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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 2000
REGISTRATION NO. ___________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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QUOKKA SPORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7999 94-3250045
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
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525 BRANNAN STREET, GROUND FLOOR
SAN FRANCISCO, CA 94107
(415) 908-3800
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)
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ALVARO J. SARALEGUI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
QUOKKA SPORTS, INC.
525 BRANNAN STREET, GROUND FLOOR
SAN FRANCISCO, CA 94107
(415) 908-3800
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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COPIES TO:
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KENNETH L. GUERNSEY LARRY E. ROBBINS STEVEN A. HOBBS
ISOBEL A. JONES WYRICK ROBBINS YATES & PONTON CLIFFORD CHANCE ROGERS & WELLS
STEVE R. DAETZ LLP LLP
JASON S. THRONE 4101 LAKE BOONE TRAIL, SUITE 300 200 PARK AVENUE
COOLEY GODWARD LLP RALEIGH, NORTH CAROLINA 27607 NEW YORK, NEW YORK 10166
ONE MARITIME PLAZA, 20TH FLOOR (919) 781-4000 (212) 878-8000
SAN FRANCISCO, CALIFORNIA 94111
(415) 693-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: as soon
as practicable after the effective date of this registration statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only
in connection with dividend or interest reinvestment plans, check the
following box: [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF CLASS OF PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED OFFERING PRICE (1) PRICE (1) REGISTRATION FEE
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Common Stock, par
value $0.0001 per
share 7,717,387 shares(2) $2.8594 $22,067,096 $5,825.71
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act based upon the average of
the high and low sales prices of our common stock as reported on the
Nasdaq National Market for November 7, 2000.
(2) Pursuant to Rule 416 of the Securities Act, this registration statement
also covers such indeterminable number of additional shares of common
stock as may become issuable as a result of stock splits, stock
dividends or similar transactions.
WE HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL WE SHALL FILE A FURTHER AMENDMENT
THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER
BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SEC,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER __, 2000
PROSPECTUS
QUOKKA SPORTS, INC.
7,717,387 SHARES
COMMON STOCK
THE SELLING STOCKHOLDERS: The selling stockholders identified in this
prospectus are selling up to 7,717,387 shares of
our common stock. We are not selling any shares of
our common stock under this prospectus and will not
receive any of the proceeds from the sale of shares
by the selling stockholders.
OFFERING PRICE: The selling stockholders may sell the shares of
common stock described in this prospectus in a
number of different ways and at varying prices. We
provide more information about how they may sell
their shares in the section titled "Plan of
Distribution" on page 23.
TRADING MARKET: Our common stock is listed on the Nasdaq National
Market under the symbol "QKKA". On November 7,
2000, the closing sale price of our common stock, as
reported on the Nasdaq National Market, was $2.7969
per share.
RISKS: INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is November __, 2000
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TABLE OF CONTENTS
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Special Note on Forward-Looking
Statements.............................. 2
Prospectus Summary...................... 3
Risk Factors............................ 4
Use of Proceeds......................... 19
Selling Stockholders.................... 20
Lock-Up Restrictions ................... 22
Plan of Distribution.................... 23
Where You Can Find More Information..... 24
Incorporation by Reference.............. 24
Legal Matters........................... 25
Experts................................. 25
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No dealer, sales person or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the securities offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is accurate as of the dates on the cover.
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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
All statements included or incorporated by reference in this prospectus
other than statements of historical fact are forward-looking statements, within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Examples of forward-looking statements include
statements regarding our future financial results, operating results, audience
growth, product successes, business strategies, projected costs, future
products, competitive position and plans and objectives of management for future
operations. In some cases, you can identify forward-looking statements by words
such as "may," "will," "should," "would," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue", or the negative
of these or other comparable words. These forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties and
other important factors that could cause actual results to differ materially
from expectations contemplated by forward-looking statements made in this
prospectus. The sections captioned "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Business" and "Risk Factors" in
our annual report on Form 10-K for the year ended December 31, 1999 and the
similarly captioned sections in the documents identified under the caption
"Incorporation by Reference" describe or will describe some, but not necessarily
all, of the factors that could cause these differences. We urge you to read
those sections carefully. Except as may be required by law, we undertake no
obligation to publicly update any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
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PROSPECTUS SUMMARY
OUR BUSINESS
The following is a summary of our business. This summary highlights
selected information from this prospectus and does not contain all the
information that may be important to you. You should read this prospectus
carefully. You should also carefully read the section entitled "Risk Factors" in
this prospectus and the documents identified under the caption "Incorporation by
Reference" in this prospectus.
We are a leading provider of sports entertainment for the digital world.
Our web site currently covers motor racing, sailing, action sports such as
skiing, climbing, hiking, snowboarding, adventure racing and mountain biking,
and key Olympic summer sports along with specific sporting events like the
biennial Olympic Games, the America's Cup yacht match, Fed Ex Championship Auto
Racing Series and the Moto Grand Prix championship. We offer live event
coverage, race viewers, news and information, analysis, audio and text
dispatches, and content created by fans as well as the ability to purchase
premium content and products and services. We seek to generate revenues from
sponsorship and advertising from business customers, content syndication from
media companies, and sales of content, sports memorabilia, merchandise and
services from consumers.
In August 1996, we adopted our current business model and incorporated
in Delaware under the name Quokka Productions, Inc. Shortly thereafter, in
September 1996, we changed our name to Quokka Sports, Inc. Prior to August 1996,
we operated as an Australian software development and consulting company, Ozware
Developments Unit Trust, an Australian unit trust. Our principal executive
offices are located at 525 Brannan Street, Ground Floor, San Francisco,
California, 94107 and our telephone number is (415) 908-3800.
THE SECURITIES THAT MAY BE SOLD UNDER THIS PROSPECTUS
Subject to the lock-up restrictions described under "Selling
Stockholders", the selling stockholders identified in this prospectus may sell
the shares of our common stock that they received in exchange for the capital
stock of Total Sports, Inc. they owned prior to the merger. The selling
stockholders identified in this prospectus are the stockholders of Total Sports
who may be subject to the resale restrictions set forth in paragraph (c) of Rule
145 under the Securities Act of 1933. As described under "Plan of Distribution,"
the selling stockholders may sell the shares of common stock described in this
prospectus in a number of different ways and at varying prices.
RECENT OPERATING RESULTS
Revenues for the quarter ended September 30, 2000 were $16.0 million, up 433%
from $3.0 million reported for the third quarter in 1999 and an increase of 27%
over revenues of $12.6 million in the second quarter of 2000. The net loss for
the 2000 third quarter, excluding interest charges, depreciation, and
amortization of intangibles was $19.8 million, or $(0.43) per share, compared to
a net loss of $15.0 million or $(0.35) per share for the third quarter in 1999.
Including one time interest charges, depreciation and amortization of
intangibles, net loss for the quarter ended September 30, 2000 was $55.7 million
or a loss of $(1.21) per share.
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RISK FACTORS
You should carefully consider the risks described below, as well as the risks
identified in our other filings with the SEC, before making an investment
decision. The risks and uncertainties described below are not the only ones
facing our company. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may impair our business operations. If any
of the following risks actually occur, our business could be harmed. In such
case, the trading price of our common stock could decline and you may lose all
or part of your investment.
WE HAVE A HISTORY OF OPERATING LOSSES, EXPECT TO INCUR LOSSES FOR AT LEAST THE
NEXT SIX QUARTERS AND MAY BE UNABLE TO ACHIEVE OR SUSTAIN PROFITABILITY OR
GENERAL POSITIVE CASH FLOW.
We expect to incur losses for at least the next six 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 September 30, 2000, we had an
accumulated deficit of $168.4 million. Our net operating losses were $68.9
million for the nine months ended September 30, 2000, $56.9 million for the year
ended December 31, 1999 and $9.5 million for the year ended December 31, 1998.
Cash used in operating activities was $52.0 million for the nine months ended
September 30, 2000, $48.3 million for the year ended December 31, 1999 and $10.9
million for the 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
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- attract, integrate, retain and motivate qualified personnel.
Our business operations and revenues will suffer if we are unable to
accomplish these things.
OUR QUARTERLY OPERATING RESULTS ARE EXPECTED TO FLUCTUATE AND OUR FAILURE TO
MEET EARNINGS ESTIMATES COULD CAUSE OUR STOCK PRICE TO SUFFER.
Our quarterly operating results have varied in the past, and we expect
them to fluctuate in future periods. For example, our revenues for the three
months ended September 30, 2000 were $16.0 million compared to revenues of $12.6
million for the three months ended June 30, 2000 and $9.5 million for the
preceding quarter ended March 31, 2000. These fluctuations depend on a number of
factors described below and elsewhere in this "Risk Factors" section of this
document, many of which are outside our control. We may be unable to predict our
future revenues accurately or adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. 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 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. For the nine months ended September 30, 2000, two sponsors
accounted for 33% of our revenues. In 1999, three sponsors accounted for 65% of
our revenues. In 1998, two sponsors accounted for 68% 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 of any sponsorship
agreement could materially affect our sponsorship revenue backlog, and our
business and financial results would suffer. For example, we recently agreed
with Compaq Computer Corporation to terminate its sponsorship agreement with us
at the end of 2000. If we are unable to obtain additional sponsors to replace
the revenue forecasted for 2001 and 2002 under the Compaq digital entertainment
partnership agreement, our financial results would be adversely affected.
A DISASTER OR MALFUNCTION THAT DISABLES OUR COMPUTER SYSTEMS COULD HARM OUR WEB
SITES AND REDUCE THE APPEAL OF OUR PROGRAMMING.
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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 Global Center in
Sunnyvale, California, where our web sites are hosted. Our Olympics web site is
hosted by IBM at their facilities located in Redwood City, California, Bethesda,
Maryland and Schaumburg, Illinois. Our operations depend on our ability to
protect these systems against damage from fire, earthquakes, power loss,
telecommunications failures, break-ins and similar events. Additionally,
computer viruses, electronic break-ins or other similar disruptive problems
could harm our web sites. A disaster or malfunction that disables either our San
Francisco production facility or any of our hosting services facilities could
cause an interruption in the production and distribution of our programming,
limit the quantity or timeliness of updates to our productions or limit the
speed at which our audience can access our content. Any of these occurrences
could reduce the appeal of our programming. Our insurance policies may not
adequately compensate us for any losses that may occur due to any failures or
interruptions in our systems. We do not have a formally documented disaster
recovery plan for major disasters.
Our web sites have experienced significant increases in traffic during
coverage of some sporting events. As we deliver additional programming, we
expect our audience base to increase significantly. This will require our web
sites to accommodate a high volume of traffic and deliver frequently updated
information. Failure of our systems to accommodate higher volumes of traffic
could reduce the performance and appeal of our web sites and harm our results of
operations. For example, on some weekends during which we were covering multiple
motor sports events, our servers have suffered service disruptions.
Additionally, our web sites in the past have experienced slower response times
or other problems for a variety of reasons, including delays or malfunctions as
a result of third-party distributors on which we rely. Interruptions and
malfunctions related to the access to our web sites could materially damage our
relationships with our audience and rightsholders, and our business could
suffer.
OUR BRAND MAY NOT ACHIEVE THE BROAD RECOGNITION NECESSARY TO SUCCEED.
We believe that broad recognition and a favorable audience perception of
the Quokka brand will be essential to our success. If our brand does not achieve
favorable broad recognition, our success will be limited. We intend to build
traffic and brand recognition by aggressively marketing the Quokka Sports
Network brand as well as the brands of individual sport verticals within our
network. We plan to continue to market each of these brands through extensive
traditional media campaigns employing advertising on television, printed
publications, outdoor signage and radio. We also plan to continue to conduct a
simultaneous online advertising campaign and to seek exposure through our
co-branded initiatives. During the nine months ended September 30, 2000, we
spent $4.5 million for advertising and $7.7 million for the year ended December
31, 1999. We expect to significantly increase our advertising expenses in future
periods as we build the Quokka brands and awareness of our properties in our
network. We may lack the resources necessary to accomplish these initiatives.
Even if the resources are available, we cannot be certain that our multi-brand
enhancement strategy will deliver the brand recognition and favorable audience
perception that we seek for any of our brands. If our strategy is unsuccessful,
these expenses may never be recovered and we may be unable to increase future
revenues. Even if we achieve greater recognition of our brands, competitors with
greater resources or a more recognizable brand could reduce our market share of
the emerging digital sports entertainment market.
THE LOSS OF ANY STRATEGIC RELATIONSHIPS WITH MEDIA ENTITIES AND SPORTS GOVERNING
BODIES COULD NEGATIVELY IMPACT THE BREADTH OF OUR SPORTS PROGRAMMING AND OUR
ABILITY TO ACQUIRE ADDITIONAL RIGHTS TO COVER SPORTS OR SECURE SPONSORSHIPS.
We depend on agreements with certain established media entities and
sports governing bodies, such as NBC Olympics, Inc. and Championship Auto Racing
Teams, Inc. The loss of any of these strategic relationships could impact the
breadth of our sports programming and affect our ability to acquire additional
rights or secure sponsorships. Our agreements with these parties enable
development of certain Olympic and motor sports programming. Additionally, these
strategic relationships, among others, provide us with credibility in the
marketplace to negotiate sponsorships and acquire rights to cover additional
sports. While these strategic relationships are grounded in contractual
agreements, these parties can terminate the agreements for various reasons,
including contractual breaches and a change in control of our company. For
example, NBC Olympics, Inc. can terminate its strategic relationship with us if
a competitor of NBC acquires us. We cannot guarantee that our strategic partners
will perform their contractual obligations. Even if the contracts run for the
full term, we may not be able to renew the agreements on comparable terms, if at
all. Recently, we amended our agreement with Dorna Promocion del Deporte, S.A.
to expire at the end of December 2000. If we are unable to conclude an agreement
with Dorna to extend our rights beyond 2000, the breadth of the programming on
the Quokka Sports Network may suffer.
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OUR COMPETITIVE POSITION IN THE DIGITAL SPORTS ENTERTAINMENT INDUSTRY COULD
DECLINE IF WE ARE UNABLE TO ACQUIRE BUSINESSES OR TECHNOLOGY THAT ARE STRATEGIC
FOR OUR SUCCESS OR IF WE FAIL TO SUCCESSFULLY INTEGRATE ANY ACQUISITIONS WITH
OUR CURRENT BUSINESS.
If appropriate opportunities arise, we intend to acquire businesses,
technologies, services or products that we believe are strategic for our
success. For example, we recently acquired a majority of the ownership interests
in Golf.com, L.L.C. and on July 20, 2000 we signed an agreement to acquire all
of the capital interests of Total Sports Inc. We may be unable to complete the
Total Sports transaction if any of the conditions set forth in that agreement
are not met. 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. See also "--Risks Related to the Merger with
Total Sports" for a description of the risks involved in integrating Quokka and
Total Sports.
FAILURE BY THIRD PARTIES ON WHOM WE DEPEND FOR INTERNET ACCESS, DELIVERY OF OUR
PROGRAMMING AND GENERATION OF MULTIPLE REVENUE STREAMS COULD HARM OUR OPERATIONS
AND REVENUES.
Our audience depends on Internet service providers, online service
providers and other web site operators for access to our web sites. Many of them
have experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to our systems.
Access by our audience outside the United States could also be delayed or
interrupted due to the uncertainty of the telecommunications infrastructure in
foreign countries.
We depend on various domestic and international third parties for
software, systems and delivery of much of our programming. Many of these third
parties have limited operating histories, early generation technology and are
themselves dependent on reliable delivery from others. Any delays or
malfunctions in the distribution of our content would limit our ability to
deliver our programming. We also depend on IBM, Intel Online Services and
Frontier GlobalCenter, each of which hosts some of our web sites. From time to
time, service of our servers at the Frontier GlobalCenter hosting facility has
been temporarily disabled or has malfunctioned, and access to our web sites was
limited or eliminated. Our history with the IBM and Intel Online Services
facilities is very short and we cannot be certain that similar problems will be
avoided at these other facilities.
Our plans to generate multiple revenue streams also depend on third
parties. In particular, we depend on encryption technology provided by others to
enable secure consumer revenue transactions. In addition, our ability to obtain
sponsorship and advertising interest will depend on whether third parties we
hire can generate meaningful and accurate data to measure the demographics of
our audience and the delivery of advertisements on our web sites. Companies may
choose not to advertise on our web sites or may pay less if they do not perceive
these measurements made by third parties to be reliable. Also, our ability to
generate content syndication revenue depends on whether other media companies
value our content and are willing to pay for that content.
OUR LIMITED EXPERIENCE DEVELOPING AND COORDINATING A COMPREHENSIVE PROGRAMMING
SCHEDULE COULD RESULT IN DELAYS OR SETBACKS THAT REDUCE THE APPEAL OF OUR WEB
SITES.
We have limited experience developing and coordinating a comprehensive
programming schedule and may experience delays or setbacks that reduce the
appeal of our web sites. The programming we have developed in the past required
significantly fewer resources and technical skills than the major sports
programming we are scheduled to produce, including the Olympic Games. Our
programming may not keep pace with technological developments, evolving industry
standards or competing programming alternatives. We have only recently begun to
develop multiple large-scale programming events simultaneously and may lack the
financial and technical resources to develop effectively content for multiple
simultaneous sporting events. Even if the resources are available, we may be
unable to coordinate a comprehensive programming schedule. To be successful, we
will need to staff and operate
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24-hour production facilities that are capable of collecting, repackaging and
distributing digital coverage to a global audience. In addition, the size and
scope of the 2000 Olympics in Sydney, Australia will require us to devote a
substantial amount of our resources to that programming. We may be unable to
effectively cover our other properties during our Olympics coverage and our
operating results may be adversely affected.
OUR SPONSORSHIP MODEL IS UNPROVEN AND OUR REVENUES AND RESULTS OF OPERATIONS
WILL SUFFER IF WE ARE UNABLE TO MAINTAIN OUR EXISTING SPONSORS AND SECURE
ADDITIONAL SPONSORSHIPS.
Our revenues and results of operations will suffer if we are unable to
maintain our existing sponsors and secure additional sponsors. Our revenue model
is primarily based on securing long-term digital entertainment sponsorships that
provide each sponsor with the right to be named as the exclusive sponsor of our
network within a particular industry category. We have limited experience with
this sponsorship model. Prospective sponsors may not be interested in entering
into these digital entertainment sponsorships at the rates we set, if at all.
Additionally, our sponsorship agreements typically require the delivery
of a specified number of brand impressions, which refers to the number of times
the sponsor's brand appears on a user's screen while the user is connected to
our web sites. Our fulfillment of these commitments assumes that we will be able
to deliver these brand impressions on sports programming that we acquire or
create. Owners of rights to sporting events often have pre-arranged sponsor
lists they require us to honor. Pre-existing sponsorship relationships may
prevent us from meeting the minimum commitments we have to our exclusive digital
entertainment sponsors and other sponsors and advertisers, and could cause us to
allocate impressions to our sponsors that were otherwise available for
additional revenue generating purposes. These pre-existing sponsorship
relationships could also negatively affect our business by limiting our ability
to attract new sponsors. We might acquire or create additional programming that
would allow us to provide our sponsors with sufficient brand impressions for
which we would incur additional expenses.
OUR SPONSORSHIP MODEL COULD PREVENT US FROM ACQUIRING CRITICAL TECHNOLOGY, WHICH
COULD AFFECT THE QUALITY OF OUR PROGRAMMING.
As a significant feature of some of our sponsorships we offer the
exclusive right to be the sole sponsor of a sponsorship category, such as
computing, database software, web site hosting, digital distribution, consumer
electronics or wireless communications. While we expect this exclusivity feature
to be central to our marketing strategy for securing and retaining these
particular sponsorships, it may bind us to undesirable sponsorship arrangements
and limit our ability to acquire technology we may otherwise want or need.
Exclusive sponsors acquire multi-year rights to a sponsorship category and
sometimes provide us with equipment or technical expertise to enable us to
develop and distribute our programming. We are limited in our ability to
terminate an existing sponsor relationship if a sponsor fails to provide us with
necessary equipment and expertise, or is otherwise less desirable than a
prospective sponsor in the same sponsorship category. An existing sponsor also
may prevent us from acquiring desirable technology from competitors of the
sponsor, which could harm our programming.
OUR PROGRAMMING AND OPERATIONS WILL SUFFER IF WE ARE UNABLE TO ADAPT IN A TIMELY
MANNER TO TECHNOLOGICAL DEVELOPMENTS, EVOLVING INDUSTRY STANDARDS, CHANGING
MARKET CONDITIONS OR CUSTOMER REQUIREMENTS.
The market for digital sports programming is characterized by rapid
technological change. To be successful, we must adapt to this rapidly changing
market by continually improving the features we offer and developing new
features. Our programming and operations will suffer if we are unable to adapt
in a timely manner in response to technological developments, evolving industry
standards, changing market conditions or customer requirements. We may not
maintain our competitive position in the digital sports entertainment market for
a number of reasons, including the following:
- our technology infrastructure may not provide high-quality,
reliable programming or adequately scale to support multiple
simultaneous events;
- we may be unable to afford substantial expenditures to adapt our
service to changing technologies;
- we may be unable to license leading technologies or develop new
proprietary technologies; and
- we may fail to use new technologies effectively or adapt to
technological changes.
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OUR BUSINESS IS SUBJECT TO MANY RISKS ASSOCIATED WITH WORLDWIDE SPORTS COVERAGE
AND OTHER INTERNATIONAL ACTIVITIES, WHICH COULD PREVENT OR DELAY OUR COVERAGE OR
CAUSE US TO INCUR ADDITIONAL EXPENSES.
Our coverage of sports events, particularly adventure sports, is not
limited geographically and is therefore subject to many risks associated with
worldwide sports event coverage and other international activities that could
prevent or delay our coverage. We have developed, and expect to continue to
develop, programming covering sporting events throughout the world and across
the oceans. For example, our coverage of yachting races and of adventure sports,
such as mountaineering in the Karakoram range in China, expeditions to Mount
Everest and treks across deserts in Morocco, require us to traverse
international borders. Coverage of these events requires that we deploy
production staff to locations throughout the world. Additionally, we expect to
maintain offices in several foreign countries, including Great Britain and
Australia. As a result, we are subject to numerous risks associated with doing
business internationally, including the following:
- regulatory requirements, including export requirements, tariffs
and other barriers, health and safety requirements and labor and
immigration laws;
- difficulties in staffing and managing foreign operations;
- differences in reliability of telecommunications infrastructure
and Internet access;
- varying technological standards and capabilities;
- differences in standards of protection for intellectual
property;
- political instability;
- hostile action against event participants or our employees;
- currency fluctuations;
- potentially adverse tax consequences; and
- restrictions against the repatriation of earnings from a foreign
country.
Additionally, regional events that we choose to cover may fail to
attract a global audience. In that case, we would incur the significant expenses
inherent in the coverage of an international event without achieving the
audience exposure we have committed or may commit to provide to our sponsors.
OUR BUSINESS WILL NOT OPERATE EFFICIENTLY AND OUR RESULTS OF OPERATIONS WILL BE
NEGATIVELY AFFECTED IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH.
We are experiencing a period of significant expansion. We had 385
employees at September 30, 2000, compared to 284 employees at December 31, 1999
and 118 employees at December 31, 1998. This growth is placing, and we expect
any further growth to continue to place, a significant strain on our management,
operational and financial resources. This will require us to implement
additional management information systems and to develop additional operating,
administrative, financial and accounting systems and controls. If we are unable
to develop these systems and manage our growth effectively, our business will
not operate efficiently and our results of operations could be negatively
affected.
IF WE FAIL TO ATTRACT AND RETAIN KEY PERSONNEL WE WILL BE UNABLE TO EXECUTE OUR
BUSINESS STRATEGY.
Our success will depend on the continued services of our senior
management and other key personnel, as well as our ability to attract, train,
retain and motivate other highly skilled technical, managerial, marketing and
customer service personnel. The loss of the services of any of our executive
officers, particularly Alvaro Saralegni, our president and chief executive
officer, or other key employees could prevent us from executing our business
strategy. Competition for these personnel is intense, and we may not be able to
successfully attract, integrate or retain sufficiently qualified personnel. Our
anticipated programming schedule in the near future will require that we attract
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and retain personnel who are skilled in production, computer and other technical
fields. Skilled technical personnel are in high demand and have multiple
employment opportunities, especially in the San Francisco Bay Area, where our
headquarters are located. As a matter of practice, we do not generally enter
into employment agreements with our employees.
DELAYS IN THE ACCESSIBILITY OR GROWTH OF DIGITAL MEDIA NETWORKS COULD ADVERSELY
AFFECT OUR PROGRAMMING AND REDUCE THE LEVEL OF TRAFFIC ON OUR WEB SITES.
Our success will depend on the continued development and growth of
digital media networks, including the Internet and broadband networks. Our
programming will suffer if the necessary infrastructure, standards or protocols
or complementary products, services or facilities for the Internet are not
developed in a timely manner. While digital media technologies have been
evolving rapidly in recent years, future growth may not continue at comparable
rates. As the Internet continues to experience increased numbers of users and
increased frequency of use, the Internet infrastructure may be unable to support
the demands of a global audience or the requirements of consumers for faster
access. The Internet has experienced a variety of outages, hacker attacks and
other delays as a result of damage to portions of its infrastructure, and it
could face outages and delays in the future. These outages and delays could
adversely affect the level of Internet usage as well as the level of traffic on
our web sites. In addition, the Internet could lose its viability due to delays
in the development or adoption of new standards and protocols to handle
increased levels of activity or due to regulation by governments, businesses or
other organizations.
Our programming is designed to operate on today's Internet platform as
well as other interactive systems that transmit digitized data, such as cable
and satellite systems, in the future. These future systems are commonly referred
to as "broadband" systems and are expected to enable transmission of large
amounts of digitized material, such as video clips, within a relatively short
time frame. Delays in the development of broadband systems could harm our
ability to distribute our programming through subscription services and
pay-per-view events, which could adversely affect our ability to generate
revenues from these types of programming.
THE ONLINE DIGITAL SPORTS ENTERTAINMENT INDUSTRY IS INTENSELY COMPETITIVE, AND
WE MAY BE UNABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE COMPETITORS.
The market for Internet services and products is relatively new,
intensely competitive and rapidly changing. Since the Internet's
commercialization in the early 1990's, the number of web sites on the Internet
competing for consumers' attention and spending has proliferated. We expect that
competition will continue to intensify. We may be unable to compete successfully
against current and future competitors.
Many of our current and potential competitors have significantly longer
operating histories, greater financial, technical and marketing resources,
greater name recognition and larger user or membership bases than us and,
therefore may have a significantly greater ability to attract advertisers and
users. In addition, many of these competitors may be able to respond more
quickly to new or emerging technologies and changes in Internet user
requirements and to devote greater resources to the development, promotion and
sale of their services. Our current or potential competitors may develop
products and services comparable or superior to those developed by us. Increased
competition could result in price reductions, reduced margins or loss of market
share, any of which would harm our business. In addition, as we expand
internationally, we may face new competition.
We compete, directly and indirectly, for sponsors, rights and the
attention of sports viewers with the following categories of companies:
- web sites targeted to sports enthusiasts generally, such as
www.cbs.sportsline.com, www.cnnsi.com and www.espn.com, many of
which have been established by traditional media companies, and
web sites targeted to enthusiasts of particular sports, such as
www.majorleaguebaseball.com, www.nascar.com, www.nba.com,
www.nfl.com and www.nhl.com;
- publishers and distributors of traditional media targeted to
sports enthusiasts, such as the ESPN networks, the FoxSports
network and Sports Illustrated;
- online services such as America Online and the Microsoft
Network, which provide access to sports-related content and
services;
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- vendors of sports information, merchandise, products and
services distributed through other means, including retail
stores, mail, facsimile and private bulletin board services; and
- web search and retrieval services, such as Excite, Infoseek,
Lycos and Yahoo! and other high-traffic web sites, such as those
operated by Cnet and Netscape.
We expect that the number of our direct and indirect competitors will
increase in the future. We anticipate that, as the Internet and other
interactive distribution systems converge with traditional television
broadcasting and cable, significant competition may come from the cable arena,
including such sports-oriented cable networks as the ESPN networks.
OUR COMMON STOCK PRICE IS LIKELY TO BE VOLATILE, WHICH COULD HURT INVESTORS AND
EXPOSE US TO LITIGATION.
The stock markets in general, and the Nasdaq National Market and the
market for Internet-related and technology companies in particular, have
experienced extreme price and volume fluctuations in recent months. These
fluctuations often have been unrelated or disproportionate to the operating
performance of these companies. These broad market and industry factors could
harm the market price of our common stock, regardless of our performance. Market
fluctuations, as well as general political and economic conditions such as a
recession or interest or currency rate fluctuations, also could harm the market
price of our common stock.
The trading prices of many technology company stocks, particularly
Internet company stocks, have recently fluctuated significantly. Our stock price
could be subject to wide fluctuations in response to a variety of factors,
including factors that may be beyond our control. These include:
- actual or anticipated variations in our quarterly operating
results;
- announcements of technological innovations or new sports
entertainment programming by us or our competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet and online entertainment
industries;
- changes in the market valuations of other Internet companies;
- announcements by us or our competitors of significant
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- additions or departures of key personnel; and
- sales of substantial amounts of our common stock or other
securities in the open market.
Volatility in the market price of our common stock could result in
securities class action litigation. This type of litigation could result in
substantial costs and a diversion of management's attention and resources.
SALES OF OUR SHARES COULD NEGATIVELY AFFECT THE MARKET PRICE OF OUR STOCK,
IMPAIR OUR ABILITY TO RAISE CAPITAL THROUGH THE SALE OF ADDITIONAL EQUITY
SECURITIES AND RESULT IN FURTHER DILUTION.
Sales of a substantial number of shares in the public market could
negatively affect the market price of our common stock and could impair our
ability to raise capital through the sale of additional equity securities.
Stockholders beneficially owing in the aggregate approximately 26.7 million
shares of our common stock have entered into voting agreements and proxies in
connection with our merger agreement with Total Sports to vote in favor of our
pending merger with Total Sports at our special stockholders meeting to approve
that merger transaction. Under the terms of those voting agreements with Total
Sports, those Quokka stockholders have agreed not to sell or otherwise transfer
their shares of Quokka stock unless that merger agreement is terminated or
unless Total Sports agrees to release those stockholders from the obligations of
the Total Sports voting agreements and proxies. Any shares subject to these
voting agreements may be released at any time by Total Sports with or without
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notice. Upon the closing of our pending merger with Total Sports, or the earlier
termination of the voting agreements, the stock held by those stockholders will
be released from those contractual obligations restricting transfer and sale.
In addition, we recently completed two transactions in which we issued
instruments which are convertible into or exercisable for Quokka common stock.
In August 2000, we issued to National Broadcasting Company, Inc. a warrant to
purchase up to 10.0 million shares of our common stock at varying prices from
$8.89 to $20.00 per share. The warrant expires at the end of December 2004 and
the first portion of the warrant is exercisable in June 2001. If NBC elects to
exercise this warrant, your ownership in Quokka will be diluted. If NBC
subsequently sells its shares, the market price for our stock could be adversely
affected. On September 15, 2000, we closed a private placement of 7.0%
convertible promissory notes in an aggregate face amount of $77.4 million and
warrants to purchase an aggregate of 2,805,750 shares of Quokka common stock. If
the noteholders convert their notes or exercise their warrants, your ownership
in Quokka will be diluted. If these holders subsequently sell their shares, the
market price for our stock could be adversely affected. For a further discussion
see "-- Risks Relating to the Private Placement - You will experience dilution
upon the conversion of notes and exercise of warrants issued in the private
placement and may experience additional dilution if the conversion price of the
notes is adjusted downward or if we elect to pay interest on the notes with
payments-in-kind rather than cash."
WE MAY NEED TO RAISE ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE ON FAVORABLE
TERMS AND COULD RESULT IN ADDITIONAL DILUTION.
We believe that our current capital reserves will be sufficient to fund
our operating requirements for at least the next 12 months. Thereafter, we may
need to raise additional capital. Additional financing may not be available on
favorable terms or at all. If adequate funds are not available or are not
available on acceptable terms, we may not be able to fund our expansion, take
advantage of unanticipated opportunities or respond to competitive pressures. If
additional funds are raised through the issuance of equity or convertible debt
securities, the percentage ownership of our stockholders will be diluted and the
securities issued may have rights, preferences and privileges senior to those of
our common stock.
ACCEPTANCE OF PROPERTY AND SERVICES AS PAYMENT MAY PROVIDE LESS WORKING CAPITAL
FLEXIBILITY THAN A CASH PAYMENT WOULD PROVIDE.
We have received property or services, including computer equipment,
Internet access, digital cameras and telecommunications equipment and services
as payment for some of our sponsorships. While these property and services allow
us to develop and distribute our programming content, they do not provide us
with the same working capital flexibility that a cash payment would provide. We
expect to reduce the amount of property and services accepted as payment in
future periods, but may not be successful in doing so.
WE HAVE LIMITED EXPERIENCE GENERATING CONSUMER REVENUES FROM THE SALE OF
PRODUCTS AND SERVICES, AND WE MAY NOT BE ABLE TO DO SO IF WE ARE UNABLE TO
DEVELOP AND IMPLEMENT A SUCCESSFUL STRATEGY, DEVELOP A SUCCESSFUL LINE OF
PRODUCT MERCHANDISE, OVERCOME INTERNET SECURITY CONCERNS OR RESPOND TO
COMPETITIVE PRICING.
A key component of our business model includes selling products
associated with our sports entertainment programming. We have only recently
begun generating revenues from the sale of products and services. If we are
unable to develop and implement a successful strategy, develop a successful line
of product merchandise that appeals to a broad audience, overcome Internet
security concerns or respond to competitive pricing, we may be unable to
generate consumer revenues.
The need to securely transmit confidential information over the Internet
has been a significant barrier to electronic commerce and communications over
the Internet. Any compromise of security could deter people from using the
Internet and our web sites to conduct transactions that involve transmitting
confidential information. We may need to expend significant resources to protect
against security breaches or to address problems caused by such breaches. Even
if we are able to overcome Internet security concerns, individuals may not buy
our products, resulting in revenues from consumer that fall short of the cost of
our strategy. Many Internet companies engaged in electronic commerce are losing
money. Additionally, many of our current and potential competitors may have
significantly greater resources and more favorable cost structures than we do
and may be able to price comparable products at levels we are unable to match
without incurring unacceptable operating losses.
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We recently decided to enter into a relationship with a service provider
for the back-end infrastructure, inventory and customer care processes for a
portion of our electronic commerce business. We have no experience managing this
type of relationship and may be unable to realize the anticipated cost savings
and increased consumer revenues. After becoming familiar with our service
provider, individuals may decide to purchase products directly from them and we
may lose consumer revenues. We may experience lower viewing time on our web
sites if viewers are diverted from our web sites to our service provider's web
site.
WE MAY BE SUBJECT TO NEGATIVE PUBLICITY AND LIABILITY FOR ATHLETES OR OUR
EMPLOYEES ASSOCIATED WITH OUR EVENTS, WHICH WOULD DISRUPT OUR PROGRAMMING AND
REDUCE SPONSORSHIPS AND PARTICIPATION IN FUTURE EVENTS.
Many of our events, including sailing, motor sports and mountain
climbing, involve significant risks to athletes and our employees that
participate in or document the events. Additionally, many of our events take
place in regions of the world where there may be increased danger of external
threats such as terrorism. We will experience adverse publicity, and may be
subject to liability claims by athletes, employees or their relatives, for
injuries or deaths that occur as a result of our events. Any incidents like this
during our events could disrupt our programming and reduce sponsorships and
athlete and employee participation in future events. Liability claims,
regardless of merit, could require us to expend significant resources.
Additionally, while we obtain insurance coverage with respect to each event
based on the risks and exposure we face in that event, our insurance coverage
may be inadequate to protect us against any claims.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS, AND OUR EFFORTS TO DO SO COULD BE TIME-CONSUMING AND EXPENSIVE AND COULD
DIVERT MANAGEMENT ATTENTION FROM EXECUTING OUR BUSINESS STRATEGY.
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our success. We rely on a
combination of copyright, trademark, service mark, patent and trade secret laws
and contractual restrictions to protect our proprietary rights in products and
services. While we actively protect and enforce our intellectual property
rights, we may be unable to prevent others from misappropriating our technology
and may be subject to claims of infringement by others. The enforcement of our
intellectual property rights could be time-consuming, result in costly
litigation and the diversion of technical and management personnel. We have
entered into confidentiality and invention assignment agreements with our
employees and contractors and nondisclosure agreements with parties with which
we conduct significant business to limit access to and disclosure of our
proprietary information. These contractual arrangements and the other measures
taken by us to protect our intellectual property may not prevent
misappropriation of our technology or deter independent third-party development
of similar technologies. In addition, we may need to engage in litigation to
enforce our intellectual property rights in the future or to determine the
validity and scope of the proprietary rights of others. This litigation could
result in substantial costs and diversion of management and other resources.
We pursue the registration of our trademarks and service marks in the
United States and internationally. We have also filed four patent applications
in the United States Patent and Trademark Office. Effective trademark, service
mark, copyright, patent and trade secret protection may not be available in
every country in which our programming is accessible online. We have licensed in
the past, and expect to license in the future, some of our proprietary rights,
including trademarks or copyrighted material, to third parties. These licensees
may take actions that might adversely affect the value of our proprietary rights
or reputation. We also rely on off-the-shelf technologies that we license from
third parties. "Off-the-shelf" technology refers to generally commercially
available software that is not customized for a particular user. These
third-party licenses may not continue to be available to us on commercially
reasonable terms or at all. The inability to use licensed technology important
to our business could require us to obtain substitute technology of lower
quality or performance standards or at greater cost. In the future, we may seek
to license additional technology or content to enhance our current programming
or to introduce new content. We cannot be certain that any such licenses will be
available on commercially reasonable terms or at all. The loss of or inability
to obtain or maintain any of these technology licenses could result in delays in
providing our programming until equivalent technology, if available, is
identified, licensed and integrated.
Because we license some data and content from third parties, we must
rely upon these third parties for information as to the origin and ownership of
the licensed content and our exposure to copyright infringement actions may
increase. We generally obtain representations as to the origins and ownership of
licensed content and obtain indemnification to cover any breach of any
representations. However, we cannot be certain that these
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representations are accurate or that any indemnification amounts will be
sufficient to provide adequate compensation for any breach of representations.
We cannot guarantee that infringement or other claims will not be
asserted or prosecuted against us in the future whether resulting from our
internally developed intellectual property or licenses or content from third
parties. Any future assertions or prosecutions could be time-consuming, result
in costly litigation and diversion of technical and management personnel or
require us to introduce new content or trademarks, develop non-infringing
technology or enter into royalty or licensing agreements. These royalty or
licensing agreements, if required, may not be available on acceptable terms, if
at all. Our ability to execute on our business strategy will suffer if a
successful claim of infringement is brought against us and we are unable to
introduce new content or trademarks, develop non-infringing technology or
license the infringed or similar technology on a timely basis.
REVENUES FROM SUBSCRIPTION SERVICES MAY FAIL TO DEVELOP, WHICH WOULD HARM OUR
RESULTS OF OPERATIONS.
While we intend to generate revenues through subscription services that
provide access to premium content and pay-per-view events, we have no experience
in doing so and our failure to generate revenues from these sources would harm
our results of operations. While subscription services are a viable business
alternative to cover sporting events on television, subscription services for
our programming may not develop for a variety of reasons. These include:
- our failure to develop and implement a successful strategy for
subscription services;
- delays in the development of broadband systems that enable
increased bandwidth for content and provide faster access for
consumers;
- consumers' unwillingness to pay for the programming offered
through subscription services;
- prohibitive costs of producing higher quality programming for
subscription services; and
- security concerns in transmitting payment information for the
subscription services.
CHANGES IN REGULATION OF THE INTERNET COULD LIMIT OUR BUSINESS PROSPECTS. OUR
INTERNET ACTIVITIES MAY BECOME SUBJECT TO ADDITIONAL TAXES, WHICH COULD
NEGATIVELY AFFECT OUR RESULTS OF OPERATIONS.
We are subject to the same federal, state and local laws as other
businesses on the Internet. Today there are relatively few laws directed towards
online services. However, due to the increasing popularity and use of the
Internet and other online services, it is possible that a number of laws and
regulations may be adopted with respect to the Internet or other online
services. Changes in regulation of the Internet could affect our results of
operations. These laws and regulations could cover issues such as user privacy,
freedom of expression, pricing, fraud, content and quality of products and
services, taxation, advertising, intellectual property rights and information
security. Applicability to the Internet of existing laws governing issues such
as property ownership, copyrights and other intellectual property issues,
taxation, libel, obscenity and personal privacy is uncertain. The vast majority
of these laws were adopted prior to the advent of the Internet and related
technologies and, as a result, do not contemplate or address the unique issues
of the Internet and related technologies. Those laws that do reference the
Internet, such as the recently passed Digital Millennium Copyright Act, have not
yet been interpreted by the courts and their applicability and reach are
therefore uncertain.
Several states have also proposed legislation that would limit the uses
of personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties.
While we do not sell information about users on our sites, we have historically
collected demographic data about our users to assist us in marketing our
sponsorship arrangements. Changes to existing laws or the passage of new laws
intended to address these issues, including some recently proposed changes,
could directly affect the way we do business or could create uncertainty in the
marketplace.
In addition to government regulation of the Internet, businesses and
other organizations may restrict access to the Internet at work. Many users
access the Internet through computer terminals at work, either because they do
not have access at home or because the networks at work provide faster and more
reliable access. Access at work
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may increase if employers upgrade their technology more quickly than individual
consumers in response to the development of broadband solutions. In response to
Internet use by employees or consultants at work, employers may impose
regulations limiting or eliminating Internet or broadband access on their
equipment. To the extent that many of our users access our web sites at work,
our audience could diminish if businesses and other organizations restrict
Internet access at work.
RISKS RELATING TO THE MERGER WITH TOTAL SPORTS
IF WE ARE NOT SUCCESSFUL IN INTEGRATING TOTAL SPORTS WITH OUR ORGANIZATION, THE
COMBINED COMPANY MAY BE UNABLE TO OPERATE EFFICIENTLY AFTER THE MERGER.
The combined company's ability to operate efficiently after the merger
will depend in part on the integration of Quokka's and Total Sports's operations
and personnel in a timely and efficient manner. In order for the combined
company to provide enhanced and more valuable content and services to its
customers after the merger, the combined company will need to integrate its
operations, technology and content. This integration may be difficult and
unpredictable because our web sites and Total Sports' web sites have been
developed independently and were designed without regard to integration.
Successful integration of the two companies' operations, technology and content
also requires coordination of different development and engineering teams, as
well as sales and marketing efforts and personnel. This, too, may be difficult
and unpredictable because of possible cultural conflicts between Quokka and
Total Sports as well as difficulties related to the geographical separation of
the two companies' primary operations. If the two companies cannot successfully
integrate their operations, technology and personnel, the combined company may
not be able to operate efficiently or realize the expected benefits of the
merger.
EFFORTS TO INTEGRATE QUOKKA AND TOTAL SPORTS MAY DIVERT MANAGEMENT'S ATTENTION
AWAY FROM DAY-TO-DAY OPERATIONS.
The integration of Quokka's and Total Sports's operations and personnel
may place a significant burden on the combined company's management and other
internal resources. The diversion of management attention and any difficulties
encountered in the transition and integration process could prevent the combined
company from operating efficiently.
WE EXPECT TO INCUR SIGNIFICANT COSTS TO INTEGRATE THE COMPANIES INTO A SINGLE
BUSINESS.
We expect to incur costs from integrating Total Sports' operations,
technology and personnel. These costs may be significant and may include
expenses and other liabilities for:
- employee redeployment, relocation or severance;
- conversion of information systems;
- increased travel and communications systems;
- combining teams and processes in various functional areas; and
- reorganization or closures of facilities.
The integration costs incurred by us may negatively impact the financial
condition of the combined company and the market price of our common stock.
FAILURE TO RETAIN KEY EMPLOYEES COULD DIMINISH THE ANTICIPATED BENEFITS OF THE
MERGER.
The successful combination of Quokka and Total Sports will depend in
part on the retention of personnel critical to the business and operations of
the combined company due to, for example, unique technical skills or management
expertise. The combined company may be unable to retain Quokka and Total Sports
management, technical, production, sales and marketing personnel that are
critical to the successful integration of Quokka and Total Sports, resulting in
disruption of operations, loss of key information, expertise or know-how and
unanticipated additional recruitment and training costs and otherwise
diminishing anticipated benefits of the merger.
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RISKS RELATED TO THE PRIVATE PLACEMENT
THE NOTES AND RELATED PAYMENT OBLIGATIONS COULD RESTRICT OUR FINANCIAL
FLEXIBILITY AND FUTURE PROSPECTS.
We have incurred significant leverage as a result of the issuance on
September 15, 2000 of our 7.0% convertible subordinated notes due September
2005 in the aggregate principal amount of approximately $77.4 million. If the
notes have not been converted into our common stock prior to their maturity and
if other financing has not been obtained to refinance the notes prior to that
time, a substantial portion of our cash flows would be required to repay the
outstanding principal of the notes at that time. In addition, some holders of
the notes may require that quarterly interest payments on the notes be made in
cash, and any such cash payments would reduce the funds available for other
corporate purposes. Furthermore, our ability to obtain additional financing for
working capital, capital expenditures, acquisitions, general corporate purposes
or other purposes may be impaired in the future because of the outstanding
notes. Finally, our substantial degree of leverage may limit our flexibility to
adjust to changing market conditions, place us at a disadvantage relative to our
competitors, reduce our ability to withstand competitive pressures and make us
more vulnerable to a downturn in general economic conditions or our business.
OUR COMMON STOCK IS SUBORDINATE TO THE NOTES UPON ANY LIQUIDATION OR BANKRUPTCY
AND WILL ONLY BE PAID IF FUNDS OR ASSETS REMAIN AFTER FULL PAYMENT TO THE
NOTEHOLDERS.
In the event of a liquidation or bankruptcy or other similar event, the
notes will rank senior to the common stock upon any distribution. Accordingly,
upon such a distribution event, the holders of our outstanding common stock will
receive a smaller amount of the distribution than their ownership percentage in
the company may suggest and will only receive a payment if funds or assets
remain after full payment to the noteholders.
WE ARE SUBJECT TO COVENANTS WHILE ANY NOTES REMAIN OUTSTANDING THAT COULD LIMIT
OUR OPERATIONAL FLEXIBILITY AND IF WE FAIL TO COMPLY WITH THESE COVENANTS WE
WILL BE IN DEFAULT ON THE NOTES.
As is customary in debt transactions, the investment by the noteholders
was contingent on our agreement to comply with various covenants while any notes
remain outstanding. These covenants include both affirmative covenants and
negative covenants.
The affirmative covenants require us, among other things, to do the
following:
- pay principal of and interest on the notes;
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- make SEC and other regulatory filings;
- pay taxes;
- maintain minimum levels of insurance;
- comply with applicable laws;
- deliver to the noteholders annual compliance certificates and
notice of any events of default;
- achieve minimum revenue and operating income thresholds; and
- control maximum operating losses.
The negative covenants restrict us and any subsidiaries from, among
other things, taking the following actions without the consent of the
noteholders:
- incurring or assuming additional indebtedness in excess of $25.0
million;
- declaring dividends, purchasing or redeeming capital stock or
otherwise incurring any liability to make any other payment or
distribution of cash or other property;
- selling assets or properties outside the ordinary course of
business in excess of $3.0 million in any calendar year;
- liquidating the company;
- entering into transactions with affiliates outside the ordinary
course of business;
- transferring any voting stock of any subsidiary outside the
company and its affiliates;
- creating or incurring any liens on its properties or assets
other than certain permitted liens;
- acquiring or investing in any assets or business of any person
for cash in excess of 20% of the sum of available cash and cash
equivalents;
- acquiring or investing in any assets or business of any person
other than asset acquisitions in the ordinary course of
business, intercompany acquisitions or Board-approved
acquisitions where the sole consideration is our capital stock;
and
- engaging in any business other than which is the same or
reasonably related or complementary to existing businesses of
the company and our subsidiaries.
Complying with these covenants could restrict our operating flexibility.
If we fail to comply with these covenants within the prescribed time periods, an
event of default will result, triggering remedies in favor of the noteholders.
Among these remedies is the acceleration of the maturity of the notes at a
premium of 115% of the sum of the face value of the notes, accrued but unpaid
interest on the notes and unpaid delay or default amounts on the notes.
IF AN EVENT OCCURS THAT INTERFERES WITH A NOTEHOLDER'S LIQUIDITY, WE MAY BE
REQUIRED TO PAY A MONTHLY DELAY PAYMENT AND REDEEM THE NOTES AT A PREMIUM.
We have agreed to use our best efforts to provide for the liquidity of
the common stock underlying the notes and warrants acquired by the noteholders,
including registering the shares of common stock underlying the notes and
warrants, listing those shares with the Nasdaq National Market, avoiding the
suspension of trading in our common stock in excess of 45 days in any 12 months
and maintaining enough authorized shares of common stock to
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<PAGE> 19
enable the conversion of the notes and the exercise of the warrants. If any of
these interfering events occurs and is continuing, we may be required to pay to
the noteholders a monthly delay payment equal to one percent (1%) of the face
amount of the notes, all accrued and unpaid interest on the notes and all unpaid
penalties payable on the notes, for each 30 day period (or portion thereof) of
the interfering event. In addition, under some circumstances, we may be required
to redeem the notes if the interfering event continues at a premium redemption
price equal to the greater of (1) 115% of the sum of the face value of the
notes, accrued but unpaid interest on the notes and unpaid delay or default
amounts on the notes, or (2) the value the noteholder would be entitled to
receive upon conversion of the note into common stock at the applicable
conversion price followed by the sale of the common stock at the greater market
value at either the closing of the redemption or the event triggering the right
to redemption. If a monthly delay payment or a redemption were to occur, the
cash outlays for such purposes would not be available for other general
corporate purposes.
IF AN EVENT OF DEFAULT OCCURS UNDER THE NOTES, THE NOTEHOLDERS WILL BE ABLE TO
REQUEST IMMEDIATE PAYMENT OF A PREMIUM REDEMPTION PRICE ON THE NOTES, WHICH CASH
PAYMENTS, IF AVAILABLE, WOULD NOT BE AVAILABLE FOR OTHER GENERAL CORPORATE
PURPOSES.
If an event of default identified under the notes occurs, then the
noteholders may declare the notes and any accrued but unpaid interest and
payments on the notes to be immediately due and payable and demand immediate
payment of a premium price equal to 115% of the sum of the face value of the
notes, accrued but unpaid interest and unpaid delay or default amounts on the
notes. These events of default include: (1) failure to pay the principal on any
note when due; (2) an assignment for the benefit of creditors or other
bankruptcy or insolvency event; (3) the rendering of a judgment against us in
excess of $1 million (net of any insurance coverage) that is not discharged
within 60 days; (4) defaults under any mortgage, indenture, agreement or
instrument evidencing indebtedness in excess of $4 million; and (5) the breach
of covenants or representations or warranties made to the noteholders. The
premium redemption price payable upon other events of default - including (a)
our failure to redeem all unconverted notes if we elect to exercise our optional
redemption rights (b) or the occurrence of an interfering event that restricts
the liquidity of the common stock underlying the notes and warrants - may also
include the value the noteholder would be entitled to receive upon conversion of
the note into common stock at the applicable conversion price followed by the
sale of the common stock at the greater market value at either the closing of
the redemption or the event triggering the right to redemption. If an event of
default occurs for which a noteholder demands immediate payment at a premium
redemption price, the cash outlays for such purposes would not be available for
other general corporate purposes and if we are unable to pay the premium
redemption price on the notes our viability as an independent corporate entity
would be jeopardized.
YOU WILL EXPERIENCE DILUTION UPON THE CONVERSION OF NOTES AND EXERCISE OF
WARRANTS ISSUED IN THE PRIVATE PLACEMENT AND MAY EXPERIENCE ADDITIONAL DILUTION
IF THE CONVERSION PRICE OF THE NOTES IS ADJUSTED DOWNWARD OR IF WE ELECT TO PAY
INTEREST ON THE NOTES WITH PAYMENTS-IN-KIND RATHER THAN CASH.
The notes we issued on September 15, 2000 in the principal amount of
$77.4 million have a conversion price of $5.415. Accordingly, if all the notes
are converted at that conversion price, there will be dilution of approximately
14.3 million shares of common stock. In addition, we issued warrants to acquire
approximately 2.8 million shares of our common stock and these warrants are
exercisable at any time. Accordingly, the private placement is expected to
result in dilution of approximately 17.1 million shares of common stock, or
approximately 36.6% of the 46.4 million shares of common stock outstanding on
September 15, 2000. In addition, for a period of at least 75 trading days
beginning February 15, 2001, the conversion price of the notes may be reset
downward depending on the trading price of our common stock. If the conversion
price is reset downward, there will be dilution upon conversion of the notes in
excess of the 14.3 million shares identified above. There is no limit on how low
the conversion price may be reset. Additionally, you may experience dilution if
we elect to pay interest on the notes with payments-in-kind rather than cash.
Payments-in-kind allow us to avoid an immediate cash outlay on each interest
payment date but have the effect of increasing the face amount of the notes.
Assuming (1) we pay all interest payments on the notes for the full five year
term of the notes with payments-in-kind rather than cash, (2) the conversion
price remains at $5.415 throughout the five years and (3) no notes are converted
during the five year term of the notes, then the payments-in-kind would increase
the face amount of the notes by approximately $32.1 million, which would be
convertible into approximately 5.9 million additional shares of our common
stock. Depending on the applicable conversion price and the payments-in-kind we
elect to make, as well as the number of shares of our common stock outstanding
at that time, the number of shares issuable upon conversion of the notes and
exercise of the warrants could result in a change of control of Quokka.
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<PAGE> 20
THE MARKET PRICE OF OUR COMMON STOCK MAY BE SUBJECT TO SIGNIFICANT DOWNWARD
PRESSURE IF THE PRICE OF OUR COMMON STOCK FALLS, THE CONVERSION PRICE OF THE
NOTES IS RESET DOWNWARD, NOTEHOLDERS CONVERT AND SELL MATERIAL AMOUNTS OF OUR
COMMON STOCK AND/OR NOTEHOLDERS PARTICIPATE IN SHORT SALES OF OUR COMMON STOCK.
The common stock issuable upon conversion of the notes is presently
indeterminable and could fluctuate significantly, resulting in substantial
dilution. See the risk factor entitled "You will experience dilution upon the
conversion of notes and exercise of warrants issued in the private placement and
may experience additional dilution if the conversion price of the notes is
adjusted downward or if we elect to pay interest on the notes with
payments-in-kind rather than cash". In addition, significant downward pressure
on the market price of our common stock could develop as noteholders convert and
sell material amounts of common stock. Any such sales could encourage short
sales by noteholders or others, placing further downward pressure on the market
price of our common stock. The downward pressure could lead to a further
reduction of the conversion price of the notes, resulting in additional dilution
as notes are converted. The sale of these additional shares in the market could
place further downward pressure on the market price with the effect of a still
lower conversion price. This spiral effect could result in additional dilution
and downward pressure on our market price.
WE HAVE LIMITED RIGHTS TO REDEEM THE NOTES PRIOR TO MATURITY AND MAY THEREFORE
BE SUBJECT TO THE DEBT AND RELATED COVENANTS LONGER THAN WE WOULD PREFER.
Our ability to pay off the debt by redeeming the notes prior to maturity
is limited. We will only be able to redeem the notes after March 15, 2002 and
only if the following apply:
- our common stock has traded, for at least 30 consecutive trading
days, at a closing price of $10.830 (as adjusted for any stock
splits and related adjustments);
- the noteholders have been able to sell their shares under an
effective registration statement on each of those 30 trading
days;
- the noteholders have been able to convert all their notes under
the rules of the applicable securities exchange on which our
common stock is traded; and
- we have the financial resources and ability to repurchase all
the notes.
If we are unable to redeem the notes when we would like, we will be
required to continue to comply with the affirmative and negative covenants we
made to the noteholders and could therefore be restricted from making the
financial and operational decisions we might prefer.
IF OUR OPERATING CASH FLOWS DO NOT GROW AS EXPECTED, WE MAY NOT HAVE SUFFICIENT
CASH TO REDEEM THE NOTES AT MATURITY ON SEPTEMBER 15, 2005.
While we have sufficient cash available to meet our payment obligations
under the notes prior to their maturity, if our operating cash flows do not grow
as expected today and if the noteholders have not elected to convert their notes
prior to their maturity, we may not have sufficient cash available to redeem the
notes at maturity, in which case we would need to refinance the notes by
incurring replacement indebtedness or raising funds through the issuance of
equity. There can be no assurance that we would be able to obtain such
replacement indebtedness or raise funds through the issuance of equity.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
common stock offered by the selling stockholders.
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<PAGE> 21
SELLING STOCKHOLDERS
The following table sets forth an approximation of the beneficial
ownership of our common stock, as of the closing date of the merger, by each of
the selling stockholders. We will not be able to determine the beneficial
ownership of any individual selling stockholder until the closing date of the
merger because the allocation of our common stock to be issued in the merger
will not be determined until the closing date. We will amend or supplement the
registration statement of which this prospectus is a part at that time to revise
the beneficial ownership numbers below if necessary.
GENERAL
In the definitive agreement we entered into with Total Sports, Inc. on
July 20, 2000, we agreed to issue up to 15,000,000 shares of our common stock in
exchange for all of the outstanding shares of capital stock, options and
warrants of Total Sports. We also agreed to file a registration statement on
Form S-3 to register the resale in brokers' transactions of our common stock
issued in the merger to those stockholders of Total Sports who may be subject to
the resale restrictions set forth in paragraph (c) of Rule 145 under the
Securities Act. We also agreed to use reasonable efforts to keep the
registration statement effective until the earliest of the date the shares of
common stock offered under this prospectus have been sold to the public and the
date one year from the date of effectiveness of this prospectus. Our
registration of the shares of common stock does not necessarily mean that the
selling stockholders will sell all or any of the shares.
The information provided in the table below with respect to each selling
stockholder has been obtained from that selling stockholder. Except for Frank A.
Daniels, III, who will become a member of our Board of Directors and will have a
consulting agreement with us, both the directorship and the agreement become
effective upon the closing of the merger, and Gary R. Stevenson and Drue Moore,
who will have employment agreements with us effective upon the closing of the
merger, none of the selling stockholders has, or within the past three years has
had, any position, office or other material relationship with us. Because the
selling stockholders may sell all or some portion of the shares of common stock
beneficially owned by them, we cannot estimate the number of shares of common
stock that will be beneficially owned by the selling stockholders after this
offering. In addition, the selling stockholders may have sold, transferred or
otherwise disposed of, or may sell, transfer or otherwise dispose of, at any
time or from time to time since the date on which they provided the information
regarding the shares of common stock beneficially owned by them, all or a
portion of the shares of common stock beneficially owned by them in transactions
exempt from the registration requirements of the Securities Act.
<TABLE>
<CAPTION>
BEFORE OFFERING THE OFFERING AFTER OFFERING
----------------------- ------------------------- ------------------------
SHARES PRO RATA
BENEFICIAL BEING % OF BENEFICIAL
SELLING STOCKHOLDER OWNERSHIP(1) %(1) OFFERED(2) TOTAL(3) OWNERSHIP(1) %(1)
-------------------------- ------------- ----- ----------- --------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK FROM CAPITAL
STOCK AND WARRANTS
TCV III (GP), L.P.(4) 2,306,328 4.38 16,720 0.12 0 0
TCV III (Q), L.P.(4) 2,306,328 4.38 2,114,348 14.64 0 0
TCV III Strategic Partners,
L.P.(4) 2,306,328 4.38 95,731 0.66 0 0
TCV III, L.P.(4) 2,306,328 4.38 79,529 0.55 0 0
Gary R. Stevenson(5) 1,282,378 2.49 1,282,378 8.85 0 0
Piedmont Venture Partners
Limited Partnership(6) 1,070,732 2.08 722,649 4.98 0 0
Piedmont Venture Partners
II, L.P.(6) 1,070,732 2.08 348,083 2.40 0 0
Bull Run Corporation(7) 854,772 1.67 854,772 5.95 0 0
Nuray Telluride Properties
Limited Partnership 806,418 1.58 806,418 5.56 0 0
Frank A. Daniels, III(8) 610,145 1.20 595,145 4.14 0 0
Frank A. Daniels, Jr.(9) 592,615 1.16 592,615 4.14 0 0
COMMON STOCK FROM OPTIONS
Frank A. Daniels, III(8) 610,145 1.20 15,000 2.62 0 0
Colin Boatwright 68,749 0.14 68,749 11.99 0 0
Ezra Kucharz 48,750 0.10 48,750 8.50 0 0
Drue Moore 38,250 0.08 38,250 6.67 0 0
Petra Weishaupt 38,250 0.08 38,250 6.67 0 0
</TABLE>
* Less than one percent (1%).
(1) Beneficial ownership is determined in accordance with Rule 13d-3(d)
promulgated by the SEC under the Securities Exchange Act of 1934. Unless
otherwise noted, each person or group identified possesses sole voting and
investment power with respect to shares, subject to community property laws
where applicable. Percentages are based on 50,310,533 shares of our common
stock that were outstanding on November 3, 2000. In calculating the
percentage for each selling stockholder, the shares beneficially acquired
by that stockholder upon the closing of the merger are included in the
denominator of the shares outstanding for that selling stockholder but are
not included in the denominator for any other person.
(2) The number of shares being offered by each selling stockholder is an
estimate only and will be revised upon the closing of the merger when the
information is known. Ten percent (10%) of the 15,000,000 shares of our
common stock issued in the merger are being placed in escrow for a one-year
period following the closing of the merger to satisfy any indemnification
claims. A pro rata portion of the total 1,500,000 escrowed shares is being
placed in escrow by each entity. Our common stock issued upon exercise of
the Total Sports options and warrants is not subject to such escrow.
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<PAGE> 22
(3) The pro rata percentage is calculated for purposes of determining the
number of shares each selling stockholder could sell under the lock-up
restrictions described under "Selling Stockholders -- Lock-Up
Restrictions." Because there are different lock-up restrictions for shares
received in exchange for outstanding capital stock and warrants of Total
Sports versus shares received in exchange for outstanding options of Total
Sports, the pro rata percentages are calculated separately. In calculating
the percentages under the "Common Stock from Capital Stock and Warrants"
section of this table, the numerator equals the number of shares received
by an individual stockholder in exchange for outstanding capital stock and
warrants less shares placed in escrow for the individual stockholder. The
denominator equals 12,926,785 shares, which equals the 15,000,000 shares of
our common stock issued in the merger less the shares exchanged for options
(573,215) and the shares placed in escrow for all stockholders (1,500,000).
In calculating the percentages under the "Common Stock from Options"
section of this table, the numerator equals the number of shares received
by an individual stockholder in exchange for outstanding options and the
denominator equals the total number of shares received by an individual
stockholder in exchange for outstanding options and the denominator equals
the total number of shares exchanged for options (573,215).
(4) The amounts under the column "Before Offering -- Beneficial Ownership"
reflect the aggregate amount of shares beneficially owned by the TCV III
entities identified in the table. The estimates of the number of shares to
be offered by each individual TCV III entity are included under the column
"The Offering -- Shares Being Offered." These amounts include 580 shares,
74,671 shares, 3,369 shares, and 2,803 shares received in exchange for
warrants held by TCV III (GP), TCV III (Q), TCV III Strategic Partners,
and TCV III, respectively.
(5) Includes 10,167 shares received in exchange for warrants held by Gary R.
Stevenson.
(6) The amounts under the column "Before Offering -- Beneficial Ownership"
reflect the aggregate amount of shares beneficially owned by the Piedmont
Venture Partners entities identified in the table. The estimates of the
number of shares to be offered by each individual Piedmont Venture
Partners entity are included under the column "The Offering -- Shares
Being Offered."
(7) Includes 67,772 shares received in exchange for warrants held by Bull Run
Corporation.
(8) The amount under the column "Before Offering -- Beneficial Ownership"
reflects the aggregate amount of shares received by Frank A. Daniels, III,
in exchange for outstanding shares of capital stock, options and warrants
of Total Sports. The amount under the column "The Offering -- Shares Being
Offered" under the "Common Stock from Capital Stock and Warrants" section
of the table includes shares received in exchange for outstanding capital
stock and 44,881 shares received in exchange for warrants. The amount
under the column "The Offering -- Shares Being Offered" under the "Common
Stock from Options" section of the table represents shares received in
exchange for outstanding options.
(9) Includes 61,802 shares received in exchange for warrants held by Frank A.
Daniels, Jr.
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<PAGE> 23
LOCK-UP RESTRICTIONS
Except for an aggregate of 1,500,000 shares of Quokka common stock
placed in escrow for a one-year period following the closing of the merger, the
remaining 13,500,000 shares of Quokka common stock issued in exchange for Total
Sports capital stock, or reserved for issuance under Total Sports' options and
warrants that are assumed or exchanged for options and warrants to purchase
Quokka common stock, are subject to transfer and resale restrictions during the
one-year period following the closing of the merger. These restrictions also
apply to the selling stockholders and restrict any sales, transfers,
hypothecations, pledges, equity swaps or similar agreements by the selling
stockholders without the prior written consent of Quokka.
Except as noted below, each selling stockholder (other than Gary
Stevenson, whose rights are described below) may transfer its pro rata
percentage (as shown in the "Common Stock from Capital Stock and Warrants"
section of the table in the section "Selling Stockholders") of the aggregate
number of shares of Quokka common stock received by the Total Sports
stockholders, other than shares of Quokka common stock received upon exercise of
Total Sports' options that are assumed or substituted for options to purchase
Quokka common stock, only in accordance with the following schedule:
- up to an aggregate of 10% of the Quokka common stock (excluding
the escrowed shares) may be sold immediately upon the closing of
the merger;
- up to a cumulative aggregate of 22% of the Quokka common stock
(excluding the escrowed shares) may be sold 90 days following
the closing of the merger;
- up to a cumulative aggregate of 47% of the Quokka common stock
(excluding the escrowed shares) may be sold 180 days following
the closing of the merger;
- up to a cumulative aggregate of 72% of the Quokka common stock
(excluding the escrowed shares) may be sold 270 days following
the closing of the merger; and
- all of the Quokka common stock may be sold one year following
the closing of the merger.
Within the foregoing aggregate limits relating to resale and transfer,
Gary Stevenson, the president, chief executive officer and a director of Total
Sports, may transfer the shares of Quokka common stock issued to him in the
merger in accordance with the following schedule:
- up to an aggregate of 60% of Mr. Stevenson's Quokka common stock
(excluding the escrowed shares) may be sold immediately upon the
closing of the merger;
- up to a cumulative aggregate of 65% of Mr. Stevenson's Quokka
common stock (excluding the escrowed shares) may be sold 90 days
following the closing of the merger;
- up to a cumulative aggregate of 75% of Mr. Stevenson's Quokka
common stock (excluding the escrowed shares) may be sold 180
days following the closing of the merger;
- up to a cumulative aggregate of 85% of Mr. Stevenson's Quokka
common stock (excluding the escrowed shares) may be sold 270
days following the closing of the merger; and
- all of Mr. Stevenson's Quokka common stock may be sold one year
following the closing of the merger.
The aggregate number of Quokka shares that may be sold in any lock-up
period equals the sum of (1) the number of shares of Quokka common stock that
Mr. Stevenson has transferred and (2) the number of shares of Quokka common
stock that other Total Sports stockholders have transferred. Accordingly, the
greater number of shares of Quokka common stock that Mr. Stevenson elects to
transfer, the fewer number of shares of Quokka common stock that the other
selling stockholders would be able to transfer.
In addition to the restrictions noted above, each selling stockholder
may transfer its pro rata percentage (as shown in the "Common Stock from
Options" section of the table in the section "Selling Stockholders") of the
aggregate number of shares of Quokka common stock received upon exercise of the
Total Sports' options that are assumed or substituted for options to purchase
Quokka common stock in accordance with the following schedule:
- up to an aggregate of 10% of the Quokka common stock covered by
such options may be sold immediately upon the closing of the
merger;
- up to a cumulative aggregate of 47% of the Quokka common stock
covered by such options may be sold 180 days following the
closing of the merger;
- up to a cumulative aggregate of 72% of the Quokka common stock
covered by such options may be sold 270 days following the
closing of the merger; and
- all of the Quokka common stock covered by such options may be
sold one year following the closing of the merger.
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<PAGE> 24
PLAN OF DISTRIBUTION
Subject to the lock-up restrictions described under "Selling
Stockholders", the shares of common stock may be sold from time to time by the
selling stockholders in one or more transactions at fixed prices, at market
prices at the time of sale, at varying prices determined at the time of sale or
at negotiated prices. As used in this prospectus, "selling stockholders"
includes donees, pledgees, transferees and other successors in interest selling
shares received from a selling stockholder after the date of this prospectus as
a gift, pledge, partnership distribution or other non-sale transfer. The selling
stockholders may offer their shares of common stock in one or more of the
following transactions:
- on any national securities exchange or quotation service on
which the common stock may be listed or quoted at the time of
sale, including the Nasdaq National Market,
- in the over-the-counter market,
- in private transactions,
- through options,
- by pledge to secure debts and other obligations or
- a combination of any of the above transactions.
If required, we will distribute a supplement to this prospectus to
describe material changes in the terms of the offering.
The shares of common stock described in this prospectus may be sold from
time to time directly by the selling stockholders. Alternatively, the selling
stockholders may from time to time offer shares of common stock to or through
underwriters, broker/dealers or agents. The selling stockholders and any
underwriters, broker/dealers or agents that participate in the distribution of
the shares of common stock may be deemed to be "underwriters" within the meaning
of the Securities Act. Any profits on the resale of shares of common stock and
any compensation received by any underwriter, broker/dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act. We
have agreed to indemnify each selling stockholder against certain liabilities,
including liabilities arising under the Securities Act. The selling stockholders
may agree to indemnify any agent, dealer or broker-dealer that participates in
the sale of shares of common stock described in this prospectus against certain
liabilities, including liabilities arising under the Securities Act.
Any shares covered by this prospectus that qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under Rule 144 rather than
pursuant to this prospectus. The selling stockholders may not sell all of the
shares they hold. The selling stockholders may transfer, devise or gift such
shares by other means not described in this prospectus.
To comply with the securities laws of certain jurisdictions, the common
stock must be offered or sold only through registered or licensed brokers or
dealers. In addition, in certain jurisdictions, the shares of common stock may
not be offered or sold unless they have been registered or qualified for sale or
an exemption is available and complied with.
Under the Securities Exchange Act of 1934, any person engaged in a
distribution of the common stock may not simultaneously engage in market-making
activities with respect to the common stock for five business days prior to the
start of the distribution. In addition, each selling stockholder and any other
person participating in a distribution will be subject to the Securities
Exchange Act of 1934, which may limit the timing of purchases and sales of
common stock by the selling stockholders or any such other person. These factors
may affect the marketability of the common stock and the ability of brokers or
dealers to engage in market-making activities.
All expenses of this registration will be paid by us. These expenses
include the SEC's filing fees and fees under state securities or "blue sky"
laws.
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<PAGE> 25
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting company and file annual, quarterly and current
reports, proxy statements and other information with the SEC. You may read and
copy these reports, proxy statements and other information at the SEC's public
reference rooms at Room 1024, 450 Fifth Street, N.W., Washington, D.C., as well
as at the SEC's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, NY
10048. You can request copies of these documents by writing to the SEC and
paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for
more information about the operation of the public reference rooms. Our SEC
filings are also available at the SEC's web site at "http://www.sec.gov." In
addition, you can read and copy our SEC filings at the office of the National
Association of Securities Dealers, Inc. at 1735 "K" Street, Washington, D.C.
20006.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 prior to the termination of this offering:
- Annual Report on Form 10-K for the year ended December 31, 1999;
- Quarterly Reports on Form 10-Q for the quarters ended March 31,
2000 and June 30, 2000;
- Current Report on Form 8-K, filed April 14, 2000, as amended on
Form 8-K/A filed on May 11, 2000, and Current Reports on Form
8-K, filed July 26, 2000, August 31, 2000, September 19, 2000,
October 17, 2000 and October 31, 2000;
- Proxy Statement on Schedule 14A, filed August 14, 2000, as
amended September 1, 2000;
- Registration Statement on Form S-4, filed August 29, 2000, as
amended September 28, 2000 and October 11, 2000; and
- The description of the common stock contained in our
Registration Statement on Form 8-A, as filed on June 9, 1999
with the SEC. Exhibit 3.03 filed with this Form 8-A has been
superseded by Exhibit 3.01 filed with our Registration Statement
on Form S-4 filed on October 11, 2000. Exhibit 3.04 filed with
this Form 8-A has been superseded by Exhibit 3.03 filed with our
Quarterly Report on Form 10-Q for the quarter ended March 31,
2000.
Please note that as of the date of this filing, the most current
presentation of our financial statements, including the notes to our
consolidated financial statements, and the most current presentation of our
"Management's Discussion and Analysis of Financial Condition and Results of
Operation of Quokka Sports, Inc." is included in our Registration Statement on
Form S-4 filed on October 11, 2000.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Quokka Sports, Inc.
Attn: Corporate Secretary
525 Brannan Street, Ground Floor
San Francisco, CA 94107
(415) 908-3800
This prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information incorporated by reference or
provided in this prospectus and the registration statement. We have authorized
no one to provide you with different information. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of the document.
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<PAGE> 26
LEGAL MATTERS
For the purpose of this offering, Cooley Godward LLP, San Francisco,
California, is giving an opinion as to the validity of the common stock offered
by this prospectus.
EXPERTS
The financial statements incorporated in this Registration Statement on
Form S-3 by reference to the audited historical financial statements included
on page F-2 of Quokka Sports, Inc.'s Registration Statement on Form S-4 dated
October 11, 2000 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
25
<PAGE> 27
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, all of which will
be paid by us, in connection with the distribution of our common stock being
registered. All amounts are estimated, except the SEC registration fee:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 5,826
Accounting fees............................................. 10,000
Legal fees and expenses..................................... 10,000
Miscellaneous............................................... 1,000
Printing and engraving...................................... 8,000
Total................................................. $34,826
=======
</TABLE>
We will pay all fees and expenses associated with filing this
registration statement.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
As permitted by Section 145 of the Delaware General Corporation Law, our
Bylaws provide that (i) we are required to indemnify our directors and executive
officers to the fullest extent permitted by the Delaware General Corporation
Law, (ii) we may, in our discretion, indemnify other officers, employees and
agents as set forth in the Delaware General Corporation Law, (iii) to the
fullest extent permitted by the Delaware General Corporation Law, we are
required to advance all expenses incurred by our directors and executive
officers in connection with a legal proceeding (subject to certain exceptions),
(iv) the rights conferred in our Bylaws are not exclusive, (v) we are authorized
to enter into indemnification agreements with our directors, officers, employees
and agents and (vi) we may not retroactively amend the Bylaws provisions
relating to indemnity.
We have entered into agreements with our directors and executive
officers that require us to indemnify such persons against expenses, judgments,
fines, settlements and other amounts that such person becomes legally obligated
to pay (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such person may be made a
party by reason of the fact that such person is or was our director or officer
or any of our affiliated enterprises, provided such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to our
best interests. The indemnification agreements also set forth certain procedures
that will apply in the event of a claim for indemnification thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
2.1 Agreement and Plan of Merger and Reorganization dated July 20,
2000, as amended, by and among Quokka Sports, Inc. and Total
Sports Inc.*
4.1 Amended and Restated Certificate of Incorporation**
4.2 Amended and Restated Bylaws***
5.1 Opinion of Cooley Godward LLP.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Cooley Godward LLP (reference is made to Exhibit
5.1).
24.1 Power of Attorney. Reference is made to the signature page.
* Previously filed as an Annex to the Company's registration
statement on Form S-4 filed on October 11, 2000.
** Previously filed as an Exhibit to the Company's registration
statement on Form S-4 filed on October 11, 2000.
</TABLE>
II-1
<PAGE> 28
*** Previously filed as an Exhibit to the Company's Report on Form
10-Q filed on May 15, 2000.
ITEM 17. UNDERTAKINGS.
The undersigned registrant undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers, and controlling persons
pursuant to the provisions described in Item 14 or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by one of our directors, officers, or controlling
persons in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer, or controlling person in connection with the
securities being registered, we will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
We further undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of a
prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a
20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not
apply if the registration statement is on Forms S-3, Form S-8 or
Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Securities and
Exchange Commission by the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial
II-2
<PAGE> 29
bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
We hereby undertake that, for purposes of determining any liability
under the Securities Act of 1933, each filing of our annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to the initial bona fide offering
thereof.
II-3
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Francisco, State of California, on the 8th day of
November, 2000.
QUOKKA SPORTS, INC.
By: /s/ Les Schmidt
--------------------------------------
LES SCHMIDT
Executive Vice President and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Alvaro J. Saralegui, Les Schmidt and Alan
S. Ramadan, or any of them, each with the power of substitution, his
attorney-in-fact, to sign any amendments to this Registration Statement
(including post-effective amendments), with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Alvaro J. Saralegui President and Chief Executive Officer November 8, 2000
--------------------------------
Alvaro J. Saralegui and Director (Principal Executive
Officer)
/s/ Les Schmidt Executive Vice President and Chief November 8, 2000
-------------------------------- Financial Officer (Principal
Les Schmidt Financial and Accounting Officer)
/s/ Alan S. Ramadan Chairman of the Board of Directors November 8, 2000
--------------------------------
Alan S. Ramadan
/s/ Richard H. Williams Vice Chairman of the Board of November 8, 2000
-------------------------------- Directors
Richard H. Williams
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John Bertrand Director November 8, 2000
--------------------------------
John Bertrand A.M.
/s/ James G. Shennan Director November 8, 2000
--------------------------------
James G. Shennan, Jr.
/s/ Barry M. Weinman Director November 8, 2000
--------------------------------
Barry M. Weinman
/s/ Walter W. Bregman Director November 8, 2000
--------------------------------
Walter W. Bregman
</TABLE>
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
2.1 Agreement and Plan of Merger and Reorganization dated July 20,
2000, as amended, by and among Quokka Sports, Inc. and Total
Sports Inc.*
4.1 Amended and Restated Certificate of Incorporation**
4.2 Amended and Restated Bylaws***
5.1 Opinion of Cooley Godward LLP.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Cooley Godward LLP (reference is made to Exhibit
5.1).
24.2 Power of Attorney. Reference is made to the signature page.
* Previously filed as an Annex to the Company's registration
statement on Form S-4 filed on October 11, 2000.
** Previously filed as an Exhibit to the Company's registration
statement on Form S-4 filed on October 11, 2000.
*** Previously filed as an Exhibit to the Company's Report on
Form 10-Q filed on May 15, 2000.
</TABLE>
