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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 2000
REGISTRATION NO. 333-
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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
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(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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ALAN RAMADAN
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 GUERNSEY DANIEL CLIVNER
ISOBEL JONES RICHARD CAPELOUTO
STEVE DAETZ SIMPSON THACHER & BARTLETT
JASON THRONE 3373 HILLVIEW AVENUE, SUITE 250
COOLEY GODWARD LLP PALO ALTO, CALIFORNIA 94304
ONE MARITIME PLAZA, 20TH FLOOR (650) 251-5000
SAN FRANCISCO, CALIFORNIA 94111
(415) 693-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
from time to time 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 34,198,758 shares(2) $2.84375 $97,252,718 $25,675
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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 on October 10, 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. This registration statement does not cover an
indeterminate number of shares due to floating conversion prices.
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 OCTOBER , 2000
PROSPECTUS
QUOKKA SPORTS, INC.
34,198,758 SHARES
COMMON STOCK
THE SELLING STOCKHOLDERS: The selling stockholders identified in this prospectus
are selling up to 34,198,758 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 22.
TRADING MARKET: Our common stock is listed on the Nasdaq National
Market under the symbol "QKKA". On October 12, 2000,
the closing sale price of our common stock, as
reported on the Nasdaq National Market, was $3.3125.
RISKS: INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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The shares of Quokka common stock offered or sold under this prospectus have not
been approved by the SEC or any state securities commission, nor have these
organizations determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
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THE DATE OF THIS PROSPECTUS IS OCTOBER , 2000
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TABLE OF CONTENTS
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PAGE PAGE
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Special Note on Forward-Looking Plan of Distribution.................... 22
Statements.............................. 2 Description of Capital Stock............ 23
Prospectus Summary...................... 3 Where You Can Find More Information..... 27
Risk Factors............................ 4 Incorporation by Reference.............. 27
Use of Proceeds......................... 19 Legal Matters........................... 28
Selling Stockholders.................... 20 Experts................................. 28
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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 and only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is accurate as of the date 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.
2.
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PROSPECTUS SUMMARY
OUR BUSINESS
OVERVIEW
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 PRIVATE PLACEMENT
On September 15, 2000, we closed a private placement in which we issued
7.0% convertible subordinated promissory notes in an aggregate face amount of
$77.4 million to institutional and other accredited investors and also issued
warrants to purchase an aggregate of 2,805,750 shares of common stock to the
noteholders. In connection with the private placement, we agreed to file a
registration statement on Form S-3 with the SEC within 35 days of September 15,
2000 to allow the re-sale by the noteholders of the common stock underlying the
notes and warrants we issued. This prospectus is a part of the registration
statement on Form S-3 we agreed to file.
In order to comply with the rules and regulations of the Nasdaq Stock
Market on which our common stock trades and to enable the full conversion of the
notes and the full exercise of the warrants, we will ask our stockholders to
approve the issuance of the common stock upon conversion of the notes and
exercise of the warrants. Until stockholder approval is obtained, each
noteholder is contractually restricted from converting its notes and exercising
its warrants into more than its pro rata share of 19.99% of the 46,383,304
shares of our common stock that were outstanding on September 15, 2000. We
anticipate obtaining stockholder approval by November 15, 2000.
3.
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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 acquiring our common stock
upon conversion of outstanding notes and exercise of warrants. 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 EIGHT 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 eight quarters, largely
due to substantial planned increases in marketing expenses and expenses
associated with our digital sports entertainment programming. We may be unable
to generate sufficient revenues or control operating expenses to achieve or
sustain profitability or generate positive cash flow. We adopted our current
business model in August 1996 and began generating revenues in connection with
this model during the first quarter of 1997. As of June 30, 2000, we had an
accumulated deficit of $112.7 million. Our net operating losses were $39.8
million for the six months ended June 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 $34.0 million for the six months ended June 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
4.
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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 quarter
ended June 30, 2000 were $12.6 million compared to revenues of $2.6 million for
the quarter ended June 30, 1999 and revenues of $9.5 million for the prior
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. As of June 30, 2000, two sponsors accounted for 38% 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 three months ended June 30, 2000, we spent
$3.9 million for advertising and $7.7 million for the year ended December 31,
1999. We expect to significantly increase our advertising expenses in future
periods as we build the Quokka brands and awareness of our properties in our
network. We may lack the resources necessary to accomplish these initiatives.
Even if the resources are available, we cannot be certain that our multi-brand
enhancement strategy will deliver the brand recognition and favorable audience
perception that we seek for any of our brands. If our strategy is unsuccessful,
these expenses may never be recovered and we may be unable to increase future
revenues. Even if we achieve greater recognition of our brands, competitors with
greater resources or a more recognizable brand could reduce our market share of
the emerging digital sports entertainment market.
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. We also recently 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, such as
the approval of that transaction by Quokka's stockholders, 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 382
employees at June 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 Alan Ramadan, our president and chief executive officer, or other
key employees could prevent us from executing our business strategy. Competition
for these personnel is intense, and we may not be able to successfully attract,
integrate or retain sufficiently qualified personnel. Our anticipated
programming schedule in the near future will require that we attract
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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. This might include outages and
delays resulting from the year 2000 problem. These outages and delays could
adversely affect the level of Internet usage as well as the level of traffic on
our web sites. In addition, the Internet could lose its viability due to delays
in the development or adoption of new standards and protocols to handle
increased levels of activity or due to regulation by governments, businesses or
other organizations.
Our programming is designed to operate on today's Internet platform as
well as other interactive systems that transmit digitized data, such as cable
and satellite systems, in the future. These future systems are commonly referred
to as "broadband" systems and are expected to enable transmission of large
amounts of digitized material, such as video clips, within a relatively short
time frame. Delays in the development of broadband systems could harm our
ability to distribute our programming through subscription services and
pay-per-view events, which could adversely affect our ability to generate
revenues from these types of programming.
THE ONLINE DIGITAL SPORTS ENTERTAINMENT INDUSTRY IS INTENSELY COMPETITIVE, AND
WE MAY BE UNABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE COMPETITORS.
The market for Internet services and products is relatively new, intensely
competitive and rapidly changing. Since the Internet's commercialization in the
early 1990's, the number of web sites on the Internet competing for consumers'
attention and spending has proliferated. We expect that competition will
continue to intensify. We may be unable to compete successfully against current
and future competitors.
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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CERTAIN REGULATORY AGENCIES MUST APPROVE THE MERGER AND COULD IMPOSE CONDITIONS
ON, DELAY OR REFUSE TO APPROVE THE MERGER.
To complete the merger, Quokka and Total Sports must obtain approvals or
consents from certain federal regulatory commissions and other government
agencies. These agencies may seek to impose conditions on Quokka or Total Sports
before giving their approval or consent, and those conditions could harm the
combined company's business. In addition, a delay in obtaining the requisite
regulatory approvals will delay the completion of the merger. The companies may
be unable to obtain the required regulatory approvals, or obtain them within the
time frame contemplated in the merger agreement.
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 7.00% 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.
IF WE FAIL TO OBTAIN STOCKHOLDER APPROVAL BY NOVEMBER 15, 2000, WE MAY BE
REQUIRED TO REDEEM THE NOTES AT A PREMIUM REDEMPTION PRICE.
To satisfy Nasdaq rules and regulations, we have agreed to obtain the
approval of our stockholders for the issuance of the common stock underlying the
notes and warrants that may exceed 19.99% of our outstanding common stock on
September 15, 2000 and that could result in a change of control of Quokka. If we
do not obtain the stockholder approval by November 15, 2000, then the
noteholders will be restricted by Nasdaq rules and regulations from converting
their notes in full and exercising their warrants in full, and may request that
we redeem their notes at the premium redemption price identified below in the
risk factor entitled "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." If we were required to redeem the notes because of our
failure to obtain the stockholder approval, we anticipate that the premium
redemption price would be at least $89 million plus the accrued interest on the
notes and could be greater if our common stock is trading significantly above
the then applicable conversion price.
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;
16.
<PAGE> 18
- 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
17.
<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.
18.
<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 proceeds from the sale of the common stock by the
selling stockholders.
19.
<PAGE> 21
SELLING STOCKHOLDERS
The common stock covered by this prospectus consists of shares issued or
issuable upon conversion of our 7.0% convertible promissory notes due September
15, 2005, at an initial conversion price of $5.415, and the exercise of warrants
to purchase 2,805,750 shares of our common stock. The selling stockholders
acquired all of the notes and warrants in exchange for a cash investment of
$77.4 million given to us on September 15, 2000.
The following table sets forth certain information regarding the selling
stockholders and is based solely upon information supplied by the noteholders,
our officers, directors and principal stockholders and Schedules 13D and 13G
filed with the SEC. The table includes:
- the name of each selling stockholder;
- the beneficial ownership prior to the offering by the selling
stockholders, both before and after we obtain stockholder approval
as required by the rules and regulations of the Nasdaq Stock Market;
- the maximum number of shares of common stock that may be offered by
each selling stockholder under this prospectus; and
- beneficial ownership of each selling stockholder after the offering.
<TABLE>
<CAPTION>
THE
BEFORE OFFERING OFFERING AFTER OFFERING
------------------------------------------------------------------------------------------------------------------
BEFORE STOCKHOLDER AFTER STOCKHOLDER
APPROVAL APPROVAL
------------------------------------------------------------------------------------------------------------------
MAXIMUM
BENEFICIAL BENEFICIAL NUMBER BENEFICIAL
OWNERSHIP OWNERSHIP OF SHARES OWNERSHIP
NOTEHOLDER (1) %(1) (2) %(2) (3) (4) %(4)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Deutsche Bank AG .................. 1,796,904 3.45% 3,313,833 4.83% 6,627,666 0 *
GE Capital Equity
Investments, Inc.(5)............. 1,502,941 2.90 2,767,049 4.06 4,418,444 5,521 *
Societe Generale................... 898,452 1.75 1,656,917 2.47 3,313,833 0 *
Cranshire Capital, L.P............. 838,555 1.64 1,546,455 2.31 3,092,911 0 *
Canadian Imperial Holdings Inc. ... 598,968 1.18 1,104,611 1.66 2,209,222 0 *
DIRECTV Enterprises, Inc. ......... 598,968 1.18 1,104,611 1.66 2,209,222 0 *
Advantage Fund II Ltd. ............ 598,968 1.18 1,104,611 1.66 2,209,222 0 *
Velocity Investment Partners Ltd. . 598,968 1.18 1,104,611 1.66 2,209,222 0 *
Lionhart Investments Ltd. ......... 359,381 * 662,767 1.00 1,325,533 0 *
National Broadcasting
Company, Inc.(5)................. 1,502,941 2.90 2,767,049 4.06 1,104,611 5,521 *
RS Orphan Fund, L.P.(6)............ 479,174 * 883,689 1.34 1,226,118 0 *
J.O. Hambro Capital Management..... 179,690 * 331,383 * 662,767 0 *
RS Orphan Offshore Fund, L.P.(6)... 479,174 * 883,689 1.34 541,259 0 *
Middlefield Ventures, Inc.(7) ..... 4,267,637 7.82 4,368,765 6.27 441,844 4,147,843 6.35
Accel VI L.P.(8)................... 3,624,823 6.72 3,725,951 5.40 359,661 3,488,789 5.34
Accel Internet Fund II L.P.(8)..... 3,624,823 6.72 3,725,951 5.40 45,952 3,488,789 5.34
Accel Keiretsu VI L.P.(8).......... 3,624,823 6.72 3,725,951 5.40 5,744 3,488,789 5.34
Accel Investors '98 L.P.(8)........ 3,624,823 6.72 3,725,951 5.40 30,487 3,488,789 5.34
Media Technology Ventures, L.P.(9). 5,015,726 9.07 5,116,854 7.27 329,835 4,895,932 7.50
Media Technology Ventures
Entrepreneurs Fund, L.P.(9)...... 5,015,726 9.07 5,116,854 7.27 42,588 4,895,932 7.50
Media Technology Equity
Partners, L.P.(9)............... 5,015,726 9.07 5,116,854 7.27 62,837 4,895,932 7.50
Media Technology Entrepreneurs
Fund II, L.P.(9)................ 5,015,726 9.07 5,116,854 7.27 4,374 4,895,932 7.50
Thomson Management Growth
Fund, L.P.(9)................... 5,015,726 9.07 5,116,854 7.27 2,209 4,895,932 7.50
Taib Bank E.C...................... 59,897 * 110,461 * 220,922 0 *
Sandford R. Robertson.............. 59,897 * 110,461 * 220,922 0 *
Wakefield Group II LLC............. 2,185,938 4.16 2,236,502 3.31 220,922 2,126,041 3.26
Paul H. Stephens and Eleanor M.
Stephens TTEE U/T/A DTD 7/6/98(6) 59,897 * 110,461 * 220,922 0 *
Rana General Holding Ltd........... 59,897 * 110,461 * 220,922 0 *
AIM Investment Limited............. 59,897 * 110,461 * 220,922 0 *
Glenwood Partners II............... 35,938 * 66,277 * 132,553 0 *
Augustus O. Tai(10)................ 2,943,992 5.53 2,964,217 4.34 88,369 2,920,033 4.47
Shennan Family Partnership(10)..... 2,943,992 5.53 2,964,217 4.34 88,369 2,920,033 4.47
Lawrence K. Orr(10)................ 2,932,012 5.53 2,942,125 4.34 44,184 2,920,033 4.47
M. Kathleen Behrens................ 11,979 * 22,092 * 44,184 0 *
----------
TOTAL 34,198,758
==========
</TABLE>
* Less than one percent (1%)
------------
(1) The shares of common stock beneficially owned before the offering and
before the stockholder vote equals the sum of (a) any shares beneficially
owned unrelated to the notes and warrants and (b) the shares beneficially
owned underlying the notes and warrants representing the selling
stockholder's pro rata share of 19.99% of the 46,383,304 shares that were
outstanding as of September 15, 2000. Percentages are based on 50,308,683
shares of our common stock that were outstanding on October 10, 2000. In
calculating the percentage for each selling stockholder, the shares
represented by item (b) above are included in the denominator of the
shares outstanding for that selling stockholder but are not included in
the denominator for any other person.
20.
<PAGE> 22
(2) The shares of common stock beneficially owned before the offering and
after the stockholder vote equals the sum of (a) any shares beneficially
owned unrelated to the notes and warrants and (b) the shares beneficially
owned by the selling stockholder upon conversion of all notes and exercise
of all warrants, assuming a conversion price of $5.415. The actual number
of shares of common stock issuable upon conversion of the notes is
indeterminate, is subject to adjustment, and could be materially less or
more than the amounts set forth in the table above. Percentages are based
on 65,308,683 shares of our common stock to be outstanding after the
stockholder approval of both the issuance of the common stock underlying
the notes and warrants and the merger with Total Sports Inc., including
the issuance of 15,000,000 shares of common stock to the holders of the
capital stock of Total Sports. In calculating the percentage for each
selling stockholder, the shares represented by item (b) above are included
in the denominator of the shares outstanding for that selling stockholder
but are not included in the denominator for any other person.
(3) Represents each selling stockholder's pro rata share of 200% of the
aggregate number of shares issuable upon conversion of the notes (assuming
a conversion price of $5.415) and exercise of the warrants, or 34,198,758
shares. This represents a good faith estimate of the number of shares that
may be issued upon conversion of the notes and exercise of the warrants
and is based upon: (1) the number of shares currently issuable upon
conversion of the notes and exercise of the warrants; (2) the increased
number of shares issuable upon conversion of the notes if the conversion
price is reset; and (3) the increased number of shares issuable upon
conversion of the notes if the face amount of the notes is increased as a
result of our election to make interest payments with payments-in-kind
rather than cash. A payment-in-kind has the effect of increasing the face
amount of the notes.
(4) The shares of common stock beneficially owned after the offering equals
the shares beneficially owned unrelated to the notes and warrants.
Percentages are based on 65,308,683 shares of our common stock to be
outstanding after the stockholder approval of both the issuance of the
common stock underlying the notes and warrants and the merger with Total
Sports Inc., including the issuance of 15,000,000 shares of common stock
to the holders of the capital stock of Total Sports.
(5) Includes 5,521 shares owned by Union Fidelity Life Insurance Company
(UFLIC), a company affiliated with GE Capital Equity Investments, Inc.
(GECEI) and National Broadcasting Company, Inc. (NBC). GECEI and NBC are
affiliated entities. GECEI is a subsidiary of General Electric Capital
Corporation (GE Capital), GE Capital is a subsidiary of General Electric
Capital Services, Inc. (GECS), and GECS is a subsidiary of General
Electric Company (GE). NBC is a subsidiary of National Broadcasting
Company Holding, Inc. (NBCH), and NBCH is a subsidiary of GE. UFLIC is a
subsidiary of General Electric Capital Assurance Company (GECAC), GECAC is
a subsidiary of GNA Corp. (GNA), GNA is a subsidiary of GE Financial
Assurance Holdings, Inc. (GEFA), and GEFA is a subsidiary of GE Capital.
Each of GECEI and NBC disclaim beneficial ownership of the 5,521 shares
owned by UFLIC.
(6) RS Orphan Fund, L.P. and RS Orphan Offshore Fund, L.P. (the Orphan Funds)
are affiliated entities as they are under the common control of Value
Group LLC, the general partner of RS Orphan Fund, L.P. and the investment
advisor of RS Orphan Offshore Fund, L.P. The beneficial ownership of the
Orphan Funds includes 613,059 shares that may be acquired by RS Orphan
Fund, L.P. and 270,630 shares that may be acquired by RS Orphan Offshore
Fund, L.P. Paul H. Stephens, the portfolio manager for each of the Orphan
Funds, may be deemed to be the beneficial owner of the shares that may be
acquired by the Orphan Funds. Mr. Stephens, who is the beneficial owner
of the 110,461 shares that may be acquired by the trust Paul H. Stephens
and Eleanor M. Stephens TTEE U/T/A DTD 7/6/98, disclaims beneficial
ownership of the shares that may be acquired by the Orphan Funds within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934.
(7) Middlefield Ventures, Inc. is affiliated with Intel Corporation. Includes
4,184,093 shares owned by Intel Corporation.
(8) Includes an aggregate of 3,488,789 shares beneficially owned by the Accel
entities identified in the table unrelated to the notes and warrants,
including 2,839,875 shares owned by Accel VI L.P., 362,834 shares owned by
Accel Internet Fund II L.P., 45,354 shares owned by Accel Keiretsu VI L.P.
and 240,726 shares owned by Accel Investors' 98 L.P. Includes 16,240
shares owned by Accel Investors '99(c) LP, an affiliated entity that did
not acquire any notes or warrants.
(9) Barry M. Weinman, a director of Quokka, is a general partner of each of
these affiliated funds (the MTV Funds) and, as such, may be deemed to have
an indirect pecuniary interest (within the meaning of Rule 16a-1 under the
Securities Exchange Act of 1934) in an indeterminate portion of the shares
beneficially owned by these funds. Mr. Weinman disclaims beneficial
ownership of these shares within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934. Includes an aggregate of 4,895,932 shares
owned the MTV Funds unrelated to the notes and warrants, including
3,654,794 shares owned by Media Technology Ventures, L.P., 471,907 shares
owned by Media Technology Ventures Entrepreneurs Fund, L.P., 696,290
shares owned by Media Technology Equity Partners, L.P., 48,464 shares
owned by Media Technology Entrepreneurs Fund II, L.P. and 24,477 shares
owned by Thomson Management Growth Fund, L.P.
(10) Includes 2,759,534 shares owned by Trinity Ventures V, LP and 160,499
shares owned by Trinity V, Side-by-Side Fund, LP. James G. Shennan, a
director of Quokka, is affiliated with the Shennan Family Partnership.
Messrs. Shennan, Tai and Orr are general partners of Trinity Ventures V,
LP and Trinity V, Side-by-Side Fund, LP and therefore may be deemed to
have an indirect pecuniary interest (within the meaning of Rule 16a-1
under the Securities Exchange Act of 1934) in an indeterminate portion of
the shares beneficially owned by these entities. Messrs. Shennan, Tai and
Orr disclaim beneficial ownership of these shares within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934.
------------
The number of shares that may be actually sold by each selling stockholder
will be determined by such selling stockholder. Because each selling stockholder
may sell all, some or none of the shares of common stock
21.
<PAGE> 23
which it holds, and because the offering contemplated by this prospectus is not
currently being underwritten, we cannot estimate the number of shares of common
stock that will be held by the selling stockholders upon termination of the
offering. We also cannot determine the exact number of shares of common stock
that we will ultimately issue upon conversion of the notes and exercise of the
warrants. The number of shares of common stock issuable upon conversion of the
notes will decline if notes are converted, will change if there are stock
splits, combinations, other distributions or other similar events, and will
increase if the conversion price is reset downward or if we elect to pay
interest on the notes with payments-in-kind rather than cash. The number of
shares of common stock underlying warrants owned by each noteholder will decline
if warrants are exercised and will change if there are stock splits,
combinations, other distributions and other similar events.
In order to comply with the rules and regulations of the Nasdaq Stock
Market on which our common stock trades and to enable the full conversion of the
notes and the full exercise of the warrants, we will ask our stockholders to
approve the issuance of the common stock upon conversion of the notes and
exercise of the warrants. Until stockholder approval is obtained, each
noteholder is contractually restricted from converting its notes and exercising
its warrants into more than its pro rata share of 19.99% of the 46,383,304
shares of our common stock that were outstanding on September 15, 2000. We
anticipate obtaining stockholder approval by November 15, 2000.
Each selling stockholder identified in this prospectus has agreed to
notify us of any information that is required to be disclosed in this prospectus
so that the information contained in this prospectus is not materially
misleading and does not omit to state any material fact required to be stated in
this prospectus or necessary to make the statements in this prospectus not
misleading in light of the circumstances in which the statements were made.
PLAN OF DISTRIBUTION
The selling stockholders may offer and sell shares from time to time. 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
are required to inform us of any transfers that occur so we can amend or
supplement this prospectus in compliance with applicable securities laws.
The selling stockholders will act independently of Quokka in making
decisions with respect to the timing, manner and size of each sale. Sales of the
shares being sold by the selling stockholders are for the selling stockholders'
own accounts. We will not receive any proceeds from the sale of the shares
offered hereby. Sales may be made in one or more transactions over the Nasdaq
National Market or otherwise, at fixed prices, at market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
The shares may be sold by one or more of the following:
- a block trade in which the broker-dealer engaged by a selling
stockholder will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to
facilitate the transaction;
- purchases by the broker-dealer as principal and resale by the broker
or dealer for its account pursuant to this prospectus; and
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
The selling stockholders have advised us that they have not, as of the
date of this prospectus, entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers for the sale of shares, nor
is there an underwriter or coordinating broker acting in connection with the
proposed sale of shares by the selling stockholders.
In connection with distributions of the shares or otherwise, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions. In connection with these transactions, broker-dealers or
financial institutions may engage in short sales of the shares in the course of
hedging the positions they assume with selling stockholders. The selling
stockholders may also sell shares short and redeliver the shares to close out
these short positions. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions that
require the delivery to the broker-dealer or financial institution of the
shares, which the broker-dealer or financial institution may resell or otherwise
transfer under this prospectus. The selling
22.
<PAGE> 24
stockholders may also loan or pledge the shares to a broker-dealer or other
financial institution and the broker-dealer or financial institution may sell
the shares so loaned or, upon a default, the broker-dealer may sell the pledged
shares under this prospectus.
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. Broker-dealers engaged by the selling
stockholders may arrange for other broker-dealers to participate in selling
shares. 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 of 1933 and will
be required to deliver a copy of this prospectus to any person who purchases any
common stock from or through such underwriter, broker-dealer or agent. Any
profits on the resale of shares of common stock and any compensation in the form
of commissions, discounts or concessions received by any underwriter,
broker-dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act. Broker-dealers or agents may also receive
compensation in the form of discounts, concessions or commissions from the
purchasers of shares for whom the broker-dealers may act as agents or to whom
they sell as principal, or both. The compensation as to a particular
broker-dealer might exceed customary commissions.
In the event of a "distribution" of shares by a selling stockholder, the
selling stockholder, any selling broker or dealer and any "affiliated
purchasers" may be subject to Regulation M under the Securities Exchange Act of
1934, which would generally prohibit these persons from bidding for or
purchasing any security that is the subject of the distribution until his or her
participation in that distribution is completed. In addition, Regulation M
generally prohibits any "stabilizing bid" or "stabilizing purchase" for the
purpose of pegging, fixing or stabilizing the price of common stock in
connection with this offering.
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 under
this prospectus. The selling stockholders may elect to not sell 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.
Quokka and the selling stockholders have agreed to indemnify each other
and other related parties against specified liabilities, including liabilities
arising under the Securities Act. The selling stockholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of shares against liabilities, including liabilities arising
under the Securities Act.
We will bear all expenses of the offering of the common stock, including
registration and filing fees, printing expenses, administrative expenses and
certain legal and accounting fees. The selling stockholders will pay any
applicable underwriting commissions and expenses, brokerage fees and transfer
taxes, as well as the fees and disbursements of counsel to and experts for the
selling stockholders.
This prospectus will be supplemented or amended to satisfy requirements
under the Securities Act or other applicable laws.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 250,000,000 shares of common
stock, $0.0001 par value per share and 10,000,000 shares of preferred stock,
$0.0001 par value per share. As of October 10, 2000, there were 50,308,683
shares of our common stock and no shares of our preferred stock outstanding.
The transfer agent for our common stock is EquiServe LLP. Its telephone
number in the United States is (781) 575-3400.
23.
<PAGE> 25
DESCRIPTION OF COMMON STOCK
The common stock registered for resale in this prospectus is of the same
class as our outstanding common stock that is registered pursuant to Section 12
of the Securities Exchange Act of 1934, as amended, and which trades on the
Nasdaq National Market under the symbol "QKKA."
The description of our capital stock is available in our filings with
the SEC referenced in the section "Incorporation by Reference" and can be
obtained as described in the section "Where You Can Find More Information". The
description of our capital stock is a summary only and is qualified in its
entirety by the complete provisions of the certificate of incorporation, bylaws
and investors' rights agreement, which are filed or incorporated by reference in
the registration statement of which this prospectus is a part.
As described below under "Description of Convertible Promissory Notes
and Warrants", we have also issued 7.0% convertible promissory notes in a face
amount of $77.4 million, subject to adjustment. 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. See "Risk Factors - Risks Relating to the Private Placement".
DESCRIPTION OF CONVERTIBLE PROMISSORY NOTES AND WARRANTS
GENERAL
On September 15, 2000, we issued notes in an aggregate face amount of
$77.4 million and issued warrants to purchase an aggregate of 2,805,750 shares
of our common stock. Based on the initial $5.415 conversion price of the notes,
the notes can initially be converted into approximately 14,293,629 shares of our
common stock. When added to the 2,805,750 shares of common stock underlying the
warrants, this results in approximately 17,099,379 shares of our common stock to
be issued in exchange for the outstanding notes and warrants. Under this
prospectus, we are registering 200% of the number of shares of common stock
issuable upon conversion of the notes and exercise of the warrants, or
34,198,758 shares, because we may issue additional shares of common stock upon
conversion of the notes if the conversion price of the notes is adjusted or if
we elect to make interest payments on the notes with payments-in-kind rather
than cash.
PAYMENT OF PRINCIPAL AND INTEREST ON THE NOTES
The notes mature on September 15, 2005, at which time we must pay in
cash the face amount of the notes, together with all accrued and unpaid interest
and payments on the notes.
Starting December 31, 2000 and ending September 15, 2005, we must pay
interest on the notes quarterly. We may elect to pay interest either in cash or
by a "payment-in-kind", which means adding an amount equal to the interest
payable to the then outstanding face amount of the note. If we elect to pay
interest with payments-in-kind, the number of shares of common stock issuable
upon conversion of the notes will increase because the face amount of the notes
will increase. For example, assuming (1) no notes were converted during their
5-year term, (2) the conversion price remains at $5.415, and (3) all interest
payments were payments-in-kind, then the aggregate face amount of the notes
would increase by approximately $32.1 million, which would be convertible into
approximately 5.9 million shares of common stock; in aggregate, including the
payments-in-kind interest payments, the face amount of the notes on September
15, 2005 would be approximately $109.5 million, which would be convertible into
an aggregate of approximately 20.2 million shares of common stock. We may incur
contingent beneficial conversion charges if the interest on the notes is paid as
payment-in-kind interest.
EVENTS OF DEFAULT AND CONSEQUENCES
Events of default under the notes 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; (5) failure to
redeem all unconverted notes if we elect to exercise our optional redemption
rights; (6) an interfering event (as
24.
<PAGE> 26
described below under "Registration Rights of Common Stock Underlying Notes and
Warrants"); and (7) the breach of covenants or representations or warranties
made to the noteholders.
If an event of default identified in items (1), (3), (4) or (7) above
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 redemption price equal to 115% of the sum of the
face value of the notes, any accrued but unpaid interest on the notes and any
unpaid delay or default amounts on the notes. If the event of default in
subsection (2) above occurs all of the notes and any accrued but unpaid interest
and payments on the notes will automatically become immediately due and payable
at the premium redemption price. If an event of default identified in items (5)
or (6) occurs, then the noteholders may declare the notes and any accrued but
unpaid interest to be immediately due and payable and demand immediate payment
of a premium redemption price calculated as described below under "Registration
Rights of Common Stock Underlying Notes and Warrants".
CONVERSION PRICE ADJUSTMENTS
The initial conversion price of $5.415 will be adjusted for stock splits,
combinations, certain dividends and distributions and other similar events. In
addition, the initial conversion price will also be adjusted on a weighted
average basis in the event we issue additional securities below the then
applicable conversion price or the then market price of our common stock. There
will be no anti-dilution adjustment if we issue options or warrants to
employees, directors or bona fide consultants pursuant to plans approved by our
board of directors or the number of shares equal to 10% of the number of shares
we issue as consideration in any acquisition approved by our board of directors
and otherwise allowed under the terms of the agreements entered into with the
noteholders.
For a period of at least 75 trading days beginning February 15, 2001,
which is referred to as the "reset period," the holders of the notes may convert
the notes at a price equal to the seven lowest daily volume weighted average
prices in the 25 trading days next preceding the date of conversion, if lower
than $5.415. This seven-day average is known as a "reset price." After the reset
period ends, the holders may convert the notes at a price equal to an average of
the three lowest reset prices during the reset period if lower than $5.415.
The table on the following page illustrates the number of shares of common
stock we would be required to issue upon exercise of the warrants and conversion
of all of the notes issued on September 15, 2000 at an assumed conversion price
of $5.415 per share, as well as the number of shares of common stock we would be
required to issue assuming the conversion price is reset downward to $5.00,
$4.00 and $3.00 and no notes are converted prior to the reset adjustment.
<TABLE>
<CAPTION>
SHARES OF COMMON AGGREGATE SHARES OF
STOCK UNDERLYING SHARES OF COMMON COMMON STOCK
CONVERSION PRICE/ $77.4 MILLION FACE STOCK UNDERLYING UNDERLYING NOTES AND
RESET PRICE AMOUNT OF NOTES(1) WARRANTS WARRANTS
----------------- ------------------ ---------------- --------------------
<S> <C> <C> <C>
$5.415 14,293,629 2,805,750 17,099,379
$5.000 15,480,000 2,805,750 18,285,750
$4.000 19,350,000 2,805,750 22,155,750
$3.000 25,800,000 2,805,750 28,605,750
</TABLE>
(1) The number of shares of common stock issuable upon conversion of the notes
set forth above do not take into account any shares of common stock that
may be converted under payments-in-kind issuable as interest on the notes
(as described below). The table also assumes that no weighted average
anti-dilution adjustments are made to the notes and warrants.
OPTIONAL REDEMPTION
We have the right after March 15, 2002, provided certain conditions are
satisfied, to redeem all (but not less than all) of the notes for cash equal to
100% of the face amount of the notes plus accrued and unpaid interest on the
notes and any payments on the notes. We will only be able to redeem the notes if
the following apply:
- our common stock has traded, for at least 30 consecutive trading
days, at a closing price of $10.83 (as adjusted for any stock splits
and related adjustments);
25.
<PAGE> 27
- 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.
VOTING RIGHTS
The holders of the notes have no voting rights. Upon conversion of any
notes, the shares of common stock issued thereunder will have the same voting
rights as holders of our outstanding common stock.
RIGHT OF FIRST REFUSAL
If we propose to issue any additional equity securities, convertible
securities or equity credit lines, the noteholders have a right to be notified
of these future offerings and have a right of first refusal to acquire their pro
rata interest of the future offering. This right of first refusal terminates 180
days after the effectiveness of the registration statement we file to register
the common stock underlying the notes and warrants. This right of first refusal
does not apply to: (1) transactions (the primary purpose of which is not to
raise equity capital) involving issuing our securities as consideration in
mergers, in connection with strategic partners or as consideration for the
acquisition of a business, product or other assets; (2) the issuance of common
stock in an underwritten public offering at not less than 90% of the prevailing
market price; (3) the issuance of common stock upon conversion or exercise of
outstanding options and warrants; or (4) the issuance of options or common stock
to employees, directors or bona fide consultants if approved by a majority of
our independent, outside directors.
WARRANTS
In connection with the sale of the notes, we issued warrants to purchase
up to 2,805,750 shares of our common stock. These warrants expire on September
15, 2005 and have an exercise price of $8.00 per share. If all of these warrants
were exercised to purchase 2,805,750 shares of common stock, we would receive
proceeds of approximately $22.4 million. The number of shares issuable upon
exercise of the warrants will be adjusted for stock splits, combinations other
distributions and other similar events. In addition, the exercise price of the
warrants will also be adjusted on a weighted average basis in the event we issue
additional securities below the then applicable conversion price or the then
market price of our stock. There will be no anti-dilution adjustment if (1) we
issue options or warrants to employees, directors or bona fide consultants, (2)
we issue shares in strategic corporate alliances not undertaken principally for
financing purposes, or (3) we issue shares in acquisitions. The holders of the
warrants have no voting rights. Upon exercise of any warrants, the shares of
common stock issued thereunder will have the same voting rights as holders of
our outstanding common stock.
REGISTRATION RIGHTS OF COMMON STOCK UNDERLYING NOTES AND WARRANTS
Subject to some limitations, we have agreed to use our best efforts to
maintain the liquidity of the common stock underlying the notes and warrants. In
particular, we have agreed to the following: (1) registering the shares of
common stock underlying the notes and warrants and having the registration
statement declared effective by January 15, 2001; (2) listing the common stock
underlying the notes and warrants with the Nasdaq National Market and avoiding
any delisting of the shares; (3) avoiding the suspension of trading in our
common stock in excess of 45 days in any 12 months; and (4) maintaining enough
authorized shares of common stock to enable the conversion of the notes and the
exercise of the warrants. The failure to accomplish any of these four events
would be deemed an "interfering event." If an interfering event occurs (as
described above) 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.
26.
<PAGE> 28
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 and September 19, 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 our principal office 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.
27.
<PAGE> 29
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 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.
28.
<PAGE> 30
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........................................ $25,675
Accounting fees............................................. 10,000
Legal fees and expenses..................................... 20,000
Miscellaneous............................................... 1,000
Printing and engraving...................................... 8,000
Total................................................. $64,675
========
</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>
4.1 Amended and Restated Certificate of Incorporation*
4.2 Amended and Restated Bylaws**
4.3 Amended and Restated Investors' Rights Agreement, dated September 15, 2000***
4.4 Note Purchase Agreement, dated September 15, 2000 ***
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.
</TABLE>
----------
* Previously filed as an Exhibit to the Company's registration
statement on Form S-4 filed on October 11, 2000.
II-1
<PAGE> 31
** Previously filed as an Exhibit to the Company's Report on Form 10-Q filed
on May 15, 2000.
*** Incorporated by reference to our Report on Form 8-K filed on September 19,
2000.
ITEM 17. UNDERTAKINGS.
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 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
II-2
<PAGE> 32
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> 33
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 13th day
of October, 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 Alan S. Ramadan, Les Schmidt and Richard
H. Williams, 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 Alan S. Ramadan President and Chief Executive Officer October 13, 2000
-------------------------------- and Director (Principal Executive
ALAN S. RAMADAN Officer)
/s/ Les Schmidt Executive Vice President and Chief October 13, 2000
-------------------------------- Financial Officer (Principal
LES SCHMIDT Financial and Accounting Officer)
/s/ Richard H. Williams Chairman of the Board of Directors October 13, 2000
--------------------------------
RICHARD H. WILLIAMS
/s/ John Bertrand A.M. Director October 13, 2000
--------------------------------
JOHN BERTRAND A.M.
</TABLE>
II-4
<PAGE> 34
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ James G. Shennan, Jr. Director October 13, 2000
--------------------------------
JAMES G. SHENNAN, JR.
/s/ Barry M. Weinman Director October 13, 2000
--------------------------------
BARRY M. WEINMAN
/s/ Walter W. Bregman Director October 13, 2000
--------------------------------
WALTER W. BREGMAN
</TABLE>
II-5
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<S> <C>
4.1 Amended and Restated Certificate of Incorporation*
4.2 Amended and Restated Bylaws**
4.3 Amended and Restated Investors' Rights Agreement, dated September 15, 2000***
4.4 Note Purchase Agreement, dated September 15, 2000 ***
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.
</TABLE>
----------
* 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.
*** Incorporated by reference to our Report on Form 8-K filed on September 19,
2000.
