<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
-------------- ---------------
COMMISSION FILE NUMBER #000-26311
------------------------
QUOKKA SPORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3250045
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
525 BRANNAN STREET, GROUND FLOOR
SAN FRANCISCO, CALIFORNIA 94107
(415) 908-3800
(ADDRESS OF REGISTRANTS PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the Registrant's Common Stock, $.0001 par value
per share, outstanding at May 8, 2000 was 44,528,013.
<PAGE> 2
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This report on Form 10-Q 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 future gross profit performance of Quokka Sports,
Inc. and its subsidiaries (the "Company" or "Quokka"); the Company's future
capital needs; the Company's projected programming schedule; the Company's
ability to retain existing sponsors and attract and retain additional sponsors;
the Company's future research and development; the Company's ability to generate
revenue from electronic commerce and content syndication; the Company's ability
to expand its audience base; the Company's ability to reduce the proportion of
property and services accepted as payment; statements related to industry trends
and future growth in the markets for broadband applications and content; the
amount of studio services that the Company offers; and future profitability.
Discussions containing such forward-looking statements may be found in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." These forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ materially from those in
such forward-looking statements. The Company disclaims any obligation to update
these forward-looking statements as a result of subsequent events. The business
risks discussed in "Factors That May Affect Our Results" beginning on page 18,
among other things, should be considered in evaluating the Company's prospects
and future financial performance.
2
<PAGE> 3
QUOKKA SPORTS, INC.
INDEX TO FORM 10-Q FOR QUARTER ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited):
Consolidated Condensed Balance Sheets as of March 31, 2000
and December 31, 1999......................................... 4
Consolidated Condensed Statements of Operations for the
Three Months Ended March 31, 2000 and 1999 5
Consolidated Condensed Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999.......................... 6
Notes to Unaudited Consolidated Condensed Financial
Statements.................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 12
Item 3. Quantitative and Qualitative Disclosures about Market
Risk.......................................................... 31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 32
Item 2. Changes in Securities and Use of Proceeds....................... 32
Item 4. Submission of Matters to a Vote of Security Holders............. 32
Item 6. Exhibits and Reports on Form 8-K................................ 33
Signature................................................................ 34
</TABLE>
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUOKKA SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,472 $ 3,855
Restricted cash 17,885 --
Investments in marketable securities 28,812 64,902
Accounts receivable, net 8,627 6,067
Inventory, net 817 --
Acquired programming and distribution rights 11,141 12,042
Prepaid and other expenses 3,849 1,823
------------- -------------
Total current assets 76,603 88,689
Property and equipment, net 14,073 10,551
Other assets 255 640
Goodwill 34,150 --
------------- -------------
Total assets $ 125,081 $ 99,880
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 10,069 $ 2,427
Accrued expenses 8,884 3,797
Current portion of long-term debt and capitalized lease obligations 10,245 6,041
Deferred revenues 4,285 3,864
------------- -------------
Total current liabilities 33,483 16,129
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Long term debt and capitalized lease obligations, net of current portion 10,462 11,493
Stockholders' equity
Preferred stock -- --
Common stock, voting and non-voting 4 4
Additional paid-in capital 161,481 137,460
Warrants and other 7,831 7,831
Treasury stock, at cost (107) (107)
Accumulated deficit (88,073) (72,930)
------------- -------------
Total stockholders' equity 81,136 72,258
------------- -------------
Total liabilities and stockholders' equity $ 125,081 $ 99,880
============= =============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements
4
<PAGE> 5
QUOKKA SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
2000 1999
<S> <C> <C>
Revenues $ 9,510 $ 897
Cost of revenues
Production and other costs 7,515 2,293
Amortization of programming and distribution rights 1,822 425
------------- -------------
Total cost of revenues 9,337 2,718
------------- -------------
Gross profit/(loss) 173 (1,821)
Operating expenses
Research and engineering 4,793 2,132
Sales and marketing 6,830 1,390
General and administrative 3,332 1,792
Depreciation 1,417 430
------------- -------------
Total operating expenses 16,372 5,744
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Loss from operations (16,199) (7,565)
Losses of associated venture -- 452
Minority interest in net loss of consolidated subsidiary (645) --
Interest income/(expense), net 411 169
------------- -------------
Net loss $ (15,143) $ (7,848)
============= =============
Net loss per Share:
Basic and diluted $ (.34) $ (.80)
Weighted average shares outstanding - basic and diluted 44,201 9,756
============= =============
Proforma net loss per share (unaudited):
Basic and diluted $ (.23)
Weighted average shares outstanding - basic and diluted 34,001
=============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements
5
<PAGE> 6
QUOKKA SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (15,143) $ (7,848)
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss on disposal of fixed assets 171 --
Depreciation 1,417 430
Amortization of acquired programming and distribution rights 1,822 --
Minority Interest (645) --
Non-cash compensation-related charges and other 500 569
Changes in operating assets and liabilities:
Inventory (91) --
Accounts receivable (1,976) 331
Prepaid expenses and other (1,917) (670)
Other assets 406 --
Accounts payable (1,221) 1,447
Accrued expenses 2,302 (473)
Acquired rights (275) --
Deferred revenues 421 (231)
------------- -------------
Net cash used in operating activities (14,229) (6,444)
------------- -------------
Cash flows from investing activities:
Proceeds from sale of marketable securities --
Net sale/(purchases) of marketable securities 18,205 --
Business acqusitions, net of cash acquired 130 --
Purchase of property and equipment (2,252) (2,567)
------------- -------------
Net cash provided by (used in) investing activities 16,083 (2,567)
------------- -------------
Cash flows from financing activities:
Proceeds from long term financing arrangements -- 331
Payments on notes, long-term capital leases and financing arrangements (1,370) (76)
Proceeds from the issuance of common stock,
net of issuance cost 1,133 120
Purchase of treasury stock -- (95)
------------- -------------
Net cash provide by (used in) financing activities (237) 279
------------- -------------
Net increase (decrease) in cash 1,617 (8,731)
Cash, beginning of period 3,855 23,994
------------- -------------
Cash, end of period $ 5,472 $ 15,263
============= =============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements
6
<PAGE> 7
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (IN THOUSANDS,
EXCEPT PER SHARE DATA)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
Description of Business
Quokka Sports, Inc., "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.
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 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
and may embed their products in Quokka's productions.
Basis of Presentation
The unaudited consolidated condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. Certain amounts have been reclassified to conform to the current
presentation. In the opinion of Quokka, the financial statements reflect all
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the financial position at March 31, 2000, the operating
results for the three months ended March 31, 2000 and 1999 and cash flows for
the three months ended March 31, 2000 and 1999. These financial statements and
notes thereto should be read in conjunction with Quokka's audited financial
statements and notes thereto for the year ended December 31, 1999, included in
the Company's Annual Report on Form 10-K (SEC File Number 000-26311). The
results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated condensed 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
condensed financial statements. Investments in and advances to a joint venture
in which we had a 50% ownership interest were accounted for by the equity
method.
7
<PAGE> 8
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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.
Acquired media rights
Quokka and its subsidiaries and joint venture account for acquired
programming rights pursuant to Statement of Financial Accounting Standards
("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.
Revenue Recognition
Quokka generates revenues from digital entertainment sponsorships,
advertising, electronic commerce, the sale of content, and studio services.
Digital entertainment sponsorships often represent multi-year, multi-event and
multi-benefit sponsorships. More recently, sponsorships have been for specific
properties and for durations of approximately one year. Revenues from
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 are recognized
when the commitment is met or product is shipped and payment is assured. Quokka
recognizes revenue from the sale of its proprietary content in accordance with
the provisions of SFAS No. 63. Quokka has occasionally 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, and agency fees paid in connection with sponsorship and
advertising revenues. 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.
Inventory
Inventory consists of outdoor gear and apparel, books, videos, prints
and maps, and is valued at the lower of cost or market, cost being determined
using the first-in, first-out method.
Goodwill
Goodwill is associated with the purchase of ZoneNetwork.com, Inc. on
March 31, 2000 and is being amortized on a straight-line basis over 24 months.
The Company will periodically assess the recoverability of goodwill by
determining whether the amortization of the balance over the remaining life can
be recovered through undiscounted future operating cash flows of the Company's
operations.
<PAGE> 9
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Comprehensive Income
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 No. 130
"Reporting Comprehensive Income" 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.
Segment Reporting
The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") effective January 1, 1998. SFAS
131 establishes standards for public enterprises to report information about
operating segments in annual and interim financial statements. It also
establishes standards for related disclosures concerning products and services,
geographic areas and major customers. Management has determined that the Company
has one principal operating segment. The adoption of SFAS 131 has had no impact
on the Company's financial position or results of operations.
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, 1999 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.
8
<PAGE> 10
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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
March 31,
------------------------------
2000 1999
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
NUMERATOR:
Net loss available to common stockholders $ (15,143) $ (7,848)
Denominator:
Weighted average shares 44,242 9,773
Weighted average unvested common shares subject to
repurchase agreements (40) (17)
------------ ------------
Denominator for basic calculation and diluted
calculation 44,201 9,756
============ ============
NET LOSS PER SHARE:
Basic and Diluted $ (.34) $ (.80)
Anti-dilutive securities including options, warrants
and preferred stock excluded in historical diluted
net loss per share calculations 11,321 32,686
Pro forma net loss per share:
Net loss $ (7,848)
Shares used in computing net loss per share, basic and diluted 9,756
Adjustment to reflect assumed conversion of preferred stock
and exercise of warrants 24,245
------------
Shares used in computing pro forma net loss per share,
basic and diluted 34,001
============
Pro forma net loss per share, basic and diluted (unaudited) $ (0.23)
</TABLE>
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative instruments
and hedging activities. SFAS No. 133 requires that an entity recognizes all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In June 1999, The FASB
issued Statement No. 137, in which it agreed to defer for one year the
implementation date of SFAS No. 133. SFAS No. 133, as amended, is effective for
all fiscal years beginning after June 15, 2000. The Company is assessing the
impact of SFAS No. 133 on its consolidated condensed financial statements.
<PAGE> 11
QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition," which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the SEC. The Company believes the adoption of SAB 101 will not have a
material impact on the Company's financial position and results of operations.
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation" - an
Interpretation of APB 25. This Interpretation clarifies (a) the definition of
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation 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. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. Quokka has not yet determined the impact, if any, of adopting
this interpretation.
NOTE 3. INITIAL PUBLIC OFFERING ("IPO")
On July 28, 1999, Quokka issued 5,000,000 shares of its common stock at
an initial public offering price of $12.00 per share. The net proceeds to Quokka
from that offering were approximately $54.5 million after deducting the
underwriters' discount and offering expenses. Concurrent with the IPO, warrants
were exercised to purchase 452,048 shares of common stock at prices ranging from
$0.50 to $3.25 per share, resulting in additional capital proceeds to the
Company totaling $486,000. In addition, upon completion of the IPO, each
outstanding share of the Company's convertible preferred stock was automatically
converted into one share of common stock and 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).
NOTE 4 ACQUISITION
On March 31, 2000 the Company completed the acquisition of
ZoneNetwork.com, Inc., "Zone" through the issuance of 1,411,639 shares of Quokka
Sports, Inc. common stock for a total purchase price of approximately $25.9
million, including acquisition costs. Also in connection with the Zone
acquisition, Quokka granted to the former Zone option holders vested options to
purchase 334,829 shares of Quokka common stock with exercise prices ranging from
$.70 to $12.16 and issued to former Zone warrant holders warrants to purchase
33,387 shares of Quokka common stock with exercise prices ranging from $.70 to
$12.16. The estimated fair value of the warrants of $1.6 million have been
determined based on the Noreen-Wolfson fair value model with a volatitily of
70%. The acquisition was accounted for as a purchase in accordance with the
provisions of Accounting Principles Board Opinion ("APB") No. 16. Under the
purchase method of accounting, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
date of acquisition. The Company recorded an intangible asset of approximately
$34.2 million, which is being amortized over two years. The results of
operations of ZoneNetwork.com, Inc. will be included in the statement of
operations as of April 1, 2000. The assets acquired and the liabilities assumed
or incurred in connection with the acquisition are included in the consolidated
balance sheet as of March 31, 2000. The allocations of purchase price to the
assets acquired and liabilities assumed or incurred in connection with the
acquisition are based on current estimates of fair values, and are subject to
change at a later date.
The pro forma net sales, net income and diluted earnings per share for the
quarter ended March 31, 2000, giving effect to the acquisition as if it had
occurred at the beginning of the period are: (in thousands)
Pro forma net income $11,450
Pro forma net loss $(25,940)
Pro forma diluted earnings per share $ (0.64)
10
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QUOKKA SPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
2000 1999
(unaudited) (unaudited)
<S> <C> <C>
Supplemental disclosure of cash:
Accounts payable related to purchase of
property and equipment $ 831 $ 484
============ ============
Issuance of preferred warrants under
subordinated debt $ -- $ 552
============ ============
Issuance of preferred warrants under programming
and distribution rights $ -- $ 401
============ ============
Stock options issued as compensation for
services rendered $ 500 $ 28
============ ============
Equity issued in a business acquisition $ 22,389 $ --
============ ============
Amortization of programming rights $ 645 $ --
============ ============
</TABLE>
11
<PAGE> 13
QUOKKA SPORTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. The statements contained in this report that
are not purely historical are 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, including, without limitation,
statements regarding our expectations, beliefs, intentions or strategies
regarding the future. When used in this Form 10-Q, the words "intend,"
"anticipate," "believe," "estimate," "plan" and "expect" and similar expressions
as they relate to us are included to identify forward-looking statements. Our
actual results could differ materially from the results discussed in the
forward-looking statements as a result of certain of the risk factors set forth
under the subheading "Factors That May Our Affect Results" as well as those
discussed in Quokka's Annual Report on Form 10-K for the year ended December 31,
1999. All forward-looking statements included in this document are based on
information available to us on the date hereof, and we assume no obligation to
update any such forward-looking statements or to update the reasons why actual
results could differ from those projected in the forward-looking statements.
The following should be read in conjunction with the audited
consolidated financial statements and the notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the fiscal year ended December
31, 1999 filed with the Securities and Exchange Commission on March 29, 2000.
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, adventure 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, Fed Ex 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 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
<PAGE> 14
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 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 March 31, 2000 we had 379 employees compared to 186 at March 31,
1999.
ACQUISITION OF ZONENETWORK.COM, INC.
On March 1, 2000, we entered into an Agreement and Plan of Merger and
Reorganization to acquire ZoneNetwork.com, Inc. ("Zone"), a Washington
corporation. Zone produces and operates web sites that offer digital content,
products and services targeted to enthusiasts of skiing, snowboarding, hiking,
mountain biking, and climbing. The Zone acquisition was completed on March 31,
2000 and was accounted for under the purchase method of accounting.
13
<PAGE> 15
QUOKKA SPORTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(CONTINUED)
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, computer hardware and software,
travel, satellite transmission costs, field gear, cameras, satellite phones,
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 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 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
<PAGE> 16
QUOKKA SPORTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(CONTINUED)
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 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.
<PAGE> 17
QUOKKA SPORTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(CONTINUED)
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 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 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 $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 $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.
<PAGE> 18
QUOKKA SPORTS, INC. AND SUBSIDIARIES
FACTORS THAT MAY AFFECT OUR RESULTS
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 December 31,
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 YOU CAN EVALUATE OUR BUSINESS AND
PROSPECTS.
Our limited operating history makes it difficult to evaluate our business
and prospects. As a digital sports entertainment company in an early stage of
development, we face significant risks, uncertainties, expenses and
difficulties. In order to succeed, we must do most, if not all, of the
following:
- develop programming to attract and retain our audience;
- secure and retain additional sponsors and advertisers;
- 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.
<PAGE> 19
OUR QUARTERLY OPERATING RESULTS ARE EXPECTED TO FLUCTUATE AND OUR FAILURE TO
MEET FINANCIAL 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 "Factors That May Affect Our Results" 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 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 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.
A DISASTER OR MALFUNCTION THAT DISABLES OUR COMPUTER SYSTEMS COULD HARM OUR WEB
SITES AND REDUCE THE APPEAL OF OUR PROGRAMMING.
Substantially all of our communications hardware and computer hardware
operations are located in our facilities in San Francisco, California and at
Intel Online Services 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.
<PAGE> 20
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 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 recently acquired ZoneNetwork.com, Inc. 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 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.
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
inferring countries.
We depend on various domestic and international third parties for software,
systems and delivery of much of our programming. Many of these third parties
have limited operating histories, early generation technology and are themselves
dependent on reliable delivery from others. Any delays or malfunctions in the
distribution of our content would limit our ability to deliver our programming.
We also depend on IBM, Intel 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 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.
WE WILL 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 in the next twelve
months. 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
<PAGE> 21
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.
OUR COMMON STOCK PRICE IS LIKELY TO BE VOLATILE, WHICH COULD HURT INVESTORS AND
EXPOSE US TO LITIGATION.
The stock markets in general, and the Nasdaq National Market and the market
for Internet-related and technology companies in particular, have experienced
extreme price and volume fluctuations in recent months. These fluctuations often
have been unrelated or disproportionate to the operating performance of these
companies. These broad market and industry factors could harm the market price
of our common stock, regardless of our performance. Market fluctuations, as well
as general political and economic conditions such as a recession or interest or
currency rate fluctuations, also could harm the market price of our common
stock.
The trading prices of many technology company stocks, particularly Internet
company stocks, have recently been at or near historical highs, reflecting
valuations substantially above historical levels. Our stock price could be
subject to wide fluctuations in response to a variety of factors, including
factors that may be beyond our control. These include:
- actual or anticipated variations in our quarterly operating results;
- announcements of technological innovations or new sports entertainment
programming by us or our competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet and online entertainment industries;
- changes in the market valuations of other Internet companies;
- 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 after our
initial public offering could negatively affect the market price of our common
stock and could impair our ability to raise capital through the sale of
additional equity securities. Although our 180-day underwriters' lock-up from
our IPO expired in January 2000, some of our stockholders beneficially owning in
the aggregate approximately 30.6 million shares of common stock have entered
into lock-up agreements with us generally providing that, with certain limited
exceptions, the stockholder will not offer, sell, contract to sell grant any
option to purchase or otherwise dispose of any shares of common stock held by
those stockholders, without our prior written consent until July 21, 2000. Any
shares subject to these lock-up agreements may be released at any time by us,
with or without notice.
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 1999, we spent $7.7 million for advertising. 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
<PAGE> 22
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.
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.
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 and
duration that 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.
WE FACE MANY OTHER RISKS, AS DISCUSSED IN OUR ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1999, INCLUDING THE FOLLOWING:
<PAGE> 23
OUR SPONSORSHIP MODEL COULD PREVENT US FROM ACQUIRING CRITICAL TECHNOLOGY, WHICH
COULD AFFECT THE QUALITY OF 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.
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 BUSINESS WILL NOT OPERATE EFFICIENTLY AND OUR RESULTS OF OPERATIONS WILL BE
NEGATIVELY AFFECTED IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH.
IF WE FAIL TO ATTRACT AND RETAIN KEY PERSONNEL WE WILL BE UNABLE TO EXECUTE OUR
BUSINESS STRATEGY.
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.
THE ONLINE DIGITAL SPORTS ENTERTAINMENT INDUSTRY IS INTENSELY COMPETITIVE, AND
WE MAY BE UNABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE COMPETITORS.
ACCEPTANCE OF PROPERTY OR SERVICES AS PAYMENT MAY PROVIDE LESS WORKING CAPITAL
FLEXIBILITY THAN A CASH PAYMENT WOULD PROVIDE.
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.
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.
REVENUES FROM SUBSCRIPTION SERVICES MAY FAIL TO DEVELOP, WHICH WOULD HARM OUR
RESULTS OF OPERATIONS.
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 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.
PROBLEMS RELATED TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR BUSINESS. WE
MAY BE SUBJECT TO LIABILITY FOR PUBLISHING OR DISTRIBUTING CONTENT, AND OUR
INSURANCE COVERAGE MAY BE INADEQUATE TO PROTECT US FROM THIS LIABILITY.
<PAGE> 24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
<PAGE> 25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time Quokka is involved in legal proceedings in the
ordinary course of business. None of such proceedings are expected to have a
material impact on our business, results of operations or financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2000, Quokka has issued and sold
unregistered securities as follows:
On March 31, 2000, 1,411,639 shares of common stock were issued to the
former shareholders of Zone upon the closing of the Zone acquisition.
Also in connection with the Zone acquisition, Quokka granted to the
former Zone optionholders vested options to purchase 334,829 shares of
Quokka common stock with exercise prices ranging from $.70 to $12.16 and
issued to former Zone warrantholders warrants to purchase 33,387 shares
of Quokka common stock with exercise prices ranging from $.70 to $12.16.
All sales of securities were made in reliance on Section 4(2) of the Securities
Act and/or Regulation D promulgated under the Securities Act. These sales were
made without general solicitation or advertising. Each acquirer was, or was
represented by, a sophisticated investor with access to all relevant information
necessary to evaluate the investment and represented to Quokka that the shares
were being acquired for investment.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDER
a. The 2000 Annual Meeting of Stockholders of the Company was held on
May 3, 2000. The three persons named below were elected as proposed in the proxy
statement pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, to serve as directors until the 2003 Annual Meeting and until their
successors are elected and qualified, or until a director's earlier death,
resignation or removal. There were 40,369,821 votes cast in the election of
directors and there were 37,136 abstentions and 12,266 broker non-votes. The
voting regarding each nominee was as follows: Alan S. Ramadan (for: 40,382,087
/withheld: 37,136); John Bertrand A.M. (for: 40,512,021 /withheld: 47,202); and
Roel Pieper (for: 40,369,821 /withheld: 49,402). The following directors' terms
of office as directors continued after the meeting: Walter W. Bregman, James G.
Shennan, Jr., Richard H. Williams and Barry M. Weinman.
b. Also at the 2000 Annual Meeting of Stockholders of the Company, the
stockholders ratified the selection of PricewaterhouseCoopers LLP as independent
auditors of the Company for its fiscal year ending December 31, 2000, with
40,371,395 votes for; 42,908 votes against; and 4,920 votes abstained.
32
<PAGE> 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.01 Agreement and Plan of Merger and Reorganization dated March 1, 2000 by
and among Registrant, Montana Acquisition Corporation and
ZoneNetwork.con, Inc.(1)
3.03 Amended and Restated Bylaws
4.03 Amended and Restated Investor Rights Agreement dated March 31, 2000
among Quokka and certain investors named therein. (1)
4.04 Registration Rights Agreement dated March 30, 2000 between Quokka and
KLAS, Inc.
10.17 Employment Agreement dated January 18, 2000 between Quokka and Michael Gough.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated by reference to Quokka's Report on Form 8-K filed on April 14,
2000.
(b) Reports on Form 8-K.
1. On April 14, 2000, Quokka filed a current report on Form 8-K dated March 31,
2000. [The current report was amended on May 10, 2000 to include the financial
statements of Zone and the pro forma financial information reflecting the
purchase combination of Quokka and Zone for the year ended December 31, 1999.]
33
<PAGE> 27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUOKKA SPORTS, INC.
(Registrant)
/s/ LES SCHMIDT
--------------------------------------
Les Schmidt
Executive Vice President,
Chief Financial Officer and Secretary
(Authorized Officer and
Principal Financial and
Accounting Officer)
Dated: May 12, 2000
34
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.01 Agreement and Plan of Merger and Reorganization dated March 1, 2000 by
and among Registrant, Montana Acquisition Corporation and
ZoneNetwork.con, Inc.(1)
3.03 Amended and Restated Bylaws
4.03 Amended and Restated Investor Rights Agreement dated March 31, 2000
among Quokka and certain investors named therein. (1)
4.04 Registration Rights Agreement dated March 30, 2000 between Quokka and
KLAS, Inc.
10.17 Employment Agreement dated January 18, 2000 between Quokka and Michael Gough.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated by reference to Quokka's Report on Form 8-K filed on April 14,
2000.
35
<PAGE> 1
EXHIBIT 3.04
AMENDED AND RESTATED
BYLAWS
OF
QUOKKA SPORTS, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLES OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I Offices....................................................................1
Section 1. Registered Office......................................................1
Section 2. Other Offices..........................................................1
ARTICLE II Corporate Seal.............................................................1
Section 3. Corporate Seal.........................................................1
ARTICLE III Stockholders' Meetings.....................................................1
Section 4. Place of Meetings......................................................1
Section 5. Annual Meeting.........................................................1
Section 6. Special Meetings.......................................................3
Section 7. Notice of Meetings.....................................................4
Section 8. Quorum.................................................................4
Section 9. Adjournment and Notice of Adjourned Meetings...........................5
Section 10. Voting Rights..........................................................5
Section 11. Beneficial Owners of Stock.............................................5
Section 12. List of Stockholders...................................................6
Section 13. Action without Meeting.................................................6
Section 14. Organization...........................................................6
ARTICLE IV Directors..................................................................7
Section 15. Number and Term of Office. Classes of Directors.......................7
Section 16. Powers.................................................................8
Section 17. Vacancies..............................................................8
Section 18. Resignation............................................................9
Section 19. Removal................................................................9
Section 20. Meetings...............................................................9
(a) Annual Meetings........................................................9
(b) Regular Meetings.......................................................9
(c) Special Meetings......................................................10
(d) Telephone Meetings....................................................10
(e) Notice of Meetings....................................................10
(f) Waiver of Notice......................................................10
</TABLE>
i.
<PAGE> 3
TABLES OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
Section 21. Quorum and Voting.....................................................10
Section 22. Action without Meeting................................................11
Section 23. Fees and Compensation.................................................11
Section 24. Committees............................................................11
(a) Executive Committee...................................................11
(b) Other Committees......................................................11
(c) Term..................................................................11
(d) Meetings..............................................................12
Section 25. Organization..........................................................12
ARTICLE V Officers..................................................................12
Section 26. Officers Designated...................................................12
Section 27. Tenure and Duties of Officers.........................................13
(a) General...............................................................13
(b) Duties of Chairman of the Board of Directors..........................13
(c) Duties of President...................................................13
(d) Duties of Vice Presidents.............................................13
(e) Duties of Secretary...................................................13
(f) Duties of Chief Financial Officer or Treasurer........................14
Section 28. Delegation of Authority...............................................14
Section 29. Resignations..........................................................14
Section 30. Removal...............................................................14
ARTICLE VI Execution Of Corporate Instruments And Voting Of Securities Owned By The
Corporation...............................................................14
Section 31. Execution of Corporate Instruments....................................14
Section 32. Voting of Securities Owned by the Corporation.........................15
ARTICLE VII Shares Of Stock...........................................................15
Section 33. Form and Execution of Certificates....................................15
Section 34. Lost Certificates.....................................................16
Section 35. Transfers.............................................................16
Section 36. Fixing Record Dates...................................................16
</TABLE>
ii.
<PAGE> 4
TABLES OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
Section 37. Registered Stockholders...............................................17
ARTICLE VIII Other Securities Of The Corporation.......................................17
Section 38. Execution of Other Securities.........................................17
ARTICLE IX Dividends.................................................................17
Section 39. Declaration of Dividends..............................................17
Section 40. Dividend Reserve......................................................17
ARTICLE X Fiscal Year...............................................................18
Section 41. Fiscal Year...........................................................18
ARTICLE XI Indemnification...........................................................18
Section 42. Indemnification of Directors, Officers, Employees and Other Agents....18
(a) Directors and Executive Officers......................................18
(b) Other Officers, Employees and Other Agents............................18
(c) Good Faith............................................................18
(d) Expenses..............................................................19
(e) Enforcement...........................................................19
(f) Non-Exclusivity of Rights.............................................20
(g) Survival of Rights....................................................20
(h) Insurance.............................................................20
(i) Amendments............................................................20
(j) Saving Clause.........................................................20
(k) Certain Definitions...................................................20
ARTICLE XII Notices...................................................................21
Section 43. Notices...............................................................21
(a) Notice to Stockholders................................................21
(b) Notice to Directors...................................................21
(c) Address Unknown.......................................................21
(d) Affidavit of Mailing..................................................22
(e) Time Notices Deemed Given.............................................22
(f) Methods of Notice.....................................................22
</TABLE>
iii.
<PAGE> 5
TABLES OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
(g) Failure to Receive Notice.............................................22
(h) Notice to Person with Whom Communication Is Unlawful..................22
(i) Notice to Person with Undeliverable Address...........................22
ARTICLE XIII Amendments................................................................23
Section 44. Amendments............................................................23
ARTICLE XIV Loans To Officers.........................................................23
Section 45. Loans to Officers.....................................................23
</TABLE>
iv.
<PAGE> 6
AMENDED AND RESTATED
BYLAWS
OF
QUOKKA SPORTS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent. (Del.
Code Ann., tit. 8, Section 131)
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require. (Del. Code Ann., tit.
8, Section 122(8))
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8,
Section 122(3))
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, Section
211(a))
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of Directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors Nominations of persons
for election to the Board of Directors of the corporation and the proposal
1.
<PAGE> 7
of business to be considered by the stockholders may be made at an annual
meeting of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by
any stockholder of the corporation who was a stockholder of record at the time
of giving of notice provided for in the following paragraph, who is entitled to
vote at the meeting and who complied with the notice procedures set forth in
Section 5. (Del. Code Ann., tit. 8, Section 211(b)).
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the Delaware General Corporation Law ("DGCL"), (iii) if
the stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (C) as to
the stockholder
2.
<PAGE> 8
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such stockholder, as
they appear on the corporation's books, and of such beneficial owner, (ii) the
class and number of shares of the corporation which are owned beneficially and
of record by such stockholder and such beneficial owner, and (iii) whether
either such stockholder or beneficial owner intends to deliver a proxy statement
and form of proxy to holders of, in the case of the proposal, at least the
percentage of the corporation's voting shares required under applicable law to
carry the proposal or, in the case of a nomination or nominations, a sufficient
number of holders of the corporation's voting shares to elect such nominee or
nominees (an affirmative statement of such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section
5(b) of these Bylaws to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred (100) days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Section 5 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5,
in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
3.
<PAGE> 9
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board, (ii)
the President, (iii) the Board of Directors pursuant to a resolution adopted by
a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption) or (iv) the holders of 50% or
more of the Company's outstanding voting stock, and shall be held at such place,
on such date, and at such time as they or he shall fix. At any time or times
that the corporation is subject to Section 2115(b) of the California General
Corporation Law ("CGCL"), stockholders holding five percent (5%) or more of the
outstanding shares shall have the right to call a special meeting of
stockholders only as set forth in Section 17(c) herein.
(b) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given. (Del. Code Ann., tit. 8, Sections 222, 229)
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. Any shares, the voting of
which at said meeting has been enjoined, or which for any reason cannot be
lawfully
4.
<PAGE> 10
voted at such meeting, shall not be counted to determine a quorum at
such meeting. In the absence of a quorum any meeting of stockholders may be
adjourned, from time to time, either by the chairman of the meeting or by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. The stockholders present at a duly
called or convened meeting, at which a quorum is present, may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws, all action taken by the
holders of a majority of the voting power represented at any meeting at which a
quorum is present shall be valid and binding upon the corporation; provided,
however, that Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of Directors. Where a separate vote by a class or classes
is required, a majority of the outstanding shares of such class or classes,
present in person or represented by proxy, shall constitute a quorum entitled to
take action with respect to that vote on that matter and the affirmative vote of
the majority (plurality, in the case of the election of Directors) of shares of
such class or classes present in person or represented by proxy at the meeting
shall be the act of such class. (Del. Code Ann., tit. 8, Section 216)
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
represented thereat. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8,
Section 222(c))
SECTION 10. VOTING RIGHTS.
(a) For the purpose of determining those stockholders entitled to
vote at any meeting of the stockholders, except as otherwise provided by law,
only persons in whose names shares stand on the stock records of the corporation
on the record date, as provided in Section 12 of these Bylaws, shall be entitled
to vote at any meeting of stockholders. Except as may be otherwise provided in
the Certificate of Incorporation or these Bylaws, each stockholder shall be
entitled to one vote for each share of capital stock held by such stockholder.
Every person entitled to vote shall have the right to do so either in person or
by an agent or agents authorized by a proxy granted in accordance with Delaware
law. An agent so appointed need not be a stockholder. No proxy shall be voted
after three (3) years from its date of creation unless the proxy provides for a
longer period. All elections of directors shall be by written ballot, unless
otherwise provided in the Certificate of Incorporation. (Del. Code Ann., tit. 8,
Sections 211(e), 212(b)).
SECTION 11. BENEFICIAL OWNERS OF STOCK.
(a) If shares or other securities having voting power stand of
record in the names of two (2) or more persons, whether fiduciaries, members of
a partnership, joint tenants, tenants in common, tenants by the entirety, or
otherwise, or if two (2) or more persons have the
5.
<PAGE> 11
same fiduciary relationship respecting the same shares, unless the Secretary is
given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(a) if only one (1) votes, his act binds all; (b) if more than one (1) votes,
the act of the majority so voting binds all; (c) if more than one (1) votes, but
the vote is evenly split on any particular matter, each faction may vote the
securities in question proportionally, or may apply to the Delaware Court of
Chancery for relief as provided in the General Corporation Law of Delaware,
Section 217(b). If the instrument filed with the Secretary shows that any such
tenancy is held in unequal interests, a majority or even-split for the purpose
of this subsection (c) shall be a majority or even-split in interest. (Del. Code
Ann., tit. 8, Section 217(b))
(b) Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
corporation he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent such stock and vote thereon.
(Del. Code Ann., tit. 8, Section 217(a))
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present. (Del. Code
Ann., tit. 8, Section 219(a))
SECTION 13. ACTION WITHOUT MEETING. No action shall be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Bylaws, and no action shall be taken by the stockholders
by written consent.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, the most senior Vice President
present, or in the absence of any such officer, a chairman of the meeting chosen
by a majority in interest of the stockholders entitled to vote, present in
person or by proxy, shall act as chairman. The Secretary, or, in his absence, an
Assistant Secretary directed to do so by the President, shall act as secretary
of the meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without
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limitation, establishing an agenda or order of business for the meeting, rules
and procedures for maintaining order at the meeting and the safety of those
present, limitations on participation in such meeting to stockholders of record
of the corporation and their duly authorized and constituted proxies, and such
other persons as the chairman shall permit, restrictions on entry to the meeting
after the time fixed for the commencement thereof, limitations on the time
allotted to questions or comments by participants and regulation of the opening
and closing of the polls for balloting on matters which are to be voted on by
ballot. Unless, and to the extent determined by the Board of Directors or the
chairman of the meeting, meetings of stockholders shall not be required to be
held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. CLASSES OF DIRECTORS.
(a) The authorized number of directors of the corporation shall
be determined from time to time by resolution of the Board of Directors.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the Directors shall not have been elected at an
annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the stockholders called for that purpose in the manner
provided in these Bylaws. (Del. Code Ann., tit. 8, Sections 141(b), 211(b), (c))
(b) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the Initial Public Offering, the directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the Closing of the Initial Public Offering,
the term of office of the Class I directors shall expire and Class I directors
shall be elected for a full term of three years. At the second annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class II directors shall expired and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class III directors shall expired and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expired at such annual meeting.
During such time or times that the corporation is subject to Section 2115(b) of
the CGCL, this Section 15(b) shall become effective and apply only when the
corporation is a "listed" corporation within the meaning of Section 301.5 of the
CGCL.
(c) In the event that the corporation (i) is subject to Section
2115(b) of the CGCL AND (ii) is not a "listed" corporation or ceases to be a
"listed" corporation under Section 301.5 of the CGCL, Section 15(b) of these
Bylaws shall not apply and all directors shall be elected at each annual meeting
of stockholders to hold office until the next annual meeting.
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(d) No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation (i) is subject to Section 2115(b) of the CGCL AND (ii)
is not a "listed" corporation or ceases to be a "listed" corporation under
Section 301.5 of the CGCL. During this time, every stockholder entitled to vote
at an election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
(e) Notwithstanding the foregoing provisions of this section,
each director shall serve until his successor is duly elected and qualified or
until his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation. (Del. Code Ann., tit. 8, Section 141(a))
SECTION 17. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Section 18 in the
case of the death, removal or resignation of any director. (Del. Code Ann., tit.
8, Section 223(a), (b))
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL. (Del. Code Ann., tit. 8, Section 223(c)).
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(c) At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors
then in office who have been elected by stockholders shall constitute less than
a majority of the directors then in office, then
(1) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor. (CGCL Section 305(c).
SECTION 18. RESIGNATION. Any Director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more Directors shall resign from the Board of Directors, effective at a
future date, a majority of the Directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8,
Sections 141(b), 223(d))
SECTION 19. REMOVAL.
(a) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
(b) Following any date on which the corporation is no longer
subject to Section 2115(b) of the CGCL and subject to any limitations imposed by
law, Section 19(a) above shall no longer apply and removal shall be as follows.
At a special meeting of stockholders called for the purpose in the manner
hereinabove provided, subject to any limitations imposed by law or the
Certificate of Incorporation, the Board of Directors, or any individual
Director, may be removed from office, (i) with cause by the affirmative vote of
the holders of a majority of the voting power of all the then-outstanding shares
of voting stock of the corporation entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock. (Del. Code Ann.,
tit. 8, Section 141(k)).
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SECTION 20. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately after the annual meeting of stockholders and at the
place where such meeting is held. No notice of an annual meeting of the Board of
Directors shall be necessary and such meeting shall be held for the purpose of
electing officers and transacting such other business as may lawfully come
before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been determined by the Board of Directors. (Del. Code
Ann., tit. 8, Section 141(g))
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the President or a majority of the Directors. (Del. Code Ann., tit. 8,
Section 141(g))
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting. (Del. Code
Ann., tit. 8, Section 141(i))
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be given orally or in writing,
by telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least one (1) day before the date of the meeting, or sent in writing to each
director by first class mail, postage prepaid, at least three (3) days before
the date of the meeting. Notice of any meeting may be waived in writing at any
time before or after the meeting and will be waived by any Director by
attendance thereat, except when the Director attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. (Del. Code
Ann., tit. 8, Section 229)
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the Directors not present shall sign a written
waiver of notice, or a consent to holding such meeting, or an approval of the
minutes thereof. [Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the Board of Directors need be specified in
any written waiver of notice or consent unless so required by the Certificate of
Incorporation or these Bylaws. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
(Del. Code Ann., tit. 8, Section 229)
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SECTION 21. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 42 hereof, for which a quorum shall be one-third of the exact number of
Directors fixed from time to time in accordance with Section 15 hereof, but not
less than one (1), a quorum of the Board of Directors shall consist of the
greater of three (3) Directors or a majority of the exact number of Directors
fixed from time to time in accordance with Section 15 of these Bylaws; provided,
however, at any meeting whether a quorum be present or otherwise, a majority of
the Directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting. (Del. Code Ann., tit. 8, Section 141(b))
(b) At each meeting of the Board of Directors at which a quorum
is present all questions and business shall be determined by a vote of a
majority of the Directors present, unless a different vote be required by law,
the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8,
Section 141(b))
SECTION 22. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee. (Del. Code Ann., tit. 8, Section 141(f))
SECTION 23. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
Director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor. (Del. Code
Ann., tit. 8, Section 141(h))
SECTION 24. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors, appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation and may authorize the seal of the corporation to be
affixed to all papers which may require it; provided, however, that, absent
express authorization by the Board of Directors, no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or mater expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval,
or (ii) adopting, amending or repealing any bylaw of the corporation. (Del. Code
Ann., tit. 8, Section 141(c))
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(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors, and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees, but
in no event shall such committee have the powers denied to the Executive
Committee in these Bylaws. (Del. Code Ann., tit. 8, Section 141(c))
(c) TERM. The members of all committees of the Board of Directors
shall serve a term coexistent with that of the Board of Directors which shall
have appointed such committee. The Board of Directors, subject to the provisions
of subsections (a) or (b) of this Section 24, may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee. The membership of a committee member shall terminate on the date of
his death or voluntary resignation from the committee or from the Board of
Directors. The Board of Directors may at any time for any reason remove any
individual committee member and the Board of Directors may fill any committee
vacancy created by death, resignation, removal or increase in the number of
members of the committee. The Board of Directors may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. (Del. Code Ann., tit. 8, Section 141(c))
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 24 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any Director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any Director by attendance thereat, except when the Director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8,
Sections 141(c), 229)
SECTION 25. ORGANIZATION. At every meeting of the Directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the Directors present, shall preside over the
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meeting. The Secretary, or in his absence, an Assistant Secretary directed to do
so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 26. OFFICERS DESIGNATED. The officers of the corporation shall
be the Chairman of the Board of Directors, the President, one or more Vice
Presidents, the Secretary and the Chief Financial Officer or Treasurer, all of
whom shall be elected at the annual organizational meeting of the Board of
Directors. The order of the seniority of the Vice Presidents shall be in the
order of their nomination, unless otherwise determined by the Board of
Directors. The Board of Directors may also appoint one or more Assistant
Secretaries, Assistant Treasurers, and such other officers and agents with such
powers and duties as it shall deem necessary. The Board of Directors may assign
such additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the corporation at
any one time unless specifically prohibited therefrom by law. The salaries and
other compensation of the officers of the corporation shall be fixed by or in
the manner designated by the Board of Directors. (Del. Code Ann., tit. 8,
Sections 122(5), 142(a), (b))
SECTION 27. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors. (Del. Code Ann., tit. 8, Section 141(b), (e))
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 27. (Del. Code Ann., tit. 8, Section 142(a))
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
The President shall be the Chief Executive Officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other
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duties and have such other powers as the Board of Directors shall designate from
time to time. (Del. Code Ann., tit. 8, Section 142(a))
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents, in the order
of their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of President is
vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
(Del. Code Ann., tit. 8, Section 142(a))
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors, and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders,
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. (Del. Code Ann., tit. 8, Section 142(a))
(f) DUTIES OF CHIEF FINANCIAL OFFICER OR TREASURER. The Chief
Financial Officer or Treasurer shall keep or cause to be kept the books of
account of the corporation in a thorough and proper manner, and shall render
statements of the financial affairs of the corporation in such form and as often
as required by the Board of Directors or the President. The Chief Financial
Officer or Treasurer, subject to the order of the Board of Directors, shall have
the custody of all funds and securities of the corporation. The Chief Financial
Officer or Treasurer shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time. The President
may direct any Assistant Treasurer to assume and perform the duties of the Chief
Financial Officer or Treasurer in the absence or disability of the Chief
Financial Officer or Treasurer, and each Assistant Treasurer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. (Del. Code Ann., tit. 8, Section 142(a))
SECTION 28. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 29. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any,
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of the corporation under any contract with the resigning officer. (Del. Code
Ann., tit. 8, Section 142(b))
SECTION 30. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the vote or written consent of a majority of
the Directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 31. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158)
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Chief Financial Officer or Treasurer or any Assistant Secretary or
Assistant Treasurer. All other instruments and documents requiring the corporate
signature, but not requiring the corporate seal, may be executed as aforesaid or
in such other manner as may be directed by the Board of Directors. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158)
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158)
SECTION 32. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the President, or any Vice President.
(Del. Code Ann., tit. 8, Section 123)
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ARTICLE VII
SHARES OF STOCK
SECTION 33. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Where such certificate is countersigned by a transfer agent
other than the corporation or its employee, or by a registrar other than the
corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the designations,
preferences, limitations, restrictions on transfer and relative rights of the
shares authorized to be issued. (Del. Code Ann., tit. 8, Section 158)
SECTION 34. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
(Del. Code Ann., tit. 8, Section 167)
SECTION 35. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares. (Del. Code Ann., tit.
8, Section 201, tit. 6, Section 8-401(1))
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware. (Del. Code Ann., tit.
8, Section 160 (a))
SECTION 36. FIXING RECORD DATES.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon
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which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty (60) days prior to such action. If no record date has
been fixed by the Board of Directors, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. (Del.
Code Ann., tit. 8, Section 213)
SECTION 37. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
(Del. Code Ann., tit. 8, Sections 213(a), 219)
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 38. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 33), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature of a trustee under an indenture pursuant to which such bond, debenture
or other corporate security shall be issued, the signatures of the persons
signing and attesting the corporate seal on such bond, debenture or other
corporate security may be the imprinted facsimile of the signatures of such
persons. Interest coupons appertaining to any such bond, debenture or other
corporate security, authenticated by a trustee as aforesaid, shall be signed by
the Treasurer or an Assistant Treasurer of the corporation or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have signed or
attested any
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bond, debenture or other corporate security, or whose facsimile signature shall
appear thereon or on any such interest coupon, shall have ceased to be such
officer before the bond, debenture or other corporate security so signed or
attested shall have been delivered, such bond, debenture or other corporate
security nevertheless may be adopted by the corporation and issued and delivered
as though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 39. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation. (Del. Code Ann., tit. 8, Sections 170, 173)
SECTION 40. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created. (Del.
Code Ann., tit. 8, Section 171)
ARTICLE X
FISCAL YEAR
SECTION 41. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 42. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its Directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may limit the extent of
such indemnification by individual contracts with its Directors and executive
officers; and, provided, further, that the corporation shall not be required to
indemnify any Director or executive officer in connection with any proceeding
(or part thereof) initiated by such person or any proceeding by such person
against the corporation or its Directors, officers, employees or other agents
unless (i) such indemnification is expressly required to be made by law, (ii)
the proceeding was authorized by the Board of Directors of the corporation or
(iii) such
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indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the Delaware General Corporation
Law.
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law.
(c) GOOD FAITH.
(1) For purposes of any determination under this Bylaw, a
Director or executive officer shall be deemed to have acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe that his conduct was unlawful, if his action
is based on information, opinions, reports and statements, including financial
statements and other financial data, in each case prepared or presented by:
(i) one or more officers or employees of the
corporation whom the Director or executive officer believed to be reliable and
competent in the matters presented;
(ii) counsel, independent accountants or other persons
as to matters which the Director or executive officer believed to be within such
person's professional competence; and
(iii) with respect to a Director, a committee of the
Board upon which such Director does not serve, as to matters within such
Committee's designated authority, which committee the Director believes to merit
confidence; so long as, in each case, the Director or executive officer acts
without knowledge that would cause such reliance to be unwarranted.
(2) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding, that
he had reasonable cause to believe that his conduct was unlawful.
(3) The provisions of this paragraph (c) shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth by
the Delaware General Corporation Law.
(d) EXPENSES. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any Director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined
pursuant to paragraph (e) of this Bylaw, no advance shall be made by the
corporation to an executive officer of the corporation (except by reason of the
fact that such executive officer is or was a director of the corporation in
which event this paragraph shall not apply) in any action, suit or proceeding,
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whether civil, criminal, administrative or investigation, if a determination is
reasonably and promptly made (1) by the Board of Directors by a majority vote of
a quorum consisting of Directors who were not parties to the proceeding, or (2)
if such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation.
(e) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to Directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the Director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a Director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
(f) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its Directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(g) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a Director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(h) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
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(i) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(j) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(k) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "PROCEEDING" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "EXPENSES" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(3) The term the "CORPORATION" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "DIRECTOR," "OFFICER," "EMPLOYEE," or
"AGENT" of the corporation shall include, without limitation, situations where
such person is serving at the request of the corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
(5) References to "OTHER ENTERPRISES" shall include
employee benefit plans; references to "FINES" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"SERVING AT THE REQUEST OF THE CORPORATION" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "NOT OPPOSED TO THE BEST INTERESTS OF THE
CORPORATION" as referred to in this Bylaw.
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ARTICLE XII
NOTICES
SECTION 43. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent. (Del. Code Ann., tit. 8,
Section 222)
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
Director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such Director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such Director.
(c) ADDRESS UNKNOWN. If no address of a stockholder or Director
be known, notice may be sent to the office of the corporation required to be
maintained pursuant to Section 2 hereof.
(d) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall be conclusive evidence of the
statements therein contained. (Del. Code Ann., tit. 8, Section 222)
(e) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing and
all notices given by facsimile, telex or telegram shall be deemed to have been
given as of the sending time recorded at time of transmission.
(f) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all Directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(g) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any Director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such Director to receive such
notice.
(h) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or
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Bylaws of the corporation, to any person with whom communication is unlawful,
the giving of such notice to such person shall not be required and there shall
be no duty to apply to any governmental authority or agency for a license or
permit to give such notice to such person. Any action or meeting which shall be
taken or held without notice to any such person with whom communication is
unlawful shall have the same force and effect as if such notice had been duly
given. In the event that the action taken by the corporation is such as to
require the filing of a certificate under any provision of the Delaware General
Corporation Law, the certificate shall state, if such is the fact and if notice
is required, that notice was given to all persons entitled to receive notice
except such persons with whom communication is unlawful.
(i) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his address as shown on the records of the Corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph. (Del. Code Ann, tit. 8, Section 230)
ARTICLE XIII
AMENDMENTS
SECTION 44. AMENDMENTS. Except as otherwise set forth in paragraph (i)
of Section 42 of these Bylaws, these Bylaws may be amended or repealed and new
Bylaws adopted by the affirmative vote of at least sixty-six and two-thirds
percent (66-2/3%) of the voting power of all of the then-outstanding shares of
the Voting Stock. The Board of Directors shall also have the power, if such
power is conferred upon the Board of Directors by the Certificate of
Incorporation, to adopt, amend or repeal Bylaws (including, without limitation,
the amendment of any Bylaw setting forth the number of Directors who shall
constitute the whole Board of Directors). (Del. Code Ann., tit. 8, Sections
109(a), 122(6))
ARTICLE XIV
LOANS TO OFFICERS
SECTION 45. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its
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subsidiaries, whenever, in the judgment of the Board of Directors, such loan,
guarantee or assistance may reasonably be expected to benefit the corporation.
The loan, guarantee or other assistance may be with or without interest and may
be unsecured, or secured in such manner as the Board of Directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in this Section 46 shall be deemed to deny, limit or restrict the powers
of guaranty or warranty of the corporation at common law or under any statute.
(Del. Code Ann., tit. 8, Section 143)
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EXHIBIT 4.06
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is entered into as of March 30, 2000, by and between
QUOKKA SPORTS, INC., a Delaware corporation (the "Company"), and KLAS, INC., a
Nevada corporation ("KLAS").
WHEREAS, in connection with that certain Loan and Security Agreement
(the "Loan Agreement") dated November 15, 1999, KLAS has made a loan (the
"Loan") to ZoneNetwork.com, Inc., a Washington corporation ("ZoneNetwork");
WHEREAS, in connection with the Company's acquisition of ZoneNetwork
(the "Merger"), the Company has requested an extension of the Loan;
WHEREAS, pursuant to a letter agreement dated the date hereof (the
"Extension Agreement"), the Company, ZoneNetwork and KLAS have agreed to the
terms of such extension; and
WHEREAS, it is a condition to the obligations of KLAS under the
Extension Agreement that this Agreement be executed by the parties hereto, and
the parties are willing to execute this Agreement and to be bound by the
provisions hereof;
NOW, THEREFORE, in consideration of the foregoing, the agreements set
forth below, and as further inducement to the parties hereto to consummate the
transactions contemplated by the Purchase Agreement, the parties hereby agree
with each other as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission,
or any other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, par value $0.0001, of
the Company, as constituted as of the date of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Registration Expenses" shall mean the expenses so described in
Section 6.
"Registrable Shares" shall mean (i) the Warrant Shares, (ii) any
shares of Common Stock, and any shares of Common Stock issued or issuable upon
the conversion or exercise of any other securities, acquired by KLAS, and (iii)
any other shares of Common Stock in respect of such shares (because of stock
splits, stock dividends, reclassifications, recapitalizations, or similar
events); provided, however, that shares of Common Stock shall cease to be
Registrable Shares if they (a) have been registered under the Securities Act
pursuant to an
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effective registration statement filed thereunder and disposed of in accordance
with the registration statement covering them or (b) have been publicly sold
pursuant to Rule 144 under the Securities Act or can be publicly sold under Rule
144(k) under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in
Section 6.
"Warrants" means all warrants to purchase Common Stock held by
KLAS, whether originally issued as a ZoneNetwork warrant to KLAS and converted
in connection with the Merger or issued by the Company in connection with the
Extension Agreement or otherwise.
"Warrant Shares" shall mean the shares of Common Stock issued
upon exercise of the Warrants.
2. Restrictive Legend. Each certificate representing the Warrants or
Warrant Shares shall, except as otherwise provided in this Section 2 or in
Section 3, be stamped or otherwise imprinted with a legend substantially in the
following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER SUCH
ACT AND ALL SUCH APPLICABLE LAWS OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE."
A certificate shall not bear such legend if in the opinion of
counsel satisfactory to the Company the securities represented thereby may be
publicly sold without registration under the Securities Act and any applicable
state securities laws.
3. Notice of Proposed Transfer. Prior to any proposed transfer of any
Warrants or Warrant Shares (other than under the circumstances described in
Section 4), the holder thereof shall give written notice to the Company of its
intention to effect such transfer. Each such notice shall describe the manner of
the proposed transfer and, if requested by the Company, shall be accompanied by
an opinion of counsel satisfactory to the Company to the effect that the
proposed transfer may be effected without registration under the Securities Act
and any applicable state securities laws, whereupon the holder of such stock
shall be entitled to transfer such stock in accordance with the terms of its
notice; provided, however, that no such opinion of counsel shall be required for
a transfer to one or more partners or members of the transferor (in the case of
a transferor that is a partnership or a limited liability company, respectively)
or to an affiliated corporation (in the case of a transferor that is a
corporation). Each certificate for Warrants or Warrant Shares transferred as
provided above shall bear the legend set forth in Section 2, except that such
certificate shall not bear such legend if (i) such transfer is in accordance
with the
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<PAGE> 3
provisions of Rule 144 (or any other rule permitting public sale without
registration under the Securities Act) or (ii) the opinion of counsel referred
to above is to the further effect that the transferee and any subsequent
transferee (other than an affiliate of the Company) would be entitled to
transfer such securities in a public sale without registration under the
Securities Act. The restrictions provided for in this Section 3 shall not apply
to securities which are not required to bear the legend prescribed by Section 2
in accordance with the provisions of that Section.
4. Piggyback Registration. If the Company at any time proposes to
register any of its securities under the Securities Act for sale to the public,
whether for its own account or for the account of other security holders or both
(except with respect to registration statements on Forms S-4, S-8 or another
form not available for registering the Registrable Shares for sale to the
public), each such time it will give written notice to all holders of
outstanding Registrable Shares of its intention to so do. Upon the written
request of any such holder, received by the Company within ten (10) days after
the giving of any such notice by the Company, to register any of its Registrable
Shares, the Company will use its best efforts to cause the Registrable Shares as
to which registration shall have been so requested to be included in the
securities to be covered by the registration statement proposed to be filed by
the Company, all to the extent requisite to permit the sale or other disposition
by the holder of such Registrable Shares so registered. If the registration
statement is to cover an underwritten distribution, the Company shall use its
best efforts to cause the Registrable Shares requested for inclusion pursuant to
this Section 4 to be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the underwriters. If,
in the good faith judgment of the managing underwriter of such public offering,
the inclusion of all of the Registrable Shares requested for inclusion pursuant
to this Section 4 and other securities would interfere with the successful
marketing of a smaller number of shares to be offered, then the number of
Registrable Shares and other securities to be included in the offering (except
for shares to be issued by the Company in an offering initiated by the Company)
shall be reduced to the required level by reducing (down to zero, if so
required) the participation of the holders of Registrable Shares and the
participation of the other holders of securities in such offering (such
reduction to be pro rata among the holders thereof requesting such registration,
based upon the number of shares of other securities owned by such holders,
except to the extent the Company has entered into registration rights agreements
as of the date hereof granting other holders priority in connection with
underwriter cutbacks). Notwithstanding the foregoing provisions, the Company may
withdraw any registration statement referred to in this Section 4 without
thereby incurring any liability to the holders of the Registrable Shares.
5. Registration Procedures. If and whenever the Company is required by
the provisions of Section 4 to use its best efforts to effect the registration
of any Registrable Shares under the Securities Act, the Company will, as
expeditiously as possible:
(a) prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be
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<PAGE> 4
necessary to keep such registration statement effective for the period specified
in Section 5(a) above and comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Shares covered by such
registration statement in accordance with the sellers' intended method of
disposition set forth in such registration statement for such period;
(c) notify each seller of Registrable Shares promptly after the
Company shall receive notice thereof, of the date and time when such
registration statement and each post-effective amendment thereto has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed and furnish copies of the same to each seller of
Registrable Shares;
(d) notify each seller of Registrable Shares promptly of any
request by the Commission or any state securities commission or agency for the
amending or supplementing of such registration statement or prospectus or for
additional information;
(e) furnish to each seller of Registrable Shares and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Registrable Shares covered by such registration statement;
(f) use its best efforts to register or qualify the Registrable
Shares covered by such registration statement under the securities or "blue sky"
laws of such jurisdictions as the sellers of Registrable Shares or, in the case
of an underwritten public offering, the managing underwriter reasonably shall
request, provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction;
(g) use its best efforts to list the Registrable Shares covered
by such registration statement with any securities exchange on which the Common
Stock of the Company is eligible for listing or, if applicable, is then listed;
(h) use its best efforts to appoint a transfer agent and
registrar for its securities;
(i) immediately notify each seller of Registrable Shares and each
underwriter under 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 of which the Company has knowledge as a result of which
the prospectus contained 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 light of the circumstances then existing;
(j) At the request of any such participating seller of
Registrable Shares (i) furnish to such seller, if such registration includes an
underwritten public offering, at the closing provided for in the underwriting
agreement, copies of any opinion, dated such date, of the counsel
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<PAGE> 5
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, covering such matters with respect to the registration
statement, the prospectus and each amendment or supplement thereto, proceedings
under state and Federal securities laws, other matters relating to the Company,
the securities being registered and the offer and sale of such securities as are
customarily the subject of opinions of issuer's counsel provided to underwriters
in underwritten public offerings and (ii) use its best efforts to furnish to
such seller letters dated each such effective date and such closing date, from
the independent certified public accountants of the Company, addressed to the
underwriters, if any, stating that they are independent certified public
accountants within the meaning of the Securities Act and dealing with such
matters as the underwriters may request, or, if the offering is not
underwritten, that in the opinion of such accountants the financial statements
and other financial data of the Company included in the registration statement
or the prospectus or any amendment or supplement thereto comply in all material
respects with the applicable accounting requirements of the Securities Act, and
additionally covering such other financial matters, including information as to
the period ending not more than five (5) business days prior to the date of such
letter with respect to the registration statement and prospectus, as such
requesting seller or sellers may reasonably request, and (iii) furnish to such
seller such information as such seller may reasonably request for the purpose of
establishing its "due diligence" defense under Section 11 of the Securities Act;
and
(k) make available for inspection by each seller of Registrable
Shares any underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent retained by
such seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection with such
registration statement.
For purposes of Sections 5(a) and 5(b), the period of
distribution of Registrable Shares in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Registrable Shares in any other registration shall be deemed to extend until
the earlier of the sale of all Registrable Shares covered thereby and 180 days
after the effective date thereof; provided, however, in the case of any
registration of Registrable Shares on Form S-3 which are intended to be offered
on a continuous or delayed basis (and provided Rule 145 or any successor rule
under the Securities Act permits an offering on a continuous or delayed basis),
such 180-day period shall be extended, if necessary, to keep the registration
effective until all Registrable Shares covered thereby are sold.
In connection with each registration hereunder, the sellers of
Registrable Shares will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Section 4
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement
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<PAGE> 6
between such underwriter and companies of the Company's size and investment
stature, provided, the indemnification and contribution obligations shall not be
greater than those described in Section 7 below.
6. Expenses. All expenses incurred by the Company in complying with
Section 4, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including counsel fees) incurred
in connection with complying with state securities or "blue sky" laws, fees of
the National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance, and fees and disbursements
of one counsel for the sellers of Registrable Shares but excluding any Selling
Expenses, are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Shares are called
"Selling Expenses".
The Company will pay all Registration Expenses in connection with
each registration statement under Section 4. All Selling Expenses in connection
with each registration statement under Section 4 shall be borne by the
participating sellers in proportion to the number of shares sold by each, or by
such participating sellers other than the Company (except to the extent the
Company shall be a seller) as they may agree.
7. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Shares
under the Securities Act pursuant to Section 4, the Company will indemnify and
hold harmless each seller of such Registrable Shares thereunder, each
underwriter of such Registrable Shares thereunder and each other person, if any,
who controls such seller or underwriter within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which such seller, underwriter or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Shares was registered
under the Securities Act pursuant to Section 4, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each such seller, each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Company will not be liable in any such case if and to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by any such seller, any such
underwriter or any such controlling person in writing specifically for use in
such registration statement or prospectus.
(b) In the event of a registration of any Registrable Shares
under the Securities Act pursuant to Section 4, each seller of such Registrable
Shares thereunder, severally and not jointly, will indemnify and hold harmless
the Company, each person, if any, who controls the
6
<PAGE> 7
Company within the meaning of the Securities Act, each officer of the Company
who signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning of
the Securities Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Registrable Shares was registered under the Securities Act pursuant
to Section 4, any preliminary prospectus or final prospectus contained therein,
or any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that such seller will be liable
hereunder in any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller, as such, furnished
in writing to the Company by such seller specifically for use in such
registration statement or prospectus, and provided, further, however, that the
liability of each seller hereunder shall be limited to the net proceeds received
by such seller from the sale of Registrable Shares covered by such registration
statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 7 and shall only relieve
it from any liability which it may have to such indemnified party under this
Section 7 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 7 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such
7
<PAGE> 8
action, with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party as
incurred.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Registrable Shares exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 7 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 7 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 7; then, and in each such case, the Company and such
holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such proportion
so that such holder is responsible for the portion represented by the percentage
that the public offering price of its Registrable Shares offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such holder
will be required to contribute any amount in excess of the public offering price
of all such Registrable Shares offered by it pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
(e) In the event of a conflict between these provisions and the
provisions in any underwriting agreement, the provisions of the underwriting
agreement shall control except to the extent they expand the liability of the
sellers of Registrable Shares hereunder.
8. Changes in Common Stock. If, and as often as, there is any change in
the Common Stock by way of a stock split, stock dividend, combination or
reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof so that the rights and privileges granted hereby shall
continue with respect to the Common Stock as so changed.
9. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of Registrable Shares to the public without registration, at all times
after 90 days after any registration statement covering a public offering of
securities of the Company under the Securities Act shall have become effective,
the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
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<PAGE> 9
(c) furnish to each holder of Registrable Shares forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Registrable Shares without
registration.
10. Miscellaneous.
(a) All covenants and agreements contained in this Agreement by
or on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto (including, without
limitation, transferees of any Registrable Shares), whether so expressed or not,
provided, however, that registration rights conferred herein on the holders of
Registrable Shares shall only inure to the benefit of a transferee of
Registrable Shares if (i) there is transferred to such transferee at least 20%
of the total Registrable Shares held by the transferor, or (ii) such transferee
is a partner, shareholder or affiliate of a party hereto.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered in person, mailed by
certified or registered mail, return receipt requested, or sent by telecopier or
telex, addressed as follows:
(i) if to the Company or KLAS, at the respective addresses
set forth below;
(ii) if to any subsequent holder of Warrant Shares or
Registrable Shares, to it at such address as may have been furnished to the
Company in writing by such holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Warrant Shares or
Registrable Shares) or to the holders of Registrable Shares (in the case of the
Company) in accordance with the provisions of this paragraph.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(d) This Agreement may not be amended or modified, and no
provision hereof may be waived, without the written consent of the Company and
the holders of at least a majority of the outstanding Registrable Shares. This
Agreement may be amended with the consent of the holders of less than all the
Registrable Shares only in a manner which applies to all holders in the same
fashion.
(e) The Company shall not grant to any third party any
registration rights so long as any of the registration rights under this
Agreement remains in effect, unless (i) the holders of Registrable Shares are
given prior written notice of the rights granted with a description thereof,
(ii) the rights granted to third parties are not more favorable than the rights
granted hereunder or, with respect to demand rights, equal to the rights granted
hereunder, and
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<PAGE> 10
(iii) the rights granted to third parties are made subject to the rights granted
hereunder (including, without limitation, the piggyback rights hereunder and the
manner of allocating shares in connection with underwriter cutbacks).
(f) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(g) If requested in writing by the underwriters for a public
offering of securities of the Company, each holder of Registrable Shares who is
a party to this Agreement (and who has not otherwise irrevocably waived all
rights under this Agreement) shall agree not to sell publicly any Registrable
Shares or any other shares of Common Stock (other than Registrable Shares or
other shares of Common Stock being registered in such offering), without the
consent of such underwriters, for a period of not more than 90 days following
the effective date of the registration statement relating to such offering;
provided, however, that all persons entitled to registration rights with respect
to shares of Common Stock who are not parties to this Agreement and all
executive officers and directors of the Company shall also have agreed not to
sell publicly their Common Stock under the circumstances and pursuant to the
terms set forth in this Section 10(g).
(h) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK -
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed hereto this Registration
Rights Agreement as of the date and year first written above.
QUOKKA SPORTS, INC.
By:
---------------------------------------
Name:
--------------------------------
Title:
------------------------------
Address: 525 Brannan Street, Ground Floor
San Francisco, California 94107
KLAS, INC.
By:
---------------------------------------
Name:
--------------------------------
Title:
------------------------------
Address: 3228 Channel 8 Drive
Las Vegas, Nevada 89109
With copies to:
Guy R. Friddell, III, Esquire
Landmark Communications, Inc.
150 W. Brambleton Avenue
Norfolk, Virginia 23510
Thomas C. Inglima, Esquire
Willcox & Savage, P.C.
1800 Bank of America Center
Norfolk, Virginia 23510
11
<PAGE> 1
EXHIBIT 10.17
EMPLOYEE AGREEMENT
FOR
MICHAEL GOUGH
This Employment Agreement ("Agreement") is entered into as of the 18th day
of January 2000, by and between Michael Gough ("Employee") and Quokka Sports,
Inc., a Delaware corporation (the "Company").
WHEREAS, the Company desires to continue to employ Employee to provide
personal services to the Company, and wishes to provide Employee with certain
compensation and benefits in return for his services; and
WHEREAS, Employee wishes to continued to be employed by the Company and
provide personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 The effective date of this Agreement shall be January 18, 2000 (the
"Effective Date") through June 30, 2001.
1.2 Subject to terms set forth herein, the Company agrees to continue to
employ Employee in the position of Chief Creative Officer ("CCO") and Employee
hereby accepts the provisions set forth in this Agreement. During the term of
his employment with the Company, Employee will continue to devote his best
efforts and substantially all of his business time and attention (except for
vacation periods as set forth herein and reasonable periods of illness or other
incapacities permitted by the Company's general employment policies) to the
business of the Company.
1.3 Employee shall perform such duties as are customarily associated
with his then current title, consistent with the Bylaws of the Company and as
required by the Company's Board of Directors (the "Board"). Employee shall
report to the Company's Chief Operating Officer. Employee's primary office
location shall be the Company's San Francisco, California headquarters.
Employee's duties shall require him to travel and to work at temporary off-site
work locations.
1.4 The Employee shall have a staff of one designer who will an employee
of the Company, subject to the Company's general and customary employment
practices and policies.
2. COMPENSATION.
2.1 SALARY. Employee shall receive for services to be rendered hereunder
an annualized base salary of $250,000, paid on a semi-monthly basis in
accordance with the Company's payroll policies and procedures. The effective
date for the new salary figure is July 28, 1999.
<PAGE> 2
(a) SALARY REVIEW PROCESS. Employee will be eligible
for a salary review pursuant to the Company's general salary review process,
which currently provides for salary reviews every twelve (12) months. Therefore,
the next salary review would be July 28, 2000.
2.2 INCENTIVE STOCK OPTION GRANTS. Employee's Incentive Stock Option
grants will continue to vest and to follow all the provisions set forth in the
1997 Equity Incentive Plan and individual Stock Option Agreements and
amendments.
2.3 VACATION TIME. Employee will be eligible to participate in the
Company's generally applicable vacation time policy. He will earn vacation pay
under the terms and conditions of the Company's general vacation time policy on
the following schedule: two weeks of paid vacation time during each of the first
and second years of his continuous employment with the Company; three weeks of
paid vacation time during each of the third and fourth years of his continuous
employment with the Company; and four weeks of paid vacation time during his
fifth and any subsequent years of continuous employment with the Company.
2.4 STANDARD COMPANY BENEFITS. In addition, Employee shall be entitled
to all rights and benefits for which he is eligible under the terms and
conditions of the standard Company benefits and compensation practices which may
be in effect from time to time and provided by the Company to its employees
generally. The Company reserves the right to modify the compensation and
benefits of its employees and of Employee from time to time, as it deems
necessary.
2.5 OTHER BENEFITS. The Company shall make available the reasonable
services of a financial planner (whose identity shall be subject to the
reasonable approval of the Company) for utilization by the Employee for personal
financial planning for the duration of the agreement.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 Employee agrees that the Proprietary Information and Inventions
Agreement attached hereto as Exhibit A previously executed by Employee remains
in full force and effect and is hereby incorporated into this Agreement.
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior written consent of the Company's Board,
Employee will not during the term of this Agreement undertake or engage in any
other employment, occupation or business enterprise, other than ones in which
Employee is a passive investor. Employee may engage in civic and not-for-profit
activities so long as such activities do not materially interfere with the
performance of his duties hereunder.
4.2 Except as permitted by Section 4.3, Employee agrees not to acquire,
assume or participate in, directly or indirectly, any position, investment or
interest known by him to be adverse or antagonistic to the Company, its business
or prospects, financial or otherwise.
<PAGE> 3
4.3 During the term of his employment by the Company, except on behalf
of the Company, Employee will not directly or indirectly, whether as an officer,
director, stockholder, partner, proprietor, associate, representative,
consultant, or in any capacity whatsoever engage in, become financially
interested in, be employed by or have any business connection with any other
person, corporation, firm, partnership or other entity whatsoever which were
known by him to compete directly with the Company, throughout the world, in any
line of business engaged in (or planned to be engaged in) by the Company;
provided, however, that anything above to the contrary notwithstanding, he may
own, as a passive investor, securities of any competitor corporation, so long as
his direct holdings in any one such corporation shall not in the aggregate
constitute more than 1% of the voting stock of such corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION BY COMPANY.
Employee's employment with the Company will be on an at-will basis. As such,
the Company shall have the right to terminate Employee's employment with the
Company at any time without cause or advance notice. In the event Employee's
employment is terminated by Company at any time, he will not be entitled to
severance pay, pay in lieu of notice or any other such compensation or benefit
of any kind whatsoever.
5.2 VOLUNTARY OR MUTUAL TERMINATION.
Employee may voluntarily terminate his employment with the Company at any time,
after which no further compensation will be paid to Employee. In the event
Employee voluntarily terminates his employment, he will not be entitled to
severance pay, pay in lieu of notice or any other such compensation or benefit
of any kind whatsoever.
6. GENERAL PROVISIONS.
6.1 NOTICES. Any notices provided hereunder must be in writing and shall
be deemed effective upon the earlier of personal delivery (including personal
delivery by fax) or the third day after mailing by first class mail, to the
Company at its primary office location and to Employee at his address as listed
on the Company payroll.
6.2 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law and consistent with the general intent of the parties insofar as possible,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
6.3 WAIVER. If either party should waive any breach of any provisions of
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
<PAGE> 4
6.4 COMPLETE AGREEMENT. This Agreement and its Exhibit constitute the
entire agreement between Employee and the Company and it is the complete, final,
and exclusive embodiment of their agreement with regard to this subject matter,
and supersedes any other prior agreements or understandings between the parties
whether written or oral. It is entered into without reliance on any promise or
representation other than those expressly contained herein, and it cannot be
modified or amended except in writing signed by an authorized officer of the
Company.
6.5 REMEDIES. Employee acknowledges that a remedy at law for any breach
or threatened breach by him of the provisions of this Agreement (including
without limitation the Proprietary Information and Inventions Agreement) would
be inadequate, and he therefore agrees that the Company shall be entitled to
injunctive relief in case of any such breach or threatened breach.
6.6 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
6.7 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
6.8 SUCCESSORS AND ASSIGNS. Employee may not assign any of his rights or
obligations under this Agreement. This Agreement shall bind and inure to the
benefit of and be enforceable by the Company, and its successors, assigns,
heirs, executors and administrators.
6.9 CHOICE OF LAW. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the law of the State of
California.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
QUOKKA SPORTS, INC.
By: /s/ Alan Ramadan
-----------------------------
Alan Ramadan
President and
Chief Executive Officer
Date: January 18, 2000
---------------------------
ACCEPTED AND AGREED:
/s/ Michael Gough
- ----------------------------
Michael Gough
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