow Agent as to the number of
Escrow Shares, if any, to be released from the Escrow Account, with respect
to such Contested Amount.
(h) Any Escrow Shares released from the Escrow Account to a Parent
Indemnitee shall be deemed to reduce the Escrow Shares pro rata with
respect to each Selling Member in accordance with each Selling Member's
percentage interest in the Escrow Fund as set forth in Exhibit A.
4. Release of Escrow Shares.
(a) Within five (5) business days after the Termination Date, the Escrow
Agent shall distribute or cause the stock transfer agent for the Parent Common
Stock to distribute to each of the Selling Members at such Selling Member's
address set forth on Exhibit A such Selling Member's pro-rata portion of the
Escrow Shares then held in escrow (less any shares distributed to the Designated
Company Agent pursuant to Section 11 hereof) and based on the percentage
interests in the Escrow Fund set forth in Exhibit A; provided, however, that if
prior to the Termination Date, any Parent Indemnitee has given a Claim Notice
containing a claim which has not been resolved prior to the Termination Date in
accordance with Section 3, the Escrow Agent shall retain, subject to release
with respect to resolved claims as set forth in Section 3 and this Section 4(a)
and subject to the provisions of Section 5(d), in the Escrow Account after the
Termination Date Escrow Shares having a Stipulated Value equal to 100% of the
Claimed Amount or Contested Amount, as the case may be, with respect to all
claims which have not then been resolved. If Escrow Shares in the Escrow Account
at the end of each three (3) month interval after the Termination Date have an
aggregate Stipulated Value in excess of 100% of the then unresolved Claimed
Amounts and Contested Amounts, a number of Escrow Shares shall be released at
such time from the Escrow Account to the Selling Members pursuant to the first
sentence of this Section 4(a) so that the Stipulated Value of the Escrow Shares
remaining in the Escrow Account is not in excess of 100% of the then unresolved
Claimed Amounts and Contested Amounts. The Parent and Designated Company Agent
shall provide written notice to the Escrow Agent at the end of each three (3)
month interval following the Termination Date setting forth the Stipulated Value
of the Escrow Shares that should remain in the Escrow Account pursuant to the
preceding sentence.
(b) The Escrow Agent is not the stock transfer agent for the Parent Common
Stock. Accordingly, if a distribution of a number of shares of Parent Common
Stock less than all of the Escrow Shares is to be made, the Escrow Agent must
requisition the appropriate number of shares from such stock transfer agent,
delivering to it the appropriate stock certificates and related Stock Powers.
For the purposes of this Agreement, the Escrow Agent shall be deemed to have
delivered Parent Common Stock to the Person entitled to it when the
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Escrow Agent has delivered such certificates and Stock Powers to such stock
transfer agent with instructions to deliver it to the appropriate Person.
Distributions of Parent Common Stock shall be made to Parent or the Selling
Members, as appropriate, at the addresses described in Section 12(b) or set
forth on Exhibit A hereto. Whenever a distribution is to be made to the Selling
Members, pro rata distributions shall be made to each of them based on the
percentage interests in the Escrow Fund and at their addresses set forth in
Exhibit A.
(c) Whenever a release of Escrow Shares occurs pursuant to the terms of
this Agreement, the Escrow Agent shall be authorized to request and shall
request that the transfer agent for the Parent Common Stock remove the Escrow
Legend from the Escrow Shares being released.
5. Valuation of Escrow Shares, Etc.
(a) Stipulated Value. For purposes of this Agreement, the "Stipulated
Value" of each Escrow Share on any date any Escrow Shares are released from the
Escrow Account shall be the higher of (a) the average of the closing sales price
of Parent Common Stock on the Nasdaq Stock Market as reported in the Wall Street
Journal for the twenty (20) trading days preceding the Closing Date under the
Purchase Agreement (the "Closing Average Value"), and (b) the average of the
closing sales price of Parent Common Stock on the NASDAQ Stock Market as
reported in the Wall Street Journal for the twenty (20) trading days preceding
the date that the Escrow Shares are released from the Escrow Account (the
"Release Average Value"), plus in each case the fair market value of any other
property held in the Escrow Account with respect to such Escrow Share pursuant
to Section 2(c). If the determination of Stipulated Value is being made with
respect to any provision of this Agreement that does not involve a release of
Escrow Shares, the "Stipulated Value" of each Escrow Share on the date of such
determination shall be the higher of (a) the Closing Average Value, and (b) the
average of the closing sales price of Parent Common Stock on the NASDAQ Stock
Market as reported in the Wall Street Journal for the twenty (20) trading days
preceding the date of such determination, plus in each case the fair market
value of any other property held in the Escrow Account with respect to such
Escrow Share pursuant to Section 2(c). The Escrow Agent shall be entitled to
rely on a written certification of Parent and Designated Company Agent of the
Stipulated Value when such determination is required under this Agreement.
(b) Stock Splits. All numbers contained in, and all calculations required
to be made pursuant to, this Agreement shall be adjusted as appropriate to
reflect any stock split, reverse stock split, stock dividend or similar
transaction effected by Parent after the date hereof; provided, however, that
the Escrow Agent shall have received notice of such stock split or other action
and shall have received the appropriate number of additional shares of Parent
Common Stock or other property pursuant to Section 2(c) hereof. In the event of
any such stock split or other similar occurrence, Parent shall deliver to the
Designated Company Agent and the Escrow Agent a revised version of Exhibit A
setting forth the new number of Escrow Shares held in the Escrow Fund. Unless
and until the Escrow Agent receives the certificates representing additional
shares of Parent Common Stock or other property pursuant to Section 2(c), the
Escrow Agent may assume without inquiry that no such stock or other property has
been or is required to be issued with respect to Escrow Shares.
(c) Exclusive Remedy. With the exception of claims based upon fraud, from
and after the Closing, recourse of Parent to the Escrow Shares (adjusted as
appropriate to reflect any stock split, reverse stock split, stock dividend or
similar transaction effected by Parent after the date hereof) pursuant to the
Purchase Agreement and this Agreement shall be the sole and exclusive remedy of
Parent and the other Parent Indemnitees for any claim for monetary damages under
the indemnification provisions contained in, or for any breach of, the Purchase
Agreement (it being understood that nothing in this paragraph or elsewhere in
this Agreement or in the Purchase Agreement shall affect Parent's rights to
specific performance or other similar equitable remedies with respect to
covenants referred to in the Purchase Agreement to be performed after the
Closing).
(d) Aggregate Limit. Notwithstanding any other provision of this Agreement,
the aggregate Stipulated Value of Escrow Shares that may be released from the
Escrow Account pursuant to this Escrow Agreement shall not exceed Five Million
Dollars ($5,000,000) (the "Maximum Liability Cap"). Notwithstanding any other
provision of this Agreement, if the Escrow Agent releases from the Escrow
Account in the aggregate to Parent Indemnitees Escrow Shares having an aggregate
Stipulated Value equal to the Maximum Liability
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Cap, the Escrow Agent shall within five (5) business days release all then
remaining Escrow Shares to the Selling Members, pro rata with respect to each
Selling Member in accordance with each Selling Member's percentage interest in
the Escrow fund as set forth on Exhibit A, in which case this Escrow Agreement
shall thereafter immediately terminate.
6. Fees and Expenses. Upon the execution of this Agreement by all parties
hereto and the initial deposit of the Escrow Fund in the Escrow Account, fees
and expenses, in accordance with Exhibit B attached hereto, will be payable to
the Escrow Agent. This annual Escrow Agent fee will cover the first twelve
months of the escrow. In accordance with Exhibit B attached hereto, the Escrow
Agent will also be entitled to reimbursement for reasonable and documented
out-of-pocket expenses, including those of its counsel, incurred by the Escrow
Agent in the performance of its duties hereunder and the execution and delivery
of this Agreement. All such fees and expenses shall be paid by Parent.
7. Limitation of Escrow Agent's Liability.
(a) The Escrow Agent undertakes to perform such duties as are specifically
set forth in this Agreement only each of which are solely ministerial in nature,
and shall have no duty under or obligation to determine compliance with, any
other agreement or document notwithstanding their being referred to herein or
attached hereto as an exhibit. The Escrow Agent shall not be liable except for
the performance of such duties as are specifically set forth in this Agreement,
and no implied covenants or obligations shall be read into this Agreement
against the Escrow Agent. The Escrow Agent shall not be deemed to be a fiduciary
and shall incur no liability with respect to any action taken by it or for any
inaction on its part in reliance upon any notice, direction, instruction,
consent, statement or other document believed by it to be genuine and duly
authorized, nor for any other action or inaction except for its own willful
misconduct or negligence. The Escrow Agent may rely on and use the Stock Powers
and shall not be liable in connection therewith. In all questions arising under
this Agreement, the Escrow Agent may rely on the advice of counsel, and for
anything done, omitted or suffered in good faith by the Escrow Agent based upon
such advice the Escrow Agent shall not be liable to anyone. The Escrow Agent
shall not be required to take any action hereunder involving any expense unless
the payment of such expense is made or provided for in a manner reasonably
satisfactory to it. In no event shall the Escrow Agent be liable for incidental,
punitive or consequential damages whatsoever, even if the Escrow Agent has been
advised of the likelihood of such damages.
(b) Parent hereby agrees to indemnify the Escrow Agent, its officers,
directors, employees and agents for, and hold it harmless against, any loss,
liability or expense incurred without negligence or willful misconduct on the
part of Escrow Agent, arising out of or in connection with its carrying out of
its duties hereunder. This right of indemnification shall survive the
termination of this Agreement, and the resignation of the Escrow Agent. The
costs and expenses of enforcing this right of indemnification shall also be paid
by Parent.
(c) In the event that the Escrow Agent should at any time be (i) confronted
with inconsistent or conflicting claims or demands by the other parties hereto
or (ii) unsure of its duties hereunder, the Escrow Agent shall have the right to
interplead the parties in any California court or any court of competent
jurisdiction and request that such court determine the respective rights of the
parties with respect to this Agreement and, upon doing so, the Escrow Agent
shall be released from any obligations or liability to the other parties as a
consequence of any such claims or demands. The Escrow Agent may consult counsel
satisfactory to it, including in-house counsel, and will be protected in respect
of any action taken or omitted in reliance thereon.
(d) The Escrow Agent may execute any of its powers or responsibilities
hereunder and exercise any rights hereunder, either directly or by or through
its agents or attorneys. Nothing in this Agreement shall be deemed to impose
upon the Escrow Agent any duty to qualify to do business in any jurisdiction
other than California. The Escrow Agent shall not be responsible for and shall
not be under a duty to examine, inquire into or pass upon the validity, binding
effect, execution or sufficiency of this Agreement or of any amendment or
supplement hereto.
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8. Termination. This Agreement shall terminate upon the release by the
Escrow Agent of the entire Escrow Fund in accordance with this Agreement.
9. Successor Escrow Agent. In the event the Escrow Agent becomes
unavailable or unwilling to continue as escrow agent under this Agreement, the
Escrow Agent may resign and be discharged from its duties and obligations
hereunder by giving its written resignation to the parties to this Agreement.
Such resignation shall take effect not less than 30 calendar days after it is
given to all parties hereto. Parent may appoint a successor Escrow Agent only
with the consent of a majority in interest of the Selling Members (which consent
shall not be unreasonably withheld or delayed). If the parties fail to agree on
a successor Escrow Agent within such time, the Escrow Agent shall have the right
to apply to a court of competent jurisdiction for the appointment of a successor
Escrow Agent. The successor Escrow Agent shall execute and deliver to the Escrow
Agent an instrument accepting such appointment, and the successor Escrow Agent
shall, without further acts, be vested with all the estates, property rights,
powers and duties of the predecessor Escrow Agent as if originally named as
Escrow Agent herein. The Escrow Agent shall act in accordance with written
instructions from Parent as to the transfer of the Escrow Fund to a successor
escrow agent.
10. Designated Company Agent. By virtue of their approval of the
Transaction and the Purchase Agreement and their execution of this Agreement,
the Selling Members shall have approved the indemnification and escrow terms set
forth in the Purchase Agreement and this Agreement and shall have agreed to
irrevocably appoint Danny Mills, as Designated Company Agent, to give and
receive notices and communications, to authorize delivery to Parent of Parent
Common Stock, cash or other property from the Escrow Fund, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand dispute resolution pursuant to Section 3 of this Agreement and comply
with orders of courts and awards of arbitrators with respect to such claims, and
to take all actions necessary or appropriate in the judgment of the Designated
Company Agent for the accomplishment of the foregoing. The Designated Company
Agent shall not be responsible for any act done or omitted thereunder as
Designated Company Agent while acting in good faith and in the exercise of
reasonable judgment. The Selling Members shall jointly and severally indemnify
the Designated Company Agent and hold the Designated Company Agent harmless
against any loss, liability or expense incurred without gross negligence, bad
faith or willful misconduct on the part of the Designated Company Agent and
arising out of or in connection with the acceptance or administration of the
Designated Company Agent's duties hereunder, including the reasonable fees and
expenses of any legal counsel or other professional retained by the Designated
Company Agent. By virtue of their approval of the Transaction and this
Agreement, the Selling Members hereby agree to pay (i) the reasonable fees of
the Designated Company Agent relating to his services performed in such capacity
as set forth on Exhibit C hereto and (ii) all costs and expenses, including
those of any legal counsel or other professional retained by the Designated
Company Agent, in connection with the acceptance and administration of the
Designated Company Agent's duties hereunder. Subject to the prior right of
Parent to make claims for Damages, the Designated Company Agent shall have the
right to recover from the Escrow Fund, prior to any distribution to the Selling
Members pursuant to Section 4(a), Section 4(b) or Section 5(d) hereof, a number
of Escrow Shares set forth in a certificate of the Designated Company Agent
delivered to the Escrow Agent at least two (2) business days prior to the date
on which a distribution is to be made to the Selling Members equal to the
quotient obtained by dividing (i) any reasonable fees, costs and expenses set
forth in such certificate, including those of any legal counsel or other
professional retained by the Designated Company Agent, in connection with the
acceptance and administration of the Designated Company Agent's duties
hereunder, by (ii) the Stipulated Value. The Escrow Agent shall not be required
to verify or confirm the amounts set forth in such certificate or determine that
reasonableness of such amounts and shall be entitled to rely on such certificate
in making payments to Designated Company Agent hereunder. The Escrow Agent
agrees to deliver to the Designated Company Agent such number of Escrow Shares
prior to making any distribution of Escrow Shares to the Selling Members.
Notwithstanding the foregoing, no failure by the Designated Company Agent to
collect Escrow Shares in respect of its reasonable fees, costs and expenses
shall excuse the Selling Members from paying such reasonable fees, costs and
expenses.
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11. Miscellaneous.
(a) Attorneys' Fees. If any action or proceeding relating to this Agreement
or the enforcement of any provision of this Agreement is brought against any
party hereto (other than the Escrow Agent, whose rights to reimbursement for its
attorneys fees, costs and disbursement are set forth in Sections 6 and 7), the
prevailing party shall be entitled to recover reasonable attorneys' fees, costs
and disbursements (in addition to any other relief to which the prevailing party
may be entitled).
(b) Notices. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth in Section 10.5 of the Purchase
Agreement or to the Escrow Agent at the address set forth below (or to such
other address or facsimile telephone number as such party shall have specified
in a written notice given to the other parties hereto):
State Street Bank and Trust Company of California, N.A.
Corporate Trust Division
633 West 5th Street, 12th Floor
Los Angeles, CA 90071
Attention: Corporate Trust Administration: Quokka Sports,
Inc./Golf.com, L.L.C.
Telephone: (213) 362-7334
Facsimile: (213) 362-7357
The Escrow Agent may assume that any Claim Notice, Response Notice or other
notice of any kind required to be delivered to the Escrow Agent and any other
Person has been received by such other Person if it has been received by the
Escrow Agent, but the Escrow Agent need not inquire into or verify such receipt.
(c) Headings. The headings contained in this Agreement are for convenience
of reference only, shall not be deemed to be a part of this Agreement and shall
not be referred to in connection with the construction or interpretation of this
Agreement.
(d) Counterparts. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
(e) Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the internal laws of the State of California
(without giving effect to principles of conflicts of laws).
(f) Successors and Assigns. This Agreement shall be binding upon each of
the parties hereto and each of their respective permitted successors and
assigns, if any. No Selling Member may assign such Selling Member's rights under
this Agreement without the express prior written consent of Parent, provided,
however, that (i) upon the death of a Selling Member, such Selling Member's
rights under this Agreement shall be transferred to the person(s) who receive
such Selling Member's Parent Common Stock under the laws of descent and
distribution and (ii) a Selling Member may assign such Selling Member's rights
under this Agreement to any organization qualified under Section 501(c)(3) of
the Internal Revenue Code to which the Selling Member transfers shares in
connection with an estate planning transaction. Nothing in this Agreement is
intended to confer, or shall be deemed to confer, any rights or remedies upon
any person or entity other than the parties hereto and their permitted
successors and assigns. This Agreement shall inure to the benefit of the Selling
Members, Parent, Escrow Agent, the Designated Company Agent and the respective
successors and assigns, if any, of the foregoing. Notwithstanding anything to
the contrary in this Section 11(f), this Agreement shall be binding upon and
inure to the benefit of the GolfData Corporation shareholders to whom GolfData
Corporation will make a distribution of its shares of Parent Common Stock
(including its allocation of the Escrow Shares) immediately after the Closing
Date.
(g) Waiver. No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or
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partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy. No Person shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
(h) Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto; provided, however, that any
amendment duly executed and delivered by the Designated Company Agent shall be
deemed to have been duly executed and delivered by all of the Selling Members.
(i) Severability. In the event that any provision of this Agreement, or the
application of any such provision to any Person or set of circumstances, shall
be determined to be invalid, unlawful, void or unenforceable to any extent, the
remainder of this Agreement, and the application of such provision to Persons or
circumstances other than those as to which it is determined to be invalid,
unlawful, void or unenforceable, shall not be impaired or otherwise affected and
shall continue to be valid and enforceable to the fullest extent permitted by
law.
(j) Parties in Interest. None of the provisions of this Agreement is
intended to provide any rights or remedies to any Person other than the parties
hereto and their respective successors and assigns, if any.
(k) Entire Agreement. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties hereto relating to the
subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof.
(l) Waiver of Jury Trial. Each of the parties hereto hereby irrevocably
waives any and all right to trial by jury in any Legal Proceeding arising out of
or related to this Agreement or the transactions contemplated hereby.
(m) Tax Reporting Information and Certification of Tax Identification
Numbers.
(i) The parties hereto agree that, for tax reporting purposes, all
taxable dividends, interest on or other income, if any, attributable to the
Escrow Shares or any other amount held in escrow by the Escrow Agent
pursuant to this Agreement shall be allocable to the Selling Members in
accordance with their percentage interests in the Escrow Fund set forth in
Exhibit A.
(ii) Parent and each of the Selling Members agree to provide the
Escrow Agent with certified tax identification numbers for each of them by
furnishing appropriate forms W-9 (or Forms W-8, in the case of non-U.S.
persons) and any other forms and documents that the Escrow Agent may
reasonably request (collectively, "Tax Reporting Documentation") to the
Escrow Agent within 30 days after the date hereof. The parties hereto
understand that, if such Tax Reporting Documentation is not so certified to
the Escrow Agent, the Escrow Agent shall be required by the Internal
Revenue Code, as it may be amended from time to time, to withhold and remit
to the Internal Revenue Service a portion of any interest or other income
earned on the investment of monies or other property held by the Escrow
Agent pursuant to this Agreement.
(n) Construction. For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders. The parties hereto agree that
any rule of construction to the effect that ambiguities are to be resolved
against the drafting party shall not be applied in the construction or
interpretation of this Agreement. As used in this Agreement, the words "include"
and "including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
[Signature Page Follows on the Next Page]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
Quokka Sports, Inc.
Signature:
Printed Name:
Title:
DESIGNATED COMPANY AGENT:
Signature:
Danny Mills
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A., AS
ESCROW AGENT
Signature:
Printed Name:
Title:
SELLING MEMBER:
Name of Entity:
By:
Printed Name:
Title:
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EXHIBIT A
SELLING MEMBERS
<TABLE>
<CAPTION>
SHARES TO PRO RATA
BE HELD IN PERCENTAGE
ESCROW INTEREST IN
SELLING MEMBER ADDRESS ACCOUNT ESCROW FUND
-------------- ------- ---------- -----------
<S> <C> <C> <C>
Total Sports Inc. ................................... 133 Fayetteville Street Mall, 6th Floor 137,517 35.35%
Raleigh, North Carolina 27601
Attn: Frank Daniels, III
Fax: (919) 755-8080
with a copy to:
J. Christopher Lynch
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
Fax: (919) 778-4865
GolfData Corporation................................. 4639 N. 20th Place 162,647 41.81%
Arlington, Virginia 22207
Attn: Alex Miceli
with a copy to:
Satex Investment Partners
10010 San Pedro, Suite 360
San Antonio, Texas 78216
Attn: Danny Mills
Media One Interactive Services, Inc. ................ 9000 E. Nichols Avenue, Suite 100 65,393 16.81%
Englewood, Colorado 80112
Attn: Director of Finance
Fax: (303) 705-5163
with a copy to:
Media One Group, Inc.
188 Inverness Drive
Englewood, Colorado 80112
Attn: General Counsel
The New York Times Company
Magazine Group, Inc. .............................. 5520 Park Avenue 16,767 4.31%
Trumbull, Connecticut
Attn: Robert Carney
Fax: (203) 373-7170
with a copy to:
The New York Times Company
229 West 43rd Street
New York, New York 10036
Attn: Secretary
Fax: (212) 556-4634
Otto Candies Inc. ................................... [Forthcoming] 6,691 1.72%
Total...................................... 389,015 100.00%
</TABLE>
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EXHIBIT B
ESCROW FEES AND EXPENSES
<TABLE>
<S> <C>
ACCEPTANCE FEE.............................................. $750.00
This one-time charge, payable at closing, includes
acceptance and assumption of responsibility and duties as
Escrow Agent; review and comment on the form of agreement;
and establishment of account(s) in accordance with
governing document
LEGAL COUNSEL............................................... At Cost
ESCROW AGENT FEE............................................ $3,500.00
Payable at funding and annually thereafter, if applicable
Compensates State Street for administrative services in
accordance with the Escrow Agreement
Pro-Rata Calculations: Should the Escrow Agreement require
pro-rata distribution of investment income to the
beneficiaries, the annual fee noted above includes
calculations and tax report for up to ten (10)
beneficiaries. State Street will assess an additional $250
for each beneficiary pro-rata calculations beyond the
first ten
CLAIMS (if applicable)
Uncontested............................................... $250.00
Contested................................................. Billed at Cost
PREPARATION OF 1099'S (if applicable, each 1099)............ $15.00
WIRE TRANSFER FEE (This fee will be deducted from wire
amount, if applicable)
International............................................. $40.00
Domestic.................................................. $15.00
INVESTMENT FEE.............................................. $65.00
Per security purchased (i.e. Treasuries, Agencies, etc.)
INVESTMENT IN STATE STREET INVESTMENT VEHICLES.............. 40 Basis Points (.0040)
(Calculated on the Average Daily Net Assets)
INVESTMENT VEHICLES
SSgA Prime Money Market Fun...............................
SSgA US Treasury Money Market Fund........................
SSgA Tax Free Money Market Fund...........................
STATE STREET INSURED MONEY MARKET (IMMA).................... No Transaction Fee
OUT-OF-POCKET EXPENSE....................................... At Cost
</TABLE>
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EXHIBIT C
DESIGNATED COMPANY AGENT FEES
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EXHIBIT D
MEMBER CERTIFICATION
(ENTITY)
THIS MEMBER CERTIFICATION ("Certification") is being executed and delivered
by the undersigned member (the "Selling Member") of GOLF.COM, L.L.C., a Delaware
limited liability company (the "Company"), in favor of and for the benefit of
the Company, QUOKKA SPORTS, INC., a Delaware corporation ("Parent"), and DANNY
MILLS (the "Designated Company Agent").
RECITALS
Pursuant to a Purchase Agreement and Plan of Reorganization (the
"Agreement"), dated as of June , 2000, among Parent, the Selling Members
identified therein (including GolfData) and the Company, it is contemplated that
Parent will purchase or otherwise acquire from each Selling Member such Selling
Member's ownership interest in the Company (the purchase or other acquisition of
the ownership interests being referred to in this Certification as the
"Transaction"). Upon the consummation of the Transaction, (i) the Selling
Members will receive shares of common stock of Parent ("Parent Common Stock") in
exchange for their ownership interests in the Company with such exchange with
respect to GolfData constituting a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and (ii)
GolfData will immediately distribute to its shareholders in complete liquidation
the shares of Parent Common Stock that GolfData received in the Transaction (the
"Distribution"). This distribution is required to preserve the nontaxable status
of the Transaction to GolfData and its shareholders. The information requested
below is required to comply with various securities laws applicable to such
issuance by Parent [and distribution by GolfData]. [BRACKETED LANGUAGE IN
GOLFDATA CERTIFICATION ONLY.]
CERTIFICATION
1. Residence Information. Please provide the full legal name of the
investing entity, address of the city and state or foreign country where your
investment decision regarding the Transaction is being made, phone number, and
Employee Identification Number.
2. Accredited Investor Certification. The undersigned makes one of the
following representations regarding its net worth and certain related matters,
and has checked the applicable representation:
[ ] (i) The undersigned is a trust with total assets in excess of
$5,000,000 whose purchase is directed by a person with such
knowledge and experience in financial and business matters that
such person is capable of evaluating the merits and risks of the
prospective investment.
[ ] (ii) The undersigned is a bank, insurance company, investment company
registered under the United States Investment Company Act of
1940, as amended (the "Companies Act"), a broker or dealer
registered pursuant to Section 15 of the United States
Securities Exchange Act of 1934, as amended, a business
development company, a Small Business Investment Company
licensed by the United States Small Business Administration, a
plan with total assets in excess of $5,000,000 established and
maintained by a state for the benefit of its employees, or a
private business development company as defined in Section
202(a)(22) of the United States Investment Advisers Act of 1940,
as amended.
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[ ] (iii) The undersigned is an employee benefit plan and either all
investment decisions are made by a bank, savings and loan
association, insurance company, or registered investment
advisor, or the Investor has total assets in excess of
$5,000,000 or, if such plan is a self-directed plan, investment
decisions are made solely by persons who are accredited
investors.
[ ] (iv) The undersigned is a corporation, partnership, business trust,
not formed for the purpose of acquiring shares in the Company or
Parent, or an organization described in section 501(c)(3) of the
Internal Revenue Code of 1986, as amended (the "Code"), in each
case with total assets in excess of $5,000,000.
[ ] (v) The undersigned is an entity in which all of the equity owners
qualify under any of the above subparagraphs, or, if an
individual, each such individual has a net worth(1), either
individually or upon a joint basis with such individual's spouse,
of at least $1,000,000 (within the meaning of such terms as used
in the definition of "accredited investor" contained in Rule 501
under the Securities Act), or has had an individual income(2) in
excess of $200,000 for each of the two most recent years, or a
joint income with such individual's spouse in excess of $300,000
in each of those years, and has a reasonable expectation of
reaching the same income level in the current year.
[ ] (vi) The undersigned cannot make any of the representations set forth
in paragraphs "(i)" through "(v)" above.
IF YOU CHECKED PARAGRAPH (VI) ABOVE, PLEASE COMPLETE THE FOLLOWING ITEMS 3
THROUGH 10. IF YOU CHECKED ANY OF PARAGRAPHS (I) THROUGH (V) ABOVE, PLEASE
PROCEED TO ITEM 10.
3. Will the value of the Parent Common Stock exceed 10 percent of the
investing entities' net worth at the time of the Transaction?
[ ] Yes [ ] No
4. Please describe the educational background, indicating degrees obtained,
of the person making the investment decisions with respect to the Transaction
(the "Decision-Maker"). Please describe any college-level courses that the
Decision-Maker has taken relating to economics, finance, accounting or
statistics (attach a separate sheet of paper if you require more space).
---------------
1For purposes of this Certification, "net worth" means the excess of total
assets at fair market value over total liabilities, except that the principal
residence owned by a natural person shall be valued either (a) at cost,
including the cost of improvements, net of current encumbrances upon the
property, or (b) at the appraised value of the residence as determined upon a
written appraisal used by an institutional lender making a loan to the
individual secured by the property, including the cost of subsequent
improvements, net of current encumbrances upon the property. As used in the
preceding sentence, "institutional lender" means a bank, savings and loan
company, industrial loan company, credit union or personal property broker or a
company whose principal business is as a lender of loans secured by real
property and which has such loans receivable in the amount of $2,000,000 or
more.
2For purposes of this Certification, "income" means adjusted gross income, as
reported for federal income tax purposes, increased by the following amounts:
(a) the amount of any tax exempt interest income received, (b) the amount of
losses claimed as a limited partner in a limited partnership, (c) any deduction
claimed for depletion, (d) amounts contributed to an IRA or Keogh retirement
plan, (e) alimony paid, and (f) any amounts by which income from long-term
capital gains has been reduced in arriving at adjusted gross income pursuant to
the provisions of Section 1202 of the Internal Revenue Code.
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<PAGE> 214
5. Please describe occupational history of the Decision-Maker briefly. What
is sought is a sufficient description to enable the Company to determine the
extent of the Decision-Maker's experience in financial and business matters
(attach a separate sheet of paper if you require more space).
6. Please indicate the Decision-Maker's or the entity's prior experience in
investing in speculative, high technology companies such as Parent (attach a
separate sheet of paper if you require more space).
7. Please indicate any other relevant investment experience of the
Decision-Maker or the entity (attach a separate sheet of paper if you require
more space).
8. Please describe any pre-existing personal or business relationships
between the Decision-Maker or the entity and Parent, or any of its officers or
directors.
9. If the Decision-Maker has a background or experience in the business
conducted by Parent, please describe.
10. Additional Representations and Acknowledgements.
The undersigned makes each of the following additional representations and
acknowledgements:
(i) No Distribution. The Parent Common Stock issued to the Selling
Member will be acquired for investment for Selling Member's own account or
the account of its affiliated entities and not with a view to the sale or
distribution (other than in connection with the planned liquidation of
GolfData) of any part thereof, and Selling Member has no present intention
of selling, granting any participation in, or otherwise distributing (other
than in connection with the planned liquidation of GolfData) the same
(except to an affiliated entity or another Selling Member). [PARENTHETICALS
REGARDING GOLFDATA ARE FOR GOLFDATA CERTIFICATION ONLY.]
(ii) Securities Laws Matters. The undersigned is aware (a) that the
Parent Common Stock to be issued to the Selling Member in the Transaction
will not be registered and will not be issued pursuant to a registration
statement under the Securities Act, but will instead be issued in reliance
on the exemption
A-57
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from registration set forth in Section 4(2) of the Securities Act and/or in
Rule 506 under the Securities Act, and (b) that neither the Transaction nor
the issuance of such Parent Common Stock has been approved or reviewed by
the Securities and Exchange Commission or by any other governmental agency.
(iii) Resale Restrictions.
(a) Selling Member is aware that, because the Parent Common Stock
to be issued in the Transaction will not be registered under the
Securities Act, such Parent Common Stock cannot be resold unless such
Parent Common Stock is registered under the Securities Act or unless an
exemption from registration is available. Selling Member is also aware
that the provisions of Rule 144 under the Securities Act will permit
resale of the Parent Common Stock to be issued to the Selling Member in
the Transaction only under limited circumstances, and such Parent Common
Stock must be held by Selling Member for at least one year before it can
be sold pursuant to Rule 144.
(b) Selling Member understands that stop transfer instructions will
be given to Parent's transfer agent with respect to the Parent Common
Stock to be issued to the Selling Member in the Transaction, and that
there will be placed on the certificate or certificates representing
such Parent Common Stock a legend identical or similar in effect to the
following legend (together with any other legend or legends required by
applicable state securities laws or otherwise):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE."
(iv) Selling Member Can Protect Its Interest. The undersigned
represents that by reason of its business or financial experience, the
undersigned has the capacity to protect its own interests in connection
with its acquisition of Parent Common Stock. The undersigned acknowledges
that it must, and represents that it can, bear the economic risk of the
investment Parent Common Stock indefinitely, until the shares of Parent
Common Stock are registered under the Securities Act, or an exemption from
registration is available.
(v) Company Information. The undersigned has received and read the
Agreement (along with the Escrow Agreement (as defined in the Agreement)).
The undersigned has also had the opportunity to ask questions of and
receive answers from Parent and the Company and their respective management
regarding the terms and conditions of the Transaction and the investment in
Parent Stock.
11. Escrow Arrangements. The undersigned has carefully reviewed the
Agreement and Escrow Agreement, and understands and agrees that pursuant to the
Agreement, Ten Percent (10%) of the Parent Common Stock to be issued to the
holders of the Company's outstanding ownership interests (the "Escrow Shares")
which constitutes the Transaction consideration will be deposited with the
Escrow Agent (as defined in the Escrow Agreement), and that the shares deposited
with the Escrow Agent shall be available to satisfy indemnification claims as
set forth in the Agreement. Pursuant to the Agreement, Parent may seek
indemnification for certain matters from the Escrow Shares, in which event the
portion of the Escrow Shares otherwise payable to the undersigned would be
reduced without any act of the undersigned, subject to the procedures and
limitations set forth in the Agreement and Escrow Agreement.
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The undersigned represents that the information contained herein is
complete and accurate and may be relied upon by the Company and Parent, and that
the undersigned will notify Parent of any material change in any of such
information prior to the undersigned's investment in Parent.
IN WITNESS WHEREOF, the undersigned has executed this Member Certification
this day of , 2000.
---------------------------------------------
Name of Entity
---------------------------------------------
Signature of Authorized Person
---------------------------------------------
Printed Name and Title of Authorized Person
This Member Certification must be signed by the registered holder of
ownership interests in the Company, exactly as the name(s) appear in the
operating agreement and/or equity records of the Company and as set forth above.
A-59
<PAGE> 217
EXHIBIT E
STATEMENT OF NON-FOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a transferee of a
U.S. real property interest must withhold tax with respect to certain transfers
of property if the transferor is a foreign person. To inform Quokka Sports, Inc.
("Acquiror") that withholding of tax is not required upon the disposition of the
ownership interest of Golf.com, Inc. ("Target") by the undersigned, the
undersigned hereby certifies as follows:
1. The undersigned is not a foreign person (as that term is defined in the
Internal Revenue Code and Income Tax Regulations);
2. The undersigned's U.S. taxpayer identification number is
; and
3. The undersigned's address is .
The undersigned understands that this certification may be disclosed to the
Internal Revenue Service by Acquiror and that any false statement contained
herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct and
complete, and I further declare that I have authority to sign this document.
---------------------------------------------
Date:
A-60
<PAGE> 218
EXHIBIT F
GENERAL RELEASE
THIS GENERAL RELEASE ("General Release") is being executed and delivered as
of , 2000, on behalf of the parties identified on Exhibit A hereto
(all of whom are referred to collectively as the "Releasors," and each of whom
is referred to individually as a "Releasor") to and in favor of, and for the
benefit of, GOLF.COM, L.L.C., a Delaware limited liability company ("Company"),
QUOKKA SPORTS, INC., a Delaware corporation ("Parent"), and the other Releasees
(as defined in Section 2).
RECITALS
A. Pursuant to a Purchase Agreement and Plan of Reorganization (the
"Agreement"), dated as of June , 2000, among Parent, the Selling Members
identified therein (including GolfData) and the Company, it is contemplated that
Parent will purchase or otherwise acquire contemporaneously with the execution
and delivery of this General Release from each Selling Member such Selling
Member's ownership interest in the Company (the purchase or other acquisition of
the ownership interests being referred to in this General Release as the
"Transaction"). Upon the consummation of the Transaction, (i) the Selling
Members will receive shares of common stock of Parent ("Parent Common Stock") in
exchange for their ownership interests in the Company with such exchange with
respect to GolfData constituting a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and (ii)
GolfData will immediately distribute to its shareholders in complete liquidation
the shares of Parent Common Stock that GolfData received in the Transaction (the
"Distribution"). This distribution is required to preserve the nontaxable status
of the Transaction to GolfData and its shareholders.
B. Parent and the Company have required, as a condition to consummating the
Transaction and the other transactions contemplated by the Agreement, that the
Releasors execute and deliver this General Release.
AGREEMENT
In order to induce Parent to consummate the Transaction and the other
transactions contemplated by the Agreement, and for other valuable consideration
(the receipt and sufficiency of which are hereby acknowledged by the Releasors),
the Releasors hereby covenant and agree as follows:
1. Release. Each Releasor, for itself and for each of such Releasor's
Associated Parties (as defined in Section 2), hereby generally, irrevocably,
unconditionally and completely releases and forever discharges each of the
Releasees (as defined in Section 2) from, and hereby irrevocably,
unconditionally and completely waives and relinquishes, each of the Released
Claims (as defined in Section 2).
2. Definitions.
(a) The term "Associated Parties," when used herein with respect to a
Releasor, shall mean and include: (i) such Releasor's predecessors, successors,
executors, administrators, heirs and estate and (ii) each entity of which such
Releasor owns, directly or indirectly, at least 50% of the outstanding voting
interests.
(b) The term "Releasees" shall mean and include: (i) Parent; (ii) Company;
(iii) each of the direct and indirect subsidiaries of the Company and Parent;
(iv) each other controlled affiliate of the Company and Parent; and (v) the
successors and past, present and future assigns, directors, managers, officers,
employees, consultants, agents, attorneys and representatives of the respective
entities identified or otherwise referred to in clauses "(i)" through "(iv)" of
this sentence (but excluding the officers and members of the Board of Managers
of the Company).
(c) The term "Claims" shall mean and include all past, present and future
disputes, claims, controversies, demands, rights, obligations, liabilities,
actions and causes of action of every kind and nature, including: (i) any
unknown, unsuspected or undisclosed claim; (ii) any claim or right that may be
asserted or exercised by a Releasor in such Releasor's capacity as a member,
manager, officer, employee or consultant of the
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Company or in any other capacity; and (iii) any claim, right or cause of action
based upon any breach of any express, implied, oral or written contract or
agreement.
(d) The term "Released Claims" shall mean and include each and every Claim
that (i) any Releasor or any Associated Party of any Releasor may have had in
the past, may now have or may have in the future against any of the Releasees,
and (ii) has arisen or arises directly or indirectly out of, or relates directly
or indirectly to, any circumstance, agreement, activity, action, omission, event
or matter occurring or existing on or prior to the date of this General Release
(excluding only such Releasor's and its Associated Parties' rights, if any,
under and with respect to the Agreement and the Escrow Agreement (as defined in
the Agreement), and the documents and transactions contemplated therein).
3. Civil Code sec. 1542. Each Releasor (a) represents, warrants and
acknowledges, severally for itself, and not jointly with any other Releasor,
that such Releasor has been fully advised by his attorney of the contents of
Section 1542 of the Civil Code of the State of California, and (b) hereby
expressly waives the benefits thereof and any rights such Releasor may have
thereunder. Section 1542 of the Civil Code of the State of California provides
as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his settlement
with the debtor."
Each Releasor also hereby waives the benefits of, and any rights such Releasor
may have under, any statute or common law principle of similar effect in any
jurisdiction.
4. Representations and Warranties. Each Releasor represents and warrants,
severally for itself, and not jointly with any other Releasor, that:
(a) such Releasor has not assigned, transferred, conveyed or otherwise
disposed of any Claim against any of the Releasees, or any direct or
indirect interest in any such Claim, in whole or in part;
(b) to the best of such Releasor's knowledge, no other person or
entity has any interest in any of the Released Claims being released by
such Releasor or its Associated Parties;
(c) no Associated Party of such Releasor has or had any Claim against
any of the Releasees;
(d) no Associated Party of such Releasor will in the future have any
Claim against any Releasee that arises directly or indirectly from or
relates directly or indirectly to any circumstance, agreement, activity,
action, omission, event or matter occurring or existing on or before the
date of this General Release (except for matters related to Releasor's and
its Associated Parties' rights, if any, under or with respect to the
Agreement or the Escrow Agreement (as defined in the Agreement) and the
documents and transactions contemplated therein);
(e) this General Release has been duly and validly executed and
delivered by such Releasor;
(f) this General Release is a valid and binding obligation of such
Releasor and such Releasor's Associated Parties, and is enforceable against
such Releasor and each of such Releasor's Associated Parties in accordance
with its terms;
(g) there is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental
body, governmental agency or arbitrator pending or, to the best of the
knowledge of such Releasor, threatened against such Releasor or any of such
Releasor's Associated Parties that challenges or would challenge the
execution and delivery of this General Release or the taking of any of the
actions required to be taken by such Releasor under this General Release;
(h) neither the execution and delivery of this General Release nor the
performance hereof will (i) result in any violation or breach of any
agreement or other instrument to which such Releasor or any of such
Releasor's Associated Parties is a party or by which such Releasor or any
of such Releasor's Associated Parties is bound, or (ii) result in a
violation of any law, rule, regulation, treaty, ruling,
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directive, order, arbitration award, judgment or decree to which such
Releasor or any of such Releasor's Associated Parties is subject; and
(i) no authorization, instruction, consent or approval of any person
or entity is required to be obtained by such Releasor or any of such
Releasor's Associated Parties in connection with the execution and delivery
of this General Release or the performance hereof.
5. Indemnification. Without in any way limiting any of the rights or
remedies otherwise available to any Releasee, each Releasor, severally for
itself, and not jointly with any other Releasor, shall indemnify and hold
harmless each Releasee against and from any loss, damage, injury, harm,
detriment, liability, exposure, claim, demand, settlement, judgment, award,
fine, penalty, tax, fee, charge or expense (including attorneys' fees but
specifically excluding in all cases any loss of profits or consequential
damages) that is directly or indirectly suffered or incurred at any time by such
Releasee, or to which such Releasee otherwise becomes subject at any time, and
that arises directly or indirectly out of or by virtue of, or relates directly
or indirectly to, (a) any failure on the part of such Releasor to observe,
perform or abide by, or any other breach of, any restriction, covenant,
obligation, representation, warranty or other provision contained herein, or (b)
the assertion or purported assertion of any of the Released Claims by such
Releasor or any of such Releasor's Associated Parties.
6. Miscellaneous.
(a) This General Release sets forth the entire understanding of the parties
relating to the subject matter hereof and supersedes all prior agreements and
understandings among or between any of the Releasors and Releasees relating to
the subject matter hereof.
(b) If any provision of this General Release or any part of any such
provision is held under any circumstances to be invalid or unenforceable in any
jurisdiction, then (i) such provision or part thereof shall, with respect to
such circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (ii) the invalidity or unenforceability of such provision or part
thereof under such circumstances and in such jurisdiction shall not affect the
validity or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (iii) such invalidity or
enforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this General Release. If any provision
of this General Release or any part of such provision is held to be
unenforceable against any Releasor, then the unenforceability of such provision
or part thereof against such Releasor shall not affect the enforceability
thereof against any other Releasor. Each provision of this General Release is
separable from every other provision of this General Release, and each part of
each provision of this General Release is separable from every other part of
such provision.
(c) This General Release shall be construed in accordance with, and
governed in all respects by, the laws of the State of Delaware as such laws
apply to an agreement made and performed in such state between Delaware
residents (without giving effect to principles of conflicts of laws).
(d) This General Release may be executed in several counterparts, each of
which shall constitute an original and all of which, when taken together, shall
constitute one agreement.
(e) Each Releasor shall execute and/or cause to be delivered to each
Releasee such instruments and other documents, and shall take such other
actions, as such Releasee may reasonably request for the purpose of carrying out
or evidencing any of the actions contemplated by this General Release.
(f) If any legal action or other legal proceeding relating to this General
Release or the enforcement of any provision hereof is brought by any Releasor or
Releasee, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements to the extent actually incurred (in
addition to any other relief to which the prevailing party may be entitled).
(g) This General Release shall be effective with respect to, and shall be
binding upon and enforceable against, each Releasor who executes this General
Release, regardless of whether any of the other Releasors executes this General
Release.
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(h) Whenever required by the context, the singular number shall include the
plural, and vice versa; the masculine gender shall include the feminine and
neuter genders; and the neuter gender shall include the masculine and feminine
genders.
(i) Any rule of construction to the effect that ambiguities are to be
resolved against the drafting party shall not be applied in the construction or
interpretation of this General Release.
(j) As used in this General Release, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, and shall
be deemed to be followed by the words "without limitation."
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IN WITNESS WHEREOF, the Releasors have caused this General Release to be
executed as of the date first above written.
RELEASOR(S):
By:
(Signature)
Name of Releasor:
(Please Print)
Name of Signatory:
(if Releasor is an Entity)
Title of Signatory:
(if Releasor is an Entity)
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EXHIBIT A
RELEASORS
Media One Interactive Services, Inc.
GolfData Corporation
Total Sports Inc.
The New York Times Company Magazine Group, Inc.
Otto Candies, Inc.
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EXHIBIT G
QUOKKA SPORTS, INC.
AMENDED AND RESTATED INVESTORS'
RIGHTS AGREEMENT
AS OF , 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
SECTION 1. GENERAL.................................................. A-69
1.1 Definitions................................................. A-69
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER................... A-71
2.1 Restrictions on Transfer.................................... A-71
2.2 Demand Registration......................................... A-72
2.3 Piggyback Registrations..................................... A-73
2.4 Form S-3 Registration....................................... A-74
2.5 Form S-3 Registration for ZoneNetwork Registrable
Securities.................................................. A-75
2.6 Form S-3 Registration for Golf.com Registrable Securities... A-77
2.7 Expenses of Registration.................................... A-78
2.8 Obligations of the Company.................................. A-78
2.9 Termination of Registration Rights.......................... A-79
2.10 Delay of Registration; Furnishing Information............... A-79
2.11 Indemnification............................................. A-79
2.12 Assignment of Registration Rights........................... A-81
2.13 Amendment of Registration Rights............................ A-81
2.14 Limitation on Subsequent Registration Rights................ A-81
2.15 "Market Stand-Off" Agreement................................ A-81
2.16 Rule 144 Reporting.......................................... A-82
SECTION 3. AFFIRMATIVE COVENANTS OF THE INVESTORS................... A-82
3.1 Confidential Information, Etc............................... A-82
SECTION 4. MISCELLANEOUS............................................ A-82
4.1 Governing Law............................................... A-82
4.2 Survival.................................................... A-82
4.3 Successors and Assigns...................................... A-82
4.4 Entire Agreement............................................ A-83
4.5 Severability................................................ A-83
4.6 Amendment and Waiver........................................ A-83
4.7 Delays or Omissions......................................... A-83
4.8 Notices..................................................... A-83
4.9 Attorneys' Fees............................................. A-83
4.10 Titles and Subtitles........................................ A-84
4.11 Counterparts................................................ A-84
4.12 Protection of Confidential Information...................... A-84
4.13 Disclosure of Terms: Press Releases......................... A-84
</TABLE>
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QUOKKA SPORTS, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the "Rights
Agreement") is entered into as of the day of , 2000, by and among
Quokka Sports, Inc., a Delaware corporation (the "Company") and the holders of
the Company's Common Stock and Warrants set forth on Exhibit A hereto (the
"Investors"). This Rights Agreement amends, restates and supersedes in its
entirety that certain Amended and Restated Investors' Rights Agreement dated
March 31, 2000 (the "Original Investors' Rights Agreement") which was entered
into in connection with the Company's issuance of shares of its Common Stock to
the stockholders of ZoneNetwork.com, Inc. pursuant to that certain Agreement and
Plan of Merger dated March 1, 2000 (the "Agreement and Plan of Merger").
RECITALS
WHEREAS, the Company and certain of its current stockholders and warrant
holders entered into the Original Investors' Rights Agreement; and
WHEREAS, the Company will issue shares of its Common Stock to certain
members of Golf.com, L.L.C. pursuant to that certain Purchase Agreement and Plan
of Reorganization dated June 8, 2000 (the "Agreement"); and
WHEREAS, pursuant to the Agreement, the Company agreed to solicit the
consent of the Investors (as such term was defined in the Original Investors'
Rights Agreement) to amend and restate the Original Investors' Rights Agreement
in order to include the shares of Common Stock issued pursuant to the Agreement
as set forth herein; and
WHEREAS, the parties hereto desire to amend the Original Investors' Rights
Agreement as described above;
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Rights Agreement and in
the Agreement, the parties mutually agree as follows:
SECTION 1. GENERAL
1.1 Definitions. As used in this Rights Agreement the following terms
shall have the following respective meanings:
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"Golf.com Registrable Securities" means any of the shares of the Company's
Common Stock issued pursuant to the Agreement.
"Holder" means any person owning of record any shares of the Shares,
Warrants or Registrable Securities that have not been sold to the public or any
assignee of record of such Registrable Securities in accordance with Section
2.12 hereof.
"Initial Offering" means the Company's first firm commitment underwritten
public offering of its Common Stock registered under the Securities Act, which
occurred on July 27, 1999.
"Non-Voting Common Stock" means such shares of the Company's Non-Voting
Common Stock sold pursuant to the Common Stock Purchase Agreement dated April
12, 1997 or the Common Stock Purchase Agreement dated January 31, 1997.
"Old Registrable Securities" means (i) any of the Shares, if such Shares
are shares of the Company's Voting Common Stock; (ii) any shares of the
Company's Voting Common Stock issued pursuant to the
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exercise of the Warrants; and (iii) any shares of the Company's Voting Common
Stock issued as (or issuable upon the conversion or exercise of any warrants,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, such above-described
securities or the Warrants.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or documents.
"Registrable Securities" shall mean the Golf.com Registrable Securities,
ZoneNetwork Registrable Securities and the Old Registrable Securities.
Notwithstanding the foregoing, Registrable Securities shall not include any
securities (i) sold by a person to the public either pursuant to a registration
statement or Rule 144, (ii) sold in a private transaction in which the
transferor's rights under Section 2 of this Rights Agreement are not assigned or
(iii) held by a Holder whose registration rights have expired under Section 2.9
hereto.
"Registrable Securities then outstanding" shall be the number of shares
that are Registrable Securities and either (1) are then issued and outstanding
or (2) are issuable pursuant to then exercisable or convertible securities.
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements not to exceed Fifteen
Thousand Dollars ($15,000) of a single special counsel for the Holders (which
counsel shall be selected by the holders of a majority of the Registrable
Securities and subject to the approval of the Company, which approval shall not
be unreasonably withheld), blue sky fees and expenses and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall be paid in any
event by the Company).
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale.
"Series A Preferred" means the Company's Series A Preferred Stock that was
converted into Common Stock upon the initial public offering of the Company's
equity securities.
"Series B Preferred" means the Company's Series B Preferred Stock that was
converted into Common Stock upon the initial public offering of the Company's
equity securities.
"Series C Preferred" means the Company's Series C Preferred Stock that was
converted into Common Stock upon the initial public offering of the Company's
equity securities.
"Series D Preferred" means the Company's Series D Preferred Stock that was
converted into Common Stock upon the initial public offering of the Company's
equity securities.
"Shares" shall mean (i) the Company's Common Stock issued upon conversion
of the Series D Preferred, (ii) the Company's Common Stock issued upon
conversion of the Series C Preferred, (iii) the Company's Common Stock issued
upon conversion of the Series B Preferred, (iv) the Company's Common Stock
issued upon conversion of the Series A Preferred, (v) the Company's Voting
Common Stock issued pursuant to that certain Common Stock Purchase Agreement
dated August 19, 1997 by and among the Company and the Purchasers set forth on
Exhibit A thereto, (vi) the Company's Voting Common Stock and Voting Common
Stock issued upon conversion of the Non-Voting Common Stock issued pursuant to
that certain Common Stock Purchase Agreement dated April 2, 1997 by and between
the Company and Richard H. Williams and (vii) the Company's Voting Common Stock
issued pursuant to that certain Common Stock Purchase Agreement dated January
31, 1997 between the Company and Quokka Sports Pty Ltd. as trustee for Ozware
Developments Unit Trust.
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"Warrants" means (i) the warrants to purchase Voting Common Stock of the
Company issued pursuant to that certain Note and Warrant Purchase Agreement
dated October 31, 1997 among the Company and the Purchasers set forth on Exhibit
A thereto and (ii) the warrants, if any, held by Intel Corporation, MediaOne
Interactive Services, Inc. ("MediaOne"), any affiliate of MediaOne to whom such
warrants have been originally issued, NBC/Quokka Ventures, LLC or its assigns,
Comdisco, Inc. or its assigns, Championship Auto Racing Teams, Inc. or its
assigns and @Home or its assigns.
"ZoneNetwork Registrable Securities" means any of the shares of the
Company's Common Stock issued pursuant to the Agreement and Plan of Merger.
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER
2.1 Restrictions on Transfer.
(a) Each Holder agrees not to make any disposition of all or any portion of
the Non-Voting Common Stock, Shares or Registrable Securities unless and until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (A) The disposition is made under Rule 144 or its equivalent, (B)
such Holder shall have notified the Company of the proposed disposition and
shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and (C) such Holder shall have
furnished the Company with an opinion of counsel that such disposition will
not require registration under the Securities Act if reasonably requested
by the Company, which request shall only be made in unusual circumstances;
or
(iii) (A) The transferee has agreed in writing to be bound by the
terms of this Rights Agreement, (B) such Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company
with a statement of the circumstances surrounding the proposed disposition,
and (C) if reasonably requested by the Company, such Holder shall have
furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of such
shares under the Securities Act. Notwithstanding anything to the contrary
in this Section 2.1(a)(iii), any Holder of Golf.com Registrable Securities
may engage in derivative, hedging or similar transactions (each, a
"Derivative Transaction") without complying with the requirement set forth
in subsection (A) above, provided that: (i) such Derivative Transaction
complies with the other restrictions set forth in this Section 2.1; (ii)
such Derivative Transaction does not have a settlement date (the date on
which the ownership of the underlying Registrable Securities should be
transferred) prior to one year from the date hereof; and (iii) the
transferee in such Derivative Transaction shall have no registration rights
under this Rights Agreement until such transferee has agreed in writing to
be bound by the terms of this Rights Agreement.
(iv) Notwithstanding the provisions of paragraphs (i), (ii) and (iii)
above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder which is (A) a partnership to its
partners or former partners in accordance with partnership interests, (B) a
corporation to its shareholders in accordance with their interest in the
corporation, or to a wholly-owned subsidiary or an affiliate of such
corporation (the term "affiliate" being defined herein as any other person
or entity directly or indirectly controlling, controlled by or under common
control with such person or entity, with "control" meaning the possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of a person or entity, whether through the
ownership of voting securities or voting interests, by contract or
otherwise), (C) a limited liability company to its members or former
members in accordance with their interest in the limited liability company,
or (D) to the Holder's family member or trust for the benefit of an
individual Holder, provided any such transferee will be subject to the
terms of this Rights Agreement to the same extent as if he were an original
Holder hereunder.
(b) Each certificate representing the Shares or Registrable Securities
shall (unless otherwise permitted by the provisions of this Rights Agreement) be
stamped or otherwise imprinted with legends substantially
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similar to the following (in addition to any legend required under applicable
state securities laws or as provided elsewhere in this Rights Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (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 REASONABLY 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 REGISTERED HOLDER OR HIS 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.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 Demand Registration.
(a) Subject to the conditions of this Section 2.2, if the Company shall
receive a written request from the Holders of more than fifty percent (50%) of
the Registrable Securities then outstanding (the "Initiating Holders") that the
Company file a registration statement under the Securities Act covering the
registration of Registrable Securities having an aggregate offering price to the
public in excess of $10,000,000, then the Company shall, within twenty (20) days
of the receipt thereof, give written notice of such request to all Holders, and
subject to the limitations of this Section 2.2, use its best efforts to effect,
as soon as practicable, the registration under the Securities Act of all
Registrable Securities that the Holders request to be registered.
Notwithstanding any provision herein to the contrary, (i) one hundred percent
(100%) of the ZoneNetwork Registrable Securities held by each Holder of
ZoneNetwork Registrable Securities, and each such Holder's permitted transferees
or assignees, shall not be included in the Registrable Securities then
outstanding for the purposes of this Section 2.2(a) until the date six (6)
months from the date of the Original Investors' Rights Agreement, and thereafter
fifty percent (50%) of the ZoneNetwork Registrable Securities held by each
Holder of ZoneNetwork Registrable Securities, and each such Holder's permitted
transferees or assignees, shall not be included in the Registrable Securities
then outstanding until the date twelve (12) months from the date of the Original
Investors' Rights Agreement and (ii) one hundred percent (100%) of the Golf.com
Registrable Securities held by each Holder of Golf.com Registrable Securities,
and each such Holder's permitted transferees or assignees, shall not be included
in the Registrable Securities then outstanding for the purposes of exercising
the demand rights set forth in this Section 2.2(a) until the date six (6) months
from the date hereof, and thereafter fifty percent (50%) of the Golf.com
Registrable Securities held by each Holder of Golf.com Registrable Securities,
and each such Holder's permitted transferees or assignees, shall not be included
in the Registrable Securities then outstanding for the purposes of exercising
the demand rights set forth in this Section 2.2(a) until the date twelve (12)
months from the date hereof; provided that the restrictions set forth in this
sentence shall not be interpreted to limit the ability of any Holder of Golf.com
Registrable Securities from exercising their rights pursuant to Section 2.3
hereunder.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2.2
or any request pursuant to Section 2.3 or 2.4 and the Company shall include such
information in
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the written notice referred to in Section 2.4(a) or Section 2.7(a), as
applicable. In such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company). Notwithstanding any
other provision of this Section 2.2, if the underwriter advises the Company that
marketing factors require a limitation of the number of securities to be
underwritten (including Registrable Securities) then the Company shall so advise
all Holders of Registrable Securities which would otherwise be underwritten
pursuant hereto, and the number of shares that may be included in the
underwriting shall be allocated to the Holders of such Registrable Securities
which would otherwise be underwritten pursuant hereto on a pro rata basis based
on the number of Registrable Securities held by all such Holders (including the
Initiating Holders). Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a registration pursuant to
this Section 2.2:
(i) after the Company has effected two (2) registrations pursuant to
this Section 2.2, and such registrations have been declared or ordered
effective by the SEC; or
(ii) if the Company shall furnish to Holders requesting the filing of
a registration statement pursuant to this Section 2.2, a certificate signed
by the Chairman of the Board stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be effected
at such time, in which event the Company shall have the right to defer such
filing for a period of not more than sixty (60) days after receipt of the
request of the Initiating Holders; provided that such right to delay a
request shall be exercised by the Company not more than twice in any twelve
(12) month period.
2.3 Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements under Sections 2.2, 2.4, 2.5 or 2.6 or relating to
secondary offerings of securities of the Company, but excluding registration
statements relating to employee benefit plans or with respect to corporate
reorganizations or other transactions under Rule 145 of the Securities Act) and
will afford each such Holder an opportunity to include in such registration
statement all or part of such Registrable Securities held by such Holder. Each
Holder desiring to include in any such registration statement all or any part of
the Registrable Securities held by it shall, within fifteen (15) days after the
above-described notice from the Company, so notify the Company in writing. Such
notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
Notwithstanding any provision herein to the contrary, (i) one hundred percent
(100%) of the ZoneNetwork Registrable Securities held by each Holder of
ZoneNetwork Registrable Securities, and each such Holder's permitted transferees
or assignees, shall not be included in the Registrable Securities for the
purposes of this Section 2.3 until the date six (6) months from the date of the
Original Investors' Rights Agreement, and thereafter fifty percent (50%) of the
ZoneNetwork Registrable Securities held by each Holder of ZoneNetwork
Registrable Securities, and each such Holder's permitted transferees or
assignees, shall not be included in the Registrable Securities until the date
twelve (12) months from the date of the Original Investors' Rights Agreement and
(ii) fifty percent (50%) of the Golf.com Registrable Securities held by each
Holder of Golf.com Registrable Securities, and each such Holder's permitted
transferees or assignees, shall not be included in the Registrable Securities
for the purposes of this Section 2.3 until the date twelve (12) months from the
date hereof.
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(a) Underwriting. If the registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten
offering, the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any such Holder to be included in a
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their Registrable Securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
Rights Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated first, to the Company; second, to the Holders on a pro
rata basis based on the total number of Registrable Securities held by the
Holders who wish to sell in such offering; and third, to any shareholder of
the Company (other than a Holder of Registrable Securities) on a pro rata
basis. Notwithstanding the immediately preceding sentence, in no event
shall the amount of securities of the selling Holders included in the
registration be reduced below twenty-five percent (25%) of the total amount
of securities included in such registration. In no event will shares of any
other selling shareholder be included in any such registration which would
reduce the number of shares which may be included by Holders without the
written consent of Holders of more than fifty percent (50%) of the
Registrable Securities proposed to be sold in the offering. Notwithstanding
anything to the contrary in this Section 2.3(a), (i) in the event of a
registration pursuant to Section 2.5 in which the underwriter determines in
good faith that marketing factors require a limitation of the number of
shares to be underwritten, the number of shares that may be included in the
underwriting shall be allocated first, to the Holders of ZoneNetwork
Registrable Securities; second, to the Company; third, to other Holders on
a pro rata basis based on the total number of Registrable Securities held
by such other Holders who wish to sell in such offering; and fourth, to any
shareholder of the Company (other than a Holder of ZoneNetwork Registrable
Securities or other Registrable Securities) on a pro rata basis or (ii) in
the event of a registration pursuant to Section 2.6 in which the
underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated first, to the
Holders of Golf.com Registrable Securities; second, to the Company; third,
to other Holders on a pro rata basis based on the total number of
Registrable Securities held by such other Holders who wish to sell in such
offering; and fourth, to any shareholder of the Company (other than a
Holder of Golf.com Registrable Securities or other Registrable Securities)
on a pro rata basis.
(b) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.7 hereof.
2.4 Form S-3 Registration. In the event the Company shall receive a
written request from the Holders of more than fifty percent (50%) of the
Registrable Securities then outstanding (the "Initiating Holders") that the
Company effect a registration on Form S-3 (or any successor to Form S-3) or any
similar short-form registration statement and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such
Initiating Holder's or Initiating Holders' Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given to the Company by any
such other Holder or Holders within fifteen (15) days after receipt of such
written notice from the Company; provided,
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however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.4:
(i) if Form S-3 (or any successor or similar form) is not available
for such offering by the Holders, or
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if
any) at an aggregate price to the public of less than $1,000,000, or
(iii) if the Company shall furnish to the Holders a certificate
signed by the Chairman of the Board of Directors of the Company stating
that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company for such Form
S-3 Registration to be effected at such time, in which event the Company
shall have the right to defer the filing of the Form S-3 registration
statement for (a) a period of not more than sixty (60) days after
receipt of the request of the Initiating Holder or Initiating Holders
under this Section 2.4; and (b) a period of not more than thirty (30)
days after the lapse of the sixty (60) day deferral referenced in
Section 2.4(b)(iii)(a) immediately above; provided, that such rights to
delay a request shall be exercised by the Company not more than once in
any twelve (12) month period, or
(iv) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected one (1)
registration on Form S-3 for the Holders pursuant to this Section 2.4,
(v) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or
compliance, unless the Registered Securities would not, on account of
this limitation, be available for offer and sale in at least twenty
states, or
(vi) if the Company has, within the one hundred eighty (180) day
period preceding the date of such request, effected a Company initiated
registration (other than a registration effected solely to qualify an
employee benefit plan or to effect a business combination pursuant to
Rule 145).
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holders.
Notwithstanding any provision herein to the contrary, (i) one hundred percent
(100%) of the ZoneNetwork Registrable Securities held by each Holder of
ZoneNetwork Registrable Securities, and each such Holder's permitted transferees
or assignees, shall not be included in the Registrable Securities then
outstanding for the purposes of this Section 2.4 until the date six (6) months
from the date of the Original Investors' Rights Agreement, and thereafter fifty
percent (50%) of the ZoneNetwork Registrable Securities held by each Holder of
ZoneNetwork Registrable Securities, and each such Holder's permitted transferees
or assignees, shall not be included in the Registrable Securities then
outstanding until the date twelve (12) months from the date of the Original
Investors' Rights Agreement (ii) one hundred percent (100%) of the Golf.com
Registrable Securities held by each Holder of Golf.com Registrable Securities,
and each such Holder's permitted transferees or assignees, shall not be included
in the Registrable Securities then outstanding for the purposes of exercising
the demand rights set forth in this Section 2.4 until the date six (6) months
from the date hereof, and thereafter fifty percent (50%) of the Golf.com
Registrable Securities held by each Holder of Golf.com Registrable Securities,
and each such Holder's permitted transferees or assignees, shall not be included
in the Registrable Securities then outstanding for the purposes of exercising
the demand rights set forth in this Section 2.4 until the date twelve (12)
months from the date hereof; provided that the restrictions set forth in this
sentence shall not be interpreted to limit the ability of any Holder of Golf.com
Registrable Securities from exercising their rights pursuant to Section 2.3
hereunder.
2.5 Form S-3 Registration for ZoneNetwork Registrable
Securities. Following the date six months from the date of the Original
Investors' Rights Agreement, in the event the Company shall receive a written
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request from the Holders of more than fifty percent (50%) of the ZoneNetwork
Registrable Securities then outstanding (the "ZoneNetwork Initiating Holders")
that the Company effect a registration on Form S-3 (or any successor to Form
S-3) or any similar short-form registration statement and any related
qualification or compliance with respect to all or a part of the ZoneNetwork
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such
ZoneNetwork Initiating Holder's or ZoneNetwork Initiating Holders'
ZoneNetwork Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any
other Holder or Holders joining in such request as are specified in a
written request given to the Company by any such other Holder or Holders
within fifteen (15) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance pursuant to this
Section 2.5:
(i) if Form S-3 (or any successor or similar form) is not available
for such offering by the Holders, or
(ii) if the Holders propose to sell ZoneNetwork Registrable
Securities at an aggregate price to the public of less than $10,000,000,
or
(iii) if the Company shall furnish to the Holders a certificate
signed by the Chairman of the Board of Directors of the Company stating
that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company for such Form
S-3 Registration to be effected at such time, in which event the Company
shall have the right to defer the filing of the Form S-3 registration
statement for (a) a period of not more than sixty (60) days after
receipt of the request of the ZoneNetwork Initiating Holder or
ZoneNetwork Initiating Holders under this Section 2.5; and (b) a period
of not more than thirty (30) days after the lapse of the sixty (60) day
deferral referenced in Section 2.5(b)(iii)(a) immediately above;
provided, that such rights to delay a request shall be exercised by the
Company not more than once in any twelve (12) month period, or
(iv) if the Company has already effected two (2) registrations on
Form S-3 for the Holders pursuant to this Section 2.5,
(v) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or
compliance, unless the Registrable Securities would not, on account of
this limitation, be available for offer and sale in at least twenty
states, or
(vi) if the Company has, within the one hundred eighty (180) day
period preceding the date of such request, effected a Company initiated
registration (other than a registration effected solely to qualify an
employee benefit plan or to effect a business combination pursuant to
Rule 145).
Subject to the foregoing, the Company shall file a Form S-3 registration
statement covering the ZoneNetwork Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Notwithstanding any provision herein to the
contrary, in the event the Company so elects, the Company shall be able to
include other equity securities of the Company is such Form S-3 registration
statement, provided that such inclusion does not reduce the number of
ZoneNetwork Registrable Securities included therein.
Notwithstanding any provision herein to the contrary, fifty percent (50%)
of the ZoneNetwork Registrable Securities held by each Holder of ZoneNetwork
Registrable Securities, and each such Holder's permitted transferees or
assignees, shall not be included in the ZoneNetwork Registrable Securities then
outstanding for the purposes of this Section 2.5 until the date twelve (12)
months from the date of the Original Investors' Rights Agreement.
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2.6 Form S-3 Registration for Golf.com Registrable Securities. Following
the date six months from the date hereof, in the event the Company shall receive
a written request from the Holders of more than fifty percent (50%) of the
Golf.com Registrable Securities then outstanding (the "Golf.com Initiating
Holders") that the Company effect a registration on Form S-3 (or any successor
to Form S-3) or any similar short-form registration statement and any related
qualification or compliance with respect to all or a part of the Golf.com
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such
Golf.com Initiating Holder's or Golf.com Initiating Holders' Golf.com
Registrable Securities as are specified in such request, together with all
or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
to the Company by any such other Holder or Holders within fifteen (15) days
after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 2.6:
(i) if Form S-3 (or any successor or similar form) is not available
for such offering by the Holders, or
(ii) if the Holders propose to sell Golf.com Registrable Securities
at an aggregate price to the public of less than $10,000,000, or
(iii) if the Company shall furnish to the Holders a certificate
signed by the Chairman of the Board of Directors of the Company stating
that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company for such Form
S-3 Registration to be effected at such time, in which event the Company
shall have the right to defer the filing of the Form S-3 registration
statement for (a) a period of not more than sixty (60) days after
receipt of the request of the Golf.com Initiating Holder or Golf.com
Initiating Holders under this Section 2.6; and (b) a period of not more
than thirty (30) days after the lapse of the sixty (60) day deferral
referenced in Section 2.6(b)(iii)(a) immediately above; provided, that
such rights to delay a request shall be exercised by the Company not
more than once in any twelve (12) month period, or
(iv) if the Company has already effected two (2) registrations on
Form S-3 for the Holders pursuant to this Section 2.6,
(v) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or
compliance, unless the Registrable Securities would not, on account of
this limitation, be available for offer and sale in at least twenty
states, or
(vi) if the Company has, within the one hundred eighty (180) day
period preceding the date of such request, effected a Company initiated
registration (other than a registration effected solely to qualify an
employee benefit plan or to effect a business combination pursuant to
Rule 145).
Subject to the foregoing, the Company shall file a Form S-3 registration
statement covering the Golf.com Registrable Securities and other securities so
requested to be registered as soon as practicable after receipt of the request
or requests of the Holders. Notwithstanding any provision herein to the
contrary, in the event the Company so elects, the Company shall be able to
include other equity securities of the Company is such Form S-3 registration
statement, provided that such inclusion does not reduce the number of Golf.com
Registrable Securities included therein.
Notwithstanding any provision herein to the contrary, fifty percent (50%)
of the Golf.com Registrable Securities held by each Holder of Golf.com
Registrable Securities, and each such Holder's permitted transferees or
assignees, shall not be included in the Golf.com Registrable Securities then
outstanding for the purposes of this Section 2.6 until the date twelve (12)
months from the date hereof.
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2.7 Expenses of Registration. Except as specifically provided in this
Section 2.7, all Registration Expenses incurred in connection with any
registration under Section 2.2, Section 2.3, Section 2.4, Section 2.5 or Section
2.6 herein shall be borne by the Company. All Selling Expenses incurred in
connection with any registrations hereunder shall be borne by the holders of the
securities so registered pro rata on the basis of the number of shares sold. The
Company shall not, however, be required to pay for expenses of any registration
proceeding begun pursuant to Section 2.2, the request of which has been
subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is
based upon material adverse information concerning the Company of which the
Initiating Holders were not aware at the time of such request or (b) the Holders
of a majority of Registrable Securities agree to forfeit their right to one
requested registration pursuant to Section 2.2, in which event such right shall
be forfeited by all Holders). Additionally, the Company shall not be required to
pay for expenses in any registration proceeding begun pursuant to Section 2.4,
Section 2.5 or Section 2.6, the request of which has been subsequently withdrawn
by the Holders of the Registrable Securities to be included therein unless (a)
the withdrawal is based upon material adverse information concerning the Company
of which the Initiating Holders were not aware at the time of such request or
(b) the Holders of a majority of Registrable Securities agree that such
registration shall be deemed a completed registration for the purpose of Section
2.4(b), 2.5(b) or 2.6(b), as applicable. If the Holders are required to pay the
Registration Expenses, such expenses shall be borne by the Holders of securities
(including Registrable Securities) requesting such registration in proportion to
the number of shares for which such registration was requested.
2.8 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for up to
ninety (90) days or, if earlier, until the Holder or Holders have completed
the distribution related thereto.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Securities Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities being
registered by them.
(d) Use all reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions,
unless the Registered Securities would not, on account of this limitation,
be available for offer and sale in at least twenty states.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then
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existing, and promptly file, and use reasonable efforts to cause to become
effective, an amendment to such registration statement to cause such
registration statement not to include an untrue statement of material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances
then existing.
(g) Furnish, at the request of a majority of the Holders participating
in the registration, on the date that such Registrable Securities are
delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to
such securities becomes effective, (i) an opinion, dated as of such date,
of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters
in an underwritten public offering, addressed to the underwriters, if any,
and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, if any, and if
permitted by applicable accounting standards, to the Holders requesting
registration of Registrable Securities.
2.9 Termination of Registration Rights. All registration rights granted
under this Section 2 shall terminate and be of no further force and effect ten
(10) years after the date of the Company's Initial Offering. In addition, a
Holder's registration rights shall expire if (i) the Company has completed its
Initial Offering and is subject to the provisions of the Exchange Act, (ii) such
Holder (together with its affiliates, partners and former partners) holds less
than 1% of the Company's outstanding Common Stock (treating all shares of
convertible Preferred Stock on an as converted basis) and (iii) all Registrable
Securities held by and issuable to such Holder may be sold under Rule 144(k) or
all Registrable Securities held by and issuable to such Holder may be sold under
Rule 144 during any ninety (90) day period.
2.10 Delay of Registration; Furnishing Information
(a) No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the Company to
take any action pursuant to Section 2.2, 2.3, 2.4, 2.5 or 2.6 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
2.11 Indemnification. In the event any Registrable Securities are included
in a registration statement under Section 2.2, 2.3, 2.4, 2.5 or 2.6:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers, affiliates, directors
and legal counsel of each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation") by the Company: (i) any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to
be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state securities law or any rule
or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law in connection with the offering covered by such
registration statement; and the Company will reimburse (as and when
incurred from time to time) each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses
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reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
the indemnity agreement contained in this Section 2.11(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company,
which consent shall not be unreasonably withheld, nor shall the Company be
liable in any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by such
Holder, partner, officer, affiliate, director, underwriter or controlling
person of such Holder.
(b) To the extent permitted by law, each Holder will, severally and
not jointly, if Registrable Securities held by such Holder are included in
the securities as to which such registration qualifications or compliance
is being effected, indemnify and hold harmless the Company, each of its
directors, its officers, affiliates and legal counsel and each person, if
any, who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or
any person who controls such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, affiliate, controlling person, underwriter or other such Holder,
or partner, director, officer or controlling person of such other Holder
may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder under an instrument duly executed by
such Holder and stated to be specifically for use in connection with such
registration; and each such Holder, severally and not jointly, will
reimburse (as and when incurred from time to time) any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or
action if it is judicially determined that there was such a Violation;
provided, however, that the indemnity agreement contained in this Section
2.11(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably
withheld; provided further, that in no event shall any indemnity under this
Section 2.11 exceed the net proceeds from the offering received by such
Holder.
(c) Promptly after receipt by an indemnified party under this Section
2.11 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
2.11, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain
its own counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding or if the counsel retained
by the indemnifying party fails to assume the representation of the
indemnified party. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, shall not relieve such indemnifying party of any liability to the
indemnified party under this Section 2.11, except to the extent that the
indemnifying party is materially prejudiced by such delay, but the omission
so to deliver written notice to the indemnifying party will not relieve it
of any liability that it may have to any indemnified party otherwise than
under this Section 2.11.
(d) If the indemnification provided for in this Section 2.11 is held
by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred
to herein, the indemnifying party, in lieu of indemnifying such indemnified
party
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thereunder, shall to the extent permitted by applicable law contribute to
the amount paid or payable by such indemnified party as a result of such
loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the Violation(s) that
resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by a court of law by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission; provided, that in no event shall any contribution by a Holder
hereunder exceed the proceeds from the offering received by such Holder.
(e) The obligations of the Company and Holders under this Section 2.11
shall survive completion of any offering of Registrable Securities in a
registration statement. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
2.12 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 2 may be assigned by a
Holder to any transferee or assignee of Registrable Securities which (i) is a
person or entity which holds Registrable Securities pursuant to a transfer
permitted by Section 2.1(a)(iii) or Section 2.1(a)(iv), or (ii) acquires at
least fifty thousand (50,000) shares of Registrable Securities (as adjusted for
stock splits and combinations); provided, however, (A) the transferor shall
furnish to the Company written notice of the name and address of such transferee
or assignee and the securities with respect to which such registration rights
are being assigned, it being understood that, until such time as the Company
receives such written notice, the Company is under no obligation to treat such
transferee or assignee as a holder of registration rights, and (B) such
transferee shall agree to be subject to all restrictions set forth in this
Rights Agreement.
2.13 Amendment of Registration Rights. Any provision of this Section 2 may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of more than fifty percent (50%)
of the Registrable Securities then outstanding, provided that such amendment or
waiver does not differentiate among similarly situated stockholders. Any
amendment or waiver effected in accordance with this Section 2.13 shall be
binding upon each Holder and the Company. By acceptance of any benefits under
this Section 2, Holders of Registrable Securities hereby agree to be bound by
the provisions hereunder.
2.14 Limitation on Subsequent Registration Rights. After the date of this
Rights Agreement, the Company shall not, without the prior written consent of
the Holders of more than fifty percent (50%) of the Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would grant such holder registration rights senior to those
granted to the Holders hereunder.
2.15 "Market Stand-Off" Agreement. Each Holder hereby agrees that such
Holder shall not sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by such Holder (other than those included
in the registration) for a period specified by the representative of the
underwriters of Common Stock (or other securities) of the Company not to exceed
ninety (90) days following the effective date of each registration statement
filed by the Company, provided that all officers and directors of the Company
enter into similar agreements and that, to the extent that any such officer or
director is released from any such agreement, the Holders shall also be released
to such extent from the restriction contained in this Section 2.15. Nothing in
this Section 2.15 shall limit the ability of any Holder of Golf.com Registrable
Securities from engaging in derivative, hedging or similar transactions in
compliance with Section 2.1 hereof.
Each Holder agrees to execute and deliver such other agreements as may be
reasonably requested by the Company or the underwriter which are consistent with
the foregoing or which are necessary to give further effect thereto. The
obligations described in this Section 2.15 shall not apply to a registration
relating solely to
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employee benefit plans on Form S-1 or Form S-8 or similar forms that may be
promulgated in the future, or a registration relating solely to a Commission
Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the
future. The Company may impose stop-transfer instructions with respect to the
shares of Common Stock (or other securities) subject to the foregoing
restriction until the end of said ninety (90) day period.
2.16 Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date
of the first registration filed by the Company for an offering of its
securities to the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities, furnish to
such Holder forthwith upon request: a written statement by the Company as
to its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual
or quarterly report of the Company; and such other reports and documents as
a Holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing it to sell any such securities without
registration.
SECTION 3. AFFIRMATIVE COVENANTS OF THE INVESTORS
3.1 Confidential Information, Etc. In addition to the provision set forth
in Sections 6.12 and 6.13, each Investor agrees that (a) all information
received by such Investor pursuant to the Original Investor Rights Agreement or
any predecessor thereof and (b) any other information, including without
limitation information relating to the Company's customers, technology,
processes or formulas, that (i) is disclosed by the Company to such Investor and
(ii) is identified by the Company as being confidential or proprietary, shall be
considered confidential information. Each Investor further agrees that such
Investor shall hold all such confidential information in confidence and shall
not disclose any such confidential information to any third party other than
such Investor's counsel or accountants nor shall such Investor use such
confidential information for any purpose other than evaluation of such
Investor's investment in the Company; provided, however, that the foregoing
obligation to hold in confidence and not to disclose confidential information
shall not apply to any such information that (1) was available to the public
prior to disclosure by the Company, (2) becomes available to the public through
no fault of such Investor, (3) is disclosed to such Investor on a non-
confidential basis by a third party, provided that the Investor determines after
reasonable inquiry that the third party has a legal right to make such
disclosure or (4) is independently developed by such Investor.
SECTION 4. MISCELLANEOUS
4.1 Governing Law. This Rights Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
4.2 Survival. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
4.3 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of
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Registrable Securities from time to time; provided, however, that prior to the
receipt by the Company of adequate written notice of the transfer of any
Registrable Securities specifying the full name and address of the transferee,
the Company may deem and treat the person listed as the holder of such shares in
its records as the absolute owner and holder of such shares for all purposes,
including the payment of dividends or any redemption price.
4.4 Entire Agreement. This Rights Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject matter hereof.
4.5 Severability. In case any provision of this Rights Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
4.6 Amendment and Waiver.
(a) Except as otherwise expressly provided, this Rights Agreement may be
amended or modified only upon the written consent of the Company and the holders
of more than fifty percent (50%) of the Registrable Securities; provided,
however, that if such amendment or waiver differentiates among similarly
situated stockholders or materially, adversely affects specific stockholders or
groups of stockholders then the consent of the holders of more than fifty
percent (50%) of the Registrable Securities held by such affected stockholders
or group of stockholders shall additionally be required.
(b) Except as otherwise expressly provided, the obligations of the Company
and the rights of the Holders under this Rights Agreement may be waived only
with the written consent of the holders of more than fifty percent (50%) of the
Registrable Securities; provided, however, that if such amendment or waiver
differentiates among similarly situated stockholders or materially, adversely
affects specific stockholders or groups of stockholders then the consent of the
holders of more than fifty percent (50%) of the Registrable Securities held by
such affected stockholders or group of stockholders shall additionally be
required.
(c) Each Holder acknowledges that by the operation of this Section 4.6, the
holders of more than fifty percent (50%) of the Registrable Securities may have
the right and power to diminish or eliminate all rights of such Holder under
this Rights Agreement.
(d) Notwithstanding the foregoing, this Rights Agreement may be amended
with only the written consent of the Company to include additional purchasers of
Shares as "Investors," "Holders" and parties hereto.
4.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Rights Agreement shall impair
any such right, power, or remedy, nor shall it be construed to be a waiver of
any such breach, default or noncompliance, or any acquiescence therein, or of
any similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under this Rights
Agreement or any waiver on such Holder's part of any provisions or conditions of
this Rights Agreement must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under this
Rights Agreement, by law, or otherwise afforded to Holders, shall be cumulative
and not alternative.
4.8 Notices. All notices required or permitted hereunder 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 sent to the party to be notified at the address as set
forth on Exhibit A hereto or at such other address as such party may designate
by ten (10) days advance written notice to the other parties hereto.
4.9 Attorneys' Fees. In the event that any dispute among the parties to
this Rights Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees,
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costs and expenses of enforcing any right of such prevailing party under or with
respect to this Rights Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
4.10 Titles and Subtitles. The titles of the sections and subsections of
this Rights Agreement are for convenience of reference only and are not to be
considered in construing this Rights Agreement.
4.11 Counterparts. This Rights Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
4.12 Protection of Confidential Information. The investment in the Company
by Intel Corporation ("Intel"), including the specific terms thereof, shall be
considered confidential information (the "Confidential Information") and shall
not be disclosed by the Company or any other party to this Rights Agreement to
any third party, subject to Section 4.13 below. Each party shall immediately
notify the other parties of any information that comes to its attention which
might indicate that there has been a loss of confidentiality with respect to the
Confidential Information. In the event that the Company or any other party
becomes legally compelled (by statute or regulation or by oral questions,
interrogatories, request for information or documents, subpoena, criminal or
civil investigative demand or similar process, including without limitation, in
connection with any public or private offering of the Company's capital stock)
to disclose any of the Confidential Information, such party (the "Disclosing
Party") shall provide the other party (the "Non-Disclosing Party") with prompt
written notice of that fact so that the appropriate party may seek (with the
cooperation and commercially reasonable efforts of the other parties) a
protective order, confidential treatment or other appropriate remedy. In such
event, the Disclosing Party shall furnish only that portion of the Confidential
Information which is legally required and shall exercise commercially reasonable
efforts to obtain reliable assurance that confidential treatment will be
accorded the Confidential Information to the extent reasonably requested by the
Non-Disclosing Party. The provisions of this Section 4.12 shall be in addition
to, and not in substitution for, the provisions of any separate nondisclosure
agreement executed by Intel and the Company with respect to any collaboration or
similar agreement.
4.13 Disclosure of Terms: Press Releases. Notwithstanding the provisions
of Section 4.12 above, from and after the Closing (as defined in that certain
Series C Preferred Stock Purchase Agreement dated December 23, 1998) the Company
may disclose the Confidential Information, (i) solely to the Company's
investors, investment bankers, lenders, accountants, legal counsel, business
partners, and bona fide prospective investors, employees, lenders and business
partners, in each case only where such persons or entities are under appropriate
nondisclosure obligations and (ii) as may be required pursuant to the Securities
Act or Exchange Act. In addition, the Company may disclose the fact that Intel
is an investor in the Company to third parties without the requirement for
nondisclosure agreements. Within sixty (60) days of the Closing, the Company may
issue a press release disclosing that Intel has invested in the Company,
provided that the release does not disclose the amount or other specific terms
of the investment and is approved in advance in writing by Intel. Intel, at its
sole discretion, may provide an executive quote or other material regarding its
investment in the Company. Except for such disclosure and press release, no
other announcement regarding Intel's investment in the Company in a press
conference, in any professional or trade publication, in any marketing materials
or otherwise to the general public may be made without the prior written consent
of Intel, which consent may be withheld at the sole discretion of Intel.
Notwithstanding the foregoing and the provisions of Section 4.12 above, from and
after the Closing, Intel may disclose its investment in the Company and the
terms thereof to third parties or to the public at its discretion, and the
Company shall have the right to disclose to third parties any information
disclosed by Intel in a press release or other public announcement or document.
If the Company or Intel determines that any disclosure not otherwise authorized
by this Section 4.13 is required by law or regulation, then the provisions of
Section 4.12 regarding disclosure of Confidential Information by a Disclosing
Party shall govern. Notwithstanding the provisions of Section 4.12 above, from
and after the Closing, any party hereunder may disclose the Confidential
Information as may be required pursuant to the Securities Act or Exchange Act.
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IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
<TABLE>
<S> <C>
COMPANY: INVESTORS:
QUOKKA SPORTS, INC.
By: By:
---------------------------------------- ----------------------------------------
Alan Ramadan
President
Name of Investor:
------------------------
Name of Signatory:
-----------------------
(if applicable)
Title of Signatory:
-------------------------
(if applicable)
</TABLE>
[AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
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EXHIBIT A
ADDRESSES
THE COMPANY
Quokka Sports, Inc.
525 Brannan Street, Ground Floor
San Francisco, CA 94107
Attention: Mr. Alan Ramadan
Telephone: 415-908-3800
Fax: 415-908-1841
INVESTORS
Mr. Richard H. Williams
Incline Village
625 Anderson Drive
P.O. Box 4281
Incline Village, NV 89450
Telephone: 415-782-6050
Fax: 415-292-7544
Bayview Investors Ltd.
c/o Robertson, Stephens & Company
555 California Street
23rd Floor
San Francisco, CA 94104
Attn: Sy Kaufman
Telephone: 415-676-2618
Fax: 415-676-2650
Wakefield Group II LLC
1110 East Morehead
Charlotte, NC 28204
Attn: Mike Elliott
Telephone: 704-372-0355
Fax: 704-372-8978
Bregman Revocable Trust u/a/d 8/21/92
Walter W. Bregman, ttee
Roberta F. Bregman, ttee
4629 Vista de la Tierra
Del Mar, CA 92014
Telephone: 619-792-6185
Fax: 619-792-9285
Roel Pieper
Koninklijke Philips Electronics
Rembrand Tower HRT24
Amstelplein 1
NL-1096HA Amsterdam
Netherlands
Telephone: +31 (20) 59 77 162
Fax: +31 (20) 59 77 160
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Alan Ramadan
c/o Quokka Sports, Inc.
Ground Floor
525 Brannan Street
San Francisco, CA 94107
Telephone: 415-908-3800
Fax: 415-908-1841
Pogmohane Partners, L.P.
c/o Alan Ramadan, General Partner
Quokka Sports, Inc.
Ground Floor
525 Brannan Street
San Francisco, CA 94107
Telephone: 415-908-3800
Fax: 415-908-1841
(with a copy to: John J. Buttita
Altheimer & Gray Law Offices
10 South Wacker Drive
Chicago, Illinois 60606-7482
Telephone: 312-715-4000
Fax: 312-715-4800)
John Bertrand
c/o Quokka Sports, Inc.
Ground Floor
525 Brannan Street
San Francisco, CA 94107
Telephone: 415-908-3800
Fax: 415-908-1841
Intel Corporation
c/o Tamiko Hutchinson
2200 Mission College Blvd. SC4-210
Santa Clara, CA 95052-8119
Telephone: (408) 765-5636
Fax: (408) 765-6038
Steve Nelson
c/o Quokka Sports, Inc.
Ground Floor
525 Brannan Street
San Francisco, CA 94107
Telephone: 415-908-3800
Fax: 415-908-1841
Media Technology Ventures, L.P.
Media Technology Ventures Entrepreneurs Fund, L.P.
Media Technology Equity Partners, L.P.
One First Street, Suite Two
Los Altos, CA 94022
Attn: Barry M. Weinman
Telephone: 415-949-9862
Fax: 415-949-8510
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Trinity Ventures Ltd.
Trinity Ventures V, L.P.
Trinity V, side-by-side fund, L.P.
c/o Mr. James G. Shennan, Jr.
3000 Sand Hill Road
Bldg. 1, Suite 240
Menlo Park, CA 94025
Telephone: 650-854-9500
Fax: 650-854-9501
GC&H Investments
c/o Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111-3580
Attn: John Cardoza
Telephone: 415-693-2000
Fax: 415-951-3699
Stanford University
Stanford Management Company
c/o Carol Gilmer
2770 Sand Hill Road
Menlo Park, CA 94025
Telephone: 650-926-0244
Fax: 650-854-9267
Accel VI L.P.
Accel Internet Fund II L.P.
Accel Keiretsu VI L.P.
Accel Investors '98 L.P.
428 University Avenue
Palo Alto, CA 94301
Attn: Bruce Golden
Telephone: 650-614-4800
Fax: 650-614-4880
(Copy to:
Accel Partners
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Telephone: (609) 683-4500
Fax: (609) 683-0384)
MediaOne Interactive Services, Inc.
9000 E. Nichols Ave., Suite 100
Englewood, CO 80112
Attn: Natalie Egleston
Telephone: 303-705-7680
Fax: 303-705-5109
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The Karr Family 1982 Trust, dated 12/1/82, as amended
Attn: Howard Karr
1777 Borel Place, #408
San Mateo, CA 94402
Telephone: 650-574-5277
Fax: 650-574-0310
Outcast Communications, Inc.
c/o Caryn Marooney
1696B Green Street
San Francisco, CA 94123
Telephone: 510-596-0994
Fax: 510-649-8895
The Les Schmidt and JoAnne P. Hattum Family Trust U/T/D 4/8/92
c/o Quokka Sports, Inc.
525 Brannan Street, Ground Floor
San Francisco, CA 94107
Attn: Les Schmidt
Telephone: 415-908-3800
Fax: 415-908-1841
The Schmidt Family Irrevocable Trust Dtd. 12/27/95 FBO Caryn H. Schmidt
The Schmidt Family Irrevocable Trust Dtd. 12/27/95 FBO Bryan P. Schmidt
The Schmidt Family Irrevocable Trust Dtd. 12/27/95 FBO Taylor G. Schmidt
Charles H. Packer, Trustee
c/o Quokka Sports, Inc.
525 Brannan Street, Ground Floor
San Francisco, CA 94107
Attn: Les Schmidt
Telephone: 415-908-3800
Fax: 415-908-1841
Charles Bates Thornton Trust
Henry Haskell Rightor Thornton Trust
Jane Cordelia Laney Thornton Trust
Anne Chapman Thornton Trust
Musick, Peeler & Garrett, LLP
One Wilshire Blvd., Suite 2000
Los Angeles, CA 90017
Telephone: 213-629-7657
Attn: Edward A. Landry
The Ignite Group
c/o Steve Payne, Venture Partner
255 Shoreline Drive, Suite 510
Redwood City, CA 94065
Telephone: (650) 622-2030
Fax: (650) 622-2015
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Omega Ventures II, L.P.
Omega Ventures II Cayman, L.P.
Crossover Fund II, L.P.
Crossover Fund IIA, L.P.
c/o Sy Kaufman
555 California Street, 23rd Floor
San Francisco, CA 94104
Telephone: (415) 693-3311
Fax: (415) 676-2556
Michael Carter
c/o Growth Phase Europe Ltd.
50 Margravine Gardens
London, England W6 8RJ
(With a copy to:
Growth Phase Europe
349 Liberty Street
San Francisco, CA 94114
Attn: Matt Hall
Telephone: (415) 385-5639
Fax: (415) 641-4297)
Gerardo Seeliger
12 Elystan Street
London SW3, England
-- Send documents DHL to:
SeeligerY Conde
Velazquez, 18
28001 Madrid, Espana
Spain
Telephone: +34 1 577 99 77
Fax: +34 (1) 577 41 24
Riemer 1991 Revocable Trust
David Riemer
1611 Bonita Avenue
Berkeley, CA 94709
Telephone: (415) 908-3800
Fax: (415) 908-1841
M. Elizabeth Sandell
c/o Quokka Sports, Inc.
525 Brannan Street, Ground Floor
San Francisco, CA 94107
Attn: Les Schmidt
Telephone: (415) 908-3800
Fax: (415) 908-1841
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Liberty QS, Inc.
9197 South Peoria Street
Englewood, CO 80112
Attn: Bruce Ravenal
Phone: (720) 875-5928
Fax: (720) 875-7236
E-mail: [email protected]
(with a copy to General Counsel at the same Address)
Hearst Communications, Inc.
959 Eighth Avenue
New York, NY 10019
Attn: Scott English, Vice President
Phone: (212) 649-2464
Fax: (212) 582-7739
E-mail: [email protected]
MeriTech Capital Partners LP
428 University Avenue
Palo Alto, CA 94301
Attn: Rob Ward
Phone: (650) 330-5472
Fax: (650) 614-4880
E-mail: [email protected]
Comcast Interactive Investments, Inc.
1201 Market Street
Suite 2201
Wilmington, DE 19801
Attn: Judie Dionglay, Vice President
Phone: (302) 594-8701
Fax: (302) 658-1600
E-Mail: [email protected]
AtHome Corporation
425 Broadway Street
Redwood City, CA 94063
Attn: Suneet Wadhwa
Phone: (650) 569-5139
Fax: (650) 569-5139
(with a copy to:
Mark Stevens
Excite @Home
475 Broadway Street
Redwood City, CA 94063
Phone: (650) 298-4477
Fax: (650) 298-4492)
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Crossover Fund II
c/o Omega Ventures
555 California Street, Suite 2350
San Francisco, CA 94104
Attn: Dan Dunn
Phone: (415) 676-2931
Fax: (415) 788-4665
E-mail: [email protected]
Pivotal Partners, L.P.
1 Embarcadero Center, 23rd Floor
San Francisco, CA 94111
Attn: Christopher Lord
Phone: (415) 362-0292
Fax: (415) 249-1555
E-mail: [email protected]
BT (Netherlands) Holdings B.V.
Overschiestraat 65
1062 XD Amsterdam
The Netherlands
Attn: Company Secretary
(with a copy to:
Kerry Phillip
Phone: 011-44-171-356-6389
Fax: 011-44-171-356-4012
E-mail: [email protected]
William Allison
5503 30th Avenue NE. Apt. C
Seattle, WA 98105
Joel Altshule
1339 N. Capri Dr.
Pacific Palisades, CA 90272
Phone: 310-459-1980
Thomas Armor
2029 Ocean Key Drive
Boca Raton, FL 33498
Tel: 561-451-2015
Robert Arnold
1001-4th Avenue Plaza, #4710
Seattle, WA 98154
Phone: 206-358-0333
James Backer
PO Box 9327
Seattle, WA 98109
Jolie Backer
PO Box 9327
Seattle, WA 98109
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John Ballantine
1510 Grand Avenue
Seattle, WA 98122
Phone: 206-264-7600
Robert E. Bayley
5505 Lake Washington Blvd. #3E
Seattle, WA 98033
Frederick Blume
5385 Old Stage Rd.
Boulder, CO 80302-9412
Phone: 303-444-1258
Rodney Blumenstein
Rod Asher & Asso
7800 78th Ave. SE
Mercer Island, WA 98040
Phone: 206-232-2555
BMK Investments
c/o Phil Boren
8560 NE Gordon Dr.
Bainbridge Island, WA 98110
Phone: 206-842-4601
Rebecca Bradshaw
1401 5th Avenue W, #1401
Seattle, WA 98119
Edward & Pamela Bridge
PO Box 1908
Seattle, WA 98111
Phone: 206-448-8800
Cliff Brooks
2020 W. Beaver Lake Dr. SE
Issaquah, WA 98027
Phone: 206-329-9613
James Bruton
355 Capt. Thomas Blvd., #66
West Haven, CT 06516
Phone: 203-933-0598
Todd Burleson
121 Mercer Street
Seattle, WA 98109
Adam Chapman
151 Calyer Street, #3
Brooklyn, NY 11222
Tim Choate
Freeshop.com
95 Jackson
Seattle, WA 98104
Phone: 206-441-9100 x 173
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Brent Cook
CobWeb, Inc.
1065 12th Avenue NE, Suite E2
Issaquah, WA 98027
Tel: 206-937-8804
Gary Craig
7900 SE 28th, #401
Mercer Island, WA 98040
Phone: 206-230-8144
Fax: 206-236-2045
Robert Crist
2234 Killarney Way
Bellevue, WA 98004
Phone: 425-454-9120
Steve Cullen
iTango Software
1015 Third Avenue, Suite 1000
Seattle, WA 98104
Phone: 206-624-6888 x212
Fax: 206-624-8851
Andy Weissman
Dawntreader
826 Broadway, 7th Floor
New York, NY 10003
Tel: 646-654-2600
Fax: 646-654-2654
David Eckert
8355 Avalon Drive
Mercer Island, WA 98040
Dan Elenbaas
13916 185th Ct NE
Woodinville, WA 98072
Phone: 425-702-9020
Norm Ely
PO Box 1442
Grass Valley, CA 95945
Tel: 530-477-5777
Evergreen Partners
1218 Third Ave., #1111
Seattle, WA 98101
Gary Ferguson
13608 NE 36th Place
Bellevue, WA 98005
Phone: 425-895-8367
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Fingerhut Companies, Inc.
c/o Michael Sherman
4400 Baker Road
Minnetonka, MN 55343
Phone: 612-932-3585
Fax: (612) 936-5412
Eddie Fisher
P.O. Box 1887
Bellevue, WA 98009
Phone: 206-285-4544
John Fitzpatrick
16709-168th Place NE
Woodinville, WA 98072-8985
Phone: 206-441-8285 x205
Skip Franklin
Phototrust.com
1500-114th Avenue SE, #130
Bellevue, WA 98004
Phone: 425-468-9056
Fax: (425) 468-9099
Dr. Francis Galey
35 Corthell Road
Laramie, WY 82070
Phone: 307-742-6322
Fax: 307-755-5440
Gretchen Garth
16347 Inglewood Pl. NE
Bothell, WA 98011
Phone: 425-487-3037
Scott Roberts
The Genesis Group
c/o eTranslate
520 Third Street, Suite 505
San Francisco, CA 94107
Phone: 415-371-0000
Todd Gilbertson
16037 NE 165th St.
Woodinville, WA 98072
Phone: 206-489-9702
Michael Goldfarb
1420 5th Ave. #2625
Seattle, WA 98101
Phone: 206-346-9900
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Chuck Gottschalk
ZoneNetwork.com
1415 Western Avenue, Suite 300
Seattle, WA 98101
Tel: 206-621-8630 x102
Fax: 206-903-8638
Keith Grinstein
1191 2nd Ave., Suite 1600
Seattle, WA 98101
Phone: 206-749-8350
Bert Hafen
Bear Stearns
245 Park Avenue
New York, NY 10167
Phone: 800-926-4431
Jim Harding
23233 SE 47th Way
Issaquah, WA 98029
Phone: 425-391-0826
Jeremy Jaech
2211 Elliott Ave.
Seattle, WA 98121
Phone: 206-956-6510
Marka Jenkins
2101 4th Ave. #1250
Seattle, WA 98121
Kent Johnson
13862 NE 8th, #C-306
Bellevue, WA 98005
Phone: 206-382-9961
Neil (Nick) Keller
3209 17th Ave. W
Mercer Island, WA 98119
Phone: 206-385-3300
Gaylord Kellogg
270 Lake Dell Avenue
Seattle, WA 98122
Phone: 206-726-9480
Keough Investments, LLC
Attn. Clarke Keough
Allen & Company
711 5th Avenue
New York, NY 10022
Phone: 212-832-8000
Fax: 212-339-2362
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Frank Kitchell
1218 Third Ave., #1111
Seattle, WA 98101
Phone: 206-623-2425
J.B. Kuppe
c/o Design Variations
900 A Street, Suite 301
San Rafael, CA 94903
Melanie Lemaire
901 1st Avenue N.
Seattle, WA 98105
Tel: 206-282-2833
Chris Lewis
2116 40th Ave. E
Seattle, WA 98112
Phone: 206-323-4573
Johan Liedgren
2017 11th Ave. E
Seattle, WA 98102
Phone: 206-329-8165
Gary Linden
4348 Hunts Point Rd.
Bellevue, WA 98004
Sarah Love-Sheehan
6015 Woodlawn Place N.
Seattle, WA 98103
Tel: 206-621-8630 x176
Fax: 206-621-0651
Jeffrey S. Lum
2651 134th Ave. NE
Bellevue, WA 98005
Phone: 425-936-8851
David Lundquist
c/o Louis Lundquist
8621 NE 6th Street
Medina, WA 98039
Phone: 425-454-5830
Louis Lundquist
8621 NE 6th Street
Medina, WA 98039
Phone: 425-454-5830
Sara Machlin
1804 Republican #4
Seattle, WA 98115
Tel: 206-621-8630 x177
Fax: 206-621-0651
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Marketwave, Inc.
Attn. Steven Podradchik
201 Queen Anne Ave. #401
Seattle, WA 98109
Phone: 206-682-6801
Robin Marks
1409 Funston Ave
San Francisco, CA
Tel: 415-564-5450
Pamela McCabe
2221 Federal Ave. E
Seattle, WA 98102
Phone: 206-323-6230
Lance McIntosh
20335 NE 61st Court
Redmond, WA 98053
Phone: 206-836-2878
David Mencin
P.O. Box 855
Boulder, CO 80306
Phone: 305-507-9535
Morgen Walke Partners
Attn. David Walke
380 Lexington Ave., 50th Floor
New York, NY 10168-5199
Phone: 212-850-5600
Furman & Susan Moseley
310 39th Ave. E
Seattle, WA 98112
Phone: 206-224-5195
MST Partnership
c/o Tote
1100 Olive Way, Suite 1100
Seattle, WA 98101
Phone: 206-628-9254
Douglas Mullis
1211-101st Place NE
Bellevue, WA 98004
Tel: 206-621-8630 x105
Ronald Neubauer
315 2nd Ave. S
Seattle, WA 98104
Phone: 206-622-7050
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Harold Nizamian
Timeless Toys
1165 Chess Drive, #C
San Mateo, CA 94404-1113
Phone: 650-856-1124
Fax: 650-856-1138
Daniel Nordstrom
Nordstrom's
600 University Ave, #600
Seattle, WA 98101
Phone: 206-373-4040
Fax: 206-373-4035
John Nyberg
700 Kalmia Place NW
Issaquah, WA 98027
Phone: 206-392-6036
Peter O'Dell
10023 NE 155th St.
Bothell, WA 98011
Phone: 425-785-6247
Timothy O'Keefe
P.O. Box 5045
Bellevue, WA 98009
Phone: 206-454-6805
Tom O'Keefe
2020 Evergreen Point Rd.
Medina, WA 98039
Phone: 206-233-2071
S. B. Olney
1929 Mill Pointe Dr. SE
Mill Creek, WA 98012
Phone: 425-406-6069
Suzanne Olsen
C/o CobWeb
1065 12th Avenue NW, Suite E2
Issaquah, WA 98027
Tel: 425-392-4535
Fax: 425-392-4726
Randy Ottinger
18 Brook Bay Rd.
Mercer Island, WA 98040-4622
Phone: 206-747-7277
Carol Padelford
1421 39th Ave. E
Seattle, WA 98112
Phone: 206-323-7860
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John Parkey
2425 60th Ave. SE
Mercer Island, WA 98040
Phone: 206-889-2999
Fax: 206-889-0661
Mitch Pindus
228 S. Medio Drive
Los Angeles, CA 90049
Tel: 800-421-4314
Greg Prosl
1827 N 55th
Seattle, WA 98103
Phone: 206-621-8630 x190
Fax: 206-621-0651
Hans Prosl
908 Florida Street, #6
Huntington Beach, CA 92648
Christine Raedeke
220 N 57th
Seattle, WA 98103
Gordon Raine
1424 4th Avenue, #710
Seattle, WA 98101
Howard Rheingold
306 Poplar
Mill Valley, CA 94941
Kenneth Robertson
6109 224 Ave., NE
Redmond, WA 98053
Phone: 425-936-5894
Scot Schmidt
1000 Hidden Valley Rd.
Soquel, CA 95073
Manfred Schmiedl
21721 NE 103rd St.
Redmond, WA 98053
Phone: 425-868-7150
Jeff Schoenfeld
J-Max Capital
1420 5th Ave., #2200
Seattle, WA 98101
Phone: 206-224-3499
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Walter Schoenfeld
Access Long Distance
999 Third Avenue, #3800
Seattle, WA 98104
Phone: 206-448-2700
Fax: (206) 441-7027
Andy Sturner
Sportsline.com
6340 NW 5th Way
Fort Lauderdale, FL 33309
Tel: 954-351-2120
Bob Taylor
3901 Second Avenue, NE, #401
Seattle, WA 98105
Phone: 206-633-3388
The Stusser Group
Attn. Leslie Stusser
1107 1st Ave., #1904
Seattle, WA 98101
Phone: 206-343-9940
Robert & Anne Thomas
606 Wellington Avenue
Seattle, WA 98122
Phone: 206-325-0207
Rick Thompson
4721 91st Ave. NE
Bellevue, WA 98004
Phone: 206-455-1953
Fax: 206-455-1938
Todd Tibbetts
10024-9th Avenue NW
Seattle, WA 98177
Tel: 206-621-8630 x135
Fax: 206-621-0651
Vans, Inc.
Attn. Craig Gosselin
15700 Shoemaker Ave.
Santa Fe Springs, CA 90670
Phone: 562-565-8473
Fax: 562-565-8413
Jeffrey Wiss
2855 Rock Creek Circle #112
Superior, CO 80027
Tel: 303-554-8924
Malcolm Witter
4314 East Mercer Way
Mercer Island, WA 98040
Phone: 206-232-6262
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<PAGE> 259
David Worley
2 Kirsten Place
Weston, CT 06883
Phone: 203-226-3867
Anya Zolotusky
4421 Greenwood Avenue N., #402
Seattle, WA 98103
Tel: 206-621-8630 x140
Fax: 206-621-0651
GolfData Corporation
4639 N. 20th Place
Arlington, VA 22207
Attn: Alex Miceli
with a copy to:
Satex Investment Partners
10010 San Pedro, Suite 360
San Antonio, TX 78216
Attn: Danny Mills
Media One Interactive Services, Inc.
9000 E. Nichols Avenue, Suite 100
Englewood, CO 80112
Attn: Director of Finance
Fax: 303-705-5163
with a copy to:
Media One Group, Inc.
188 Inverness Drive
Englewood, CO 80112
Attn: General Counsel
The New York Times Magazine Group, Inc.
5520 Park Avenue
Trumbull, CT
Attn: Robert Carney
Fax: 203-373-7170
with a copy to:
The New York Times Company
229 West 43rd Street
New York, NY 10036
Attn: Secretary
Fax: 212-556-4634
Total Sports Inc.
133 Fayetteville Street Mall, 6th Floor
Raleigh, NC 27601
Attn: Frank Daniels, III
Fax: 919-755-8080
A-102
<PAGE> 260
with a copy to:
J. Christopher Lynch
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, NC 27607
Fax: 919-781-4865
Otto Candies
P.O. Box 25
Highway 90
Des Allemands, Louisiana 70030
Attn: Paul Candies
Fax: 504-469-7740
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<PAGE> 261
EXHIBIT H
SHAREHOLDER CERTIFICATION
(ENTITY)
THIS SHAREHOLDER CERTIFICATION ("Certification") is being executed and
delivered by the undersigned shareholder (the "Shareholder") of GOLFDATA
CORPORATION, a Texas corporation ("GolfData"), in favor of and for the benefit
of GolfData, QUOKKA SPORTS, INC., a Delaware corporation ("Parent"), GOLF.COM,
L.L.C., a Delaware limited liability company (the "Company"), and DANNY MILLS
(the "Designated Company Agent").
RECITALS
Pursuant to a Purchase Agreement and Plan of Reorganization (the
"Agreement"), dated as of June , 2000, among Parent, the Selling Members
identified therein (including GolfData) and the Company, it is contemplated that
Parent will purchase or otherwise acquire from each Selling Member such Selling
Member's ownership interest in the Company (the purchase or other acquisition of
the ownership interests being referred to in this Certification as the
"Transaction"). Upon the consummation of the Transaction, (i) the Selling
Members will receive shares of common stock of Parent ("Parent Common Stock") in
exchange for their ownership interests in the Company with such exchange with
respect to GolfData constituting a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and (ii)
GolfData will immediately distribute to its shareholders in complete liquidation
the shares of Parent Common Stock that GolfData received in the Transaction (the
"Distribution"). This distribution is required to preserve the nontaxable status
of the Transaction to GolfData and its shareholders. The information requested
below is required to comply with various securities laws applicable to such
issuance by Parent and distribution by GolfData.
CERTIFICATION
1. Residence Information. Please provide the full legal name of the
investing entity, address of the city and state or foreign country where your
investment decision regarding the Transaction is being made, phone number, and
Employee Identification Number.
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2. Accredited Investor Certification. The undersigned makes one of the
following representations regarding its net worth and certain related matters,
and has checked the applicable representation:
[ ] (i) The undersigned is a trust with total assets in excess of
$5,000,000 whose purchase is directed by a person with such
knowledge and experience in financial and business matters that
such person is capable of evaluating the merits and risks of the
prospective investment.
[ ] (ii) The undersigned is a bank, insurance company, investment company
registered under the United States Investment Company Act of
1940, as amended (the "Companies Act"), a broker or dealer
registered pursuant to Section 15 of the United States
Securities Exchange Act of 1934, as amended, a business
development company, a Small Business Investment Company
licensed by the United States Small Business Administration, a
plan with total assets in excess of $5,000,000 established and
maintained by a state for the benefit of its employees, or a
private business development company as defined in Section
202(a)(22) of the United States Investment Advisers Act of 1940,
as amended.
A-104
<PAGE> 262
[ ] (iii) The undersigned is an employee benefit plan and either all
investment decisions are made by a bank, savings and loan
association, insurance company, or registered investment
advisor, or the Shareholder has total assets in excess of
$5,000,000 or, if such plan is a self-directed plan, investment
decisions are made solely by persons who are accredited
investors.
[ ] (iv) The undersigned is a corporation, partnership, business trust,
not formed for the purpose of acquiring shares in the Company or
in the Parent, or an organization described in section 501(c)(3)
of the Internal Revenue Code of 1986, as amended (the "Code"), in
each case with total assets in excess of $5,000,000.
[ ] (v) The undersigned is an entity in which all of the equity owners
qualify under any of the above subparagraphs, or, if an
individual, each such individual has a net worth(1), either
individually or upon a joint basis with such individual's spouse,
of at least $1,000,000 (within the meaning of such terms as used
in the definition of "accredited investor" contained in Rule 501
under the Securities Act), or has had an individual income(2) in
excess of $200,000 for each of the two most recent years, or a
joint income with such individual's spouse in excess of $300,000
in each of those years, and has a reasonable expectation of
reaching the same income level in the current year.
[ ] (vi) The undersigned cannot make any of the representations set forth
in paragraphs "i" through "v" above.
IF YOU CHECKED PARAGRAPH (VI) ABOVE, PLEASE COMPLETE THE FOLLOWING ITEMS 3
THROUGH 10. IF YOU CHECKED ANY OF PARAGRAPHS (I) THROUGH (V) ABOVE, PLEASE
PROCEED TO ITEM 11.
3. Will the value of the Parent Common Stock you are scheduled to receive
exceed 10 percent of the investing entities' net worth at the time of the
Transaction and Distribution?
[ ] Yes [ ] No
4. Please describe the educational background, indicating degrees obtained,
of the person making the investment decisions with respect to the Transaction
and Distribution (the "Decision-Maker"). Please describe any college-level
courses that the Decision-Maker has taken relating to economics, finance,
accounting or statistics (attach a separate sheet of paper if you require more
space).
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(1) For purposes of this Certification, "net worth" means the excess of total
assets at fair market value over total liabilities, except that the principal
residence owned by a natural person shall be valued either (a) at cost,
including the cost of improvements, net of current encumbrances upon the
property, or (b) at the appraised value of the residence as determined upon a
written appraisal used by an institutional lender making a loan to the
individual secured by the property, including the cost of subsequent
improvements, net of current encumbrances upon the property. As used in the
preceding sentence, "institutional lender" means a bank, savings and loan
company, industrial loan company, credit union or personal property broker or a
company whose principal business is as a lender of loans secured by real
property and which has such loans receivable in the amount of $2,000,000 or
more.
(2) For purposes of this Certification, "income" means adjusted gross income,
as reported for federal income tax purposes, increased by the following amounts:
(a) the amount of any tax exempt interest income received, (b) the amount of
losses claimed as a limited partner in a limited partnership, (c) any deduction
claimed for depletion, (d) amounts contributed to an IRA or Keogh retirement
plan, (e) alimony paid, and (f) any amounts by which income from long-term
capital gains has been reduced in arriving at adjusted gross income pursuant to
the provisions of Section 1202 of the Internal Revenue Code.
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5. Please describe occupational history of the Decision-Maker briefly. What
is sought is a sufficient description to enable the Company to determine the
extent of the Decision-Maker's experience in financial and business matters
(attach a separate sheet of paper if you require more space).
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6. Please indicate the Decision-Maker's or the entity's prior experience in
investing in speculative, high technology companies such as Parent (attach a
separate sheet of paper if you require more space).
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7. Please indicate any other relevant investment experience of the
Decision-Maker or the entity (attach a separate sheet of paper if you require
more space).
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8. Please describe any pre-existing personal or business relationships
between the Decision-Maker or the entity and Parent, or any of its officers or
directors.
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9. If the Decision-Maker has a background or experience in the business
conducted by Parent, please describe.
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10. Appointment of Purchaser Representative.
If you checked paragraph (vi) of Question 2 above (an "Unaccredited
Investor"), you will be required (subject to certain exceptions) to utilize a
"Purchaser Representative" in connection with your evaluation of the risks and
merits of the Transaction and Distribution and an investment in Parent Common
Stock thereby. [ ] has agreed to act as Purchaser Representative
for such purpose.
BY SIGNING BELOW, EACH SHAREHOLDER WHO IS AN UNACCREDITED INVESTOR HEREBY
APPOINTS [ ] TO SERVE AS THE UNDERSIGNED'S PURCHASER
REPRESENTATIVE (as that term is used in Regulation D of the Securities Act of
1933, as amended (the "Securities Act")) in connection with the Transaction and
Distribution and an investment in Parent Common Stock thereby and hereby
acknowledges that (i) the Shareholder will consult with the Purchaser
Representative in connection with its evaluation of the merits and risks of the
Transaction and Distribution and an investment in Parent Common Stock and (ii)
the Shareholder has received and reviewed a letter from such Purchaser
Representative, attached hereto as Exhibit A, setting forth any material
A-106
<PAGE> 264
relationship between Parent or any of Parent's affiliates and Purchaser
Representative or any of his affiliates, which currently exists, are
contemplated or have existed at any time since May 1998.
UNLESS CONTACTED BY THE COMPANY, ALL NON-ACCREDITED INVESTORS WILL BE
REQUIRED TO EITHER ATTEND A MEETING WITH THE PURCHASER REPRESENTATIVE IN PERSON
OR BY PHONE OR TO PARTICIPATE IN A CONFERENCE CALL WITH THE PURCHASER
REPRESENTATIVE. THE DATES, TIMES AND OTHER INFORMATION FOR THE MEETING AND
CONFERENCE CALL WILL BE PROVIDED TO ALL NON-ACCREDITED INVESTORS IN A SEPARATE
COMMUNICATION.
Please note, in certain circumstances, if you are an Unaccredited Investor,
but Parent determines and notifies you that by the information set forth above
you otherwise have such knowledge and experience in financial and other business
matters that you are capable of evaluating the merits and risks of the
Transaction and Distribution and the investment in Parent Common Stock, you will
not be required to consult with the Purchaser Representative and you will not be
deemed to have appointed one hereunder.
11. Approval of Transaction and Distribution
The undersigned, by signing below, hereby authorizes GolfData to enter
into, execute and deliver the Agreement, approves the resulting Transaction and
Distribution.
12. Additional Representations and Acknowledgements.
The undersigned makes each of the following additional representations and
acknowledgements:
(i) No Distribution. The Parent Common Stock issued to Shareholder
will be acquired for investment for Shareholder's own account and not with
a view to the sale or distribution of any part thereof, and Shareholder has
no present intention of selling, granting any participation in, or
otherwise distributing the same.
(ii) Securities Laws Matters. The undersigned is aware (a) that the
Parent Common Stock to be issued to Shareholder in the Transaction and
Distribution will not be registered and will not be issued pursuant to a
registration statement under the Securities Act, but will instead be issued
in reliance on the exemption from registration set forth in Section 4(2) of
the Securities Act and/or in Rule 506 under the Securities Act, and (b)
that neither the Transaction and Distribution nor the issuance of such
Parent Common Stock has been approved or reviewed by the Securities and
Exchange Commission or by any other governmental agency.
(iii) Resale Restrictions.
(a) Shareholder is aware that, because the Parent Common Stock to
be issued in the Transaction and Distribution will not be registered
under the Securities Act, such Parent Common Stock cannot be resold
unless such Parent Common Stock is registered under the Securities Act
or unless an exemption from registration is available. Shareholder is
also aware that the provisions of Rule 144 under the Securities Act will
permit resale of the Parent Common Stock to be issued to Shareholder in
the Transaction and Distribution only under limited circumstances, and
such Parent Common Stock must be held by Shareholder for at least one
year before it can be sold pursuant to Rule 144.
(b) Shareholder understands that stop transfer instructions will be
given to Parent's transfer agent with respect to the Parent Common Stock
to be issued to Shareholder in the Merger, and that there will be placed
on the certificate or certificates representing such Parent Common Stock
a legend identical or similar in effect to the following legend
(together with any other legend or legends required by applicable state
securities laws or otherwise):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE."
A-107
<PAGE> 265
(iv) Shareholder Can Protect Its Interest. The undersigned represents
that by reason of its or the Purchaser Representative's business or
financial experience, the undersigned has the capacity to protect its own
interests in connection with its acquisition of Parent Common Stock. The
undersigned acknowledges that it must, and represents that it can, bear the
economic risk of the investment Parent Common Stock indefinitely, until the
shares of Parent Common Stock are registered under the Securities Act, or
an exemption from registration is available.
(v) Company Information. The undersigned has received and read the
Agreement (along with the Escrow Agreement (as defined in the Agreement)).
The undersigned has also had the opportunity to ask questions of and
receive answers from Parent and the Company and their respective management
regarding the terms and conditions of the Transaction and Distribution and
the investment in Parent Stock.
13. Escrow Arrangements. The undersigned has carefully reviewed the
Agreement and Escrow Agreement, and understands and agrees that pursuant to the
Agreement, 10 percent of the Parent Common Stock to be issued to the Selling
Members (the "Escrow Shares") which constitutes the Transaction consideration
will be deposited with the Escrow Agent (as defined in the Escrow Agreement),
and that the shares deposited with the Escrow Agent shall be available to
satisfy indemnification claims as set forth in the Agreement. Pursuant to the
Agreement, Parent may seek indemnification for certain matters from the Escrow
Shares, in which event the portion of the Escrow Shares otherwise payable to the
undersigned would be reduced without any act of the undersigned, subject to the
procedures and limitations set forth in the Agreement and Escrow Agreement.
14. Appointment of Designated Company Agent. The undersigned hereby
consents to the election and appointment of Danny Mills, as representative, as
the Designated Company Agent (as such term is defined in the Agreements) and
authorizes such Designated Company Agent to act as the undersigned's duly
constituted attorney-in-fact in connection with the matters set forth in the
Agreement and Escrow Agreement until such time as a successor to any such
Designated Company Agent is replaced in accordance with the provisions of the
Escrow Agreement. The undersigned acknowledges and agrees that any decision,
act, consent or instruction of the Designated Company Agent shall constitute a
decision, act, consent or instruction of the undersigned and shall be final,
binding and conclusive on the undersigned, and that Parent and the Escrow Agent
may rely upon any such decision, act, consent or instruction of the Designated
Company Agent as being the decision, act, consent or instruction of the
undersigned.
15. Indemnification. The undersigned hereby agrees to indemnify and hold
harmless the Purchaser Representative, if applicable, and the Designated Company
Agent against and in respect of any and all loss, cost, expense, claim,
liability, deficiency, judgment or damage incurred by the Purchaser
Representative or Designated Company Agent (including without limitation fees
and disbursement of counsel) in respect of, as a result of, or in connection
with the performance of their duties hereunder or under the Agreement and any
related agreements or documents referenced therein in good faith and without
gross negligence or willful misconduct.
The undersigned represents that the information contained herein is
complete and accurate and may be relied upon by the Company and Parent, and that
the undersigned will notify Parent of any material change in any of such
information prior to the undersigned's investment in Parent.
A-108
<PAGE> 266
IN WITNESS WHEREOF, the undersigned has executed this Shareholder
Certification this day of , 2000.
Entity Name:
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Signature
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Printed Name and Title
This Certification must be signed by the registered holder of Company
stock, exactly as the name(s) appear on the stock certificate(s) and as set
forth above.
A-109
<PAGE> 267
EXHIBIT A
LETTER FROM PURCHASER'S REPRESENTATIVE
A-110
<PAGE> 268
EXHIBIT H
SHAREHOLDER CERTIFICATION
(INDIVIDUAL)
THIS SHAREHOLDER CERTIFICATION ("Certification") is being executed and
delivered by the undersigned shareholder (the "Shareholder") of GolfData
Corporation, a Texas corporation ("GolfData"), in favor of and for the benefit
of GolfData, Quokka Sports, Inc., a Delaware corporation ("Parent"), Golf.com,
L.L.C., a Delaware limited liability company (the "Company"), and Danny Mills
(the "Designated Company Agent").
RECITALS
Pursuant to a Purchase Agreement and Plan of Reorganization (the
"Agreement"), dated as of June , 2000, among Parent, the Selling Members
identified therein (including GolfData) and the Company, it is contemplated that
Parent will purchase or otherwise acquire from each Selling Member such Selling
Member's ownership interest in the Company (the purchase or other acquisition of
the ownership interests being referred to in this Certification as the
"Transaction"). Upon the consummation of the Transaction, (i) the Selling
Members will receive shares of common stock of Parent ("Parent Common Stock") in
exchange for their ownership interests in the Company with such exchange with
respect to GolfData constituting a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and (ii)
GolfData will immediately distribute to its shareholders in complete liquidation
the shares of Parent Common Stock that GolfData received in the Transaction (the
"Distribution"). This distribution is required to preserve the nontaxable status
of the Transaction to GolfData and its shareholders. The information requested
below is required to comply with various securities laws applicable to such
issuance by Parent and distribution by GolfData.
CERTIFICATION
1. Residence Information. Please provide your full legal name, residence
address, phone number, and Social Security Number.
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2. Personal Information. Please indicate the state which issued your
driver's license and the state in which you are registered to vote.
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<PAGE> 269
3. My Income.
Do you reasonably expect either your income,(1) from all sources during
this year, to exceed $200,000 or, if you are married, the joint income of you
and your spouse from all sources during this year to exceed $300,000?
[ ] Yes [ ] No
If no, please specify amount of expected income:
Was your yearly individual income from all sources during each of 1998 and
1999 in excess of $200,000 or, if you are married, was the joint income of you
and your spouse during each of those years in excess of $300,000?
[ ] Yes [ ] No
If no, please specify amount of your total individual and/or joint income
in 1998 and 1999:
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4. Net Worth.
Is your net worth, including the net worth(1) of your spouse, in excess of
$1,000,000? Please remember that your net worth should include the value of your
principal residence if owned,(2) the Parent Common Stock, any other shares of
capital stock or options held by you and your spouse and your and your spouse's
owned personal property (e.g. furniture, jewelry, other valuables, etc.).
[ ] Yes [ ] No
If no, please specify your net worth:
IF YOU ANSWERED "YES" TO ALL QUESTIONS IN EITHER ITEM 3 OR ITEM 4, PLEASE
PROCEED TO ITEM 13.
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(1) For purposes of this Certification, "income" means adjusted gross income,
as reported for federal income tax purposes, increased by the following amounts:
(a) the amount of any tax exempt interest income received, (b) the amount of
losses claimed as a limited partner in a limited partnership, (c) any deduction
claimed for depletion, (d) amounts contributed to an IRA or Keogh retirement
plan, (e) alimony paid, and (f) any amounts by which income from long-term
capital gains has been reduced in arriving at adjusted gross income pursuant to
the provisions of Section 1202 of the Internal Revenue Code.
(2) For purposes of this Certification, "net worth" means the excess of total
assets at fair market value over total liabilities, except that the principal
residence owned by a natural person shall be valued either (a) at cost,
including the cost of improvements, net of current encumbrances upon the
property, or (b) at the appraised value of the residence as determined upon a
written appraisal used by an institutional lender making a loan to the
individual secured by the property, including the cost of subsequent
improvements, net of current encumbrances upon the property. As used in the
preceding sentence, "institutional lender" means a bank, savings and loan
company, industrial loan company, credit union or personal property broker or a
company whose principal business is as a lender of loans secured by real
property and which has such loans receivable in the amount of $2,000,000 or
more.
A-112
<PAGE> 270
5. Will the value of the Parent Common Stock you will receive exceed 10
percent of your net worth, or your joint net worth with your spouse, if any, at
the time of the Transaction and Distribution?
[ ] Yes [ ] No
6. Please describe your educational background, indicating degrees
obtained. Please describe any college-level courses that you have taken relating
to economics, finance, accounting or statistics (attach a separate sheet of
paper if you require more space).
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7. (i) Please state your present occupation, employer, primary business
address, and business phone number.
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(ii) Please describe your occupational history briefly. Specific
employers need not be identified. What is sought is a sufficient description to
enable the Company to determine the extent of your experience in financial and
business matters (attach a separate sheet of paper if you require more space).
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8. Please indicate prior experience in investing in speculative, high
technology companies such as Parent (attach a separate sheet of paper if you
require more space).
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9. Please indicate any other relevant investment experience, including any
experience that you may have directing the investment of any amounts in your
401(k) plan or other retirement plan and any experience that you may have
purchasing or selling stock (attach a separate sheet of paper if you require
more space).
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A-113
<PAGE> 271
10. Please describe any pre-existing personal or business relationship
between you and Parent, or any of its officers or directors.
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11. If you have a background or experience in the business conducted by
Parent, please describe.
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12. Appointment of Purchaser Representative.
If you could not answer "YES" to all of the questions in EITHER Item 3 or
Item 4 above (an "Unaccredited Investor"), you will be required (subject to
certain exceptions) to utilize a "Purchaser Representative" in connection with
your evaluation of the risks and merits of the Transaction and Distribution and
an investment in Parent Common Stock thereby. [ ] has agreed to act as
Purchaser Representative for such purpose.
BY SIGNING BELOW, EACH SHAREHOLDER WHO IS AN UNACCREDITED INVESTOR HEREBY
APPOINTS [ ] TO SERVE AS THE UNDERSIGNED'S PURCHASER
REPRESENTATIVE (as that term is used in Regulation D of the Securities Act of
1933, as amended (the "Securities Act")) in connection with the Transaction and
Distribution and an investment in Parent Common Stock thereby and hereby
acknowledges that (i) the Shareholder will consult with the Purchaser
Representative in connection with his or her evaluation of the merits and risks
of the Transaction and Distribution and an investment in Parent Common Stock and
(ii) the Shareholder has received and reviewed a letter from such Purchaser
Representative, attached hereto as Exhibit A, setting forth any material
relationship between Parent or any of Parent's affiliates and Purchaser
Representative or any of his affiliates, which currently exists, are
contemplated or have existed at any time since May 1998.
UNLESS CONTACTED BY THE COMPANY, ALL NON-ACCREDITED INVESTORS WILL BE
REQUIRED TO EITHER ATTEND A MEETING WITH THE PURCHASER REPRESENTATIVE IN PERSON
OR BY PHONE OR TO PARTICIPATE IN A CONFERENCE CALL WITH THE PURCHASER
REPRESENTATIVE. THE DATES, TIMES AND OTHER INFORMATION FOR THE MEETING AND
CONFERENCE CALL WILL BE PROVIDED TO ALL NON-ACCREDITED INVESTORS IN A SEPARATE
COMMUNICATION.
Please note, in certain circumstances, if you are an Unaccredited Investor,
but Parent determines and notifies you that by the information set forth above
you otherwise have such knowledge and experience in financial and other business
matters that you are capable of evaluating the merits and risks of the
Transaction and Distribution and the investment in Parent Common Stock, you will
not be required to consult with the Purchaser Representative and you will not be
deemed to have appointed one hereunder.
13. Approval of Transaction and Distribution.
The undersigned, by signing below, hereby authorizes GolfData to enter
into, execute and deliver the Agreement, approves the resulting Transaction and
Distribution.
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<PAGE> 272
14. Additional Representations and Acknowledgements.
The undersigned makes each of the following additional representations and
acknowledgements:
(i) No Distribution. The Parent Common Stock issued to Shareholder
will be acquired for investment for Shareholder's own account and not with
a view to the sale or distribution of any part thereof, and Shareholder has
no present intention of selling, granting any participation in, or
otherwise distributing the same.
(ii) Securities Laws Matters. The undersigned is aware (a) that the
Parent Common Stock to be issued to Shareholder in the Transaction and
Distribution will not be registered and will not be issued pursuant to a
registration statement under the Securities Act, but will instead be issued
in reliance on the exemption from registration set forth in Section 4(2) of
the Securities Act and/or in Rule 506 under the Securities Act, and (b)
that neither the Transaction and Distribution nor the issuance of such
Parent Common Stock has been approved or reviewed by the Securities and
Exchange Commission or by any other governmental agency.
(iii) Resale Restrictions.
(a) Shareholder is aware that, because the Parent Common Stock to
be issued in the Transaction and Distribution will not be registered
under the Securities Act, such Parent Common Stock cannot be resold
unless such Parent Common Stock is registered under the Securities Act
or unless an exemption from registration is available. Shareholder is
also aware that the provisions of Rule 144 under the Securities Act will
permit resale of the Parent Common Stock to be issued to Shareholder in
the Transaction and Distribution only under limited circumstances, and
such Parent Common Stock must be held by Shareholder for at least one
year before it can be sold pursuant to Rule 144.
(b) Shareholder understands that stop transfer instructions will be
given to Parent's transfer agent with respect to the Parent Common Stock
to be issued to Shareholder in the Transaction and Distribution, and
that there will be placed on the certificate or certificates
representing such Parent Common Stock a legend identical or similar in
effect to the following legend (together with any other legend or
legends required by applicable state securities laws or otherwise):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE."
(iv) Shareholder Can Protect Its Interest. The undersigned represents
that by reason of his or her or the Purchaser Representative's business or
financial experience, the undersigned has the capacity to protect its own
interests in connection with its acquisition of Parent Common Stock. The
undersigned acknowledges that he or she must, and represents that he or she
can, bear the economic risk of the investment in Parent Common Stock
indefinitely, until the shares of Parent Common Stock are registered under
the Securities Act, or an exemption from registration is available.
(v) Company Information. The undersigned has received and read the
Agreement (along with the Escrow Agreement (as defined in the Agreement)).
The undersigned has also had the opportunity to ask questions of and
receive answers from Parent and the Company and their respective management
regarding the terms and conditions of the Transaction and Distribution and
the investment in Parent Stock.
15. Escrow Arrangements. The undersigned has carefully reviewed the
Agreement and Escrow Agreement, and understands and agrees that pursuant to the
Agreement, 10 percent of the Parent Common Stock to be issued to the Selling
Members (the "Escrow Shares") will be deposited with the Escrow Agent (as
defined in the Escrow Agreement), and that the shares deposited with the Escrow
Agent shall be available to satisfy
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indemnification claims as set forth in the Agreement. Pursuant to the Agreement,
Parent may seek indemnification for certain matters from the Escrow Shares, in
which event the portion of the Escrow Shares otherwise payable to the
undersigned would be reduced without any act of the undersigned, subject to the
procedures and limitations set forth in the Agreement and Escrow Agreement.
16. Appointment of Designated Company Agent. The undersigned hereby
consents to the election and appointment of Danny Mills as representative, as
the Designated Company Agent (as such term is defined in the Agreement) and
authorizes such Designated Company Agent to act as the undersigned's duly
constituted attorney-in-fact in connection with the matters set forth in the
Agreement and Escrow Agreement until such time as a successor to such Designated
Company Agent is replaced in accordance with the provisions of the Escrow
Agreement. The undersigned acknowledges and agrees that any decision, act,
consent or instruction of the Designated Company Agent shall constitute a
decision, act, consent or instruction of the undersigned and shall be final,
binding and conclusive on the undersigned, and that Parent and the Escrow Agent
may rely upon any such decision, act, consent or instruction of the Designated
Company Agent as being the decision, act, consent or instruction of the
undersigned.
17. Indemnification. The undersigned hereby agrees to indemnify and hold
harmless the Purchaser Representative, if applicable, and the Designated Company
Agent against and in respect of any and all loss, cost, expense, claim,
liability, deficiency, judgment or damage incurred by the Purchaser
Representative or Designated Company Agent (including without limitation fees
and disbursement of counsel) in respect of, as a result of, or in connection
with the performance of their duties hereunder or under the Agreement and any
related agreements or documents referenced therein in good faith and without
gross negligence or willful misconduct.
The undersigned represents that the information contained herein is
complete and accurate and may be relied upon by the Company and Parent, and that
the undersigned will notify Parent of any material change in any of such
information prior to the undersigned's investment in Parent.
IN WITNESS WHEREOF, the undersigned has executed this Shareholder
Certification this day of , 2000.
---------------------------------------------
Signature
---------------------------------------------
Printed Name
---------------------------------------------
Signature
---------------------------------------------
Printed Name
This Certification must be signed by the registered holder of Company
stock, exactly as the name(s) appear on the stock certificate(s) and as set
forth above.
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EXHIBIT A
LETTER FROM PURCHASER'S REPRESENTATIVE
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EXHIBIT I
FORM OF OPINION OF COMPANY'S COUNSEL
1. The Company is a validly existing limited liability company in good
standing under the laws of the State of Delaware.
2. The Company has the requisite limited liability company power to own its
property and assets as described in the Agreement.
3. The Company has the limited liability company power to enter into,
execute, and deliver the Agreement and consummate the transactions
contemplated thereby to be consummated by it.
4. The Agreement has been duly authorized, executed and delivered by the
Company and constitutes a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except as
rights to indemnity under section 9 of the Agreement may be limited by
applicable laws and except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other
similar laws affecting creditors' rights, and subject to general equity
principles and to limitations on availability of equitable relief,
including specific performance and injunctive relief.
5. The execution and delivery of the Agreement by the Company do not
violate any provision of the Company's Certificate of Formation or
Operating Agreement, each as amended and in effect as of the date
hereof.
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EXHIBIT J
FORM OF OPINION OF COUNSEL TO SELLING MEMBERS
1. The Selling Member has the corporate power to enter into, execute, and
deliver the Agreement and consummate the transactions contemplated
thereby. The Agreement has been duly and validly authorized, executed
and delivered by the Selling Member and constitutes a valid and binding
agreement of the Selling Member enforceable against the Selling Member
in accordance with its terms, except as rights to indemnity under
section 9 of the Agreement may be limited by applicable laws and except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to general equity principles and to
limitations on availability of equitable relief, including specific
performance or injunctive relief.
2. The execution and delivery of the Agreement by the Selling Member do not
violate the Selling Member's Articles of Incorporation or Bylaws.
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EXHIBIT K
FORM OF COOLEY GODWARD OPINION
We have acted as counsel for Quokka Sports, Inc., a Delaware corporation
(the "Company"), in connection with the acquisition of ownership interests in
Golf.com, L.L.C. pursuant to the Purchase Agreement and Plan of Reorganization
dated as of June , 2000 (the "Agreement"). We are rendering this opinion
pursuant to Section 7.3(a) of the Agreement. Except as otherwise defined herein,
capitalized terms used but not defined herein have the respective meanings given
to them in the Agreement.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Agreement by the various parties and originals or copies
certified to our satisfaction, of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. Where we render
an opinion "to the best of our knowledge" or concerning an item "known to us" or
our opinion otherwise refers to our knowledge, it is based solely upon (i) an
inquiry of attorneys within this firm who perform legal services for the
Company, (ii) receipt of a certificate executed by an officer of the Company
covering such matters, and (iii) such other investigation, if any, that we
specifically set forth herein.
In rendering this opinion, we have assumed: the genuineness and
authenticity of all signatures on original documents; the authenticity of all
documents submitted to us as originals; the conformity to originals of all
documents submitted to us as copies; the accuracy, completeness and authenticity
of certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Agreement), where authorization, execution and delivery
are prerequisites to the effectiveness of such documents. We have also assumed:
that all individuals executing and delivering documents had the legal capacity
to so execute and deliver; that you have received all documents you were to
receive under the Agreement; that the Agreement is an obligation binding upon
you; if you are a corporation or other entity, that you have filed any required
California franchise or income tax returns and have paid any required California
franchise or income taxes; and that there are no extrinsic agreements or
understandings among the parties to the Agreement that would modify or interpret
the terms of the Agreement or the respective rights or obligations of the
parties thereunder.
Our opinion is expressed only with respect to the federal laws of the
United States of America, the laws of the State of California and the General
Corporation Law of Delaware. We note that the parties to the Agreements have
designated the laws of the State of Delaware as the laws governing the
Agreements. Our opinion in paragraph 4 below as to the validity, binding effect
and enforceability of the Agreements is premised upon the result that would
obtain if a California court were to apply the internal laws of the State of
California (notwithstanding the designation of the laws of the State of
Delaware) to the interpretation and enforcement of the Agreements. We express no
opinion as to whether the laws of any particular jurisdiction apply, and no
opinion to the extent that the laws of any jurisdiction other than those
identified above are applicable to the subject matter hereof. We are not
rendering any opinion as to compliance with any antifraud law, rule or
regulation relating to securities, or to the sale or issuance thereof.
With regard to our opinion in paragraph 7 below, we have examined and
relied upon a certificate executed by an officer of the Company, to the effect
that the consideration for all outstanding shares of capital stock of the
Company was received by the Company in accordance with the provisions of the
applicable Board of Directors resolutions and any agreement relating to the
issuance of such shares, and we have undertaken no independent verification with
respect thereto.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. The Company has been duly incorporated and is a validly existing corporation
in good standing under the laws of the State of Delaware.
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2. The Company has the requisite corporate power to own its property and assets,
to conduct its business as such business is currently being conducted, to
enter into the Agreement and to consummate the transactions contemplated
thereby.
3. All corporate action required to be taken on the part of the Company to
authorize the Agreement and consummate the transaction contemplated thereby
has been taken.
4. The Agreement has been duly and validly authorized, executed and delivered by
the Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement may be limited by applicable laws and except as enforcement may
be limited by applicable bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting creditors' rights, and subject to
general equity principles and to limitations on availability of equitable
relief, including specific performance and injunctive relief.
5. The execution and delivery of the Agreement and consummation of the
transaction contemplated thereby by the Company are not prohibited by, and
will not violate or conflict with (a) any provision of the certificate of
incorporation or bylaws of the Company, (b) any governmental statute, rule or
regulation applicable to the Company or (c) any order, writ, judgment,
injunction, decree, determination or award which has been entered against the
Company and of which we are aware, the violation or contravention of which
would materially and adversely affect the Company or its assets, financial
condition or operations.
6. [Based in part upon the representations and warranties of each Selling Member
made in the Agreement and corresponding exhibits, the offer and sale of the
Parent Common Stock pursuant to the Agreement will be exempt from the
registration requirements of the Securities Act, subject to timely filing of
a Form D pursuant to Regulation D promulgated under the Securities Act.]
[Subject to Parent's ability to comply with Regulation D]
7. The Parent Common Stock to be issued pursuant to the Agreement have been duly
authorized, and upon issuance and delivery against payment therefor in
accordance with the terms of the Agreement, will be validly issued,
outstanding, fully paid and nonassessable.
This opinion is intended solely for your benefit and is not to be made
available to or be relied upon by any other person, firm, or entity without our
prior written consent.
Very truly yours,
COOLEY GODWARD LLP
By:
-------------------------------------------
[Name]
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Schedule 14A of
Quokka Sports, Inc. of our report dated January 19, 2000, except for note 14,
which is as of March 1, 2000 relating to the financial statements and financial
statement schedules of Quokka Sports, Inc. which appears in such Registration
Statement.
PricewaterhouseCoopers LLP
San Jose, California
August 11, 2000
<PAGE> 280
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Schedule 14A of
Quokka Sports, Inc. of our report dated June 22, 2000 relating to the financial
statements and financial statement schedules of Golf.com, L.L.C. which appear
in such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
August 11,2000
<PAGE> 281
PRELIMINARY PROXY
PROXY
QUOKKA SPORTS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER , 2000
The undersigned hereby appoints Alan S. Ramadan and Les Schmidt and each of
them as attorneys and proxies of the undersigned with full power of substitution
to vote all of the shares of stock of Quokka Sports, Inc. that the undersigned
is entitled to vote at the Special Meeting of Stockholders of Quokka Sports,
Inc. to be held at the Company's offices, 525 Brannan Street, San Francisco,
California on September , 2000 at 9:00 AM local time, and at any and all
postponements, continuations and adjournments thereof, with all power that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
PROPOSAL 1 AND FOR PROPOSAL 2 AS MORE SPECIFICALLY DESCRIBED IN THE PROXY
STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED
IN ACCORDANCE THEREWITH.
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SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
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<PAGE> 282
----------------- ----------------
VOTE BY TELEPHONE VOTE BY INTERNET
----------------- ----------------
It's fast, convenient, It's fast, convenient, and your
and immediate! Call Toll-Free vote is immediately confirmed
on a Touch-Tone Phone and posted.
1-877-PRX-VOTE (1-877-779-8683)
-------------------------------------- ------------------------------------
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement/Prospectus and Statement/Prospectus and
Proxy Card. Proxy Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/qkka
3. Enter your 14-digit Voter 3. Enter your 14-digit Voter
Control Number located on your Control Number located on your
Proxy Card above your name. Proxy Card above your name.
4. Follow the recorded instructions. 4. Follow the recorded instructions.
-------------------------------------- ------------------------------------
[DETACH HERE]
[X] Please mark
votes as in
this example.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 1 AND PROPOSAL 2.
FOR AGAINST ABSTAIN
1. To approve the Purchase Agreement and Plan of
Reorganization dated June 8, 2000., as amended, [ ] [ ] [ ]
among Quokka Sports, Inc., Golf.com L.L.C., the
selling members of Golf.com, and the other
parties identified therein, and the issuance of
shares of Quokka common stock thereunder.
2. To approve an amendment to Quokka's Amended and
Restated Certificate of Incorporation to increase [ ] [ ] [ ]
the authorized number of shares of common stock
from 110,000,000 to 200,000,000 shares.
MARK HERE MARK HERE
FOR ADDRESS [ ] IF YOU PLAN [ ]
CHANGE AND TO ATTEND THE
NOTE AT LEFT MEETING
Please sign exactly as your name appears hereon. If the
stock is registered in the names of two or more persons,
each should sign. Executors, administrators, trustees,
guardians and attorneys-in-fact should add their titles.
If signer is a corporation, please give full corporate
name and have a duly authorized officer sign, stating
title. If signer is a partnership, please sign in
partnership name by authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE
ENCLOSED RETURN ENVELOPE WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES.
Signature: Date:
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Signature: Date:
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