<PAGE>
As filed with the Securities and Exchange Commission on February 23, 2000
Registration No. 333-90905.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Pre-Effective Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
TOTAL SPORTS INC.
(Exact name of registrant as specified in its charter)
Delaware 7375 56-2088015
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
234 Fayetteville Street
Raleigh, North Carolina 27601
(919) 573-8020
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Frank A. Daniels, III
Chairman and Chief Executive Officer
Total Sports Inc.
234 Fayetteville Street
Raleigh, North Carolina 27601
(919) 573-8020
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Please send copies to:
Larry E. Robbins, Esq. Gerald S. Tanenbaum, Esq.
Donald R. Reynolds, Esq. Cahill Gordon & Reindel
Wyrick Robbins Yates & Ponton LLP 80 Pine Street
4101 Lake Boone Trail, Suite 300 New York, New York 10005
Raleigh, North Carolina 27607 (212) 701-3000
(919) 781-4000 Fax (212) 269-5420
Fax (919) 781-4865
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus
Subject to Completion
Dated February 23, 2000
4,166,667 Shares
[LOGO OF TOTAL SPORTS]
Common Stock
Total Sports Inc. is offering 4,166,667 shares of its common stock. This is our
initial public offering. We estimate that the initial public offering price
will be between $11.00 and $13.00 per share.
We have applied to have the shares of common stock listed on the Nasdaq
National Market under the symbol "TSPT."
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount Total Sports
- ---------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ---------------------------------------------
Total $ $ $
- ---------------------------------------------
</TABLE>
We have agreed to grant the underwriters a 30-day option to purchase up to an
additional 625,000 shares of common stock to cover over-allotments.
J.P. Morgan & Co.
Chase H&Q
Allen & Company Incorporated U.S. Bancorp Piper Jaffray
, 2000
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that con-
tained in this prospectus. This prospectus is an offer to sell, or a solicita-
tion of offers to buy, shares of common stock only in jurisdictions where of-
fers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of de-
livery of this prospectus or of any sale of our common stock. In this prospec-
tus, "the Company," " Total Sports," "we," "us" and "our" refer to Total Sports
Inc.
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Forward-Looking Statements............ 14
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................... 19
Business.............................. 33
Management............................ 45
Certain Relationships and Related
Transactions......................... 51
Principal Stockholders................ 56
Description of Capital Stock.......... 59
Shares Eligible for Future Sale....... 62
Underwriting.......................... 63
Legal Matters......................... 66
Experts............................... 66
Where You Can Find More Information... 66
Index to Financial Statements......... F-1
</TABLE>
---------------
Until , 2000, all dealers that buy, sell or trade the common stock, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
---------------
We own or have rights to various trademarks and trade names used in our busi-
ness. These include Total Sports SM, TotalCast(TM), Total Baseball(R), Powered
by Total Sports SM, Total College Sports Network SM, Total Hockey(TM), Total
Football(R) and our logo. This prospectus also includes trademarks, service
marks and trade names owned by other companies.
<PAGE>
Prospectus Summary
You should read the following summary together with the more detailed informa-
tion and our financial statements and notes appearing elsewhere in this pro-
spectus before you decide to purchase our common stock.
Except as otherwise indicated, the share information in this prospectus assumes
that the underwriters do not exercise the option granted by us to purchase ad-
ditional shares in this offering to cover over-allotments and assumes, upon
consummation of this offering, the redemption or conversion of all of our pre-
ferred stock and the exercise of warrants to purchase common stock that will
expire if not exercised prior to the consummation of this offering.
Total Sports Inc.
Total Sports is an event-centered, online sports media company. We provide
sports fans and enthusiasts with live, or real-time, simulcasts of events in
eight collegiate and professional sports, game summaries, in-depth statistical
analysis, breaking news and the opportunity to purchase sports-related merchan-
dise. We believe we are differentiated from our competitors by our live-event
focus and our business architecture, which consists of our combination of pro-
prietary technology and people who cover live events and provide other sports
content. Our business architecture enables us to provide statistically de-
tailed, real-time coverage and continually update and customize content. We
gather sports-related information and rapidly distribute it via the Internet.
Our contractual relationships with the NCAA through Host Communications, Major
League Baseball and Sports Illustrated provide us the majority of our content.
Our contractual relationship with NBC Sports, a Total Sports stockholder, pro-
vides us with the majority of our promotion on television. Our objective is to
become the leading global online sports media company with a focus on live
event coverage.
We derive our revenues from three primary sources:
. Digital publishing, or selling sponsorships and advertisements, licensing
sports information to our customers and providing Web site development serv-
ices;
. Print publishing, or selling sports-related books; and
. E-commerce, or selling sports equipment, apparel and memorabilia over the
Internet.
In 1999, digital publishing revenues accounted for 62.9% of our revenues, print
publishing revenues accounted for 21.3% of our revenues and e-commerce revenues
accounted for 15.8% of our revenues.
Users access our content in a number of ways, including:
. through our two main navigation sites, www.totalsports.net and
www.totalsports.com, which help users find our specific site covering the
sport, league or team in which they are interested;
. through our five sports networks, which consist of groups of our individual
sites, organized by sport, league, school or team, and linked together for
easy navigation;
. directly through one of our over 100 individual Web sites for sports,
leagues, schools or teams; or
. through the over 250 Web sites of our distribution customers to whom we dis-
tribute sports content.
Each of our five sports networks provides users with live event coverage, his-
torical databases, expert analysis and breaking news for a particular sport:
. Total College Sports Network;
. Total Baseball Network;
. Total Golf Network;
. Total Motor Racing Network; and
. Total Sportfishing Network.
1
<PAGE>
We believe our network approach provides users with an alternative that makes
it easier to navigate, find and use relevant sports-related content, statistics
and applications on the Internet. In addition, our event-centered approach al-
lows for targeted merchandising that takes advantage of specific sporting
events.
Our business architecture allows us to rapidly collect sports content from a
wide variety of sources, convert the content into one master format, and then
customize and distribute that content quickly and efficiently on our Total
Sports networks and to our distribution customers. We provide online, live-
event sports programming through our proprietary simulcast technology,
TotalCast, which integrates interactive graphical, textual and statistical
analysis and information into a real-time graphical and textual depiction. In
1999, we provided live coverage of over 4,000 sporting events using our
TotalCast and other simulcast technologies.
We believe Total Sports offers benefits to users, customers, sponsors, adver-
tisers and merchants. For example:
. Our graphical and textual presentation of live sporting events allows our
users to experience interactive play-by-play, real-time coverage over the
Internet while simultaneously receiving extensive and authoritative statis-
tical analysis and information.
. We supply our customers, who include online news and entertainment compa-
nies, broadcasters, leagues, athletic conferences and teams, with real-time,
event-centered sports coverage, attractive e-commerce and advertising oppor-
tunities, and outsourced sports content while maintaining their brand integ-
rity.
. We provide our sponsors, advertisers and merchants with a large and demo-
graphically attractive user base and targeted sales channels.
The growth of the online sports market presents an attractive alternative for
advertisers and merchants to reach sports enthusiasts. The total number of Web
users world-wide will increase from approximately 196 million in 1999 to 502
million by 2003, according to International Data Corporation. We believe, based
on our market research conducted in 1999, that sports-related Web sites are the
third most visited category on the Internet, and over 75% of all Internet users
have visited sports-related sites, averaging approximately 1.7 visits a day.
The popularity of sports has created significant opportunities to generate rev-
enue from advertising, live event sponsorship and sports-related commerce.
While the online sports market is new and rapidly evolving, we believe that
traditional media sports-related revenues indicate the opportunities available
online in the future. For example, based on research conducted by Sports Mar-
keting magazine, our management estimates that in 1998, between $12.2 billion
and $14.2 billion was invested globally in sports through the sponsorship of
events, federations, teams, individuals and stadiums. In the United States,
spectator sporting events, the sale of sporting goods and the sale of sports
publications generated approximately $130 billion of revenue in 1995, according
to the Georgia Institute of Technology. Additionally, approximately $4.8 bil-
lion was spent in 1998 on sports-related television advertising, according to
Paul Kagan & Associates.
Factors to Consider Before Investing
See "Risk Factors" starting on page 5 to read about factors you should consider
before you buy shares of our common stock. These factors include the following:
- We have a history of significant losses, having lost over $35.8 million
since inception;
- We expect losses for the foreseeable future;
- We operate in a highly competitive market; and
- After this offering, our executive officers and directors will be able
to control the election of directors and other stockholder votes because
they will beneficially own or control, collectively, approximately
56.80% of our outstanding stock.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock Offered......................... 4,166,667 shares
Common Stock Outstanding after the Offering.. 16,869,385 shares
Over-Allotment Option........................ 625,000 shares
Use of Proceeds.............................. We intend to use the net proceeds we receive from
this offering for expansion of our marketing efforts
and technology infrastructure, strategic acquisitions
and general corporate purposes, including working
capital.
Proposed Nasdaq National Market Symbol "TSPT"
</TABLE>
The outstanding share information set forth above is based on the number of
shares of our common stock outstanding on December 31, 1999 and includes a to-
tal of 4,635,100 shares of common stock which will be issued upon the consumma-
tion of this offering as a result of the conversion of all outstanding shares
of our Series B preferred stock, Series C preferred stock, Series C1 preferred
stock, Series D preferred stock and Series E preferred stock, and the assumed
cashless exercise of outstanding warrants to purchase 102,716 shares of common
stock that will expire if not exercised prior to the consummation of this of-
fering, resulting in the issuance of 46,504 shares. The outstanding share in-
formation also includes shares of common stock issuable to holders of Series D
preferred stock and to NBC Sports upon consummation of this offering if the per
share offering price is less than $33.18 with respect to holders of our Series
D preferred stock and $32.11 with respect to our common stock issued to NBC
Sports. Based upon a per share offering price of $12.00 (the midpoint of the
range shown on the cover page of this prospectus), we would issue an additional
3,778,641 shares of common stock to holders of Series D preferred stock and an
additional 1,359,810 shares of common stock to NBC Sports. See "Business--Stra-
tegic Relationships" and "Certain Relationships and Related Transactions" for a
description of our relationship with NBC Sports, including the provisions re-
quiring the additional issuance of these shares. At the time of the consumma-
tion of this offering, we will redeem all of our outstanding shares of Series A
preferred stock.
The outstanding share information set forth above excludes:
. 468,773 shares of common stock issuable upon the exercise of stock options
outstanding under our 1997 stock plan as of December 31, 1999 with a weight-
ed-average exercise price of $9.37 per share;
. an additional 702,838 shares reserved for issuance under our 1997 stock
plan;
. 1,826,947 shares of common stock issuable upon exercise of outstanding war-
rants (including warrants for Series B preferred stock and Series D1 pre-
ferred stock that will convert into warrants to purchase our common stock
upon consummation of this offering) as of December 31, 1999, with a weight-
ed-average exercise price of $11.18 per share, that are not required to be
exercised in connection with and will not expire upon the consummation of
this offering; and
. 15,067 shares of common stock issuable upon the exercise of outstanding war-
rants with an exercise price greater than $12.00 per share (the midpoint of
the range shown on the cover page of this prospectus) that will expire if
not exercised prior to the consummation of this offering.
--------------
We were incorporated in North Carolina in February 1997 and reincorporated in
Delaware in June 1998. Our principal executive office is located at 234 Fay-
etteville Street, Raleigh, North Carolina 27601, and our telephone number at
that location is (919) 573-8020. Our primary Web sites are located at
www.totalsports.com and www.totalsports.net. Information on our Web sites is
not part of this prospectus.
3
<PAGE>
Summary Financial Data
The following tables present summary historical financial data that should be
read together with "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the financial
statements and other financial data presented elsewhere in this prospectus.
The adjusted pro forma amounts shown below reflect the June 4, 1999 acquisition
of Long Distance Technologies, Inc., d/b/a Motortrax as if the acquisition oc-
curred on January 1, 1999. The adjusted pro forma loss per common share and
weighted-average shares data and the pro forma as adjusted balance sheet data
shown below reflect, upon completion of this offering, the redemption of all of
our outstanding Series A preferred stock, the conversion into common stock of
all of our outstanding Series B preferred stock, Series C preferred stock, Se-
ries C1 preferred stock, Series D preferred stock and Series E preferred stock,
the assumed cashless exercise of warrants to purchase 102,716 shares of common
stock that will expire if not exercised prior to the consummation of this of-
fering, the issuance of additional shares of our common stock based upon an as-
sumed initial per share offering price of $12.00 (the midpoint of the range
shown on the cover page of this prospectus) to holders of our Series D pre-
ferred stock and to NBC Sports, and the sale of 4,166,667 shares of common
stock at an assumed initial public offering price of $12.00 (the midpoint of
the range shown on the cover page of this prospectus) after deducting estimated
underwriting discounts and offering expenses.
<TABLE>
<CAPTION>
--------------------------------------------------
Adjusted
February 20, Years Ended Pro Forma
1997 to December 31, Year Ended
December 31, ---------------------- December 31,
1997 1998 1999 1999
------------ ---------- ---------- ------------
Dollars in thousands, except per share data
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Digital publishing........... $ 738 $ 2,083 $ 5,397 $ 5,444
Print publishing............. 257 1,315 1,831 1,831
E-commerce................... 14 435 1,356 1,356
---------- ---------- ---------- -----------
Total revenues............... 1,009 3,833 8,584 8,631
Cost of Revenues:
Digital publishing........... 1,395 3,567 8,605 8,779
Print publishing............. 411 2,375 3,334 3,334
E-commerce................... 1 332 1,192 1,191
---------- ---------- ---------- -----------
Total cost of revenues....... 1,807 6,274 13,131 13,304
---------- ---------- ---------- -----------
Gross loss.................... (798) (2,441) (4,547) (4,673)
Operating Expenses:
Product development.......... 1,467 2,672 4,171 4,191
Sales and marketing.......... 600 2,744 5,389 5,433
General and administrative... 846 2,599 4,951 5,110
Amortization................. 32 185 1,520 3,622
---------- ---------- ---------- -----------
Total operating expenses..... 2,945 8,200 16,031 18,356
Operating loss................ (3,743) (10,641) (20,578) (23,029)
Other income (expense),
net.......................... 43 (523) (359) (358)
---------- ---------- ---------- -----------
Net loss...................... $ (3,700) $ (11,164) $ (20,937) $ (23,387)
---------- ---------- ---------- -----------
Dividends on Series A
preferred stock.............. (144) (197) (194) --
Dividends on Series D
preferred stock from
beneficial conversion
feature...................... -- -- -- (29,402)
Redemption of Series A
preferred stock.............. -- -- -- 1,536
---------- ---------- ---------- -----------
Net loss applicable to
common stockholders.......... $ (3,844) $ (11,361) $ (21,131) $ (51,253)
========== ========== ========== ===========
Historical basic income
(loss) per common share...... $(3.17) $(7.28) $ (11.88) --
Historical weighted-average
common shares outstanding.... 1,214,419 1,560,903 1,778,670 --
Adjusted pro forma basic
income (loss) per common
share........................ -- -- -- $ (3.04)
Adjusted pro forma weighted-
average common shares
outstanding.................. -- -- -- 16,869,385
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------
As of As of December 31,
December 31, 1999
---------------- -------------------
Pro Forma
1997 1998 Actual As Adjusted
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Balance Sheet Data (at period end):
Working capital (deficit)............ $(2,763) $(3,726) $14,686 $59,786
Property and equipment, net.......... 742 1,307 3,438 3,438
Total assets......................... 2,638 5,697 28,794 73,894
Line of credit, notes payable and
capital lease obligations........... 2,414 3,623 963 963
Redeemable Series A preferred stock.. 1,145 1,343 1,537 --
Stockholders' equity (deficit)....... (2,090) (2,000) 20,251 66,887
</TABLE>
4
<PAGE>
Risk Factors
You should carefully consider the risks and uncertainties described below and
all of the other information contained in this prospectus before deciding to
purchase shares of our common stock.
Risks Related to Total Sports
We have a limited operating history and may face difficulties encountered by
companies like us that operate in new and rapidly evolving markets
We began operations on March 31, 1997, and therefore have a limited operating
history. It is unclear whether our services and content will develop to meet
changing market demands. An investor in our common stock must consider the
risks and difficulties we are likely to encounter because our market is new and
rapidly evolving. These risks include our ability to:
. attract a larger audience to our Total Sports networks;
. increase awareness of our brand;
. strengthen user loyalty;
. maintain our current, and develop new, strategic relationships;
. attract a large number of advertisers and sponsors from a variety of indus-
tries;
. respond effectively to competitive pressures;
. continue to develop and upgrade our technology; and
. attract, retain and motivate qualified personnel.
We have a history of losses and expect future losses
We incurred net losses of $3,700,000 in fiscal 1997, $11,164,000 in fiscal 1998
and $20,936,000 in fiscal 1999. As of December 31, 1999, we had losses since
inception of $35,801,000. We expect net losses and negative cash flow from op-
erations to continue for the foreseeable future as we continue to incur signif-
icant operating expenses and make investments to enhance our products and serv-
ices. We expect cash operating expenses to increase to approximately
$55,000,000 and cash capital expenditures, excluding capital lease obligations,
to increase to approximately $4,000,000 in 2000. We intend to significantly in-
crease our operating expenses to:
. develop and enhance our technology;
. increase sales and marketing and operations staff expenses;
. fund promotion and advertising expenditures to build brand awareness;
. create, introduce and enhance our current product offerings;
. pursue strategic acquisitions; and
. enter into new strategic partnership agreements domestically and interna-
tionally.
We might never generate sufficient revenues to achieve profitability. Even if
we do achieve profitability, we might not sustain or increase profitability on
a quarterly or annual basis in the future.
Our quarterly operating results are not indicative of future performance and
are difficult to forecast
Our quarterly operating results might fluctuate significantly in the future as
a result of a variety of factors, many of which are outside our control. Fluc-
tuations in our quarterly operating results could cause our stock price to de-
crease. Some of the more important factors that could influence our quarterly
operating results include:
. the timing and duration of significant sporting events, such as whether the
World Series is over in four games or seven;
5
<PAGE>
. the popularity of particular sports and teams, such as whether a large mar-
ket team like the New York Yankees is in the World Series; and
. disruptions in sports schedules due to weather, labor disputes or other is-
sues, which might occur in any given quarter.
Our quarterly revenues and operating results are difficult to forecast and our
results, including quarter-to-quarter comparisons of our operating results,
might not be a good indication of our future performance. In some quarters, our
operating results might be below the expectations of public market analysts and
investors. In that case, the price of our common stock might decrease signifi-
cantly.
Seasonal trends might cause volatility in our stock price
We have experienced seasonal trends in our revenues and in our user traffic.
Seasonality might negatively affect our operating results and might cause vola-
tility in our stock price. Traffic on our Total Sports networks typically in-
creases around major sporting events that we TotalCast, such as the NCAA Cham-
pionship men's basketball tournament in March. In addition, print revenues typ-
ically increase when we publish a popular new book.
As a result, our total revenues are higher in some quarters. In particular, our
revenues and user traffic have historically been the highest in the first quar-
ter, coinciding with the NCAA basketball tournament. In the first quarter of
1999, for example, we recognized total revenues of $2.6 million and in the sec-
ond quarter of 1999 we recognized total revenues of $1.8 million.
If we do not provide an effective online advertising environment, our business
will be materially adversely affected
If advertisers perceive the Internet in general, or our Total Sports networks
in particular, to be a limited or ineffective advertising medium, they might be
reluctant to advertise online or on our Total Sports networks. Our business and
financial condition would be materially adversely affected if the Internet ad-
vertising market develops more slowly than we expect or if we do not increase
our advertising revenues. In 1999, we received approximately 48.3% of our reve-
nue in the form of advertising revenues. Approximately 39.1% of our 1999 adver-
tising revenue was in the form of sponsorships of specific leagues, teams or
events, which tend to be event or season specific and might require up-front
expenditures by us to implement. No standards for advertising and sponsorships
have been widely accepted to measure the effectiveness of advertising on the
Internet. Existing advertisers and sponsors might discontinue or decrease ad-
vertising on our Total Sports networks if widely accepted standards do not
emerge or if we are unable to offer advertisers and sponsors effective adver-
tising and sponsorship options.
Advertisers, sponsors and e-commerce marketers might not advertise on our Total
Sports networks or might pay less for advertising on our Total Sports networks
if they do not believe that they can reliably measure the effectiveness of
Internet advertising or the demographics of the users viewing their advertise-
ments. We use both internal measurements and measurements provided to us by
third parties. If these third parties are unable to continue to provide these
services, we could incur additional costs in connection with replacing these
services. In addition, we are implementing additional systems designed to rec-
ord demographic data on our users. If we do not implement these systems suc-
cessfully, we might not be able to accurately record these demographic charac-
teristics to help attract advertisers and sponsors.
The adoption of Internet advertising and sponsorship, particularly by those en-
tities that have historically relied upon traditional media for advertising,
requires the acceptance of a new way of conducting business, exchanging infor-
mation and advertising products and services. Advertisers and sponsors that
have traditionally relied upon other advertising media might be reluctant to
advertise on our Total Sports networks. In addition, different pricing models
are used to sell advertising on the Internet, and it is difficult to predict
which, if any, pricing models for Internet advertising will emerge as the in-
dustry standard. Our revenues could be materially adversely affected if we are
unable to adapt to Internet advertising pricing models if they are adopted.
This uncertainty makes it difficult to project our future advertising and spon-
sorship rates and revenues.
Our business model is unproven and evolving
Our business model of providing sports coverage over the Internet and generat-
ing revenues from advertising, content distribution and e-commerce has evolved
and will continue to evolve as we adapt to a changing business environment. Our
model depends upon our ability to generate multiple revenue streams from our
sports content by providing content that can be distributed through a number of
different channels. Our business model also depends on continued acceptance by
our
6
<PAGE>
business customers. To be successful, we must, among other things, develop and
market products and services that achieve broad market acceptance by several
groups: our users; distribution customers; sponsors; advertisers; and mer-
chants. Our Total Sports networks might not continue to achieve broad market
acceptance by one or more of these groups. Accordingly, our business might not
be successful, sustain revenue growth or be profitable.
We cannot predict the size or viability of the sports new media market
The market for our online sports content is rapidly evolving and is character-
ized, among other things, by an increasing number of market entrants. Demand
and market acceptance for recently introduced services is subject to a high
level of uncertainty and risk. Sports fans who are accustomed to passive lis-
tening or viewing sports coverage provided by traditional media might not be
interested in the interactive sports entertainment on our Total Sports net-
works. It is difficult to predict the future growth rate, if any, and size of
this market because the market for online sports content is new and evolving.
If the use of online sports content does not continue to grow, our ability to
attract advertisers and sponsors and grow revenues through e-commerce services
would be materially adversely affected.
Our business would be materially adversely affected if we were to lose existing
or fail to gain additional material relationships
The loss of any of our material relationships could impact the promotion of our
Total Sports networks and the breadth of our sports programming and could af-
fect our ability to acquire additional rights or secure sponsorships. In addi-
tion, these relationships might not provide the anticipated future revenues.
Some of our contractual arrangements place restrictions on relationships with
other parties, which could prevent us from growing through new contractual re-
lationships. We have entered into agreements with NBC Sports, which provides
substantially all of our television promotion, Major League Baseball Enter-
prises, Inc., which provides over 50% of the sporting events we Total Cast and
the NCAA through Host Communications, Inc., on which approximately 14.4% of our
1999 revenues depended. We also rely on other arrangements to drive traffic to
our Total Sports networks and distribute content to our users. These relation-
ships provide us with additional credibility in the marketplace to negotiate
sponsorships and acquire rights to cover additional sports. The other parties
to these agreements can generally terminate them for contractual breaches. NBC
Sports has the right to terminate their agreement with us upon some changes in
control, without having to pay us any money or return the Total Sports stock we
issued to NBC Sports. In addition, NBC Sports has the right to pay us cash or
return Total Sports stock we issued to NBC Sports instead of providing us pro-
motion under their agreement. Our strategic partners might not perform their
contractual obligations and we might not be able to renew the agreements on
comparable terms, if at all.
Our business, operating results and financial condition could be materially ad-
versely affected if we do not establish additional, and maintain existing,
strategic relationships on commercially reasonable terms.
We need to acquire rights to key sporting events, but the cost and competition
for these rights could prevent us from doing so
We need to acquire rights to provide live coverage of key sporting events over
the Internet. 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 fu-
ture. Holders of rights might not be willing to enter into strategic relation-
ships with us or sell rights to us at prices we can afford, if at all. We ex-
pect the cost of acquiring rights to increase significantly as competition for
these rights increases. We might not be successful in acquiring the rights we
need at all or on favorable terms, especially if third parties, such as tradi-
tional media companies, which have significantly greater resources, experience
and bargaining leverage than we do, compete for those rights.
We operate in a highly competitive market, which could materially adversely
affect our business
We operate in a highly competitive market. We expect that the number of our di-
rect and indirect competitors will increase in the future and this might ad-
versely affect our business, operating results and financial condition. In-
creased competition could result in lower advertising rates and loss of users,
market share and advertising and sponsorship opportunities, any of which could
materially adversely affect our business, operating results and financial con-
dition.
We compete for users, sponsorship advertising revenue and sports rights with
many other entities. Our direct competitors are other online sports media com-
panies and Web sites. Some of these competitors target sports enthusiasts gen-
erally. Others target fans of a particular team, league or sport. Our most sig-
nificant direct competitor is ESPN.com. Based on our
7
<PAGE>
market research conducted in 1999, we believe that approximately 20% of the
people who visit sports-related Web sites visit one of our sites, while over
60% visit ESPN.com.
We also compete indirectly with companies and Web sites in different business
sectors such as:
. Web search and retrieval services and other high traffic Web entities that
provide access to sports-related content and services, many of which have
been established by traditional media companies;
. vendors of sports information, merchandise, products and services distrib-
uted through other means, including retail stores, mail, facsimile and pri-
vate online bulletin board services; and
. television, radio and other established media entities that broadcast sport-
ing events.
We have and might have in the future business relationships with some of our
competitors, some of whom offer access to our services through their Web sites.
We anticipate that, as the Internet and other interactive distribution systems
converge with traditional television broadcasting and cable, significant compe-
tition might come from the providers of broadband networks, including sports-
oriented cable networks. Some of our existing competitors, as well as a number
of potential new competitors, have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial, techni-
cal and marketing resources than we do. Others might develop technologies and
services that are similar or superior to ours.
We rely on our marketing efforts to grow awareness of, and traffic to, our
Total Sports networks
Our success will depend, in part, on our ability to increase our brand aware-
ness. In order to build brand awareness and increase traffic to our Total
Sports networks, we must succeed in our marketing efforts and provide high-
quality services. Our ability to increase advertising and other revenues will
depend in part on the success of our marketing efforts and our ability to in-
crease the number of users of our Total Sports networks. If our marketing ef-
forts are unsuccessful or if we cannot increase both our brand awareness and
traffic to our Total Sports networks, our business, operating results and fi-
nancial condition would be materially adversely affected.
We might need to raise additional capital to stay in business
We might not achieve positive cash flow from operations and might require addi-
tional infusions of capital to sustain operations and finance growth. We expect
cash operating expenses to increase to approximately $55,000,000 and cash capi-
tal expenditures, excluding capital lease obligations, to increase to approxi-
mately $4,000,000 in 2000. Beyond 2000, we expect operating expenses and capi-
tal expenditures to continue to increase significantly. If we do not receive
the proceeds of this offering and sufficient additional capital from operations
or additional financings, we would have to curtail our growth plans. We might
need to raise additional funds sooner than we expect if we incur unforeseen
capital expenditures or operating losses. If adequate funds are not available
or are not available on acceptable terms, we might not be able to develop or
enhance our services, take advantage of future opportunities or respond to com-
petitive pressure, which could materially adversely affect our business, oper-
ating results and financial condition.
Acquisitions might disrupt or otherwise have a negative impact on our business
Since our inception in 1997, we have made five acquisitions and one investment
in a complementary business. We plan to continue to acquire or make investments
in complementary businesses, products and technologies. Future acquisitions are
subject to the following risks any of which could materially adversely affect
our business, operating results and financial condition:
. acquisitions might cause a disruption in our ongoing business, distract our
management and make it difficult to maintain our standards, controls and
procedures;
. we might not be able to successfully integrate the services, content, prod-
ucts and personnel of any acquisition into our operations;
. we might be required to incur debt or issue debt or equity securities, which
may be dilutive to existing stockholders, to pay for acquisitions;
. we might be required to assume debt or contingent liabilities, amortize
goodwill or other intangibles, or write-off in-process research and develop-
ment and other acquisition-related expenses; and
. we might not derive the intended benefits of any acquisition and we might
lose our entire investment.
8
<PAGE>
We might experience capacity constraints or system failures that could damage
our business
We must expand our systems to handle anticipated growth in traffic on our Web
sites. Based on system specifications and testing, we believe our systems can
currently handle approximately 400 megabytes of data, more than our peak traf-
fic of approximately 105 megabytes in March 1999 during the NCAA Men's Champi-
onship basketball tournament. However, we anticipate further growth in user
traffic. If our systems cannot be expanded to cope with increased demand or
fail to perform effectively, we could experience disruptions in service or
slower response times. Either of these could impair our reputation, damage our
brand and materially adversely affect our business, operating results and fi-
nancial condition.
Our ability to provide high quality customer service also depends on the effi-
cient and uninterrupted operation of our computer and communications systems.
We have experienced instances of system interruption, which we believe might
continue to occur from time to time. If such interruptions were to continue,
users might not return to our Web sites, which would have a material adverse
effect on our ability to generate revenues. For example, in April 1999 because
of a fiber cut users could not access our Web sites for approximately one hour,
and in May 1999 because of a power outage users could not access our Web sites
for approximately one hour. We have since moved our servers to a different part
of our server host's facility where there are three separate fiber connections
and three separate backup generators. Our systems and operations also are vul-
nerable to damage or interruption from human error, natural disasters, power
loss, telecommunication failures, break-ins, sabotage, computer viruses, inten-
tional acts of vandalism and similar events. We do not have alternative provid-
ers of hosting services that are available at short notice. We are still devel-
oping a formal disaster recovery plan. Any plan we adopt might not be suffi-
cient to contain or limit the effects of any disaster or event similar to those
described above.
We enter into barter transactions that do not generate cash revenue
In the past, we have entered into barter transactions in which we accepted
property and services, including computer equipment, advertising and promo-
tional consideration as payment for sponsorships and advertising sales. Reve-
nues from barter transactions represented approximately 17.5% of our revenues
in 1998 and 14.1% of our revenues for 1999. Barter revenues might continue to
represent a significant portion of our total revenues in future periods. Barter
transactions do not generate any cash revenues for us. In addition we must make
assumptions determining the value of barter revenues. If our assumptions are
wrong, we might have to reduce the amounts of barter revenues recognized, which
could materially adversely affect our stock price.
We might be subject to legal claims in connection with the content we publish
and distribute
We might be subject to claims for defamation, negligence, copyright or trade-
mark infringement or based on other theories relating to the information we
publish on our Total Sports networks, on the Web sites of our partners or in
our print publications. Any claims, with or without merit, could be time-con-
suming for our technical and management personnel, result in costly litigation
or require us to introduce new content or trademarks, develop noninfringing
technology or enter into royalty or licensing agreements. These types of claims
have been brought, sometimes successfully, against online services as well as
other print publications in the past. We could also be subject to claims based
upon the content that is accessible from our Total Sports networks through
links to other Web sites. Our insurance might not adequately protect us against
these types of claims. Any required royalty or licensing agreements might not
be available on acceptable terms, if at all. In the event a claim of infringe-
ment is successful and we fail or are unable to introduce new content, develop
noninfringing technology or license the infringed or similar technology on a
timely basis, our business, operating results and financial condition could be
materially adversely affected.
We might fail to protect our intellectual property or we might infringe the
intellectual property of others
We rely primarily on a combination of copyrights, trademarks, trade secret
laws, licensing agreements and restrictions on disclosure to protect our intel-
lectual property. Despite these precautions, a third party might be able to
copy or otherwise obtain and use the content on our Total Sports networks or
our other intellectual property without authorization. Our precautions might
not prevent misappropriation or infringement of our intellectual property.
Failure to protect our intellectual property in a meaningful manner could mate-
rially adversely affect our business, operating results and financial condi-
tion. The intellectual property that is important to our business is our pro-
prietary data collection software and systems, and our sports content, includ-
ing statistical databases and copyrighted material. Trademarks are also impor-
tant to our success because we rely on brand recognition to increase user traf-
fic on our Web sites.
9
<PAGE>
Others might assert infringement or other claims against us, whether resulting
from our internally developed intellectual property or licenses or content from
third parties. For example, in late 1999, DDB Technologies contacted us to so-
licit a license under three patents held by DDB Technologies. We are consider-
ing the propriety of DDB Technologies's request and have retained patent
counsel to assist in evaluating the patents. Any future assertions or prosecu-
tions could materially adversely affect our business, operating results and fi-
nancial condition. Any claims, with or without merit, 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 li-
censing agreements, if required, might not be available on acceptable terms, if
at all. In the event a claim of infringement is successful and we fail or are
unable to introduce new content, develop non-infringing technology or license
the infringed or similar technology on a timely basis, our business, operating
results and financial condition could be materially and adversely affected.
Rapid growth in our operations could continue to strain our managerial,
operational and financial resources
We continue to experience rapid growth in our operations. As of December 31,
1999, we had a total of 191 full-time employees, compared with 70 full-time em-
ployees on December 31, 1998. We expect that the number of our employees will
continue to increase for the foreseeable future. This rapid growth has placed,
and any additional growth will continue to place, a significant strain on our
managerial, operational and financial resources. As a result, we will need to
continue to improve our operational and financial systems and our managerial
controls and procedures. Our continued growth depends on our ability to manage
and maintain close coordination among our technical, accounting, finance, mar-
keting, sales, editorial and operations personnel. If we are unable to accom-
plish any of these objectives, our business, operating results and financial
condition could be materially adversely affected.
The loss of any of our key personnel or our failure to attract additional
personnel could harm our business
Our future success will depend, in substantial part, on the continued service
of our senior management, particularly Frank A. Daniels, III, our Chairman of
the Board and Chief Executive Officer, and George Schlukbier, our President. We
do not maintain key man life insurance on any of our senior executives, except
George Schlukbier and John Thorn. Our future success will also depend on our
continuing ability to attract, retain and motivate highly qualified technical,
customer support, financial and accounting and managerial personnel. Competi-
tion for these personnel is intense, and we might not be able to retain our key
personnel or to attract, assimilate or retain other highly qualified personnel
in the future. We have from time to time in the past experienced, and we expect
to continue to experience in the future, difficulty in hiring and retaining em-
ployees with appropriate qualifications.
Risks Related to the Internet Industry
We depend on the continued growth in use and efficient operation of the
Internet
The Internet industry is new and rapidly evolving. Our business would be mate-
rially adversely affected if Internet usage does not continue to grow or grows
more slowly than anticipated. Internet usage might be inhibited for a number of
reasons, including:
. inadequate network infrastructure;
. security concerns;
. inconsistent quality of service; and
. lack of availability of cost-effective, high-speed access to the Internet.
Any of these could cause our users to perceive the Internet in general or our
Total Sports networks in particular as unreliable and, therefore, cause them to
use other media to obtain their sports information.
We might not be able to deliver various services if third parties fail to
provide us with reliable software, systems and related services
Our audience depends on Internet service providers, online service providers
and other Web site operators for access to our Total Sports networks. We also
depend on third-party information providers to deliver information and data
feeds to us
10
<PAGE>
on a timely basis. 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 in the future. Our Total Sports networks
could experience disruptions or interruptions in service due to the failure or
delay in the transmission or receipt of this information, which could materi-
ally adversely affect our business, operating results and financial condition.
We depend on various domestic and international third parties for delivery of
much of our content, software and systems. 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 program-
ming. We also depend on Frontier Global Center in Herndon, Virginia to main-
tain and provide monitoring on our production servers. Our operations are de-
pendent on Frontier's ability to protect our production servers against damage
from fire, power loss, flooding, telecommunications failures, vandalism and
other malicious acts, and similar unexpected adverse events. If this hosting
facility is disabled or malfunctions, access to our Total Sports networks
would be limited or eliminated. We also depend on third parties in other im-
portant areas. For example, we depend on third-party encryption technology for
secure electronic commerce transactions.
Concerns regarding Internet security and privacy might negatively impact our
revenues
We believe that concern regarding the security and privacy of confidential in-
formation transmitted over the Internet, such as credit card numbers, prevents
many potential customers from engaging in e-commerce transactions. Substan-
tially all of our e-commerce revenue is derived from credit card transactions.
Although we have enacted procedures to control credit card fraud, we do not
currently have a privacy policy. If we do not maintain sufficient security
features on our Total Sports networks, our revenues might decline or we might
have additional legal exposure.
Although we have not experienced material physical or electronic break-ins to
date, our infrastructure is potentially vulnerable to physical or electronic
break-ins, viruses or similar problems. If a person circumvents our security
measures, he or she could misappropriate proprietary information or cause in-
terruptions in our operations. Security breaches that result in access to con-
fidential information could damage our reputation and expose us to a risk of
loss or liability. We might be required to make significant investments and
efforts to protect against or remedy security breaches. If we do not ade-
quately address these concerns, our business, operating results and financial
condition would be materially adversely affected.
Our failure to adapt to technological changes might result in our products
becoming obsolete
We compete in a market characterized by rapidly changing technology, evolving
industry standards, frequent new service and product announcements, introduc-
tions and enhancements and changing customer demands. Thus, our success de-
pends on our ability to adapt to rapidly changing technologies, to adapt our
products to evolving industry standards and to continually improve the perfor-
mance, features, and reliability of our products in response to competitive
products in and shifting demands of the marketplace. In addition, the wide-
spread adoption of new Internet, networking or telecommunications technologies
or other technological changes could require substantial expenditures to mod-
ify our products or infrastructure. Our failure to adapt to new technology in
any of these areas could materially adversely affect our business, operating
results and financial condition.
Problems relating to the "year 2000 issue" could adversely affect us
Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the up-
coming change in the century. If not corrected, many computer software appli-
cations could fail or create erroneous results by, at or beyond the year 2000.
Any failure of our material systems, our vendors' or service providers' mate-
rial systems or the Internet to be year 2000 compliant could have material ad-
verse consequences for us. Potential consequences include difficulties in op-
erating our Total Sports networks effectively or conducting other fundamental
parts of our business, which could materially adversely affect our financial
reports.
Governmental regulation and legal uncertainties relating to the Internet might
harm our business
The laws governing the Internet remain largely unsettled. It may take years to
determine whether and how existing laws, including those governing intellec-
tual property, privacy, libel and taxation, apply to the Internet and the
electronic distribution of business information in particular. Legislation
could reduce the growth in the use of the Internet and decrease the acceptance
of the Internet as a communications and commercial medium, which could materi-
ally adversely affect our business, operating results and financial condition.
As a result of the burden that the growing popularity and use of the
11
<PAGE>
Internet has placed on the existing telecommunications infrastructure, some
local telephone carriers have petitioned governmental agencies to regulate
Internet service providers and online service providers in a manner similar to
long distance telephone carriers and to impose access fees on Internet service
providers and online service providers. If any of these petitions or the re-
lief that they seek is granted, the costs of communicating on the Internet
could increase substantially, potentially adversely affecting the growth in
the Internet. Further, due to the global nature of the Internet, it is possi-
ble that, although transmissions relating to our services originate in the
State of North Carolina, governments of other states, the United States or
foreign countries might attempt to regulate our service or levy sales or other
taxes on our activities. In addition, because our content is available over
the Internet in multiple states and foreign countries, these jurisdictions may
claim that we are required to qualify to do business as a foreign corporation
in each such jurisdiction. If we fail to comply with the laws of other juris-
dictions or to qualify as a foreign corporation in a jurisdiction where we are
required to do so, we might be subject to taxes and penalties and we might not
be able to enforce contracts or do future business in such jurisdictions. Any
such new legislation or regulation, or the application of laws or regulations
from jurisdictions whose laws do not currently apply to our business, could
subject us to additional taxes or penalties.
Risks Related to the Offering
The market price of our shares might experience extreme price and volume
fluctuations
The stock market has, from time to time, experienced extreme price and volume
fluctuations, including fluctuations that are unrelated to the operating per-
formance of the affected companies. The market prices of the securities of
Internet-related companies like us have been especially volatile. Broad market
fluctuations of this type might adversely affect the market price of our com-
mon stock.
The market price of our common stock could be subject to significant fluctua-
tions due to a variety of other factors, including:
. public announcements concerning us or our competitors, or the Internet in-
dustry;
. fluctuations in our operating results;
. introductions of new products or services by us or our competitors;
. changes in analysts' earnings and revenues estimates; and
. announcements of technological innovations.
In the past, companies that have experienced volatility in the market price of
their stock have been the target of securities class action litigation. If we
were sued in a securities class action, we could incur substantial costs and
suffer from a diversion of our management's attention and resources, poten-
tially resulting in a material adverse effect on our business, operating re-
sults and financial condition.
Control by executive officers and directors could be exercised against your
best interests
After this offering, our executive officers and directors will beneficially
own or control, collectively, 10,184,531 shares of our common stock, repre-
senting approximately 56.92% of our voting power. These principal stockhold-
ers, if they were to act together, will be in a position to elect and remove
directors and control the outcome of matters submitted to stockholders for a
vote. Additionally, these principal stockholders would be able to influence
significantly any proposed amendment to our certificate of incorporation,
merger, sale of assets or other major corporate transaction or a non-negoti-
ated takeover attempt. Such concentration of ownership might discourage a po-
tential acquiror from making an offer to buy our company, which, in turn,
could adversely affect the market price of our common stock.
A third party could be prevented from acquiring your shares of stock at a
premium to the market price because of our anti-takeover provisions
Our certificate of incorporation, bylaws, contracts and Delaware law contain
provisions that could make it more difficult for a third party to acquire us,
even though the acquisition might be beneficial to you and our other stock-
holders.
These provisions include:
. a provision in our certificate of incorporation authorizing the issuance of
preferred stock without any need for action by stockholders;
12
<PAGE>
. a provision in our certificate of incorporation providing for a classified
board of directors with staggered three-year terms;
. a provision in our bylaws requiring supermajority stockholder voting to re-
move directors;
. a provision in our bylaws eliminating the ability of stockholders to call
special meetings of stockholders;
. a provision in our bylaws prohibiting stockholder action by written consent;
. a provision in our bylaws establishing advance notice requirements for nomi-
nations for election to the board of directors or for proposing matters that
can be acted on by stockholders at stockholder meetings;
. provisions in some of our contracts, including our contract with NBC Sports,
allowing the other party to the contract to terminate the contract upon a
change of control; and
. provisions of Delaware law impeding the ability of a hostile acquiror to en-
gage in transactions with us.
Management has broad discretion regarding the use of proceeds from this
offering and might use them in ways that you might not deem desirable
Our management will have broad discretion in how we use the net proceeds of
this offering. You must rely on the judgment of management regarding the appli-
cation of the proceeds of this offering. The failure by our management to apply
the net proceeds from this offering effectively could materially adversely af-
fect our business, results of operations and financial condition.
Some shares in this offering might have been offered or sold in violation of
the Securities Act of 1933
Before the effectiveness of the registration statement covering the shares of
our common stock being sold in this offering, we provided written materials to
persons we identified as eligible participants in our directed share program.
These materials might constitute a prospectus that does not meet the require-
ments of the Securities Act of 1933. No person who received these written mate-
rials should rely upon them in any manner in making a decision whether to pur-
chase shares of common stock in this offering.
If the distribution of these materials by us did constitute a violation of the
Securities Act of 1933, the recipients of these materials who purchased common
stock in this offering would have the right, for a period of one year from the
date of their purchase of common stock, to obtain recovery of the consideration
paid in connection with their purchase of common stock. These damages could to-
tal up to approximately $5,000,000 plus interest based on an assumed initial
offering price of $12.00 per share (the midpoint of the range shown on the
cover page of this prospectus), if these investors seek recovery or damages af-
ter an entire loss of their investment. If this occurs, our business, results
of operations and financial condition would be harmed.
Future sales of shares of our common stock might negatively affect our stock
price
Because of the law of supply and demand, the market price of our common stock
could decline as a result of any sales by our existing stockholders of shares
of common stock, not including the 4,166,667 shares offered by this prospectus,
in the market after this offering, or the perception that these sales could oc-
cur. The approximate numbers of shares of our currently outstanding common
stock assuming, upon consummation of this offering, conversion of all outstand-
ing shares of our convertible preferred stock and common stock underlying cur-
rently outstanding options and warrants assuming, upon consummation of this of-
fering, conversion of warrants to purchase shares of our Series B and Series D1
preferred stock into warrants to purchase our common stock, that will be eligi-
ble for sale at various times after this offering are as follows:
<TABLE>
<S> <C>
Immediately after this offering 62,056 shares;
180 days after this offering 5,508,808 shares;
1 year after this offering 9,174,533 shares; and
2 years after this offering 147,820 shares.
</TABLE>
Investors in this offering will suffer immediate and substantial dilution
You will incur immediate and substantial dilution in net tangible book value
per share of $8.24 per share, based upon an assumed initial public offering
price of $12.00, the midpoint of the range shown on the cover page of this pro-
spectus. To the extent outstanding options and warrants to purchase common
stock are exercised, you will incur further dilution.
13
<PAGE>
Forward-Looking Statements
Some of the statements contained in this prospectus that are not historical
facts, including some statements made in the sections of this prospectus
entitled "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," are statements of future
expectations and other forward-looking statements. You can identify such
statements because they generally use words like "believe," "might," "will,"
"expect," "intend," "plan," "anticipate," "estimate" or "continue" and other
words and terms of similar meaning. These statements are based on management's
current views and assumptions and involve known and unknown risks and
uncertainties that could cause actual results, performance or events to differ
materially from those expressed or implied in those statements.
14
<PAGE>
Use of Proceeds
We will receive net proceeds from this offering of approximately $45.1 million,
assuming that our common stock is sold at $12.00 per share, the midpoint of the
range shown on the cover page of this prospectus, and after deducting under-
writing discounts and the estimated expenses of this offering.
We will receive proceeds of approximately $52.075 million if the underwriters
exercise their over-allotment option in full. As of the date of this prospec-
tus, we have not made any specific plans with respect to the proceeds of this
offering. Therefore, we cannot specify with certainty the particular uses for
the net proceeds to be received upon completion of this offering. Accordingly,
our management will have significant flexibility in applying the net proceeds
of the offering.
We intend to use the net proceeds to expand our marketing efforts to increase
user awareness, expand our technology infrastructure, pursue strategic acquisi-
tions and for general corporate purposes, including working capital. The pre-
cise allocation of funds among these uses will depend on future technological,
regulatory and other developments in or affecting our business, the competitive
climate in which we operate and the emergence of future opportunities. As part
of our expansion strategy, we might also enter into joint ventures or strategic
alliances which we may fund with a portion of the net proceeds from this offer-
ing. We do not currently have any understandings, commitments or agreements
with respect to any acquisitions, joint ventures or strategic alliances. The
net proceeds will be invested in government securities and other short-term,
investment grade securities until we use them in our business.
The description above represents our present intentions based upon present
plans and business conditions. They may vary significantly and are subject to
change at our discretion depending upon certain factors, including economic or
industry conditions, changes in the competitive environment and strategic op-
portunities that may arise.
Dividend Policy
We do not intend to pay cash dividends on our common stock in the foreseeable
future. We plan to retain earnings, if any, for use in the operation of our
business and to fund future growth.
15
<PAGE>
Capitalization
The following table summarizes, as of December 31, 1999, (1) our actual
capitalization and (2) our as adjusted capitalization which reflects the
consummation of this offering and includes a total of 4,635,100 shares of
common stock that will be issued upon the consummation of this offering as a
result of the conversion into common stock of all outstanding shares of our
Series B preferred stock, Series C preferred stock, Series C1 preferred stock,
Series D preferred stock and Series E preferred stock, the assumed cashless
exercise of outstanding warrants to purchase 102,716 shares of common stock
that will expire if not exercised prior to the consummation of this offering
and shares of common stock issuable to holders of Series D preferred stock and
to NBC Sports upon consummation of this offering if the per share offering
price is less than $33.18 with respect to holders of Series D preferred stock
and $32.11 with respect to common stock issued to NBC Sports. Based upon a per
share offering price of $12.00 (the midpoint of the range shown on the cover
page of this prospectus) we would issue an additional 3,778,641 shares of
common stock to holders of Series D preferred stock and an additional
1,359,810 shares of common stock to NBC Sports. See "Certain Relationships and
Related Transactions" for a description of the provisions requiring the
additional issuance of these shares. At the time of consummation of this
offering, we will redeem all outstanding shares of our Series A preferred
stock.
-------------------------------
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------
Actual As Adjusted
----------- ------------
<S> <C> <C>
Dollars in thousands
Cash and cash equivalents.......................... $ 17,671 $ 62,771
=========== ============
Current maturities of long-term debt and capital
lease obligations................................. 384 $ 384
Long-term debt and capital leases obligations, less
current maturities................................ 578 578
Series A redeemable preferred stock, $10.00 par
value; 125,000 shares authorized, issued and
outstanding actual; no shares authorized, issued
and outstanding as adjusted ...................... 1,537 --
Stockholders' equity:
Series B convertible preferred stock, $4.49 par
value; 650,000 shares authorized, 445,263 shares
issued and outstanding actual; no shares
authorized, issued and outstanding as adjusted ... 1,937 --
Series C convertible preferred stock, $.001 par
value; 1,500,000 shares authorized, 1,418,200
shares issued and outstanding actual; no shares
authorized, issued and outstanding as adjusted.... 1 --
Series C1 convertible preferred stock, $.001 par
value; 800,000 shares authorized, 630,756 shares
issued and outstanding actual; no shares
authorized, issued and outstanding as adjusted.... 1 --
Series D convertible preferred stock, $.001 par
value; 3,500,000 shares authorized, 2,140,873
issued and outstanding actual; no shares
authorized, issued and outstanding as adjusted.... 2 --
Series D1 convertible preferred stock, $.001 par
value; 1,003,617 shares authorized, no shares
issued and outstanding actual; no shares
authorized, issued and outstanding as adjusted ... -- --
Series E convertible preferred stock, $.001 par
value; 811,423 shares authorized, issued and
outstanding actual; no shares authorized, issued
and outstanding as adjusted....................... 1 --
Common stock, $.001 par value; 20,000,000 shares
authorized, 2,882,663 shares issued and
outstanding actual; 500,000,000 shares authorized,
16,869,385 shares issued and outstanding as
adjusted.......................................... 3 17
Stock issued for prepaid advertising............... (12,585) (24,360)
Additional paid-in capital......................... 66,835 157,637
Deficit............................................ (35,944) (66,407)
----------- ------------
Total stockholders' equity......................... 20,251 66,887
----------- ------------
Total capitalization............................... $ 22,750 $ 67,849
=========== ============
</TABLE>
The outstanding share information shown above excludes:
. 468,773 shares of common stock issuable upon the exercise of stock options
outstanding under our 1997 stock plan as of December 31, 1999, with a
weighted average exercise price of $9.37 per share;
. 702,838 shares reserved for issuance under our 1997 stock plan as of Decem-
ber 31, 1999;
. 1,826,947 shares of common stock issuable upon exercise of outstanding war-
rants as of December 31, 1999, with a weighted average exercise price of
$11.18 per share, that are not required to be exercised in connection with
and will not expire upon the consummation of this offering; and
. 15,067 shares of common stock issuable upon the exercise of outstanding war-
rants with an exercise price greater than $12.00 per share (the midpoint of
the range shown on the cover page of this prospectus) that will expire if
not exercised prior to the consummation of this offering.
16
<PAGE>
Dilution
Our pro forma net tangible book value as of December 31, 1999 was $18,347,083,
or $1.44 per share and assumes the conversion or redemption of all outstanding
shares of preferred stock, the cashless exercise of outstanding warrants de-
scribed below and the issuance of additional shares of our common stock based
upon a per share offering price of $12.00 (the midpoint of the range shown on
the cover page of this prospectus). Net tangible book value per share repre-
sents the amount of our total stockholders' equity less goodwill of $2,991,900
and databases of $447,921, divided by shares of common stock outstanding. After
giving effect to the issuance and sale of shares of common stock in this offer-
ing (based on an assumed initial public offering price of $12.00 per share, the
midpoint of the range shown on the cover page of this prospectus, and after de-
ducting estimated underwriting discounts and estimated offering expenses), our
as adjusted pro forma net tangible book value as of December 31, 1999 would
have been $63,447,083, or $3.76 per share. This represents an immediate in-
crease in net tangible book value of $2.32 per share to our existing stockhold-
ers and an immediate dilution in net tangible book value of $8.24 per share to
new investors. Investors participating in this offering will incur immediate,
substantial dilution. The following table illustrates the per share dilution:
----------
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $12.00
Pro forma net tangible book value per share as of December 31,
1999........................................................... $1.44
Increase in pro forma net tangible book value per share to
existing stockholders attributable to new investors............ $2.32
-----
Adjusted pro forma net tangible book value per share after this
offering......................................................... $ 3.76
------
Adjusted dilution per share to new investors...................... $ 8.24
======
</TABLE>
The following summarizes, as of December 31, 1999, the pro forma number of
shares of common stock purchased from us, the total consideration paid to us
and the average price per share paid to us by existing stockholders and by in-
vestors purchasing shares of common stock in this offering, before deducting
estimated underwriting discounts and commissions and estimated offering ex-
penses:
<TABLE>
<CAPTION>
----------------------------------------------------------
Shares Purchased Total Consideration Average
-------------------- ----------------------- Price Per
Number Percent Amount Percent Share
---------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 12,702,718 75.3% $ 55,806,606 52.7% $ 4.39
New investors........... 4,166,667 24.7% $ 50,000,000 47.3% $12.00
---------- --------- ------------ ---------
Total................. 16,869,385 100.0% $105,806,606 100.0% $ 6.27
========== ========= ============ =========
</TABLE>
The tables above assume no exercise of stock options to purchase 468,773 shares
of common stock that were outstanding as of December 31, 1999, with a weighted-
average exercise price of $9.37 per share and warrants to purchase
15,067 shares of common stock with an exercise price greater than $12.00 per
share (the midpoint of the range shown on the cover page of this prospectus).
The tables above assume the cashless exercise of other warrants to purchase
102,716 shares of common stock that would expire if not exercised prior to the
consummation of this offering but does not assume exercise of warrants to pur-
chase 1,826,947 shares of common stock with a weighted-average exercise price
of $11.18 per share that will remain outstanding following the consummation of
this offering. To the extent these unexercised options and warrants are exer-
cised, investors in this offering will experience further dilution.
17
<PAGE>
Selected Financial Data and Pro Forma as Adjusted Balance Sheet
The following table represents selected historical consolidated financial data.
The information for the periods February 20, 1997 through December 31, 1997 and
for the years ended December 31, 1998 and 1999 have been derived from our au-
dited consolidated financial statements. Since this table contains only se-
lected financial data, you should read "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and related notes included elsewhere in this prospectus. The ad-
justed pro forma information for the year ending December 31, 1999 gives effect
to our acquisition of Long Distance Technologies, Inc. on June 4, 1999, as if
it had occurred on January 1, 1999. The adjusted pro forma loss per common
share and weighted-average shares data and the pro forma as adjusted balance
sheet data reflect, upon completion of this offering, the redemption of our Se-
ries A preferred stock, the conversion into common stock of Series B preferred
stock, Series C preferred stock, Series C1 preferred stock, Series D preferred
stock and Series E preferred stock, the assumed cashless exercise of warrants
to purchase 102,716 shares of common stock that will expire prior to the con-
summation of this offering, the issuance of additional shares of our common
stock based upon an assumed initial per share offering price of $12.00 (the
midpoint of the range shown on the cover page of this prospectus) to holders of
our Series D preferred stock and to NBC Sports, and the sale of 4,166,667
shares of common stock at an assumed initial public offering price of $12.00
(the midpoint of the range shown on the cover page of this prospectus) after
deducting estimated underwriting commissions and offering expenses. Diluted
earnings per share are not presented in this table because we had losses for
all periods and the assumed conversion of our convertible preferred stock and
outstanding options and warrants would be antidilutive.
-----------------------------------
<TABLE>
<CAPTION>
Adjusted
February 20, Pro Forma
1997 to Years Ended December 31, Year Ended
December 31, ---------------------------- December 31,
1997 1998 1999 1999
------------- ------------- ------------- -------------
Dollars in thousands, except per share data
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Digital publishing...... $ 738 $ 2,083 $ 5,397 $ 5,444
Print publishing........ 257 1,315 1,831 1,831
E-commerce.............. 14 435 1,356 1,356
------------- ------------- ------------- -------------
Total revenues.......... 1,009 3,833 8,584 8,631
Cost of revenues:
Digital publishing...... 1,395 3,567 8,605 8,779
Print publishing........ 411 2,375 3,334 3,334
E-commerce.............. 1 332 1,192 1,191
------------- ------------- ------------- -------------
Total cost of revenues.. 1,807 6,274 13,131 13,304
------------- ------------- ------------- -------------
Gross loss............... (798) (2,441) (4,547) (4,673)
Operating expenses:
Product development..... 1,467 2,672 4,171 4,191
Sales and marketing..... 600 2,744 5,389 5,433
General and
administrative......... 846 2,599 4,951 5,110
Amortization............ 32 185 1,520 3,622
------------- ------------- ------------- -------------
Total operating
expenses............... 2,945 8,200 16,031 18,356
Operating loss........... (3,743) (10,641) (20,578) (23,029)
Other income (expense),
net..................... 43 (523) (359) (358)
------------- ------------- ------------- -------------
Net loss................. $ (3,700) $ (11,164) $ (20,937) $ (23,387)
Dividends on Series A
preferred stock......... (144) (197) (194) --
Dividends on Series D
preferred stock from
beneficial conversion
feature................. -- -- -- (29,402)
Redemption of Series A
preferred stock......... -- -- -- 1,536
------------- ------------- ------------- -------------
Net income (loss)
applicable to common
stockholders............ $ (3,844) $ (11,361) $ (21,131) $ (51,253)
============= ============= ============= =============
Historical basic income
(loss) per common
share................... $ (3.17) $ (7.28) $ (11.88) --
Historical weighted-
average common shares
outstanding............. 1,214,419 1,560,903 1,778,670 --
Adjusted pro forma basic
income (loss) per common
share................... -- -- -- $ (3.04)
Adjusted pro forma
weighted-average common
shares outstanding...... -- -- -- 16,869,385
</TABLE>
-----------------------------------
<TABLE>
<CAPTION>
As of December
31, As of December 31, 1999
---------------- --------------------------
Pro Forma
1997 1998 Actual As Adjusted
------- ------- ----------- --------------
<S> <C> <C> <C> <C>
Balance Sheet Data (at period
end):
Working capital (deficit)....... $(2,763) $(3,726) $ 14,686 $ 59,786
Property and equipment, net..... 742 1,307 3,438 3,438
Total assets.................... 2,638 5,697 28,794 73,894
Line of credit, notes payable
and capital lease obligations.. 2,414 3,623 963 963
Redeemable preferred stock...... 1,145 1,343 1,537 --
Stockholders' equity (deficit).. (2,090) (2,000) 20,251 66,887
</TABLE>
18
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results
of operations with our consolidated financial statements and the related notes
appearing elsewhere in this prospectus. This discussion contains forward-look-
ing statements which involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including, but not limited to, those set forth un-
der "Risk Factors" and elsewhere in this prospectus.
Overview
Total Sports is an event-centered, online sports media company. We provide
sports fans and enthusiasts with live, or real-time, simulcasts of events in
eight collegiate and professional sports, game summaries, in-depth statistical
analysis, breaking news and the opportunity to purchase sports-related merchan-
dise.
Revenues
We derive our revenues from three primary sources:
. digital publishing;
. print publishing; and
. e-commerce.
Digital publishing revenues result from the selling of sponsorships and banner
advertisements, licensing of statistical data and content, and providing Web
site development services for third-parties. During 1998, 54.3% of our revenues
came from digital publishing. During 1999, 62.9% of our revenues came from dig-
ital publishing.
Our sponsorships generally relate to specific sporting events, such as the NCAA
men's basketball championships. We derive advertising revenues from sales of
banner advertisements on our Web sites. We recognize sponsorship revenues in
the period that the sponsored event occurs and the sponsorship is displayed,
provided that no significant obligations remain, such as unmet commitments for
guaranteed minimum impressions ("page views" or "hits"). We recognize advertis-
ing revenues ratably over the period in which the advertisement is displayed,
provided that no significant obligations remain. In the event that our sponsor-
ships or advertising arrangements contain minimum impressions guarantees, we
recognize revenue incrementally as progress is made toward the minimum impres-
sion commitments. During 1999, sponsorships accounted for 30.1% and advertising
54.5% of total digital publishing revenues.
We recognize licensing revenue for statistical data when the statistical data
has been delivered and we have no further obligations. We recognize content li-
censing revenue over the period of the license agreement as we deliver the con-
tent. We recognize Web site development revenue as the services are performed,
provided that no significant obligations remain. If Web site development fees
relate to or come from an agreement to license content, we recognize the devel-
opment fees revenue over the content license period. We record amounts billed
or received for which services have not yet been provided as deferred revenue
on our balance sheets.
We derive print publishing revenues from the sale of sports encyclopedias, fan
guides and other sports-related books. During 1999, 21.3% of our revenues came
from sales of print publications. For titles we publish, we recognize print
publishing revenue upon the sale of our publications by a third-party distribu-
tor, which historically has been our primary distribution channel. In connec-
tion with these sales, we establish a reserve for right of returns of approxi-
mately 37.0% at the time revenue is recognized. For titles that we co-publish,
we recognize revenues as we earn fixed advances that are paid to us by the co-
publisher.
We derive e-commerce revenues from the sale of sports equipment, apparel and
memorabilia through our online stores and through our live event merchandising.
During 1999, 15.8% of our revenues came from e-commerce sales. We recognize e-
commerce revenue upon delivery of goods to our customers, which occurs only af-
ter credit card authorization. We do not maintain significant amounts of e-com-
merce inventory. During 1998 and 1999, approximately 75% of our e-commerce
transactions were purchased by us from third-party manufacturers or distribu-
tors after we received orders from customers. We expect this percentage to re-
main constant in future periods. For sales of merchandise, we are responsible
for pricing
19
<PAGE>
and processing orders, arranging or authorizing delivery, processing merchan-
dise returns, providing all customer support related to the transaction, and
resolving customer disputes. In the event goods are lost or damaged during
shipment from or return to the distributor and coverage is denied by the com-
mercial shipping company, we bear the risk of loss. We generally do not extend
credit to e-commerce customers, except through third-party credit cards. Credit
card sales account for approximately 100% of total e-commerce sales in 1998 and
1999. We bear no financial risk under these agreements except in the case of
credit card fraud or merchandise return fraud. Our agreements with third-party
credit companies provide for the electronic processing of credit approvals and
the electronic submission of transactions. Upon the submission of these trans-
actions to the credit card companies, they transmit payment to our bank ac-
count. Accordingly, we record the amounts as cash upon the electronic submis-
sion of the transaction to the appropriate processing agency. Payment from the
credit card companies usually occurs within one to two days.
We generally allow returns of e-commerce merchandise for any reason within 30
days of the sale. Accordingly, we provide for allowances for estimated future
returns at the time of shipment based on historical data. During 1999, our rate
of e-commerce product returns averaged 7.6% of total e-commerce revenues, but
our future return rates could differ significantly from our historical aver-
ages.
Sponsorship and advertising revenues are season and event driven and are ex-
pected to constitute the majority of our future revenue growth as we focus our
efforts on adding new sponsors and increasing the volume of sponsorships with
existing sponsors, as well as increasing the number and types of live events we
cover and expanding our selection of Total Sports networks. Print publishing
and e-commerce revenues are expected to increase in absolute dollars in future
periods but to decrease as a percentage of total revenues as we implement the
strategies discussed above.
In the past, we have entered into barter transactions in which we accepted
property and services, including computer equipment, advertising and promo-
tional consideration, as payment for sponsorships and advertising sales. We
record property and services received in barter transactions at fair market
value based on the amounts normally charged by our partners or customers to
third parties for similar property and services. Revenues from barter transac-
tions represented 17.5% of our total revenues in 1998 and 14.1% of our total
revenues in 1999. We intend to continue to enter into barter arrangements in
the short term, however we intend to reduce barter as a percentage of total
revenues in future periods.
Cost of Revenues
Digital publishing cost of revenues consists primarily of compensation and ben-
efits for the editorial and operations staff, contract labor, commissions, roy-
alty and license payments, content fees, and allocations of facilities and
other shared costs such as depreciation, telecommunications and computer-re-
lated expenses.
Print publishing cost of revenues consists primarily of the direct costs of our
print publications sold to customers, product fulfillment, amortization of de-
ferred publishing costs such as author fees and royalty payments, license fees,
and allocations of facilities and other shared costs.
E-commerce cost of revenues consists primarily of the direct costs of our mer-
chandise sold to customers, costs associated with credit cards and other com-
missions, outbound shipping and handling costs, and allocations of facilities
and other shared costs.
Operating Expenses
Product development expenses consist primarily of compensation and benefits for
our operations staff that support the development of new product offerings,
product enhancements and allocations of facilities and other shared costs.
Sales and marketing expenses consist primarily of compensation and benefits for
our sales, marketing and public relations staff, advertising, allocations of
facilities and other shared costs, and the value of the advertising we receive
in barter transactions in exchange for content or advertising on our Total
Sports networks.
General and administrative expenses consist primarily of compensation and bene-
fits for general management, finance and administrative staff, professional
fees for legal and accounting services, insurance, other office expenses and
allocations of facilities and other shared costs.
Amortization expense consists of amortization of goodwill resulting from acqui-
sitions, which is amortized over its useful life.
20
<PAGE>
Other Income (Expense), Net
Other income (expense), net, consists of minority interest in joint venture
losses (earnings), equity in earnings (loss) of affiliate, interest income, in-
terest expense and other income.
Since inception, we have devoted a substantial portion of our resources to the
development of our proprietary publishing and TotalCast technologies and devel-
opment of key corporate relationships. We have been dependent on funding from
debt and equity financing and strategic corporate alliances. We have not been
profitable since inception and had an accumulated deficit of approximately
$35,944,000 as of December 31, 1999. We expect to incur additional operating
losses over the next several years in connection with our continued technology
development, increased marketing efforts and expansion of our workforce.
Acquisition History
We have made a series of acquisitions of and investments in sports information
and sports technology companies. The table below provides information about the
five acquisitions and the one equity investment we have completed through De-
cember 31, 1999. With the exception of the acquisition of the sports content
business of KOZ inc., all of our acquisitions have been accounted for under the
purchase method of accounting, with resulting goodwill amortized over periods
ranging from 19 months to 15 years. Because the ownership of KOZ was substan-
tially the same as the ownership of Total Sports at the time of the KOZ acqui-
sition, the KOZ acquisition was accounted for using KOZ's original book values,
with the excess of the purchase price paid over the book values recorded as a
one-time reduction of additional paid in capital.
<TABLE>
<CAPTION>
Purchase
Date Acquired Name of Company Primary Technology/Product Acquired Price
- ------------- -------------------------------- ------------------------------------------ ----------
<S> <C> <C> <C>
March 31, 1997.......... KOZ inc. Internet sports content platform $1,414,240
March 31, 1997.......... Sports Extra, Inc. Print publishing and statistical databases 233,548
December 22, 1997....... DesignNet, Inc. Electronic commerce platform 16,571
June 2, 1998............ Total College Communications Co. Collegiate marketing licenses 314,228
July 29, 1998........... Golf.Com LLC Golf content and merchandising 250,000
June 4, 1999............ Long Distance Technologies, Inc. NASCAR(TM) content and broadcasting 3,640,333
</TABLE>
Prior to the KOZ acquisition, Total Sports had no operations. The KOZ acquisi-
tion provided the nucleus for the development of both our TotalCast technology
and our sports networks. Subsequent to the Sports Extra acquisition, we formed
our print publishing segment, which uses statistical data derived from our dig-
ital publishing activities to publish statistical encyclopedias and guides, as
well as develops original sports-related books. The Total College Communica-
tions acquisition allowed us to secure licensing rights for TotalCasts of NCAA
championship events, including the men's NCAA basketball championships. The
Golf.Com investment and Long Distance Technologies acquisition provided the
technology and content for the development of our Total Golf and Total Motor
Racing networks, which were both new markets in which we had no prior exposure.
With the exception of the Golf.Com, of which we own 25.0% and Long Distance
Technologies acquisition, all of our businesses acquired since inception have
been incorporated into our general operations. Long Distance Technologies was
merged into Total Motorsports Inc., a wholly-owned subsidiary of Total Sports.
In addition, as of June 30, 1999, all of the assets of our print publishing
segment were transferred to Total Sports Publishing, Inc., a wholly-owned sub-
sidiary of Total Sports formed during 1999.
The following table summarizes the number of employees acquired from our acqui-
sitions, the method of funding for our acquisitions and equity investments, and
the nature of significant liabilities assumed.
<TABLE>
<CAPTION>
No. of Primary Liabilities
Name of Company Employees Assumed Method of Payment
- --------------- --------- -------------------------- -------------------------------------------------
<S> <C> <C> <C>
KOZ inc................. 36 Accounts payable Proceeds from line of credit
Sports Extra, Inc....... 6 Accounts and notes payable Issuance of 290,323 shares of common
stock and forgiveness of $100,000 note receivable
DesignNet, Inc.......... 3 Accounts payable Issuance of 33,142 shares of common stock
Total College Communica-
tions Co............... -- Accounts payable Issuance of 418,971 shares of common stock
Golf.Com LLC............ -- None Cash on hand
Long Distance Technolo-
gies, Inc.............. 1 Accounts and notes payable Issuance of 284,401 shares of common stock
</TABLE>
21
<PAGE>
None of our acquisitions had contingent payment terms except the Long Distance
Technologies acquisition. The 284,401 shares of Total Sports' common stock is-
sued as consideration in the Long Distance Technologies acquisition are being
held in escrow until any and all indemnification claims or disputed claims no-
tices have been satisfied. One-third of the shares held in escrow, less a por-
tion to be forfeited to satisfy any indemnification claims, are due to be re-
leased on June 4, 2000, subject to the occurrence of a significant event. The
escrow agreement defines a significant event as the effectiveness of a regis-
tration statement for the sale of the shares held in escrow in a underwritten
public offering registered under the Securities Act of 1933, or the consumma-
tion of a transaction or series of events that result in the escrowed shares
becoming publicly traded. If such a significant event occurs before June 4,
2000, then at that date escrowed shares with a value in excess of $4.0 million
shall be released from escrow, less any portion subject to a disputed claims
notice. Upon the occurrence of a significant event after June 4, 2000, an ad-
ditional amount of escrowed shares then in excess of $4.0 million shall be re-
leased, less any portion subject to a disputed claims notice. The remainder of
the escrowed shares shall be released December 4, 2000, to the extent the
escrowed shares are not required to be forfeited in satisfaction of indemnifi-
cation claims or disputed claims notices.
We believe that our acquisitions and equity investments have afforded us op-
portunities to integrate new sports related technologies into our product of-
fering or provided access to sectors of the sports entertainment market not
previously available to us. We will continue to pursue acquisition of selected
sports technology and information companies whose markets are consistent with
our growth strategy and whose technologies would enhance our product offering.
Results of Operations
The following table sets forth our results of operations as a percentage of
total revenue for the periods indicated:
<TABLE>
<CAPTION>
-------------------------------------------
Period from
February 20,
1997
Through Year Ended Year Ended
December 31, December 31, December 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Digital publishing........... 73.1% 54.3% 62.9%
Print publishing............. 25.5 34.3 21.3
E-commerce................... 1.4 11.4 15.8
------------ ------------ ------------
Total revenues.............. 100.0 100.0 100.00
------------ ------------ ------------
Cost of revenues:
Digital publishing........... 138.3 93.1 100.3
Print publishing............. 40.7 62.0 38.8
E-commerce................... 0.1 8.6 13.9
------------ ------------ ------------
Total cost of revenues...... 179.1 163.7 153.0
------------ ------------ ------------
Gross loss (79.1) (63.7) (53)
Operating Expenses:
Product development.......... 145.4 69.7 48.6
Sales and marketing.......... 59.5 71.6 62.8
General and administrative... 83.9 67.8 57.7
Amortization................. 3.1 4.8 17.7
------------ ------------ ------------
Total operating expenses.... 291.9 213.9 186.8
Operating loss................ (371.0) (277.6) (239.8)
Other income (expense), net... 4.3 (13.7) (4.2)
------------ ------------ ------------
Net loss...................... (366.7)% (291.3)% (244.0)%
============ ============ ============
</TABLE>
Our acquisitions and equity investments have had a significant impact on our
financial condition and results of operations. Due to the use of the purchase
method of accounting for our acquisitions, the consolidated statements of op-
erations for each of the reporting periods from February 20, 1997 (date of in-
ception) through December 31, 1999 include results from operations for each of
the acquisitions from the date of each acquisition only. Moreover, the consol-
idated balance sheet as of December 31, 1999 and the consolidated statements
of operations for 1997, 1998 and 1999 do not include the assets, liabilities,
and results of operations relating to acquisitions completed after the last
day of each fiscal period. As a result, comparisons to prior operating results
and prior balance sheets are impacted materially.
22
<PAGE>
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Total Revenues. Total revenues for 1999 were $8,584,000 compared to $3,833,000
for 1998, an increase of $4,751,000. The increase in total revenues is primar-
ily attributable to increased sales of sponsorships, advertising and e-com-
merce merchandise.
Barter transactions, in which we received advertising or other goods and serv-
ices in exchange for content or advertising on our Total Sports networks, ac-
counted for approximately 14.1% of our total revenues in 1999. Barter transac-
tions in exchange for advertising on our Total Sports networks and our print
publications accounted for approximately 17.5% of our total revenues in 1998.
In future periods, we intend to maximize cash digital publishing revenue, al-
though we will continue to enter into barter relationships as appropriate.
Digital Publishing Revenues. Digital publishing revenues increased to
$5,397,000 in 1999 from $2,083,000 in 1998, an increase of $3,314,000. The in-
crease in digital publishing revenues is primarily attributable to increases
in sales of sponsorships and advertising, including sales from Golf.com in
which we acquired an interest in mid-1998. Sales from Golf.Com were $1,074,000
in 1999. We had no sales of sponsorships or advertising from Golf.Com in 1998.
In addition, we had sales of $296,000 related to broadcasts of NASCAR races,
the rights to which we acquired in our acquisition of Long Distance Technolo-
gies in June 1999. We also had sales of $535,000 related to Beer.com, a Web
site we developed for Labatt Brewing Company, which launched in October 1999.
Also, barter transactions for sponsorships and advertising in 1999 were
$1,210,000 as compared to $572,000 in 1998.
We expect digital publishing revenues to increase in future periods in both
absolute dollars and as a percentage of total revenues due to our efforts to
add new sponsors and increase the volume of sponsorships with existing spon-
sors, as well as our effort to increase the number and types of live events we
cover. We anticipate the majority of our future growth will be derived from
sales of sponsorships and advertising related to our Total Sports networks.
Print Publishing Revenues. Print publishing revenues increased to $1,831,000
in 1999 from approximately $1,315,000 in 1998, an increase of $516,000. The
increase in print publishing revenue is due primarily to 26 titles being
available for sale during 1999 as compared to seven titles available during
1998.
E-commerce Revenues. E-commerce revenues increased to $1,356,000 in 1999 from
approximately $435,000 in 1998, an increase of approximately $921,000. The in-
crease in e-commerce revenues is primarily attributable to increases in mer-
chandise sales from our Total College Sports Network stores and a full year of
sales from our Golf.com store. Sales from Golf.com were $479,000 in 1999 from
$240,000 in 1998, an increase of $239,000.
Total Cost of Revenues. Total cost of revenues for 1999 was $13,131,000 com-
pared to $6,274,000 in 1998, an increase of $6,857,000. The increase in total
cost of revenues is primarily attributable to the increased volume of sponsor-
ship, advertising and e-commerce sales, increased staffing levels and costs
associated with increased sales of print publications.
Digital Publishing Cost of Revenues. Digital publishing costs of revenues in-
creased to $8,605,000 in 1999 from $3,567,000 for 1998, an increase of
$5,038,000. This increase is due primarily to planned increases in the number
of employees in our editorial and operations staff over prior periods, in-
creases in contract labor and other outside services due to our expanded cov-
erage of sporting events and increases in commissions relating to sponsorships
of NCAA championships.
Print Publishing Cost of Revenues. Print publishing costs of revenues in-
creased to $3,334,000 in 1999 from $2,375,000 in 1998, an increase of
$959,000. The increase in print publishing cost of revenues is due primarily
to 26 titles being available for sale in 1999 as compared to seven titles
available in 1998.
E-commerce Cost of Revenues. E-commerce cost of revenues increased to
$1,191,000 in 1999 from $332,000 in 1998, an increase of $859,000. The in-
crease in e-commerce cost of revenues is due primarily to the direct costs of
merchandise associated with the increased volume of sales and increased sales
of golf merchandise from our Golf.com store, which generate lower margins than
our other e-commerce merchandise.
Product Development Expenses. Product development expenses increased to
$4,171,000 in 1999 from approximately $2,672,000 for 1998, an increase of
$1,499,000. The increase in product development expenses is due primarily to
23
<PAGE>
planned increases in expenditures related to improving our TotalCast technol-
ogy for existing sports and adding TotalCasts of additional sports and planned
increases in the number of employees performing product development projects.
We expect product development expenses to increase in absolute dollars as we
continue to enhance our TotalCast technology and develop new service offer-
ings.
Sales and Marketing Expenses. Sales and marketing expenses increased to
$5,389,000 in 1999 from approximately $2,744,000 in 1998, an increase of
$2,645,000. The increase in sales and marketing expenses is due primarily to
our continued efforts to build a dedicated sales force and increased advertis-
ing, including $1,110,000 of expense related to barter transactions and
$876,000 of expense related to our promotion and advertising agreement with
NBC Sports. We expect sales and marketing expenses to increase in absolute
dollars in future periods as we continue to hire additional sales and market-
ing personnel and expand our marketing and promotional activities.
General and Administrative Expenses. General and administrative expenses in-
creased to $4,951,000 in 1999 from $2,599,000 in 1998, an increase of
$2,352,000. The increase in general and administrative expenses is primarily
due to planned increases in our administrative and financial personnel, in-
creases in professional fees and increases in rent for office facilities. We
expect that we will incur increased general and administrative expenses as we
hire additional personnel and incur additional costs related to the growth of
our business and our operation as a public company. Accordingly, we anticipate
that general and administrative expenses will continue to increase in absolute
dollars in future periods.
Amortization Expense. Amortization expense consists of amortization of good-
will resulting from our acquisitions. Amortization expense increased to
$1,520,000 in 1999 from approximately $185,000 in 1998, an increase of
$1,335,000. The increase in amortization expense is primarily due to seven
months of amortization of goodwill resulting from our acquisition of Long Dis-
tance Technologies totaling $1,226,000. The Long Distance Technologies acqui-
sition occurred on June 4, 1999.
Other Income (Expense), Net. Other income (expense), net, decreased to expense
of $359,000 in 1999 from expense of $523,000 in 1998. This decrease was pri-
marily attributable to the change in equity in earnings of Golf.Com from a
loss of $24,000 in 1998 to income of $100,000 in 1999, a difference of
$124,000. In addition, results of operations for 1998 reflects an expense of
$42,000 from our interest in the earnings of our Total College Communications
joint venture. We acquired the remaining 50% of Total College Communications
on June 2, 1998 and, consequently, its entire operating results are a part of
our consolidated results for 1999.
Income Taxes. No benefit for federal and state income taxes is reported in the
financial statements in 1999 or 1998 as the net deferred tax assets generated,
consisting primarily of operating and economic loss carryforwards, were offset
by a full valuation allowance.
Net Loss. We had a net loss of $20,937,000 in 1999 as compared to $11,164,000
in 1998, an increase of $9,773,000. We expect to incur net losses for the
foreseeable future as we incur expenses to enhance our current product offer-
ings, develop new products and services and pursue new strategic relationships
to grow our business.
Year Ended December 31, 1998 Compared to the Period From February 20, 1997 to
December 31, 1997
Total Revenues. Total revenues for the year ended December 31, 1998 were
$3,833,000 compared to $1,009,000 for the period from February 20, 1997 to De-
cember 31, 1997, an increase of $2,824,000. The increase in total revenues is
primarily attributable to increased sales of sponsorships and print publica-
tions as discussed below and a full year of operations in 1998 versus 1997.
Our principal operations during 1997 did not begin until after the acquisition
of our sports content business from KOZ inc. on March 31, 1997.
Barter transactions in which we received advertising or other goods and serv-
ices in exchange for content or advertising on our Total Sports networks ac-
counted for approximately 17.5% of our total revenues in 1998. We had no bar-
ter revenues during 1997.
Digital Publishing Revenues. Digital publishing revenues increased to
$2,083,000 in 1998 from $738,000 in 1997, an increase of $1,345,000. The in-
crease in digital publishing revenues is primarily attributable to increases
in sales of sponsorships and advertising and $572,000 in barter transactions
for sponsorships and advertising in 1998. We had no barter transactions for
sponsorships and advertising in 1997.
24
<PAGE>
Print Publishing Revenues. Print publishing revenues increased to $1,315,000
in 1998 from $257,000 in 1997, an increase of $1,058,000. The increase in
print publishing revenues is due to the fact that our publishing operations
did not commence until the summer of 1997, as compared to a full year of oper-
ations in 1998. Seven titles were available for sale during 1998 as compared
to three titles during 1997. During 1998, we recognized $699,000 in net reve-
nues from our publication, Total Hockey, and $97,000 in barter transactions
for print publications. We had no sales of Total Hockey or barter transactions
for print publications in 1997.
E-commerce Revenues. E-commerce revenues increased to $435,000 in 1998 from
$14,000 in 1997, an increase of approximately $421,000. The increase in e-com-
merce revenues is primarily attributable to the increase in the number of our
online e-commerce stores from two as of December 31, 1997 to 13 as of December
31, 1998.
Total Cost of Revenues. Total cost of revenues in 1998 was $6,274,000 compared
to $1,807,000 in 1997, an increase of $4,467,000. The increase in total cost
of revenues is primarily attributable to increases in staffing, sales of print
publications and e-commerce activities and a full year of operations in 1998
versus 1997.
Digital Publishing Cost of Revenues. Digital publishing cost of revenues in-
creased to $3,567,000 in 1998 from $1,395,000 in 1997, an increase of
$2,172,000. The increase is due primarily to planned increases in the number
of employees in our editorial and operations staff, increases in contract la-
bor and other outside services due to our expanded coverage of sporting events
and increases in commissions relating to sponsorships of NCAA championships.
Print Publishing Cost of Revenues. Print publishing cost of revenues increased
to $2,375,000 in 1998 from $410,000 in 1997, an increase of $1,965,000. The
increase in print publishing cost of revenues is due primarily to the fact
that our publishing operations did not commence until the summer of 1997 as
compared to a full year of operations in 1998, and seven titles being avail-
able for sale during 1998 as compared to three titles available during 1997.
E-commerce Cost of Revenues. E-commerce cost of revenues increased to $332,000
in 1998 from $1,000 in 1997, an increase of $331,000. The increase in e-com-
merce cost of revenues is due primarily to the direct costs of merchandise as-
sociated with the increased volume of e-commerce sales.
Product Development Expenses. Product development expenses increased to
$2,672,000 in 1998 from approximately $1,467,000 in 1997, an increase of
$1,205,000. The increase in product development expenses is due primarily to
planned increases in expenditures related to improving our existing TotalCast
technology and adding TotalCasts of additional sports, including increased us-
age of contract labor and other outside services and planned increases in the
number of employees performing product development projects.
Sales and Marketing Expenses. Sales and marketing expenses increased to
$2,744,000 in 1998 from approximately $600,000 in 1997, an increase of
$2,144,000. The increase in sales and marketing expenses is due primarily to
increases in marketing salaries and benefits, travel expenses and advertising
resulting from our efforts to build a dedicated sales force and expand our
marketing activities. In 1998, we had $572,000 of expense related to barter
transactions. We had no barter transactions in 1997.
General and Administrative Expenses. General and administrative expenses in-
creased to $2,599,000 in 1998 from $846,000 in 1997, an increase of
$1,753,000. The increase in general and administrative expenses is primarily
due to planned increases in our administrative and financial staff, increased
professional fees, increased rent for office facilities and a full year of op-
erations in 1998 compared to 1997.
Amortization Expense. Amortization expense increased to $185,000 in 1998 from
approximately $32,000 in 1997, an increase of $153,000. The increase in amor-
tization expense is primarily due to a full year of amortization of goodwill
resulting from the KOZ and Sports Extra acquisitions, which occurred on March
31, 1997.
Other Income (Expense), Net. Other income (expense), net, decreased to expense
of $523,000 in 1998 from income of $43,000 in 1997. This decrease was primar-
ily attributable to an increase in interest expense to $507,000 in 1998 from
$100,000 in 1997, an increase of $407,000. The increase in interest expense is
due primarily to increased borrowings on our line of credit facility, interest
on four convertible notes payable issued in 1998 for proceeds of $3.6 million,
and amortization of the discount related to warrants issued in connection with
the four convertible notes. As all four notes
25
<PAGE>
payable were converted into Series C preferred stock in 1998, the entire dis-
count attributable to the warrants, totaling $146,000, was charged to interest
expense during 1998. In addition, minority interest in joint venture earnings
and losses changed from a loss of $138,000 in 1997 to earnings of $42,000 in
1998, a difference of $180,000. This change is due to the increase in Total
College Communications Company's reported earnings of $83,000 in 1998 as com-
pared to losses of $276,000 in 1997. We acquired the remaining 50% interest in
Total College Communications Company on June 2, 1998.
Income Taxes. No benefit for federal and state income taxes is reported in the
financial statements for 1998 or 1997 as the net deferred tax assets generated,
consisting primarily of operating and economic loss carryforwards, were offset
by a full valuation allowance.
Net Loss. We had a net loss of $11,164,000 in 1998 as compared to $3,700,000 in
1997, an increase of $7,464,000. We expect to incur expenses to enhance our
current product offerings, develop new products and services and pursue new
strategic partnerships to grow our business.
26
<PAGE>
Selected Quarterly Results of Operations
The following tables represent unaudited consolidated quarterly statement of
operations data for each of the eleven quarters in the period ended December
31, 1999, as well as this data expressed as a percentage of revenues. In the
opinion of management, this information has been prepared on the same basis as
the consolidated financial statements appearing in other sections of this pro-
spectus, and all necessary adjustments, consisting only of normal recurring ad-
justments, have been included in the amounts stated below to present fairly the
unaudited quarterly results. The quarterly information should be read in con-
nection with our consolidated financial statements and the related notes ap-
pearing elsewhere in this prospectus. The operating results for any quarter are
not necessarily indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------------------------------------------
1997 1998
------------------------------------- -----------------------------------------------------
Jun. 30(/1/) Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31
------------ --------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Digital
publishing..... $ 351,616 $ 108,973 $ 277,430 $ 913,940 $ 161,931 $ 394,399 $ 612,709 $ 1,525,796
Print
publishing..... 7,950 142,689 106,705 11,306 481,411 74,245 747,730 789,730
E-commerce...... -- -- 13,586 39,274 41,994 151,068 202,836 296,092
--------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenue... 359,566 251,662 397,721 964,520 685,336 619,712 1,563,275 2,611,618
Cost of revenues:
Digital
publishing..... 445,321 186,829 762,859 838,959 842,611 912,263 972,843 1,585,676
Print
publishing..... 47,592 164,410 198,284 281,122 404,020 258,587 1,431,520 648,073
E-commerce...... -- -- 1,249 13,837 17,638 150,455 149,790 260,472
--------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Total cost of
revenues....... 492,913 351,239 962,392 1,133,918 1,264,269 1,321,305 2,554,153 2,494,221
--------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit
(loss).......... (133,347) (99,577) (564,671) (169,398) (578,933) (701,593) (990,878) 117,397
Operating
Expenses:
Product
development.... 344,004 386,261 736,902 457,127 643,468 671,237 900,137 825,435
Sales and
marketing...... 146,667 186,987 266,818 339,645 456,735 763,659 1,183,860 631,761
General and
administrative.. 321,730 46,002 478,182 464,839 567,262 775,954 790,547 732,157
Amortization.... 10,518 10,519 10,519 16,587 22,102 62,116 84,680 72,800
--------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses....... 822,919 629,769 1,492,421 1,278,198 1,689,567 2,272,966 2,959,224 2,262,153
--------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Operating loss... (956,266) (729,346) (2,057,092) (1,447,596) (2,268,500) (2,974,559) (3,950,102) (2,144,756)
Other income
(expense), net.. (30,045) (28,159) 101,328 (82,004) (270,359) (146,503) (24,050) (32,780)
--------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss......... $(986,311) $(757,505) $(1,955,764) $(1,529,600) $(2,538,859) $(3,121,062) $(3,974,152) $(2,177,536)
========= ========= =========== =========== =========== =========== =========== ===========
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------------------------------------------
1997 1998
------------------------------------- -----------------------------------------------------
Jun. 30(/1/) Sept. 30 Dec. 31 Mar. 31 Jun. 30 Sept. 30 Dec. 31 Mar. 31
------------ --------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of
Annual Total:
Total revenue.... 36% 25% 39% 25% 18% 16% 41% 30%
Gross profit
(loss).......... (17)% (12)% (71)% (7)% (24)% (29)% (41)% 3%
Operating loss... (26)% (19)% (55)% (14)% (21)% (28)% (37)% (10)%
Net loss......... (27)% (20)% (53)% (14)% (23)% (28)% (36)% (10)%
<CAPTION>
-----------------------------------------
1999
-----------------------------------------
Jun. 30 Sep. 30 Dec. 31
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Digital
publishing..... $ 1,100,955 $1,510,060 $1,260,095
Print
publishing..... 250,833 401,806 388,839
E-commerce...... 405,019 208,055 446,403
------------- ------------- -------------
Total revenue... 1,756,807 2,119,921 2,095,337
Cost of revenues:
Digital
publishing..... 2,208,057 2,084,922 2,726,495
Print
publishing..... 834,707 396,421 1,454,940
E-commerce...... 332,263 185,198 413,443
------------- ------------- -------------
Total cost of
revenues....... 3,375,027 2,666,541 4,594,878
------------- ------------- -------------
Gross profit
(loss).......... (1,618,220) (546,620) (2,499,541)
Operating
Expenses:
Product
development.... 1,037,625 1,152,488 1,155,558
Sales and
marketing...... 1,022,487 1,364,723 2,369,590
General and
administrative.. 1,060,908 1,291,612 1,866,637
Amortization.... 240,513 588,598 617,773
------------- ------------- -------------
Total operating
expenses....... 3,361,533 4,397,421 6,009,558
------------- ------------- -------------
Operating loss... (4,979,753) (4,944,041) (8,509,099)
Other income
(expense), net.. (64,693) (180,164) (81,212)
------------- ------------- -------------
Net loss......... $(5,044,446) $(5,124,205) $(8,590,311)
============= ============= =============
<CAPTION>
-----------------------------------------
1999
-----------------------------------------
Jun. 30 Sep. 30 Dec. 31
------------- ------------- -------------
<S> <C> <C> <C>
Percentage of
Annual Total:
Total revenue.... 20% 25% 25%
Gross profit
(loss).......... (36)% (12)% (55)%
Operating loss... (24)% (24)% (42)%
Net loss......... (24)% (25)% (41)%
</TABLE>
- -------
(1) Total Sports was formed on February 20, 1997 but did not commence opera-
tions until March 31, 1997, in connection with its acquisition of the
sports content business of KOZ inc.
Our operating results have varied on a quarterly basis during our operating
history and may fluctuate in the future as a result of a variety of factors,
many of which are outside our control. Historically, we have reported our high-
est revenues in the first quarter, which coincides with the NCAA Championship
men's basketball tournament occurring in March of each year. Additionally, as a
result of our limited operating history and the emerging nature of the sports
information markets in which we compete, it is difficult for us to forecast our
revenues or losses accurately. Our expense levels are largely based on our
staffing levels and are to a large extent fixed. Accordingly, we may be unable
to adjust spending in a timely manner
27
<PAGE>
to compensate for any unexpected revenue shortfall. Any significant shortfall
in relation to our expectations could cause a material adverse effect on our
business, results of operations and financial condition. In addition, we cur-
rently intend to significantly increase our operating expenses to:
. develop and enhance our technology;
. increase sales and marketing and operations staff expenses;
. fund promotion and advertising expenditures to build brand awareness;
. create, introduce and enhance our current product offerings;
. acquire content and other business and technology services; and
. enter into new strategic partnership agreements domestically and
internationally.
To the extent that such expenses precede or are not subsequently followed by
increased revenue, our business, results of operations and financial condition
could be materially adversely affected.
Liquidity and Capital Resources
Our capital requirements have been and will continue to be significant, and to
date, our cash requirements have exceeded our cash flow from operations. Since
our inception in 1997, we have satisfied cash requirements and financed our op-
erations primarily through borrowings, capital lease financings, convertible
bridge loans and private sales of our equity securities.
From our inception in February 1997 through June 1997, we funded operations
with $750,000 in equity contributions from our founders. In June 1997, we com-
pleted a private placement of our Series A preferred stock and common stock
warrants with net proceeds of $1,180,000. In November 1997, we completed a pri-
vate placement of our Series B preferred stock with net proceeds of $1,937,000.
In August 1998 and January and April 1999, we completed private placements of
our Series C and C1 preferred stocks with net proceeds totaling $15,617,000. In
November 1999, we completed an approximately $35,500,000 private placement of
our Series D preferred stock. Included in the proceeds of this placement is
$6,500,000 from previously issued convertible notes that were converted into
Series D preferred stock.
In addition to funding ongoing operations and capital expenditures, our princi-
pal commitments consist of various obligations under short and long-term
borrowings, notes payable, operating leases and capital leases. On February 24,
1999, we issued a note payable for $114,921 to First Raleigh Telex, LLC, a re-
lated entity controlled by Frank A. Daniels, Jr., a director and stockholder of
Total Sports. The note is due on February 24, 2002, bears interest at 9.0% per
annum, and is collateralized by computer equipment. In November 1999, we paid
off our outstanding $3,966,000 line of credit with First Union National Bank
from the proceeds from the offering of our Series D preferred stock. Between
June and November 1999, we entered into convertible bridge loans for $6.5 mil-
lion. In November 1999, the $6.5 million aggregate principal amount of these
loans was converted into 391,802 shares of our Series D preferred stock.
On August 13, 1999, we entered into a ten-year operating lease for office space
with First Raleigh Telex. This lease requires monthly payments of $24,923. As
of December 31, 1999, total rent expense for all outstanding operating leases
was approximately $83,575 per month. During 1999, we entered into capital
leases for the use of certain computer and telecommunications equipment with
purchase prices totaling approximately $502,000. These 1999 capital leases re-
quire total monthly payments of approximately $22,000 through June 2002. Total
payments for all outstanding capital leases as of December 31, 1999 were ap-
proximately $31,000 per month.
As of December 31, 1999, we had $17,671,000 in cash and cash equivalents. Net
cash used in operating activities was $3,825,000, $9,860,000 and $16,614,000
for 1997, 1998 and 1999. Net cash used in operating activities resulted from
our net operating losses, adjusted for certain non-cash items including compen-
sation and interest expense related to the issuance of options and warrants to
key employees and business partners. Non-cash charges relating to the issuance
of these options and warrants were $212,000 for 1998 and $240,000 in 1999. Non-
cash charges relating to depreciation and amortization expense were $255,000,
$760,000 and $3,417,000 for 1997, 1998 and 1999.
Net cash used in investing activities was $1,772,000, $964,000 and $2,118,000
for 1997, 1998 and 1999. Net cash used in investing activities resulted primar-
ily from capital expenditures relating to purchases of computer and office
equipment and acquisitions of and investments in related businesses.
28
<PAGE>
Net cash provided by financing activities was $5,834,000, $11,272,000 and
$35,718,000 for 1997, 1998 and 1999. Net cash provided by financing activities
for these periods included the issuance of short and long-term borrowings and
notes payable, long-term capital lease obligations and preferred stock, common
stock and warrants.
No provision for federal or state income taxes has been recorded as we incurred
net operating losses for all periods. However, we have paid state franchise
taxes during 1997, 1998 and 1999. As of December 31, 1999, we had approximately
$31.9 million of net operating and economic loss carryforwards available to
offset future federal and state taxable income. These carryforwards expire in
years 2011 through 2019. As a result of various equity transactions during
1997, 1998 and 1999, we believe our company has undergone an "ownership change"
as defined by Section 382 of the Internal Revenue Code. Accordingly, the use of
a portion of the net operating and economic loss carryforwards may be limited.
Due to this limitation, and the uncertainty regarding the ultimate use of the
net loss carryforwards, we have not recorded any net tax benefit for losses by
the provision of a valuation allowance for the entire amount of our net de-
ferred tax assets. In addition, future sales by us of shares of our capital
stock, including sales pursuant to this offering, and/or transfers of a sub-
stantial number of shares of common stock by the current stockholders,may re-
strict our ability to use our net operating loss carryforwards.
We have experienced a substantial increase in operating expenses since incep-
tion in connection with the growth of our operations and staffing and the ex-
pansion of our service offerings. From our inception, we have incurred net
losses of more than $35.8 million, including losses of approximately $20.9 mil-
lion in 1999. We expect to continue to incur net losses for the foreseeable fu-
ture as we implement our business strategy. Our capital requirements for the
year ending December 31, 2000 depend on numerous factors, including the amount
of resources to be devoted to:
- - improving and extending services offerings;
- - expanding strategic relationships;
- - making investments in or acquisitions of businesses, products and technolo-
gies; and
- - expanding sales and marketing programs and conducting more aggressive cam-
paigns to strengthen brand recognition.
As of December 31, 1999, we had approximately $17.6 million in cash and cash
equivalents. We have determined that we must raise additional funds to support
our operations and implement our business strategy over the next twelve months,
and are undertaking efforts to raise additional capital. These efforts include
a planned initial public offering of our common stock in 2000, with expected
net proceeds of approximately $45 million. We believe that the net proceeds
from this offering, along with cash and cash equivalents on hand, will be suf-
ficient to fund our cash requirements for operations, working capital and capi-
tal expenditures for at least the next twelve months. Thereafter, we may need
to raise additional funds. In the event that this planned offering is not con-
summated, we believe that we will need to raise additional capital, either from
the sale of equity or debt securities, or from other sources such as borrowings
from banks, in order to continue with our current business strategy on the
planned timetable. Although no assurances can be given that the efforts to
raise additional capital will be successful, based on our history of raising
equity, we believe that we can successfully raise funds necessary to support
our plans for the next twelve months. In the event that we are not able to
raise such additional funds, we have prepared a contingency operating plan that
consists of reductions in personnel and marketing expenditures which, in the
opinion of our management, could be implemented and would allow us to continue
our operations for a reasonable period of time. However, the implementation of
this contingency plan could have material adverse effects on our long-term op-
erations.
Year 2000 Readiness, Costs of Compliance and Effect on Operations
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year in respective date
fields. We use a combination of hardware devices run by computer programs at
our support center and offsite transmission locations to process transactions
and other data which are essential to our business operations. The Year 2000
issue and its impact on data integrity could result in system interruptions,
miscalculations or failures causing disruption of operations.
The following discussion about the status of our Year 2000 activities, the
costs expected to be associated with the activities and the results we expect
to achieve constitute forward-looking information. As noted below, there are
many uncertainties
29
<PAGE>
involved with the Year 2000 issue, including the extent to which we will be
able to adequately provide for contingencies that may arise, as well as the
broader scope of the Year 2000 issue as it may affect third parties and our
sponsors. Accordingly, the costs and results of our Year 2000 activities and
the extent of any impact on our results of operations could vary materially
from that stated herein.
State of Readiness. In February 1999, we formed a Year 2000 committee comprised
of our Chief Technology Officer and our technical specialists. The committee
was responsible for developing our Year 2000 compliance assessment plan, which
consisted of a three-phase process of:
. identifying both information technology and non-information technology
systems that are not Year 2000 compliant;
. determining their significance to our operations; and
. developing plans to resolve issues where necessary.
Our Year 2000 compliance assessment plan included testing all of our informa-
tion and non-information technology systems as well as our internally developed
TotalCast software. We identified potential problems in some of our non-criti-
cal systems and began repairing, upgrading or replacing such systems in the
second quarter of 1999. Such Year 2000 compliance activities were completed
prior to December 31, 1999. Based on our testing and assessment, we believe
that our information and non-information technology, as well as internally de-
veloped systems, are Year 2000 compliant.
We expect most material Year 2000 compliance problems to have arisen on or im-
mediately after January 1, 2000. As of January 21, 2000, we had not experienced
any year 2000 problems and we had not been informed of any material year 2000
problems by our customers and vendors. It is possible, however, that further
Year 2000-related problems will arise after January 1, 2000. For example, the
date February 29, 2000 may present further problems for non-compliant systems
or software. We do not expect to experience any material adverse effects on our
business, financial condition or results of operations from any vendor, sup-
plier or financial institution who may experience Year 2000 problems after Jan-
uary 1, 2000.
Costs. Total Sports was formed in February 1997. At that time, the Year 2000
issue was widely known and anticipated among the technology industry, and most
software and hardware providers were working to update their products to
achieve and ensure Year 2000 compatibility. As we selected the software and
hardware products to be used in our operations, we made a determined effort to
select Year 2000 certified products. As a result, our historical costs related
to Year 2000 activities have been insignificant. To date, costs that we have
incurred in connection with identifying and evaluating Year 2000 compliance is-
sues have been approximately $10,000. Most of our expenses relate to, and are
expected to continue to relate to, the operating costs associated with time
spent by employees in the assessment process, the repair, upgrade or replace-
ment process and general Year 2000 compliance matters. We estimate that the to-
tal cost of our Year 2000 activities will be less than $15,000 and we intend to
expense such costs as they are incurred. In the event that we incur expenses
higher than anticipated, such additional expenses could harm our business.
Risks. If we or our key vendors, suppliers or financial institutions experience
Year 2000 problems, the result could be a failure or interruption of our normal
business operations. Although we believe that the potential for significant in-
terruptions to normal operations should be minimal due to the relative newness
of our systems, our business is exposed to risks associated with the Year 2000
problem. Our primary risks of Year 2000 failures are those related to external
service providers including telecommunications, electrical power and Internet
commerce systems that we upon daily. The most reasonably likely worst-case sce-
nario is a failure related to one or several of our external service providers
referenced above. Such failure or failures could cause any of the following:
. protracted interruption of electrical power to our operations and
Internet servers which could materially and adversely impact our ability
to enable online transactions and other services;
. significant or widespread failure of software products and services
provided to us by third parties; and
. significant or widespread failure of third party computer systems with
which our systems interface.
To date, we are not aware of Year 2000 problems experienced by our sponsors.
However, failure of our sponsors' equipment or software due to Year 2000 prob-
lems may result in reduced funds available for sponsorship and advertising ac-
tivities. In addition, the purchasing patterns of sports users may be affected
by Year 2000 issues as companies expend significant resources to correct their
current systems for Year 2000 compliance. Finally, we are subject to external
forces that might generally affect industry and commerce, such as utility or
transportation company Year 2000 compliance failures and related service inter-
ruptions. The occurrence of any Year 2000 compliance failures that affect our
sponsors, our
30
<PAGE>
audience or industry and commerce generally could have a material adverse ef-
fect on our business, results of operations and financial condition.
Contingency Plan. In the event that we experience Year 2000 problems, we will
manually perform those tasks which would otherwise be performed by our non-Year
2000-compliant systems until such systems are repaired, upgraded or replaced.
In the event we experience a Year 2000 problem as a result of our communica-
tions or electrical power providers, we expect the operations and transmission
of our TotalCasts of sporting events to be effected. Under this scenario, our
employees will manually call in information using land-based telephone lines
with analog or digital cellular telephones as backup. In this event, we antici-
pate that we will experience delays in our TotalCast transmissions for those
events. We are not currently able to determine the effect on our revenues, if
any, from these delays or interruptions.
Newly Adopted Accounting Standards
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Cost of Computer Software Devel-
oped or Obtained for Internal Use. Statement of Position 98-1 is effective for
financial statements for years beginning after December 15, 1998. Statement of
Position 98-1 provides guidance over accounting for computer software develop-
ment or obtained for internal use including the requirement to capitalize spec-
ified costs and amortization of such costs. The adoption of this statement by
Total Sports did not have a significant effect on our capitalization policy or
on our financial statements during the year ended December 31, 1999.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities.
Statement of Position 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start up activities and or-
ganization costs to be expensed as incurred. As we have expensed these costs
historically, the adoption of this standard did not have an impact on our re-
sults of operations, financial position or cash flows for the year ended Decem-
ber 31, 1999.
Recently Issued Accounting Standards Not Yet Adopted
In June 1998, the Financial Accounting Standards Board issued Statement of Fi-
nancial Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities. Statement of Financial Accounting Standards No. 133 estab-
lishes accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or lia-
bilities in the statement of financial position and measure those instruments
at fair value. Statement of Financial Accounting Standards No. 133 is effective
for the first fiscal quarter of fiscal 2001; earlier application is encouraged.
As of December 31, 1999, we have not determined the effect of Statement of Fi-
nancial Accounting Standards No. 133 on our consolidated financial statements.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to minimal market risks. We manage sensitivity of our results of
operations to these risks by maintaining a conservative investment portfolio,
which consists of money markets funds and other highly liquid investments, and
entering into long-term debt obligations with appropriate pricing and terms. We
do not hold or issue derivative, derivative commodity or other financial in-
struments held for trading purposes. Financial instruments for other than trad-
ing purposes do not impose a material market risk on us.
We are exposed to interest rate risk, as additional debt financing is periodi-
cally needed due to the large operating losses and capital expenditures associ-
ated with establishing and expanding our network coverage. The interest rate
that we will be able to obtain on debt financing will depend on market condi-
tions at that time, and may differ from the rates we have secured on our cur-
rent debt.
While all of our long-term debt bears fixed interest rates, the fair market
value of our fixed rate long-term debt is sensitive to changes in interest
rates. We have no cash flow or earnings exposure due to market interest rate
changes for our fixed long-term obligations. The table below provides addi-
tional information about our long-term debt obligations as of December 31,
1999. For additional information about our long-term debt obligations, see Note
6 to our Consolidated Financial Statements.
31
<PAGE>
As of December 31, 1999 :
<TABLE>
<CAPTION>
----------------------
Weighted
Average
Fixed Interest
Expected Maturity Debt Rate
- ----------------- -------- --------
<S> <C> <C> <C>
2000..................................................... $101,548 8.47%
2001..................................................... 92,764 7.49
2002..................................................... 54,810 7.50
2003..................................................... 73,493 7.18
2004..................................................... 78,782 7.18
Thereafter............................................... 9,459 7.18
-------- ----
$410,856 8.0%
======== ====
Fair market value........................................ $417,000 --
======== ====
</TABLE>
We operate primarily in the United States, and all sales to date have been made
in U.S. dollars. Accordingly, we have had no material exposure to foreign cur-
rency rate fluctuations.
Inflation
We do not expect inflation to have a significant impact on our operations.
Seasonality
We expect that our revenues will be higher leading up to and during major U.S.
sports seasons and lower at other times of the year, particularly during the
summer months. The effect of such seasonal fluctuations in revenues could be
enhanced or offset by revenues associated with major sports that do not occur
every year. We believe that advertising sales in traditional media, such as
television, generally are lower in the first and third calendar quarters of
each year, and that advertising expenditures fluctuate significantly with eco-
nomic cycles. Depending on the extent to which these factors apply to Internet
advertising, the seasonality and cyclicality in the level of our advertising
revenues could become more pronounced. The foregoing factors could have a mate-
rial adverse affect on our business, results of operations and financial condi-
tion. The following table summarizes by sports group our advertising revenues
included in 1999 digital publishing revenues, and the quarters in which the ma-
jority of the advertising revenues are recognized:
<TABLE>
<CAPTION>
---------------------------------------------
Advertising Primary Timing of
Sports Group Revenues Events Quarters
- ------------ ----------- ----------------------- ---------
<S> <C> <C> <C>
Collegiate athletics.............. $1,591,281 Spring and fall Q1 and Q4
Golf.............................. $1,226,853 Various Various
Auto racing....................... 288,461 Spring and summer Q2 and Q3
Baseball.......................... 916,236 Spring, summer and fall Q2 and Q4
Fishing........................... 81,441 Various Various
Other............................. 45,722 Various Various
----------
$4,149,994
==========
</TABLE>
32
<PAGE>
Business
Overview
Total Sports is an event-centered, online sports media company. We provide
sports fans and enthusiasts with live, or real-time, simulcasts of events in
eight collegiate and professional sports, game summaries, in-depth statistical
analysis, breaking news and the opportunity to purchase sports-related merchan-
dise. We believe we are differentiated from our competitors by our live event
focus. In 1999, we provided live coverage of over 4,000 sporting events using
our TotalCast and other simulcast technologies. We also believe we are differ-
entiated by our business architecture, which consists of our combination of
proprietary technology and people who cover live events and provide other
sports content. Our business architecture enables us to provide statistically
detailed real-time coverage and continually update and customize content. We
have five networks of sports Web sites:
. Total College Sports Network;
. Total Baseball Network;
. Total Golf Network;
. Total Motor Racing Network; and
. Total Sportfishing Network.
Our contractual relationships with the NCAA through Host Communications, Major
League Baseball and Sports Illustrated provide us with the majority of our con-
tent. Our contractual relationship with NBC Sports, a Total Sports stockholder,
provides us with the majority of our promotion on television. Our objective is
to become the leading global online sports media company with a focus on live
event coverage.
The total number of our Web pages our users access, referred to as page views,
have increased from approximately 38 million in 1997 to approximately 696 mil-
lion in 1999, while the number of our sponsors and advertisers has grown from
two in 1997 to 99 in 1999.
Industry Background
The Sports Market. According to the 1998 ESPN Chilton Sports Poll, 87% of the
U.S. population over the age of 12 consider themselves sports fans, which we
estimate is over 182 million sports fans. Interest in sports is intense and the
overall sports industry is large and growing. In 1995, according to the Georgia
Institute of Technology, spectator sporting events, the sale of sporting goods
and the sale of sports publications in the United States generated an estimated
$130 billion. Each year, there are approximately 2,500 Major League Baseball
games, 5,000 NCAA Division I college basketball games, 700 NCAA Division I-A
college football games and 200 professional golf events. Media coverage of
these events provides businesses with an opportunity to promote their products
and services to large audiences. Seven of the ten most widely viewed television
broadcasts in the 1998-99 television season were sporting events, according to
Nielsen Media Research. Sports-related television advertising generated approx-
imately $4.8 billion in 1998 and is estimated to generate approximately $6.6
billion in 2003, according to Paul Kagan & Associates. In addition, based on
research conducted by Sports Marketing magazine, our management estimates that
in 1998, between $12.2 billion and $14.2 billion was invested globally in
sports through the sponsorship of events, federations, teams, individuals and
stadiums.
The Internet. The Internet has emerged as a significant global communications
medium, enabling millions of people to access information and conduct commerce
electronically. The total number of Web users worldwide will increase from ap-
proximately 196 million in 1999 to 502 million by 2003, according to Interna-
tional Data Corporation. The Internet provides advertisers and merchants with
an attractive means of marketing and selling products and services either to a
mass audience or to a targeted demographic. The total value of products and
services sold over the Web is projected to increase from approximately $111.4
billion in 1999 to approximately $1.3 trillion by 2003, according to Interna-
tional Data Corporation. Advertising spending on the Internet is projected to
increase from $2.8 billion in 1999 to approximately $17.2 billion in 2003, ac-
cording to Forrester Research.
33
<PAGE>
Sports on the Internet. The Internet provides sports enthusiasts access to re-
al-time scores and game summaries, extensive news coverage, statistics, analy-
sis and commentary before, during and after a sporting event. Total Sports be-
lieves, based on its market research conducted in 1999, that sports-related Web
sites are the third most visited category on the Internet, and over 75% of all
Internet users have visited sports-related Web sites, averaging approximately
1.7 visits a day. Internet users spend approximately 50% more time on sports-
related Web sites and visit these sites approximately 25% more often than other
Web sites, according to data collected by Media Metrix. Additionally, visitors
to sports-related Internet sites have higher household incomes and make more
online purchases than the average online adult, according to
Cyberdialogue/findsvp.
Opportunities For Online Sports Providers. The Internet provides the ability to
create a personalized, event-centered and comprehensive sports experience for
the user. Before, during and after a sporting event, sports enthusiasts can en-
gage in interactive event coverage, purchase event-specific merchandise and ac-
cess comprehensive sports information from a single online media source. The
popularity of sports on the Internet and the demographic attractiveness of the
audience offers multiple revenue-producing opportunities for merchants and
advertisers.
Traditional media such as newspapers, magazines, radio, television and 24-hour
sports cable channels do not offer a personalized, event-centered and compre-
hensive sports experience, nor do they incorporate interactive features. In ad-
dition, traditional media can only broadcast one event at a time and access by
fans is often limited by regional coverage. While several online providers, in-
cluding traditional media providers with an online presence, have emerged in
the sports category, we believe their presentation of programming and related
information tends to follow the traditional media model and consists of repack-
aging existing content into an online format. In addition, we believe most on-
line providers in the sports category have not developed the infrastructure
necessary to exploit the convergence of traditional media, the Internet and
other emerging digital technologies.
The Total Sports Experience
Total Sports provides an interactive, event-centered online sports experience,
which enables users to easily access and select real-time and other information
specific to events, teams, and athletes. Our Total Sports networks consist of
over 100 Web sites that provide live event coverage, historical databases, ex-
pert analysis and breaking news of many collegiate and professional sports. Our
business architecture, which combines technology and business processes, ena-
bles us to integrate interactive live event coverage, sports content and e-com-
merce capabilities into our Total Sports networks and the Web sites of our cus-
tomers.
Benefits to Users. We have designed our event-centered sports coverage to meet
the needs of sports fans. Key benefits include:
. Real-Time Live Event Coverage. TotalCasts allow our users to experience
interactive, play-by-play, real-time coverage over the Internet. Our
TotalCasts provide graphical and textual presentations of live sporting
events that enhance a user's experience by offering a variety of real-time
charts, graphs and statistical analysis that we believe exceeds what is
offered by traditional and other new media coverage. Our statistical content
allows users to monitor and analyze the performance of teams and individual
players at any point during a sporting event. Our TotalCasts also offer
users real-time coverage of events which might not be broadcast locally.
. Extensive and Authoritative Sports Content. Our live event coverage is
enriched by our extensive sports-related news and information, including our
historical databases and archives, breaking news and expert analysis and Web
sites targeted to particular teams or conferences. We maintain databases
with statistical information on many sports. For example, we have a
searchable online baseball database with the complete records of the over
15,000 current and former Major League Baseball players. Users can access
and query this online repository of sports-related information and
statistics to follow their favorite teams and players. In addition, we have
partnered with Sports Illustrated to publish sports-related print titles and
have access to its archive of articles, books and photographs for use in
both online and traditional media. We publish the official encyclopedias for
Major League Baseball, the National Football League and the National Hockey
League.
. Convenient Shopping Experience. We provide users with the opportunity to
purchase sports merchandise online. We integrate specific team, school and
conference sport store fronts and other e-commerce offerings into our
TotalCasts and Total Sports networks. We also offer merchandise specifically
related to sporting events we TotalCast. Our users can easily select, order
and purchase merchandise before, during and after an event.
34
<PAGE>
Benefits to Customers. Our customers include online news and entertainment com-
panies, broadcasters, leagues, athletic conferences and teams. Key benefits to
these partners include:
. Sports Content. We have designed our event-centered sports coverage to be
compelling to users. We believe that our content attracts and retains users
for our customers, creating additional advertising and e-commerce
opportunities. In particular, we believe that TotalCasts, which typically
last between two and three hours, retain users longer per visit than other
online live event coverage.
. Outsourced Sports Content. Our business architecture enables us to provide
outsourced online sports content in a cost-effective manner while
maintaining our customers' brand integrity and the look and feel of their
Web sites. We use a series of internally developed templates designed to
help us quickly and efficiently tailor our sports content to our customers'
specific needs and preferences. By providing sports content, we offer an
alternative to maintaining a large staff of reporters and editors and
technology infrastructure.
Benefits to Sponsors, Advertisers and Merchants. Key benefits include:
. Large and Targeted User Base. We provide sponsors, advertisers and merchants
a channel to reach a large and demographically attractive user base.
Furthermore, our Total Sports networks enable them to target users by sport,
region and other demographic categories, which allows sponsors, advertisers
and merchants to segment their target audience.
. Focused and Event-Centered Advertising and E-Commerce. We allow sponsors,
advertisers and merchants to tailor the scope and duration of a particular
campaign by enabling them to focus on specific sports, leagues, teams, or
events. Merchants can capitalize on a sports fans' event-specific interests
by selling related merchandise directly during our event coverage. We also
design custom campaigns and programs for maximizing marketing and e-commerce
opportunities on the Web for our sponsors, advertisers and merchants.
Business Strategy
Our objective is to become the leading global online sports media company with
a focus on real-time live event coverage. To achieve our objective, we plan to:
Enhance and Generate Revenue From Our Content. We intend to grow our user base
and increase traffic to generate additional revenue by adding new sports Web
sites and networks of Web sites, expanding our existing sports networks and en-
hancing user functionality. We plan to increase the content available on our
five current sports networks as well as launch new networks devoted to profes-
sional and collegiate sports in the United States and internationally that are
not currently covered in a comprehensive fashion. We will continue to enhance
user functionality on our Total Sports networks and use our databases to create
enhanced content to make the user experience broader and richer.
Strengthen Our Brand Recognition. We intend to make Total Sports synonymous
with authoritative, real-time, comprehensive sports content. We also will pro-
mote our other brands and trademarks, such as TotalCast, our brand for real-
time graphical and textual presentation of live sporting events; Powered by To-
tal Sports, our brand for syndicated content; and Total Sports Illustrated, one
of our print publishing imprints. We intend to build our brands through online
and offline advertising, strategic alliances, and other promotional activities.
We will also continue to co-brand our content with leading syndication media
partners.
Capitalize on Our Technology. We believe our technology infrastructure and
business processes provide us with an advantage as we enter new sports catego-
ries, expand our strategic relationships, increase the syndication of our con-
tent and capitalize on convergence opportunities. We believe that our capabil-
ity to provide detailed, real-time sporting events coverage offers sports,
leagues and teams an attractive means to expand online coverage and promotion
of their events. In addition, by allowing rapid collection, customization and
distribution of sports content, our business architecture enables other custom-
ers to access our sports content. We have recently introduced Total Sports TV,
which involves filming sporting events and providing edited video to users on
our Web sites. Our technology also positions us to expand our service offerings
and become a leader in integrating video, audio, text and digital sports pro-
gramming on a real-time basis over the Internet. We believe that doing so will
give us a competitive advantage. As technologies that integrate television,
wireless and Internet broadcasts develop, we will be able to disseminate the
data we collect through our TotalCast system, as well as the related analysis
and graphical presentations, using these convergent technologies. In addition,
we can deliver our content to a variety of devices that provide Internet ac-
cess, including PCs, hand-held devices, pagers, cellular telephones and inter-
active television. We intend to deliver our content to other devices as they
develop.
35
<PAGE>
Expand Strategic Relationships. We intend to expand our current and enter into
new strategic relationships to obtain additional content and distribution. We
plan to expand the scope of our existing relationships with major media compa-
nies, such as NBC Sports, and with professional and collegiate sports teams,
leagues and other sports organizations, such as Major League Baseball and the
NCAA, to broaden the reach of our online networks and gain access to additional
content. We will also seek to establish additional relationships with other
sports organizations and traditional and new media companies to secure rights
to additional content and events, both in the U.S. and internationally.
Grow Through Acquisitions. Since our inception, we have acquired and integrated
five businesses and we intend to continue pursuing acquisitions. We plan to
pursue acquisitions that broaden and deepen our statistical databases and con-
tent, enhance our e-commerce opportunities, supplement our existing technology
and provide an international presence.
Total Sports Business Architecture
Our proprietary technology infrastructure and business processes enable us to
collect sports statistics and information and distribute it in customized for-
mats on our Total Sports networks and to multiple distribution customers. This
business architecture allows us to rapidly collect sports content from a wide
variety of sources, convert the content into one master format, and then cus-
tomize and distribute that content quickly and efficiently.
Our distribution of content allows users to access our content in a number of
ways, including:
. through our two main navigation sites, www.totalsports.net and
www.totalsports.com, which help them find our specific site covering the
sport, league or team in which they are interested;
. through our five sports networks, which consist of groups of our individual
sites, organized by sport, league, school or team, and linked together for
easy navigation;
. directly through one of our over 100 individual Web sites for sports,
leagues, schools or teams; or
. through the over 250 Web sites of our distribution customers to whom we dis-
tribute sports content.
The following schematic depicts our business architecture:
[CHART APPEARS HERE]
Our business architecture consists of two primary components, the TotalCast
system and the Total Sports publishing system. The primary difference between
the two systems is the source and nature of the content initially flowing into
the systems.
36
<PAGE>
TotalCast System
The TotalCast system receives data real-time from a sports event, processes the
information, so that it can be stored and manipulated in our databases and
then, using that data, creates graphical and textual descriptions and analysis
of the event. Our business architecture is comprised of three primary processes
that create the ability to reuse and redistribute Total Sports statistics and
information across many different platforms in many different ways.
. Collecting Real-Time Data. At the sports venue, our operators input data
relating to the sporting event into a computer that relays the information
to the company over the Internet. The computers used by our operators have
software featuring an easy-to-use graphical display, immediate quality
control feedback and artificial intelligence that knows the rules and
situations of each sport. We believe that the ease-of-use and intelligence
built into the software allow our operators to capture up to ten times more
data during the event than other data collection methods. The data is sent
real-time to our servers in a format ready for conversion.
. Converting the Data. The TotalCast system receives and immediately converts
the data into a format that can be stored in our databases and used to
create new content. The data conversion process will manage situations where
problems occur during an event. For instance, if there is an interruption in
service, once communications are re-established, the data conversion process
will synchronize all missing information and create new content. This
enables Total Sports to deliver accurate and complete coverage to its users
and to make available complete archives of events.
. Creating the Content. The content creation process immediately takes
information from the TotalCast database and creates multiple graphs,
statistical presentations and text pages per play during a sporting event.
The system can create many different presentations of each discreet event
like a pitch in baseball or a pass play in football. We believe that it
typically takes approximately ten seconds from the time the operator enters
the information into the computer at the sport venue to when all the
different presentations are available on the Internet.
The TotalCast system also can integrate audio files, video files and still pho-
tographs or deliver that content separately to our network of Web sites, those
of our syndication partners and a variety of other access devices.
Total Sports Publishing System
The Total Sports publishing system enables us to receive data and information
from many sources in multiple formats and convert, manipulate and distribute
this data in different forms on the Total Sports network or the Web sites of
our distribution customers. The system also allows us to rapidly repackage con-
tent into one of more than 100 different templates each with a different look,
feel and presentation.
. Collecting Data. The publishing system receives news, statistics and other
content from multiple sources in different formats, including email,
computer files, facsimiles, proprietary data formats, news or sports wire
transmissions, photographs and satellite data streams. The system can
process tens of thousands of data files per day.
. Converting the Data. The publishing system converts this diverse stream of
information into a format that can be stored in our databases and used to
create new content. As part of this process, the system knows the
contractual rules for each source of information. For instance, some wire
services will allow Web sites to display stories for a certain period of
time before they must be removed from the Web site. The data conversion
process automatically ensures that all content is used consistently with any
relevant contractual provisions.
. Creating the Content. Editors, either from Total Sports or our distribution
customers, can adjust the display, change headlines, or change the display
priority of any content on their respective Web sites. The system creates
Web pages to conform to the look and feel of each Total Sports distribution
customer. The content creation process can display a story in more than 100
different formats.
Both the TotalCast system and the publishing system are designed to handle
rapid changes in design and load. The architecture can accommodate new distri-
bution customers and increased traffic levels without slowing down our ability
to update Web sites, limiting our customers' ability to change their site or
changing the user's experience. The architecture is also designed to distribute
our content to various non-Internet devices such as in-venue displays, pagers,
mobile computers, cellular phones and hand-held computing devices, as well as
our traditional publishing unit. For example, in early 2000, we began offering
detailed, customized updates of ongoing sporting events via cellular phones.
Products and Services
We provide users access to our TotalCasts and other live event simulcasts, our
searchable archives of sports- related news, statistics and analysis and mer-
chandise related to their favorite teams, players and events throughout our To-
tal Sports
37
<PAGE>
networks and on the Web sites of our distribution customers. In addition, we
publish sports encyclopedias, fan guides and other sports-related titles.
Total Sports Networks
Our five Total Sports networks provide users with extensive online sports pro-
gramming encompassing both collegiate and professional sports. Our Total Sports
networks are centered around our live event coverage. These networks consist of
more than 100 Web sites, which users can access directly or through our
navigational sites www.totalsports.net and www.totalsports.com. Our networks
feature:
. interactive live event coverage;
. up-to-date general sporting news and editorials;
. streaming audio and video;
. constantly updated scoreboards; and
. e-commerce storefronts.
The following chart identifies our five Total Sports networks, including se-
lected Web sites and content features:
Sports Networks Selected Web sites Content Features
- --------------------------------------------------------------------------------
Total College Sports TotalCollegeSports.com . Official Web sites
Network FinalFour.net and TotalCasts for
NCAA Football.net NCAA championships,
NCAA Baseball.net including the Final
SECSports.com Four and the College
Big10Championships.com World Series
GoDuke.com . TotalCasts of
Riceowls.com conference and
university sporting
events
. University and
conference Web sites
. Official university
and conference
online stores
- --------------------------------------------------------------------------------
Total Baseball Network TotalBaseball.com . TotalCasts of all
TotalWorldSeries.com spring training,
regular season,
playoff and World
Series games
. Searchable database
for statistics on
approximately all
15,000 current and
former MLB players
. Standings,
schedules,
statistics, news
- --------------------------------------------------------------------------------
Total Golf Network Golf.com . TotalCasts of
Pinehurst99.com tournaments
. Instruction, news,
schedules
. Equipment sales
- --------------------------------------------------------------------------------
Motortrax.com . Streaming NASCAR pit
Total Motor Racing crew/driver
Network conversation
- --------------------------------------------------------------------------------
Total SportFishing worldbillfishseries.com . Simulcast of World
Network thebigrock.com Billfish Series
buddydavis.com . General sportfishing
information
Live Events
We provide real-time, live event coverage on our Total Sports networks and the
Web sites of our distribution customers in the form of TotalCasts and other si-
mulcasts.
A TotalCast is a rich, graphical and textual real-time presentation of live
sporting events over the Internet that simulates a spectator's experience. Each
TotalCast incorporates real-time scoring updates, detailed textual play-by-play
descriptions and comprehensive statistical updates in an integrated, easy-to-
use, interactive format. The TotalCast functionality allows a
38
<PAGE>
user to search for and analyze statistics for teams or individual athletes
throughout the event. Our proprietary data collection system enables us to cap-
ture a significant number of discrete events creating a dynamic user experi-
ence. Our TotalCast navigational system enables users to easily access statis-
tics, graphical depictions of real-time events, rosters and general sporting
news. Our TotalCasts of collegiate and professional sports include:
. Baseball. Our baseball TotalCast collects 210 categories of statistical
information, compared to a standard 18-category box score. We offer our
users a graphical representation of a player at-bat and the location of each
pitch. We also allow users to track each player's at-bats by inning. In
addition, we provide a graphical representation of the baseball field and
categorize each ball in play, such as grounders, line drives, pop-ups, fly
balls and home runs.
. Basketball. Our basketball TotalCast collects over 50 categories of
statistical information on each discrete event in a game, including every
shot made or missed, assist, rebound, steal, turnover, blocked shot and
foul. Each of these discrete events is recorded in both a play-by-play
textual summary and charted by location on the court. Our basketball
TotalCast includes photographs from cameras in various locations, including
a "Slam Cam" located above the backboard.
. Football. Our football TotalCast tracks over 110 statistics for each athlete
and team including passing yardage, rushing yardage, first downs, points
scored, touchdowns, field goals, turnovers, penalties and kick returns. We
graphically display each possession which can have any of 14 possible
outcomes, and summarize possessions in each quarter. Our system-generated
text provides a description of each play that includes information such as
players' full names, commentary on passing styles and plays, and game
summaries.
. Golf. Our golf TotalCast collects information on each player in a
tournament, including every shot, the distance traveled, the club used,
information about greens, fairways, putts, sandsaves and the actual x and y
coordinates of every shot hit. This allows the TotalCast to display the
actual beginning and ending point of every shot in real-time. We also
provide information about the course, including full statistical and
pictorial descriptions of each hole. Throughout the tournament, users can
track the complete statistics on each individual player's round. Users can
compare different players' performance on the same hole. After each round, a
statistical summary is created, combining highlights and statistics. A
continuously updated leader board keeps track of all individual rounds in
progress.
In addition to our TotalCasts, our business architecture allows us to provide
other forms of live event coverage over the Internet. For example, users can
listen to NASCAR drivers' conversations with crew chiefs during races. Total
Sports is the licensed provider of streaming audio of these conversations over
the Internet. In addition our users can also follow the progress of fishing
tournaments over the Internet.
Since our inception, we have provided live event coverage through both our
TotalCasts and other simulcasts for over 7,000 live sporting events including
the following: Major League Baseball games; the NCAA Championship men's and
women's basketball tournaments; and NASCAR races. We covered over 240 live
events in 1997, over 3,000 in 1998 and over 4,000 in 1999. We estimate that
over one million users viewed TotalCasts of 1999 NCAA Championship men's bas-
ketball tournament games.
Distribution
We license, or syndicate, content to the Web sites of both traditional and
Internet distribution customers under our Powered by Total Sports brand. Syndi-
cation ranges from basic distribution of content to the creation, maintenance
and management of Web sites. Our scalable, flexible business architecture effi-
ciently integrates our content with that of our distribution customers to pro-
vide continuously updated, dynamic content. Our different types of syndication
are described below:
<TABLE>
<CAPTION>
Type of Distribution Distribution Customers Description
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Basic distribution . Associated Press Syndicate Total Sports content to
over 250 Web sites through the
AP's "The Wire" service
- ---------------------------------------------------------------------------------------------------
TotalCast syndication . Regional and local newspapers Provide links to TotalCast
. MSNBC
. Houston Astros
. San Diego Padres
- ---------------------------------------------------------------------------------------------------
Site creation, maintenance . AOL.com Design, provide and manage the
and management . Wall Street Journal content for the sports section of
. Los Angeles Times Web sites
</TABLE>
39
<PAGE>
E-Commerce
Our event-focused programming and Total Sports networks generate a demographi-
cally attractive audience that provides e-commerce opportunities to sponsors,
advertisers and merchants. As of December 31, 1999, we operated 27 online
stores offering a range of sporting goods and merchandise, including the
Golf.com pro shop; a Web site selling our print titles; and Web sites for the
NCAA Final Four, the SEC, Duke University, the University of Texas, and Univer-
sity of Arizona. Our event-focused programming offers a targeted channel for
online marketing and sales. For example, the moment the 1999 NCAA Championship
men's basketball tournament ended, we promoted and sold national champion mer-
chandise featuring the winning team. Total Sports customers can place and track
an order through our Web sites as well as through our customer service, which
can be reached by email or by calling our toll free customer service number 1-
877-I AM A FAN.
We do not maintain significant amounts of e-commerce inventory. During 1998 and
1999, approximately 75% of our e-commerce transactions were purchased by us
from third-party manufacturers or distributors after we received orders from
customers. We expect this percentage to remain constant in future periods. For
sales of merchandise, we are responsible for pricing, processing orders, ar-
ranging or authorizing delivery, processing all merchandise returns, providing
all customer support related to the transaction, and resolving customer dis-
putes. In the event goods are lost or damages during shipment from or return to
the distributor and coverage is denied by the commercial shipping company, we
bear the risk of loss. We generally do not extend credit to e-commerce custom-
ers, except through third-party credit cards. Credit card sales account for ap-
proximately 100% of total e-commerce sales in 1998 and 1999. Our agreements
with third-party credit companies provide for the electronic processing of
credit approvals and the electronic submission of transactions. Upon the sub-
mission of these transactions to the credit card companies, they transmit pay-
ment to our bank account. Payment from the credit card companies usually occurs
within one to two days.
Print
As a leading sports publisher, we publish sports reference books, including the
official league encyclopedias for three of the four major professional leagues,
and other sports-related books including fan guides, histories, biographies and
statistical compilations. We have a contractual relationship with Sports Illus-
trated, under which we publish books under our co-branded Total Sports Illus-
trated imprint and have access to Sports Illustrated's news and photograph ar-
chives. Most of the books we publish are written and photographed by indepen-
dent authors and photographers. We typically find these authors and photogra-
phers through our contacts in the sports publishing market. Typically, we enter
into a contract with an author to write a specific book for us. He delivers us
text, which we edit. We then provide the final, edited text to an outside com-
pany to print and bind for us.
The following is a representative list of our books we either published or au-
thored:
Encyclopedias: Total Baseball, Total Football, Total Hockey
Fan Guides: USA Today Baseball Weekly Insider, Total Mets,
Total Braves, Total Indians, Total Browns, Total
Cowboys, Total 49ers, Total Steelers, Total Super
Bowl
Histories and Years of Glory, The Commissioners, East Side/West
Biographies: Side, The World According to Dean (Dean Smith),
The Babe, Home Run--My Life in Pictures (Hank
Aaron), Number 99--My Life in Pictures (Wayne
Gretzky), Greatest Athletes of the 20th Century,
Sports Illustrated Almanac, Smoke--The Romance
and Lore of Cuban Baseball, 20th Century Sports,
Book of Boxing
Statistics and Hidden Game of Football, USA Today Baseball
Abstracts: Weekly Almanac
Strategic Relationships
We have entered into strategic relationships that enhance our content, distri-
bution and promotion, including the following:
NBC Sports. Our relationship with NBC Sports, a division of the National Broad-
casting Company, Inc., encompasses promotion and distribution arrangements as
well as an equity investment. NBC Sports has agreed to provide us $17.4 million
worth of promotion. If we have rights to TotalCast an NBC-televised sporting
event other than the Olympics, then NBC Sports will promote our TotalCast and
no other similar service during its broadcast of the event. NBC Sports will
40
<PAGE>
promote our TotalCasts in a variety of ways, which may include announcer-read,
in-context, promotional mentions and in-broadcast graphics. NBC Sports will
direct users to Web sites owned, co-owned or controlled by NBC Sports from
which users can access our live event coverage. We believe that the NBC Sports
on-air promotion will significantly increase traffic to our Web sites and
awareness of our TotalCast brand. NBC Sports also has agreed to use commer-
cially reasonable efforts to assist us in securing advantageous promotion and
distribution on NBC Sports' affiliated Web site properties, including
MSNBC.com and any dedicated NBC Sports Web site other than its Olympics sites.
Our agreement with NBC Sports is for 51 months beginning in November 1999,
subject to earlier termination for breach or upon an acquisition of control of
Total Sports by a competitor of NBC Sports. In the case of a termination upon
such a change of control, NBC Sports would not have to pay us any money or re-
turn the Total Sports stock we issued to NBC Sports. In addition, NBC Sports
has the right to pay us cash or return Total Sports stock we issued to them
instead of providing us promotion under the agreement. NBC is also an equity
investor, along with Total Sports, in Golf.Com.
National College Athletic Association and Collegiate Athletic Conferences. Our
relationships with both the NCAA and collegiate conferences provide us with
content for our college sports and NCAA championship networks. Through our
partner, Host Communications, we have the exclusive rights, through June 30,
2001, to host Web sites for and to TotalCast all 81 championship tournament
events for the NCAA. We have separate relationships with several collegiate
conferences and organizations, including the Southeastern Conference, the Big
Ten, the Big 12, the Big East and the National Association of Intercollegiate
Athletics. Typically for such conferences, Total Sports has the exclusive
rights to host their Web site, to provide TotalCasts of all conference tourna-
ment or championship events, host an online store selling conference merchan-
dise and to access to all conference photograph, video, audio, statistical and
print libraries.
Major League Baseball. Major League Baseball has licensed online and print
publishing rights to us. We hold a license to TotalCast the over 2,400 major
league games played each year, including spring training exhibition games, the
All-Star game, the playoffs and the World Series. This license runs through
2001 and includes the right to use and display statistics. Since 1995, we have
published the official Major League Baseball encyclopedia, Total Baseball, and
we have rights to continue publishing this title through November 2000.
Sports Illustrated. We have a relationship with Sports Illustrated through
which we publish books under our co-branded Total Sports Illustrated imprint
and have access to the magazine's news and photograph archives. We believe
that this relationship enhances our status as a sports authority.
Sales and Marketing
Sales
As of December 31, 1999, we had a sales force consisting of 20 sales profes-
sionals and we plan to add additional sales personnel during 2000. Our sales
effort is organized geographically with offices in New York, Toronto, San Jose
and Washington D.C. Our sales force maintains a close relationship with our
sponsors and advertisers by consulting regularly with them on design and
placement of their advertising and offering a high level of customer support.
Our Total Sports networks and event-focus enable sponsors to target on multi-
ple levels including by sport, region, team, event or other parameters. In ad-
dition, we design custom advertising solutions for clients seeking to extend
marketing campaigns and merchandising opportunities across offline and online
media.
During 1999, 99 sponsors and advertisers, an increase of approximately 111%
over 1998, sponsored events or placed advertisements on the Total Sports net-
works. No single customer accounted for more than five percent of our revenues
for 1999. The following is a list, in alphabetical order, of our top ten spon-
sors and advertisers by revenues to us in 1999:
. American Express Company . Mastercard International
Corporation
. Compaq Computer Corporation
. Myrtle Beach Golf Holiday
. Continental Airlines, Inc.
. NBC Sports
. General Motors Corporation
. Nokia
. GTE Corporation . PepsiCo, Inc.
41
<PAGE>
Marketing
We employ a variety of online and offline advertising campaigns to promote our
brands, generate additional traffic and attract new users to our Total Sports
networks. We recently entered into a relationship with NBC Sports which will
provide us with on-air promotion on NBC Sports television broadcasts. We have
primarily relied upon promoting and marketing Total Sports through our online
syndication relationships with AOL.com, the Wall Street Journal, the Associ-
ated Press and the Los Angeles Times. These relationships have allowed us to
establish our Powered by Total Sports brand and reach a mass consumer market.
Our branded content is also promoted by links on major search engines such as
Yahoo!, Altavista and Excite. Our print marketing has primarily targeted spon-
sors and advertisers with advertisements in sports trade publications, includ-
ing the Street and Smith Sports Business Journal. Our branded books, encyclo-
pedias and reference guides help promote the Total Sports brand as a sports
authority. We will continue to pursue relationships that will expand our audi-
ence and enhance our brand awareness.
Competition
We compete for users, advertisers and rights to sporting events with many
other entities. Our direct competitors are other online sports media companies
and Web sites. Some of these competitors target sports enthusiasts generally.
Others target fans of a particular team, league or sport. Our most significant
direct competitor is ESPN.com. Based on our market research conducted in 1999,
we believe that approximately 20% of the people who visit sports-related Web
sites visit one of our sites, while over 60% visit ESPN.com.
We also compete indirectly with companies and Web sites in different business
sectors, such as:
. Web search and retrieval services and other high traffic Web sites that
provide access to sports-related content and services, many of which have
been established by traditional media companies;
. vendors of sports information, merchandise, products and services
distributed through other means, including retail stores, mail, facsimile
and private bulletin board services; and
. television, radio and other established media entities that broadcast
sporting events.
We believe that the principal competitive factors in attracting and retaining
users are:
. the depth, breadth, and timeliness of sports content;
. brand recognition; and
. ease of use and quality of services.
We anticipate that, as the Internet and other interactive distribution systems
converge with traditional television broadcasting and cable, significant com-
petition may come from the providers of broadband networks, including sports-
oriented cable networks. Some of our existing competitors, as well as a number
of potential new competitors, have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial, tech-
nical and marketing resources than we do. Others might develop technologies
and services that are similar or superior to ours. We expect that the number
of our direct and indirect competitors will increase in the future and this
may adversely affect our business, operating results and financial condition.
Increased competition could result in lower advertising rates and loss of us-
ers, market share and advertising and sponsorship opportunities, any of which
could materially and adversely affect our business, operating results and fi-
nancial condition.
Infrastructure, Operations and Technology
Our operating infrastructure is designed to provide timely, efficient and re-
liable delivery of our content for the benefit of our users, syndication part-
ners, sponsors and advertisers. We use Solaris as an operating system and En-
terprise and Apache Webserver and Netscape Fast Track as Web server software.
Total Sports' technology infrastructure integrates commercial and company-de-
veloped software. All of our internally developed applications utilize Java
Enterprise and interact with various third-party applications licensed by To-
tal Sports, including Oracle's database software. We intend to add capacity
and functionality as required to meet usage demands.
42
<PAGE>
Frontier Global Center hosts our production servers at its Herndon, Virginia
facility. Frontier Global Center provides comprehensive facilities management
services including human and technical monitoring of all production servers 24
hours per day, seven days per week. Frontier provides the means of connectivity
for Total Sports' servers to end-users via the Internet through high capacity
transmission wires. These connections link to many different parts of the
Internet via a combination of public and private peering agreements. The facil-
ity has at least two independent uninterruptible power supplies, which are bat-
tery-powered, as well as at least two independent diesel generators designed to
provide power to these systems within seconds of a power outage. The diesel
generators can supply the data center's power for nine days before refueling is
required. Any disruption in the Internet access provided by Frontier could ma-
terially adversely affect our business, results of operations and financial
condition.
Our product development expenses were $1,467,000 for the period from February
20,1997 (inception) through December 31, 1997, $2,672,000 in 1998 and
$4,171,000 in 1999. We intend to continue to invest significantly in enhancing
our technology.
Governmental Regulation and Legal Uncertainties
The laws governing the Internet remain largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and how existing laws, including those governing intellectual property, priva-
cy, libel and taxation, apply to the Internet generally and the electronic dis-
tribution of business information in particular. Legislation could reduce the
growth in the use of the Internet generally and decrease the acceptance of the
Internet as a communications and commercial medium, which could materially ad-
versely affect our business, operating results and financial condition. In ad-
dition, the growing popularity and use of the Internet has burdened the exist-
ing telecommunications infrastructure and many areas with high Internet usage
have begun to experience interruptions in phone service. As a result, some lo-
cal telephone carriers have petitioned governmental agencies to regulate
Internet service providers and online service providers in a manner similar to
long distance telephone carriers and to impose access fees on Internet service
providers and online service providers. If any of these petitions or the relief
that they seek is granted, the costs of communicating on the Internet could in-
crease substantially, potentially adversely affecting the growth in the
Internet.
Tax authorities in a number of states are currently reviewing the appropriate
tax treatment of companies engaged in electronic commerce. Therefore, we might
become subject to additional state sales and income taxes. Because our content
is available over the Internet in multiple states and foreign countries, these
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each such state and foreign country. Failure by us to
comply with foreign laws or to qualify as a foreign corporation in a jurisdic-
tion where we are required to do so could subject us to taxes and penalties for
the failure to qualify and could result in our inability to enforce contracts
in such jurisdictions. Any such new legislation or regulation, or the applica-
tion of laws or regulations from jurisdictions whose laws do not currently ap-
ply to our business, could subject us to additional taxes or penalties.
Intellectual Property
The intellectual property that is important to our business is our proprietary
data collection software and systems, and our sports content, including statis-
tical databases and copyrighted material. Trademarks are also important to our
success because we rely on brand recognition to increase user traffic on our
Web sites. We also license and receive a substantial amount of our data and
content from third parties. These licenses generally have terms equal to or
longer than the period of time we intend to use the data or content. Copyright
protection on our own content lasts 75 years from first publication. Trademarks
are protected by law as long as we are using the trademark.
We rely primarily on a combination of copyrights, trademarks, trade secret
laws, our user policy, licensing agreements and restrictions on disclosure to
protect our intellectual property. Despite these precautions, it may be possi-
ble for a third party to copy or otherwise obtain and use the content on our
Web sites or our other intellectual property without authorization. Our precau-
tions might not prevent misappropriation or infringement of our intellectual
property. Failure to protect our intellectual property in a meaningful manner
could materially adversely affect our business, operating results and financial
condition. In addition, we may need to engage in litigation in order to enforce
our intellectual property rights in the future or to determine the validity and
scope of the proprietary rights of others. Any litigation could result in sub-
stantial costs and diversion of management and other resources, either of which
could materially adversely affect our business, operating results and financial
condition.
43
<PAGE>
Because we license and receive a substantial amount of our data and content
from third parties, our exposure to copyright infringement actions might in-
crease. We rely upon these third parties as to the origin and ownership of li-
censed content. We generally obtain representations as to the origins and own-
ership of licensed content and generally obtain indemnification to cover any
breach of any representations. However, these representations might not be ac-
curate and indemnification might not be sufficient to provide adequate compen-
sation for any breach of these representations.
Others might assert infringement or other claims against us, whether resulting
from our internally developed intellectual property or licenses or content from
third parties. For example, in late 1999, DDB Technologies contacted us to so-
licit a license under three patents held by DDB Technologies. We are consider-
ing the request of DDB Technologies to license their patents and have retained
patent counsel to assist in evaluating the patents and determining our strategy
relating to this request. Any future assertions or prosecutions could materi-
ally adversely affect our business, operating results and financial condition.
Any claims, with or without merit, 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, might not be available on acceptable terms, if at all. In the event a
claim of infringement is successful and we fail or are unable to introduce new
content, develop non-infringing technology or license the infringed or similar
technology on a timely basis, our business, operating results and financial
condition could be materially and adversely affected.
Employees
As of December 31, 1999, we employed 191 full-time employees, consisting of 35
in sales and marketing, 24 in finance and administration, 73 in product devel-
opment and 59 other employees. In addition, we engage as independent contrac-
tors free-lance reporters, statisticians, photographers, camera operators and
editors. As we continue to grow, we expect to hire more personnel. None of our
current employees are represented by a labor union. We believe that our rela-
tionship with our employees is good. Competition for qualified personnel in our
industry is intense.
Properties
We are headquartered in Raleigh, North Carolina, with leased office space in
New York, New York and Kingston, New York. Our principal facility, into which
we relocated in August 1999, consists of approximately 27,000 square feet. The
lease for this facility will expire in June 2009. The Kingston, New York lease
covers approximately 16,800 square feet of office and warehouse space and will
expire in September 2000.
Legal Proceedings
We are not currently subject to any material legal proceedings.
44
<PAGE>
Management
Executive Officers and Directors
The following table contains information concerning our executive officers and
directors as of December 31, 1999:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- ----------
<S> <C> <C>
Frank A. Daniels, III... 43 Chairman of Board of Directors and Chief Executive Officer
George Schlukbier....... 48 President and Chief Operating Officer
Colin Boatwright........ 26 Vice President, Technology
John Thorn.............. 52 Publisher
Petra Weishaupt......... 34 Controller
Eric Harris............. 43 Vice President, Operations
Marie Hasnain........... 38 Vice President, Sales and Marketing
Ezra Kucharz............ 31 Vice President, Business Development
Frank A. Daniels, Jr.... 68 Director
Charles L. Jarvie(2).... 62 Director
William W. Neal,
III(1)................. 67 Director
C. Toms Newby, III...... 33 Director
Robert S. Prather,
Jr.(1)................. 55 Director
William E. Ray(1)....... 50 Director
Stuart B. Rekant(2)..... 49 Director
John Rigas.............. 36 Director
Kenneth D. Schanzer..... 54 Director
Gary R. Stevenson(2).... 42 Director
</TABLE>
- ---------------
(1)Member of the compensation committee
(2)Member of the audit committee
Frank A. Daniels, III has served as our Chairman and Chief Executive Officer
since our founding in March 1997. From 1990 to 1995, Mr. Daniels served as Vice
President, Executive Editor and Director of the daily newspaper The News and
Observer in Raleigh, North Carolina. From August 1995 to August 1996, Mr. Dan-
iels served as President and Publisher of Nando.net, an integrated digital pub-
lishing and internet services company. In January 1996, Mr. Daniels founded KOZ
inc., the predecessor company of Total Sports, a builder of community and group
publishing systems, where he currently serves as chairman of the board. Mr.
Daniels currently serves on the board of Cadmus Communications Co. and the
boards of directors of a number of privately held companies. Mr. Daniels serves
as a director at the designation of our management pursuant to the terms of a
voting agreement that will terminate upon the closing of this offering.
George Schlukbier has served as our President and Chief Operating Officer since
our founding in March 1997. From May 1996 to March 1997, Mr. Schlukbier served
as President of KOZ inc. Mr. Schlukbier served at Nando.net from August 1993 to
September 1996 in the position of director of new media. Previously he served
as the coordinator of the corporate new product development team at McClatchy
Newspapers. Mr. Schlukbier also has 14 years' experience of running his own in-
formation consulting service, Info Bank, in Toronto, Canada.
Colin Boatwright has served as our Vice President, Technology since our incep-
tion in March 1997. Prior to joining us, Mr. Boatwright served as vice presi-
dent of technology of KOZ inc. from May 1996. Mr. Boatwright also served as
chief technologist at Nando.net from March 1995 to May 1996. Prior to that
time, Mr. Boatwright was a full-time student at North Carolina State Universi-
ty.
John Thorn created and oversees our print publishing program and has served
with us as publisher since March 1997. He was instrumental in developing Total
Baseball and Total Football and served as chief consultant to Ken Burns' 18
1/2-hour PBS film, Baseball. Mr. Thorn is a consultant to the Veterans Commit-
tee of the Baseball Hall of Fame and originally created our award-winning Web
site, www.totalbaseball.com. For the 12 years prior to joining us, Mr. Thorn
headed his own book packaging and digital-services companies, Baseball Ink and
Total Baseball.
Petra Weishaupt has served as our Controller since March 1997. Prior to joining
us, Ms. Weishaupt served as Assistant Controller of BSG, Inc., an international
software integration company and subsidiary of Medaphis, Inc., from July 1996
to
45
<PAGE>
March 1997, a financial analyst for Maxm Systems Corporation, a software devel-
opment company, from February 1995 to July 1996, and as an accounts receivable
executive for Seer Technologies, Inc., a software company, from January 1994 to
February 1995. From January 1991 to December 1993, she served at Ernst & Young
International in both Stuttgart, Germany and Raleigh, North Carolina as a se-
nior accountant and consultant.
Eric Harris has served as our Vice President, Operations since our inception in
March 1997. Prior to joining us, Mr. Harris served as editor of KOZ inc. from
June 1996. Mr. Harris served at Nando.net from February 1994 to June 1996 as
Vice President of Operations. Before joining Nando.net, Mr. Harris worked in a
variety of capacities at several newspapers for 20 years.
Marie Hasnain has served as our Vice President, Sales and Marketing since March
1998. Ms. Hasnain has over 15 years of advertising and marketing experience in
magazines, newspapers and on-line products. She was previously the Director of
Sales and Marketing for The Toronto Star newspaper in their new media division
from September 1997 to March 1998, and also was employed in various capacities
from 1989 to September 1997 with The Globe and Mail newspaper in Canada, serv-
ing as Director, International Sales and most recently serving as the director
of sales and marketing for its Internet new media division.
Ezra Kucharz has served as Vice President, Business Development since our in-
ception in 1997. From April 1997 to January 1998, he also served as Chief Exec-
utive Officer of Total College Communications Company. Prior to joining us, Mr.
Kucharz co-founded and served as Chief Executive Officer of Applied New Tech-
nologies from August 1995 until it was acquired by KOZ inc. in May 1996. From
December 1990 to August 1994 Mr. Kucharz was an engineer for Long Life Sciences
at the NASA Johnson Space Center.
Frank A. Daniels, Jr. has served as a director since June 1997. Mr. Daniels is
the retired President and Publisher of the News & Observer Publishing Company,
where he served in many capacities since beginning his career in publishing and
media in 1953, culminating in his retirement in 1996. Mr. Daniels also served
as chairman of the board of directors for the Associated Press from 1992 to
1997, and he remains president of the Philanthropy Journal of North Carolina, a
monthly non-profit publication he helped found in 1994. Mr. Daniels has been
and continues to be civically involved in the Raleigh area. Mr. Daniels serves
as director at the designation of our management pursuant to the terms of a
voting agreement that will terminate upon the closing of this offering.
Charles L. Jarvie has served as a director since June 1998. He has served as
President of Host Communications, Inc. since 1993. Mr. Jarvie currently serves
on the board of directors of Rawlings Sporting Goods Co., Inc. Mr. Jarvie
serves as our director at the designation of Host Communications pursuant to
the terms of a voting agreement that will terminate upon the closing of this
offering.
William W. Neal has served as a director since January 1998. He has served as
Managing Principal of Piedmont Venture Partners Limited Partnership since July
1996. Prior to joining Piedmont Venture Partners, Mr. Neal served as President,
Chief Executive Officer and later Chairman of Broadway & Seymour, a provider of
information technology solutions to the financial services industry from July
1989 until July 1996. Mr. Neal has also served as a General Partner with the
New York venture capital and buyout firm of Welsh Carson Anderson & Stowe. Mr.
Neal currently serves on the board of directors of Health Management Systems,
as well as other privately held portfolio companies of Piedmont Venture Part-
ners. Mr. Neal serves as a director at the designation of Piedmont Venture
Partners pursuant to the terms of a voting agreement that will terminate upon
the closing of this offering.
C. Toms Newby, III has served as a director since December 1999. He has served
as General Partner of Technology Crossover Ventures since July 1998, where he
previously served as an associate from April 1996 to July 1998. Prior to join-
ing Technology Crossover Ventures, Mr. Newby served as an investment banker in
the technology group with Montgomery Securities from 1994 to April 1996. Mr.
Newby currently serves on the board of directors of a number of privately held
companies. Mr. Newby serves as our director at the designation of Technology
Crossover Ventures pursuant to the terms of a voting agreement that will termi-
nate upon the closing of this offering.
Robert S. Prather, Jr. has served as a director since August 1998. Since 1992
he has served as President of Bull Run Corporation, a holding company with in-
vestments in various media and sports-related companies. Mr. Prather served at
Fuqua Industries from 1961 through 1980, with his last position as Vice Presi-
dent of Corporate Development. Mr. Prather serves as a director at the designa-
tion of Bull Run pursuant to the terms of a voting agreement that will termi-
nate upon the closing of this offering.
46
<PAGE>
William E. Ray has served as a director since November 1997. Mr. Ray founded
Raycom Sports in 1979 with his wife, Dee, and built Raycom Sports into one of
the largest collegiate sports production and syndication companies in the
country. In 1997, the Rays sold Raycom Sports and Mr. Ray retired as Presi-
dent. Mr. Ray continues his involvement in sports media through various busi-
ness ventures and investments. Mr. Ray serves as a director at the designation
of Nuray Telluride Properties Limited Partnership pursuant to the terms of a
voting agreement that will terminate upon the closing of this offering.
Stuart B. Rekant has served as a director since August 1998. Mr. Rekant is co-
founder, and since June 1994, has served as President, of Winstar New Media
Company, Inc., where he is responsible for developing and managing the media
and information services division. Since July 1998, Mr. Rekant has also served
as the chief executive officer and vice-chairman of Office.com Inc. Both
Winstar New Media and Office.com Inc. are subsidiaries of Winstar Communica-
tions, Inc. Prior to joining Winstar New Media, Mr. Rekant worked for more
than 20 years in senior programming and finance positions in the entertainment
and media industries for companies including U.S. News and World Report,
Miramax Film Corp., Home Box Office, Inc., Management Company Entertainment
Group, Inc. and Independent Production Resources, Inc. Mr. Rekant serves as a
director at the designation of Winstar Interactive Ventures, Winstar's subsid-
iary that makes investments in online properties, pursuant to the terms of a
voting agreement that will terminate upon the closing of this offering.
John Rigas has served as our director since December 1999. Since 1988, Mr.
Rigas has been a private equity investment manager at Zilkha Capital Partners
L.P. and its predecessor companies. Mr. Rigas serves on the board of directors
of World Access, Inc. and a number of privately held companies. Mr. Rigas
serves as our director at the designation of Zilkha Capital Partners pursuant
to the terms of a voting agreement that will terminate upon the closing of
this offering.
Ken Schanzer has served as our director since December 1999. Mr. Schanzer has
been president of NBC Sports since June 1998. He served as executive vice
president of NBC Sports, from 1983 to 1993 and from 1995 to June 1998. From
July 1993 through October 1995, Mr. Schanzer served as the president and CEO
of The Baseball Network, the joint venture of Major League Baseball, ABC and
NBC. The Baseball Network oversaw the marketing, television sales and televi-
sion production for the partners. Mr. Schanzer initially came to NBC Sports in
November 1981, and served as Vice President, Talent and Program Negotiations,
until his appointment as executive vice president in June 1983. Mr. Schanzer
serves as our director at the designation of NBC Sports pursuant to the terms
of a voting agreement that will terminate upon the closing of this offering.
Gary R. Stevenson has served as a director since May 1997. Mr. Stevenson cur-
rently owns a sports marketing and television consulting practice, Stevenson
Marketing and Media, that specializes in strategic planning and business de-
velopment for corporate clients and sports properties rightsholders, which he
founded in October 1995. Mr. Stevenson served as President of NBA Properties
Marketing and Media Group from August 1996 to August 1997, and during that
time he was the architect of the strategy and business plan for the formation
and launch of the Women's National Basketball Association. Mr. Stevenson also
served in various capacities in the professional golf industry at both the PGA
Tour and the Golf Channel for 11 years prior to joining the NBA Properties
Marketing and Media Group, recently as a chief executive officer of the Golf
Channel from August 1994 to October 1995. Mr. Stevenson serves as a director
at the designation of management pursuant to the terms of a voting agreement
that will terminate upon the closing of this offering.
There are no relationships that exist between our officers and directors ex-
cept that Frank A. Daniels, III is the son of Frank A. Daniels, Jr.
Board of Directors and Committees
Our board of directors is currently composed of eleven members. Each director
holds office until the next annual meeting of the stockholders or until his
successor is duly elected and qualified. Our amended and restated certificate
of incorporation and amended and restated bylaws will provide that, beginning
with the first meeting of the board of directors following this offering, the
board of directors will be divided into three classes, with each class serving
staggered, three-year terms. Class I will consist of Messrs. Daniels, III,
Jarvie, Ray and Rigas, who will stand for election at the annual meeting of
stockholders to be held in 2001. Class II will consist of Messrs. Neal, Prath-
er, Rekant and Stevenson, who will stand for election at the annual meeting of
stockholders to be held in 2002. Class III will consist of Messrs. Daniels,
Jr., Newby and Schanzer, who will stand for election at the annual meeting of
stockholders to be held in 2003. The amended and restated bylaws of the corpo-
ration will provide that directors can be removed only for cause by holders of
at least 66 2/3% of our common stock. Officers are chosen by, and serve at the
discretion of, the board of directors.
47
<PAGE>
The board of directors has created a compensation committee and an audit com-
mittee. The compensation committee makes recommendations to the board of di-
rectors concerning salaries and incentive compensation for our officers and
employees and administers our stock option plans. The members of the compensa-
tion committee are Messrs. Prather, Jr., Ray and Neal. The audit committee
makes recommendations to the board of directors regarding the selection of in-
dependent auditors, reviews the results and scope of audits and other account-
ing-related services and reviews and evaluates our internal control functions.
The members of the audit committee are Messrs. Rekant, Stevenson and Jarvie.
Director Compensation
Prior to this offering, we issued a nonstatutory stock option exercisable for
300 shares, at an exercise price of $0.01 per share, to each member of our
board of directors for each meeting attended by that director. In addition,
each director was reimbursed for his reasonable out-of-pocket expenses in-
curred in connection with attending meetings of the board of directors. We an-
ticipate that, for an undetermined period following this offering, our direc-
tors will not be paid any fees or compensation for service as members of the
board of directors or any committee thereof, but will be reimbursed for any
reasonable out-of-pocket expenses incurred in connection with attending meet-
ings of the board of directors and any committees thereof. In addition, direc-
tors who are not our employees will periodically receive automatic grants of
non-qualified options under our stock plan.
Limitation of Liability and Indemnification Matters
Our bylaws provide for mandatory indemnification of directors and officers to
the fullest extent permitted by Delaware law. Prior to consummation of this
offering, we intend to obtain additional directors' and officers' liability
insurance and expect to enter into indemnification agreements with all of our
directors and executive officers. In addition, our certificate of incorpora-
tion limits the liability of our directors to us or our stockholders for
breaches of the directors' fiduciary duties to the fullest extent permitted by
Delaware law.
Compensation Committee Interlocks and Insider Participation
Our compensation committee consists of Messrs. Prather, Jr., Ray and Neal. No
member of the compensation committee serves as our officer or employee. No
member of the compensation committee serves as a member of the board of direc-
tors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of director or its compensation com-
mittee.
Executive Compensation
The following table presents information concerning the cash and non-cash com-
pensation during the fiscal year ended December 31, 1999 of our chief execu-
tive officer and our four other most highly compensated executive officers,
who we refer to in this prospectus as the named executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
--------------------------------------------
Long-Term
Annual Compensation Compensation Awards
-------------------- -----------------------
Securities All Other
Underlying Compensation
Name and Principal Positions Salary ($) Bonus ($) Options ($)
- ---------------------------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Frank A. Daniels, III.......... $188,533 $ -- 250 $ --
Chairman and Chief Executive
Officer
George Schlukbier.............. 158,398 6,250 20,260 2,002(1)
President and Chief Operating
Officer
Petra Weishaupt................ 104,519 40,000 39,250 2,403(1)
Controller
Marie Hasnain.................. 205,286 -- 36,750 --
Vice President, Sales and
Marketing
Ezra Kucharz................... 168,518 -- 2,750 3,771(1)
Vice President, Business
Development
</TABLE>
- ---------------
(1) Represents company matching on named executive officers' 401(k) contribu-
tions.
48
<PAGE>
The following table presents information regarding stock options granted to
each named executive officers during the fiscal year ended December 31, 1999.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Individual Grants
---------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Number of Stock Price
Securities % of Total Appreciation
Underlying Options Granted for Option Term(1)
Options Granted to Employees Exercise Price Expiration ---------------------
Name (#) in Fiscal Year (($)/Share) Date 5% ($) 10% ($)
- ---- --------------- --------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Frank A. Daniels, III... 250 0.1% $18.25 12/15/09 $ 2,608 $ 6,610
George Schlukbier....... 250 0.1% 16.59 12/15/09 2,608 6,610
20,000 5.3% 10.20 05/01/09 128,295 325,123
Petra Weishaupt......... 250 0.1% 16.59 12/15/09 2,608 6,610
39,000 10.3% 10.20 05/01/09 250,174 633,991
Marie Hasnain........... 250 0.1% 16.59 12/15/09 2,608 6,610
36,500 9.6% 10.20 05/01/09 234,137 593,350
Ezra Kucharz............ 250 0.1% 16.59 12/15/09 2,608 6,610
2,500 0.7% 10.20 05/01/09 16,037 40,640
</TABLE>
- ---------------
(1)Assumes increases in the fair market value of the common stock of 5% and 10%
per year from the date of the grant over the terms of the options in compliance
with the rules and regulations of the SEC, and does not represent our estimate
or projection of the future value of the common stock. The actual value real-
ized may be greater or less than the potential realizable values presented in
the table.
The following table presents information concerning stock option exercises dur-
ing 1999 and holdings by the named officers at December 31, 1999.
1999 Option Exercises and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
FY-End (#) FY-End($)
------------------------- -------------------------
Value
Shares Acquired Realized
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank A. Daniels, III... -- $ -- 6,747 6,998 $108,559 $128,074
George Schlukbier....... 779 715 3,333 19,257 48,281 205,295
Petra Weishaupt......... 1,109 1,020 6,932 35,346 48,486 221,593
Marie Hasnain........... -- -- 7,842 35,944 38,870 194,365
Ezra Kucharz............ -- -- 1,170 3,845 8,708 46,786
</TABLE>
Employment Agreements
Mr. Daniels and Mr. Schlukbier are each party to noncompetition, nondisclosure
and inventions agreements, dated June 1997, that survive the termination of em-
ployment for the shorter of the period of time that we continue paying such em-
ployee's base salary or a period of two years after the termination or cessa-
tion of such employee's employment with us for any reason.
Ms. Weishaupt and Ms. Hasnain are each party to an employment agreement with
us. Ms. Weishaupt's agreement expires in June 2002, and Ms. Hasnain's expires
in December 2002. Ms. Weishaupt and Ms. Hasnain are each to be paid an annual
salary of $110,000, subject to adjustment in the Board of Directors' discre-
tion. They are eligible to receive employment benefits similar to executive em-
ployees of comparable status and are also eligible for a bonus upon satisfac-
tion of criteria determined in the Board of Directors' discretion. These agree-
ments also contain noncompetition and nonsolicitation provisions that are in-
tended to survive the termination of employment for one year. If the executive
is terminated without cause, we will pay such executive salary and provide ben-
efits for the remainder of the term of the agreement. The benefits obligation
shall terminate earlier if the executive secures employment with another em-
ployer.
49
<PAGE>
1997 Stock Plan
Our 1997 stock plan was adopted by the board of directors in November 1997. A
total of 1,185,000 shares of common stock has been reserved for issuance under
the plan. Through December 31, 1999, outstanding options to purchase 468,773
shares of common stock at a weighted average exercise price of $9.37 per share
were outstanding granted under the plan, and 13,389 shares had been issued un-
der the plan at an average exercise price of $1.11 per share. The plan will
terminate in November 2007, unless sooner terminated by the board of directors.
Our plan provides for grants of "incentive stock options," within the meaning
of Section 422 of the Internal Revenue Code, to employees and grants of non-
statutory options to employees and consultants. It also allows for the grant of
stock purchase rights. The plan is administered by the board of directors. The
exercise price of incentive stock options granted under the plan must not be
less than the fair market value of the common stock on the date of grant. With
respect to any optionee who owns stock representing more than 10% of the voting
power of all classes of our outstanding capital stock, the exercise price of
any incentive stock option must be equal to at least 110% of the fair market
value of the common stock on the date of grant, and the term of the option must
not exceed 5 years. The terms of all other options may not exceed 10 years. The
aggregate fair market value of common stock, determined as of the date of the
option grant for which incentive stock options may for the first time become
exercisable by any individual in any calendar year, may not exceed $100,000.
The board of directors may amend or terminate the plan at any time, except that
stockholder approval is required for some amendments. No amendment or termina-
tion may adversely affect the rights, with respect to previous grants, of any
optionee without his or her consent. The board of directors may also select the
consultants and employees to whom options or stock purchase rights may be
granted as well as the number of shares of common stock covered by each award
and the terms and conditions, including any vesting schedule, for each award.
The board of directors may accelerate the vesting or exercisability of any op-
tion or stock purchase rights issued under the plan.
The plan also provides for the award of stock purchase rights, subject to a re-
stricted stock purchase agreement which, unless the board of directors or a
committee of board members determines otherwise, grants us an option to repur-
chase the restricted stock upon termination of its recipient and at the pur-
chase price paid by the recipient. The purchase price, specified in the agree-
ment, may not be less than 85% of the fair market value of the underlying
shares at the time of the award. A holder of stock purchase rights is entitled
to the same rights as a stockholder.
In the event of any change in our outstanding common stock by reason of stock
split, reverse stock split, stock dividend, combination, recapitalization or
reclassification of our common stock, or any other increase or decrease in the
number of issued shares effected without receipt of consideration, the plan
provides, subject to any required stockholder action, for the proportionate in-
crease or decrease in the number of shares of our common stock authorized for
issuance under the plan and covered by each outstanding option or stock pur-
chase right.
401(k) Plan
We maintain a tax-qualified employee savings and retirement plan for employees
who elect to participate. Subject to certain limitations, participants may con-
tribute up to 15% of their compensation on a pre-tax basis to the 401(k) plan.
We contribute matching funds in amounts equal to 50% of each dollar of an em-
ployee's contributions, up to 6% of the employee's salary. Amounts attributable
to participant contributions under the 401(k) plan are fully vested at all
times. Our contributions vest beginning after 2 years and become fully vested
after 4 years). Participants are entitled to receive their vested 401(k) plan
accounts, including investment earnings, upon death, retirement or other termi-
nation of employment.
50
<PAGE>
Certain Relationships and Related Transactions
Transactions with Management and Others
Warrant Issuances for Cash Contributions
In May 1997, Total Ltd. issued an immediately exercisable warrant to Mr. Dan-
iels, Jr. to purchase 10,800 shares of its common stock, having a current value
of $129,600 (based upon the midpoint of the offering price range shown on the
cover page of this prospectus), and an immediately exercisable warrant to Mr.
Daniels, III to purchase 5,400 shares of its common stock, having a current
value of $64,800 (based upon the midpoint of the offering price range shown on
the cover page of this prospectus), each at an exercise price of $3.42 per
share, in consideration for certain cash contributions totaling $375,000 previ-
ously made to Total Ltd. in March 1997. At the time of this transaction, Mr.
Daniels, Jr. and Mr. Daniels, III, a 7.02% stockholder of Total Sports, were
directors of Total Ltd.
Series A Financing
In June 1997, Total Ltd. issued an aggregate of 125,000 shares of its Series A
preferred stock, at a purchase price of $3.42 per share, which shall be re-
deemed after the offering at $.01 per share, and warrants to purchase an aggre-
gate 365,218 shares of its common stock, having a current value of $4,382,616
(based upon the midpoint of the offering price range shown on the cover page of
this prospectus), at an exercise price of $0.01 per share, to Mr. Daniels, Jr.
and Piedmont Venture Partners Limited Partnership in a private placement for an
aggregate purchase price of approximately $1,250,000. At the time of this
transaction, Stacy Anderson, a managing principal of Piedmont Venture Manage-
ment, Inc., general partner of Piedmont Venture Partners, an 8.27% stockholder
of Total Sports, was elected to the board of directors of Total Ltd.
Series B Financing
In November 1997, Total Ltd. issued an aggregate of 445,263 shares of its Se-
ries B preferred stock, at a purchase price of $4.492 per share, to a group of
private investors in a private placement for an aggregate purchase price of ap-
proximately $2,000,000. Purchasers of its Series B preferred stock included the
following related parties:
<TABLE>
<CAPTION>
------------------------------------
Current
Number of Aggregate Value of
Name, Relationship Shares Purchase Price Securities*
- ------------------ --------- -------------- -----------
<S> <C> <C> <C>
Piedmont Venture Partners Limited
Partnership, 8.27% stockholder.......... 111,316 $ 500,031 $1,335,792
Nuray Telluride Properties Limited
Partnership, 7.34% stockholder.......... 222,632 $1,000,063 $2,671,584
Frank A. Daniels, III, director, officer
and 7.02% stockholder................... 44,526 $ 200,011 $ 534,312
Frank A. Daniels, Jr., director.......... 44,526 $ 200,011 $ 534,312
Julie Nowell, sister of Frank A. Daniels,
III..................................... 22,263 $ 100,000 $ 267,156
</TABLE>
- -------
* Based upon the midpoint of the offering price range shown on the cover page
of this prospectus.
At the time of the transaction, William E. Ray, manager of Nuray Telluride
Properties Limited Partnership, was elected to the board of directors of Total
Ltd.
January - April 1998 Bridge Financing
From January to April 1998, Total Ltd. issued 10% convertible promissory notes
in the aggregate principal amount of $2,500,000 and immediately exercisable
warrants to purchase an aggregate of 50,805 shares of its Series B preferred
stock at an exercise price of $4.492 per share to the following related par-
ties:
<TABLE>
<CAPTION>
--------------------------------
Principal
Amount of Number of Current
Promissory Warrant Value of
Name, Relationship Note Shares Securities*
- ------------------ ---------- --------- -----------
<S> <C> <C> <C>
Piedmont Venture Partners Limited
Partnership, 8.27% stockholder.............. $1,000,000 20,322 $243,864
Nuray Telluride Properties Limited
Partnership, 7.34% stockholder.............. $1,000,000 20,322 $243,864
Frank A. Daniels, III, director, officer and
7.02% stockholder........................... $ 500,000 10,161 $121,932
</TABLE>
- -------
* Based upon the midpoint of the offering price range shown on the cover page
of this prospectus.
All these loans were converted into a total of approximately 369,486 shares of
our Series C preferred stock, at a conversion price of $7.106 per share, in Au-
gust 1998. William W. Neal, a managing principal of Piedmont Venture Manage-
ment, replaced Ms. Anderson as a member of the board of directors of Total Ltd.
on January 22, 1998.
51
<PAGE>
Stock and Warrant Issuances to Mr. Daniels, III
In January 1998, we issued an immediately exercisable warrant to purchase 7,268
shares of the common stock, having a current value of $87,216 (based upon the
midpoint of the offering price range shown on the cover page of this prospec-
tus) of Total Ltd., at an exercise price of $4.492 per share, to Mr. Daniels,
III in consideration for his $25,000 charitable contribution to the Hank Aaron
Fund in the name of Total Ltd. made in September 1997. In April 1998, the board
of directors of Total Ltd. approved the issuance of a total of 37,100 shares of
its common stock, having a current value of $445,200 (based upon the midpoint
of the offering price range shown on the cover page of this prospectus), to Mr.
Daniels, III in consideration for his personally guaranteeing $2,000,000 of To-
tal Ltd.'s $3,500,000 line of credit with First Union National Bank. We issued
these shares to Mr. Daniels, III in September 1998.
Acquisition of Total College Communications
In June 1998, we acquired all the tangible and intangible property and assets
of Total College Communications Company, LLC, a Kentucky limited liability com-
pany. We issued 837,942 shares of our common stock to Total College Communica-
tions for cash at $.001 per share. Total College Communications then distrib-
uted 418,971 shares of common stock to both of its members, Total Ltd. and Host
Communications, Inc. At the time of the transaction, Mr. Daniels, Jr. was a di-
rector of Total Ltd. and Total Sports, Mr. Daniels, III, a 7.02% stockholder of
Total Sports, was also director and Chief Executive Officer of Total Ltd. and
Total Sports, Ezra Kucharz was an Executive Vice President of Total Sports and
a manager and Chief Executive Officer of Total College Communications, and
Charles L. Jarvie, president of Host and a manager of Total College Communica-
tions, was elected as our director.
Reorganization into Delaware Corporation
In June 1998, we acquired all the assets and liabilities of Total Ltd. in a
merger in which we were the surviving corporation. At the time of the transac-
tion, the board of directors of Total Ltd. was identical to our board of direc-
tors. The 418,971 shares issued to Total Ltd. in connection with our acquisi-
tion of Total College Communications were immediately retired upon the merger
of Total Ltd. and Total Sports Inc., as the merger was concurrent with the To-
tal College Communications acquisition.
June 1998 Bridge Financing
In June 1998, we issued a 10% convertible promissory note in the principal
amount of $1,000,000 and an immediately exercisable warrant to purchase 20,703
shares of our Series B preferred stock, having a current value of $248,436
(based upon the midpoint of the offering price range shown on the cover page of
this prospectus), at an exercise price of $4.492 per share to Piedmont Venture
Partners, an 8.27% stockholder of Total Sports. This loan was converted into
our Series C preferred stock, at a conversion price of $7.106 per share, in Au-
gust 1998.
Series C Financing
In August 1998, we issued an aggregate 1,418,200 shares of our Series C pre-
ferred stock, at an exercise price of $7.106 per share, to a group of private
investors for an aggregate consideration of approximately $10,078,000. Purchas-
ers of our Series C preferred stock included the following related parties:
<TABLE>
<CAPTION>
---------------------------------------
Number of Aggregate Current Value
Name, Relationship Shares Purchase Price of Securities*
- ------------------ --------- -------------- --------------
<S> <C> <C> <C>
Piedmont Venture Partners Limited
Partnership, 8.27% stockholder....... 290,794 $2,066,382 $3,489,528
Nuray Telluride Properties Limited
Partnership, 7.34% stockholder....... 201,132 $1,429,244 $2,413,584
Frank A. Daniels, III, director,
officer and 7.02% stockholder........ 72,571 $ 515,690 $ 870,852
Bull Run Corporation, 6.90%
stockholder.......................... 351,815 $2,499,997 $4,221,780
Winstar Interactive Ventures I, Inc.,
6.55% stockholder.................... 351,815 $2,499,997 $4,221,780
</TABLE>
- -------
*Based upon the midpoint of the offering price range shown on the cover page of
this prospectus.
52
<PAGE>
Winstar Interactive Ventures I, Inc., Piedmont Venture Partners Limited Part-
nership, Nuray Telluride Properties Limited Partnership and Mr. Daniels, III
also received warrants to purchase an aggregate of up to 632,244 shares of Se-
ries C1 preferred stock, for an aggregate purchase price of up to $5,549,996.
These warrants expired on November 4, 1998.
At the time of the transaction, Stuart B. Rekant, President of Winstar New Me-
dia Company, Inc. and its subsidiary, Winstar Interactive Ventures, and Robert
S. Prather, Jr., the president of Bull Run, were elected to our board of direc-
tors.
Stock Issuance to Consultant
In September 1998, our board of directors approved the issuance of 14,073
shares of our common stock, valued at $1.25 per share, to Gary Stevenson pursu-
ant to the terms of a consulting agreement and in consideration for consulting
and advisory services previously provided and to be provided by him. These
shares have a current value of $168,876 (based upon the midpoint of the offer-
ing price range shown on the cover page of this prospectus). At the time of the
transaction, Mr. Stevenson served as a member of our board of directors.
Series C1 Financing
From January to April 1999, we issued an aggregate 630,756 shares of our Series
C1 preferred stock, at a purchase price of $9.49 per share, to a group of pri-
vate investors for an aggregate consideration price of $5,985,874. Purchasers
of our Series C1 preferred stock included the following related parties:
<TABLE>
<CAPTION>
---------------------------------------
Number of Aggregate Current Value
Name, Relationship Shares Purchase Price of Securities*
- ------------------ --------- -------------- --------------
<S> <C> <C> <C>
Piedmont Venture Partners II, L.P.,
8.27% stockholder ................... 105,374 $1,000,000 $1,264,488
Bull Run Corporation, 6.90%
stockholder ......................... 105,374 $1,000,000 $1,264,488
Frank A. Daniels, III, director,
officer and 7.02% stockholder ....... 52,687 $ 500,000 $ 632,244
Nuray Telluride Properties Limited
Partnership, 7.34% stockholder ...... 105,374 $1,000,000 $1,264,488
Frank A. Daniels, Jr., director....... 31,612 $ 299,998 $ 379,344
Gary R. Stevenson, director........... 7,903 $ 75,000 $ 94,836
</TABLE>
- -------
*Based upon the midpoint of the offering price range shown on the cover page of
this prospectus.
Stock Issuance to Mr. Daniels, III
In March 1999, our board of directors approved the issuance of 18,550 shares of
our common stock, having a current value of $222,600 (based upon the midpoint
of the offering price range shown on the cover page of this prospectus), to
Mr. Daniels, III, a director, officer and 7.02% stockholder, in consideration
for his personal guaranty of our renewed $3,500,000 line of credit with First
Union National Bank from January 15, 1999 to July 15, 1999.
Acquisition of Motortrax
In June 1999, we acquired Long Distance Technologies, Inc. d/b/a Motortrax pur-
suant to the terms of an agreement and plan of merger. Stockholders of
Motortrax received 284,401 shares of our common stock, valued at $10.20 per
share, in exchange for all of the outstanding shares of capital stock of
Motortrax with an aggregate value of approximately $2,900,000. These shares
have a current value of $3,412,812 (based upon the midpoint of the offering
price range shown on the cover page of this prospectus). At the time of the
transaction, Piedmont Venture Partners, an 8.27% stockholder of Total Sports,
and White Oak Properties Limited Partnership owned a majority of the outstand-
ing capital stock of Motortrax. Our director William E. Ray is a principal of
White Oak Properties.
June 1999 Bridge Financing
In June 1999, we issued a 10% convertible promissory note in the principal
amount of $4,000,000 and an immediately exercisable warrant to purchase for
60,277 shares of our common stock at an exercise price of $16.59 to Labatt
Brewing Company Limited, a 6.49% stockholder of Total Sports, for an aggregate
$4,000,000 purchase price. This loan was converted into 241,043 shares of our
Series D preferred stock, at a conversion price of $16.59 per share, and imme-
diately exercisable warrants to purchase 108,469 shares of Series D1 preferred
stock, at an exercise price of $16.59 per share, in November 1999.
53
<PAGE>
September - November 1999 Bridge Financing
In September and November 1999, we issued 10% convertible promissory notes in
the aggregate principal amount of $2,500,000 and immediately exercisable war-
rants to purchase an aggregate of 15,067 shares of our common stock, at an ex-
ercise price of $16.59 per share, to a group of private investors, including
the following related parties:
<TABLE>
<CAPTION>
------------------------------
Principal Number
Amount of of Current
Promissory Warrant Value of
Name, Relationship Note Shares Securities*
- ------------------ ---------- ------- -----------
<S> <C> <C> <C>
Piedmont Venture Partners II, L.P., 8.27%
stockholder................................... $ 500,000 3,013 $36,156
Nuray Telluride Properties Limited Partnership,
7.34% stockholder............................. $1,000,000 6,027 $72,324
Winstar Interactive Ventures I, Inc., 6.55%
stockholder................................... $ 500,000 3,013 $36,156
</TABLE>
- -------
* Based upon the midpoint of the offering price range shown on the cover page
of this prospectus.
These loans were converted into an aggregate of 120,520 shares of our Series D
preferred stock, at a conversion price of $16.59 per share, and immediately ex-
ercisable warrants to purchase an aggregate of 54,233 shares of Series D1 pre-
ferred stock, at an exercise price of $16.59 per share, in November 1999.
Series D Financing
In November 1999, we issued an aggregate 2,140,873 shares of our Series D pre-
ferred stock and immediately exercisable warrants to purchase an aggregate
963,370 shares of our Series D1 preferred stock, at an exercise price of $16.59
per share, to a group of private investors for an aggregate consideration of
approximately $35,500,000. If the per share price of the shares of common stock
sold in this offering is less than $33.18, the conversion ratio of the Series D
preferred stock shall be adjusted so that holders of Series D preferred stock
shall be entitled to receive, for each share of Series D preferred stock con-
verted, a number of shares of common stock worth $33.18 at the per share ini-
tial public offering price. Based upon a per share offering price of $12.00
(the midpoint of the price range shown on the cover page of this prospectus),
the holders of Series D preferred stock would be entitled to receive 5,919,514
shares of common stock. Purchasers of our Series D preferred stock and warrants
included the following related parties:
<TABLE>
<CAPTION>
---------------------------------------------------
Current
Number of Number of Aggregate Value of
Name Shares Warrant Shares Purchase Price Securities*
- ---- --------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
Entities affiliated with
Technology Crossover
Ventures, 14.93%
stockholder.............. 602,608 271,171 $9,999,978 $10,485,348
Piedmont Venture Partners
II, L.P., 8.27%
stockholder.............. 30,130 13,558 $ 499,992 $ 524,256
Zilkha Capital Partners
and affiliated entities,
7.55% stockholder........ 301,304 135,586 $4,999,989 $ 5,242,680
Nuray Telluride Properties
limited Partnership,
7.34% stockholder........ 120,521 54,234 $2,000,000 $ 2,097,060
Winstar Interactive
Ventures I, Inc., 6.55%
stockholder.............. 150,652 67,793 $2,499,995 $ 2,621,340
Labatts Brewing Company,
6.49% stockholder........ 241,043 108,469 $4,000,000 $ 4,194,144
Gary R. Stevenson,
director................. 3,013 1,355 $ 50,000 $ 52,416
</TABLE>
- -------
* Based upon the midpoint of the offering price range shown on the cover page
of this prospectus.
At a per share offering price less than $20.74, the conversion of the Series D
preferred stock into common stock would require the consent of the holders of a
majority of the Series D preferred stock. In addition, in connection with the
Series D financing, certain of our warrant holders and the holders of Series A,
Series B, Series C, Series C1 and Series D preferred stock were granted rights
of first refusal that, at a per share offering price less than $20.74, would
allow these warrant holders and preferred stockholders to purchase their pro
rata share of common stock in this offering.
For information regarding the grant of stock options to our executive officers,
please see "Management--Director Compensation" and "Management--Executive Com-
pensation."
For information regarding noncompetition and employment agreements to our exec-
utive officers, please see "Management--Employment Agreements."
Certain Business Relationships
In March 1997, Total Ltd. purchased all the sports content business assets,
consisting of the proprietary rights to certain sports-related Web sites, com-
puter equipment and sports newswire contracts including related liabilities and
accounts payable, of KOZ inc., a North Carolina corporation, for a principal
purchase price of approximately $1,414,000. At the
54
<PAGE>
time of this transaction, Mr. Daniels, III, an 7.02% stockholder of Total
Sports, was the Chairman and Chief Executive Officer of Total Ltd. and was also
a director and shareholder of KOZ.
In connection with the acquisition of Total College Communications, we assumed
all rights and obligations of Total College Communications to (1) a services
agreement with Host Communications whereby we would serve as the exclusive on-
line publisher for intercollegiate sports publications authorized by Host Com-
munications, (2) a marketing agreement with Host Communications whereby we
would engage Host Communications as a nonexclusive sales agent for marketing of
the intercollegiate sports publication Web sites published by us and (3) a Web
site and cybercasting agreement with Host Communications whereby we would pro-
duce and broadcast certain NCAA championships on the Internet.
In connection with our sale of Series C preferred stock in August 1998, we en-
tered into a programming and inventory agreement with The Winning Line, Inc.
d/b/a SportsFan Enterprises, a subsidiary of Winstar New Media Company, to pur-
chase advertising inventory on the SportsFan Radio Network for a 6-month period
of time for an aggregate purchase price of $500,000. Additionally, we entered
into a Web site agreement with SportsFan and Winstar Interactive Media Sales,
Inc., also a subsidiary of Winstar New Media Company, to develop and establish
a co-branded Web site with content provided by us. Stewart B. Rekant, our di-
rector, is President of Winstar-New Media Company, the parent company of
Winstar Interactive Ventures, a 6.55% stockholder of Total Sports.
In February 1999, we entered into a loan and security agreement with First Ra-
leigh Telex pursuant to which we issued a promissory note to First Raleigh
Telex for the principal amount of $114,921 due and payable in 36 monthly in-
stallments of principal and interest calculated at a rate of 9% per annum for
the purchase of office equipment. First Raleigh Telex maintains a security in-
terest in all equipment purchased with proceeds of the loan. Mr. Daniels, Jr.,
our director, is a principal of First Raleigh Telex.
Effective as of August 1999, we entered into a lease agreement and first amend-
ment thereto with First Raleigh Telex, LLC pursuant to which we leased an ag-
gregate of 27,010 square feet of space at 234 Fayetteville Street Mall, Ra-
leigh, North Carolina, for an aggregate rental amount of $30,000 per month dur-
ing 2000. The lease expires on June 30, 2009. Our director Mr. Daniels, Jr. is
a principal of First Raleigh Telex.
In November 1999, we entered into an agreement with NBC Sports, Inc., a 17.09%
stockholder, whereby NBC Sports will provide $17.4 million of certain on-air
promotion and marketing of our live sporting event coverage in exchange for the
issuance of 811,423 shares of our common stock and 811,423 shares of our Series
E preferred stock, which will convert into eight shares of common stock on the
closing of this offering, to NBC Sports. The shares of capital stock issued to
NBC Sports have a current value of $9,737,076 (based upon the midpoint of the
offering price range shown on the cover page of this prospectus). If the per
share offering price of the common stock sold in this offering is less than
$32.11, NBC Sports will receive additional shares of common stock in amount
such that the total value of their shares of common stock valued at the per
share offering price shall equal $26.875 million. Based upon a per share offer-
ing price of $12.00 (the midpoint of the price range shown on the cover page of
this prospectus), we would issue an additional 1,359,810 shares of common stock
to NBC Sports.
Indebtedness to Management
Mr. Daniels, III personally guaranteed our line of credit with First Union Na-
tional Bank, up to a maximum of $4,000,000. This line of credit expired in No-
vember 1999.
Transactions with Promoters
In February 1997, Total Ltd., a North Carolina corporation and predecessor in
interest to Total Sports, issued shares of its common stock, at a purchase
price of $.001 per share, to the following promoters of Total Ltd.:
<TABLE>
<CAPTION>
Number of Aggregate Current Value
Name Shares Purchase Price of Securities*
- ---- --------- -------------- --------------
<S> <C> <C> <C>
Frank A. Daniels, III................... 641,987 $641.99 $7,703,844
Harold Bailes........................... 26,323 26.32 315,876
George Schlukbier....................... 148,387 148.39 1,780,644
Jody Tester............................. 22,194 22.19 266,328
Mark Markwell........................... 16,000 16.00 192,000
Ezra Kucharz............................ 38,710 38.71 464,520
Quin Snyder............................. 25,806 25.81 309,672
Thomas Drew............................. 4,258 4.26 51,096
Colin Boatwright ....................... 16,465 16.47 197,580
Bryan Watson............................ 1,806 1.81 21,672
Eric Harris............................. 19,355 19.36 232,260
</TABLE>
- -------
* Based upon the midpoint of the offering price range shown on the cover page
of this prospectus.
55
<PAGE>
Principal Stockholders
The following table presents as of December 31, 1999 the number of shares of
common stock and the percentage of outstanding shares of common stock that are
beneficially owned by:
. each person that is the beneficial owner of more than 5% of our capital
stock;
. each of our directors;
. each named officer; and
. all of our current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the Commis-
sion and generally includes voting or investment power with respect to securi-
ties, subject to community property laws, where applicable. Shares of common
stock subject to options and warrants that are presently exercisable or exer-
cisable within 60 days of December 31, 1999 are deemed to be outstanding and
beneficially owned by the person holding such option or warrant for the purpose
of computing the percentage of ownership of that person, but they are not
deemed outstanding for the purpose of computing the percentage of any other
person. The number of shares beneficially owned by each stockholder shown below
assumes (1) the conversion of shares of our Series B, Series C, Series C1, Se-
ries D and Series E preferred stock held by that stockholder which include, in
the case of holders of our Series D preferred stock, shares of common stock
which they are eligible to receive because the offering price falls below a
certain threshold as described under "Certain Relationships and Related Trans-
actions--Series D Financing" and (2) exercise of options or warrants held by
that stockholder which are exercisable within 60 days of December 31, 1999, in-
cluding the cashless exercise of warrants that will expire if not exercised
prior to the consummation of this offering. The number of shares beneficially
owned by NBC Sports shown below includes 1,359,810 additional shares of common
stock which NBC Sports will receive upon consummation of this offering because
the offering price falls below a certain threshold as described under "Certain
Relationships and Related Transactions--Certain Business Relationships". The
denominator used in calculating the applicable beneficial ownership for each
stockholder before this offering is based on an aggregate of 12,702,718 shares,
which consists of (1) 2,882,663 shares of common stock outstanding as of Decem-
ber 31, 1999, (2) 8,413,741 shares of common stock issuable upon the conversion
of all our outstanding shares of Series B, Series C, Series C1, Series D and
Series E preferred stock, including an aggregate of 3,778,641 additional shares
of common stock issued to Series D holders as described above upon consummation
of this offering, (3) the 1,359,810 additional shares of common stock to be re-
ceived by NBC Sports as described above upon consummation of this offering and
(4) 46,504 shares of common stock issuable upon the cashless exercise of
102,716 warrants that will expire if not exercised prior to the consummation of
this offering. The denominator used in calculating the applicable beneficial
ownership for each stockholder after this offering is based on an aggregate of
16,869,385 shares, which consists of the shares described above and 4,166,667
shares of common stock to be issued in this offering. Our Series A preferred
stock will be redeemed in connection with this offering. Unless otherwise not-
ed, each of the persons listed below has sole voting and investment power with
respect to his or her shares and the address for each of the persons listed be-
low as beneficially owning more than five percent of our outstanding capital
stock is 234 Fayetteville Street, Raleigh, North Carolina 27601.
<TABLE>
<CAPTION>
--------------------------------------------------
Percent Beneficially Owned
-------------------------------
Name and Address of Number of Shares
Principal Stockholders Beneficially Owned Before Offering After Offering
- ---------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Frank A. Daniels, III(1)... 892,742 7.02% 5.29%
Frank A. Daniels, Jr.(2)... 157,699 1.23 *
Charles L. Jarvie(3)....... 292 * *
William W. Neal(4)......... 1,079,178 8.27 6.27
C. Toms Newby, III(5)...... 1,937,382 14.93 11.30
Robert S. Prather, Jr.(6).. 876,452 6.90 5.19
William E. Ray(7).......... 1,008,777 7.89 5.95
Stuart B. Rekant(8)........ 836,453 6.55 4.94
John Rigas(9).............. 968,692 7.55 5.70
Kenneth D. Schanzer(10).... 2,171,241 17.09 12.87
Gary R. Stevenson(11)...... 32,479 * *
Bull Run Corporation(12).. 876,160 6.90 5.19
4370 Peachtree Rd., NE
Atlanta, GA 30319-3099
Labatts Brewing Company 835,230 6.49 4.90
Limited(13)...............
Labatt House
181 Bay Street, Suite 200
Toronto, Ontario M5J 2J3
NBC Sports(14)............. 2,171,241 17.09 12.87
30 Rockefeller Plaza
New York, NY 10112
Nuray Telluride Properties 937,385 7.34 5.53
Limited Partnership(15)...
801 East Trade St.
Charlotte, NC 28202
Piedmont Venture Partners 1,079,178 8.27 6.27
affiliated entities(16)...
6805 Morrison Blvd., Ste.
380
Charlotte, NC 28210
Technology Crossover 1,937,382 14.93 11.30
Ventures affiliated
entities(17)..............
575 High Street, Suite 400
Palo Alto, CA 94301
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------
Percent Beneficially Owned
------------------------------
Name and Address of Principal Number of Shares
Stockholders Beneficially Owned Before Offering After Offering
- ----------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Winstar Interactive Ventures
I, Inc.(18)................. 836,453 6.55 4.94
685 Third Avenue, 31st Floor
New York, NY 10017
Zilkha Capital Partners, L.P.
affiliated entities(19)..... 968,692 7.55 5.70
767 Fifth Avenue
New York, NY 10169
George Schlukbier(20)........ 155,516 1.22 *
Marie Hasnain(21)............ 12,966 * *
Petra Weishaupt(22).......... 13,569 * *
Ezra Kucharz(23)............. 41,093 * *
All directors and executive
officers as a group(24)..... 10,184,531 74.20 56.92
</TABLE>
* Indicates less than one percent.
(1) Includes (a) 10,161 shares issuable upon the exercise of currently exer-
cisable warrants, (b) 6,761 shares issuable upon the exercise of stock op-
tions that are exercisable within 60 days of December 31, 1999 and (c)
169,784 shares issuable upon the conversion of outstanding preferred
stock.
(2) Includes (a) 73,040 shares issuable upon the exercise of currently exer-
cisable warrants, (b) 817 shares issuable upon he exercise of stock op-
tions that are exercisable within 60 days of December 31, 1999 and (c)
76,138 shares issuable upon the conversion of outstanding preferred stock.
(3) All are shares issuable upon the exercise of stock options held by Host
Communications, Inc., of which Mr. Jarvie is President. Mr. Jarvie dis-
claims beneficial ownership of such shares.
(4) Includes (a) 346,761 shares issuable upon the exercise of currently exer-
cisable warrants, (b) 817 shares issuable upon the exercise of stock op-
tions that are exercisable within 60 days of December 31, 1999 and (c)
590,793 shares issuable upon the conversion of outstanding preferred stock
(including 53,179 additional shares issuable upon conversion of Series D
preferred stock as described above) owned by entities affiliated with
Piedmont Venture Management, Inc. which serves as general partner of such
entities. Mr. Neal is managing principal of Piedmont Venture Management,
Inc. and disclaims beneficial ownership of such shares except to the ex-
tent of his pecuniary interest therein.
(5) Includes (a) 271,171 shares issuable upon the exercise of currently exer-
cisable warrants and (b) 1,666,211 shares issuable upon the conversion of
outstanding preferred stock (including 1,063,603 additional shares issua-
ble upon conversion of Series D preferred stock as described above) owned
by entities affiliated with Technology Crossover Ventures. Mr. Newby is
general partner of Technology Crossover Ventures and disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.
(6) Includes (a) 292 shares issuable upon the exercise of stock options that
are exercisable within 60 days of December 31, 1999 and (b) 457,189 shares
issuable upon the conversion of outstanding preferred stock held by Bull
Run Corporation, of which Mr. Prather is President. Mr. Prather disclaims
beneficial ownership except to the extent of his pecuniary interest there-
in.
(7) Includes (a) 292 shares issuable upon the exercise of stock options that
are exercisable within 60 days of December 31, 1999 owned by Mr. Ray, (b)
74,556 shares issuable upon the exercise of currently exercisable war-
rants, 450 shares issuable upon the exercise of stock options that are ex-
ercisable within 60 days of December 31, 1999 and 862,379 shares issuable
upon the conversion of outstanding preferred stock (including 212,720 ad-
ditional shares issuable upon conversion of Series D preferred stock as
described above) owned by Nuray Telluride Limited Partnership, the general
partner of which is Nuray Holdings LLC, of which Mr. Ray is the sole own-
er, and (c) 71,100 shares owned by White Oak Partners Limited Partnership,
the general partner of which is Nuray Holdings LLC, of which Mr. Ray is
the sole owner. Mr. Ray disclaims beneficial ownership of such shares held
by Nuray Telluride Properties and White Oak Partners except to the extent
of his pecuniary interest therein. Mary Ann Kent is the manager of Nuray
Holdings LLC, and has voting and dispositive power over the shares owned
by Nuray Telluride Limited Partnership and White Oak Partners but dis-
claims beneficial ownership of such shares except to the extent of her pe-
cuniary interest therein.
(8) Includes (a) 67,793 shares issuable upon the exercise of currently exer-
cisable warrants, (b) 292 shares issuable upon the exercise of stock op-
tions that are exercisable within 60 days of December 31, 1999 and (c)
768,368 shares issuable upon the conversion of outstanding preferred stock
(including 265,901 additional shares issuable upon conversion of Series D
preferred stock as described above) owned by Winstar Interactive Ventures
I, Inc., of which Mr. Rekant is President. Mr. Rekant disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.
(9) Includes (a) 135,586 shares issuable upon the exercise of currently exer-
cisable warrants and (b) 833,106 shares issuable upon the conversion of
outstanding preferred stock (including 531,802 additional shares issuable
upon conversion of Series D preferred stock as described above) owned by
Zilkha Capital Partners, L.P. and affiliated entities. Mr. Rigas is pri-
vate equity investment manager of Zilkha Capital Partners, L.P. and dis-
claims beneficial ownership of such shares except to the extent of his pe-
cuniary interest therein.
(10) Includes (a) 1,359,810 additional shares of common stock issuable upon
consummation of this offering as described above and (b) eight shares is-
suable upon conversion of outstanding Series E preferred stock, owned by
NBC Sports. Mr. Schanzer is president of NBC Sports and disclaims benefi-
cial ownership of such shares except to the extent of his pecuniary inter-
est therein.
57
<PAGE>
(11) Includes (a) 817 shares issuable upon the exercise of stock options that
are exercisable within 60 days of December 31, 1999, (b) 1,355 shares is-
suable upon the exercise of currently exercisable warrants and (c) 16,234
shares issuable upon the conversion of outstanding preferred stock (in-
cluding 5,318 additional shares issuable upon conversion of Series D pre-
ferred stock as described above).
(12) Includes 457,189 shares issuable upon the conversion of outstanding pre-
ferred stock.
(13) Includes (a) 168,746 shares issuable upon the exercise of currently exer-
cisable warrants and (b) 666,484 shares issuable upon the conversion of
outstanding preferred stock (including 425,441 additional shares issuable
upon conversion of Series D preferred stock as described above).
(14) Includes (a) 1,359,810 additional shares of common stock issuable upon
consummation of this offering as described above and (b) eight shares is-
suable upon conversion of outstanding Series E preferred stock.
(15) Includes (a) 74,556 shares issuable upon the currently exercisable war-
rants, (b) 450 shares issuable upon the exercise of stock options that are
exercisable within 60 days of December 31, 1999 and (c) 862,379 shares is-
suable upon the conversion of outstanding preferred stock (including
212,720 additional shares issuable upon the conversion of Series D pre-
ferred stock as described above).
(16) Includes (a) 346,761 shares issuable upon the exercise of currently exer-
cisable warrants, (b) 817 shares issuable upon the exercise of stock op-
tions that are exercisable within 60 days of December 31, 1999 and (c)
590,793 shares issuable upon the conversion of outstanding preferred stock
(including 53,179 additional shares issuable upon conversion of Series D
preferred stock as described above). The shares, warrants and options are
held by Piedmont Venture Partners Limited Partnership and Piedmont Venture
Partners II, L.P.
(17) Includes (a) 271,171 shares issuable upon the exercise of currently exer-
cisable warrants and (b) 1,666,211 shares issuable upon the conversion of
outstanding preferred stock (including 1,063,603 additional shares issua-
ble upon conversion of Series D preferred stock as described above). The
shares and warrants are held by TCV III (GP), TCV III Strategic Partners,
L.P., TCV III L.P., and TCV III (Q), L.P., entities affiliated with Tech-
nology Crossover Ventures.
(18) Includes (a) 292 shares issuable upon the exercise of stock options that
are exercisable within 60 days of December 31, 1999, (b) 67,793 shares is-
suable upon the exercise of currently exercisable warrants and (c) 768,368
shares issuable upon the conversion of outstanding preferred stock (in-
cluding 265,901 additional shares issuable upon conversion of Series D
preferred stock as described above).
(19) Includes (a) 135,586 shares issuable upon the exercise of currently exer-
cisable warrants and (b) 833,106 shares issuable upon the conversion of
outstanding Series D preferred stock (including 531,802 additional shares
as described above). The shares and warrants are held by Zilkha Capital
Partners, L.P. and Zilkha Guernsey Capital Partners, L.P.
(20) Includes 6,350 shares issuable upon the exercise of stock options that are
exercisable within 60 days of December 31, 1999.
(21) Includes (a) 11,912 shares issuable upon the exercise of stock options
that are exercisable within 60 days of December 31, 1999 and (b) 1,054
shares issuable upon the conversion of outstanding preferred stock.
(22) Includes 10,848 shares issuable upon the exercise of stock options that
are exercisable within 60 days of December 31, 1999 and (b) 703 shares is-
suable upon the conversion of outstanding preferred stock.
(23) Includes 2,383 shares issuable upon the exercise of stock options that are
exercisable within 60 days of December 31, 1999.
(24) Includes the information in the notes above, as applicable.
58
<PAGE>
Description of Capital Stock
Our amended and restated certificate of incorporation, which will become effec-
tive upon completion of the offering, authorizes the issuance of 500,000,000
shares of common stock, no par value per share, and 50,000,000 shares of pre-
ferred stock, $.01 par value per share.
Common Stock
Holders of common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders generally, including the election of directors.
Holders of common stock are entitled to receive dividends, if any, declared
from time to time by our board of directors out of funds legally available for
dividends. If Total Sports is liquidated, dissolved or wound-up, holders of
common stock will share proportionately in all assets available for distribu-
tion. However, dividend and distribution rights of holders of common stock will
be subject to the rights of any holders of any series of preferred stock as de-
scribed below. The holders of common stock have no preemptive or conversion
rights. The common stock does not have cumulative voting rights. As a result,
the holder or holders of more than half of the shares of common stock voting
for the election of directors can elect all directors being elected at that
time. All shares of common stock outstanding immediately following the offering
will be fully paid and will not be subject to further calls or assessments.
There are no redemption or sinking fund provisions applicable to the common
stock.
Preferred Stock
After this offering, no shares of preferred stock will be outstanding. Our
board of directors will be authorized, without further stockholder action, to
issue preferred stock in one or more series and to fix the voting rights, liq-
uidation preferences, dividend rights, repurchase rights, conversion rights,
redemption rights and terms, including sinking fund provisions, and certain
other rights and preferences, of the preferred stock. Although there is no cur-
rent intention to do so, our board of directors may, without stockholder ap-
proval, issue shares of a class or series of preferred stock with voting and
conversion rights, which could adversely affect the voting power or divided
rights of the holders of common stock and might have the effect of delaying,
deferring or preventing a change in control.
Warrants
From time to time, we have issued warrants exercisable for our capital stock.
As of December 31, 1999 the following outstanding warrants had been issued:
<TABLE>
<CAPTION>
----------------------------------------
Number of
Issued Exercise Outside
Underlying Security Warrants Price Expiration Date
- ------------------- --------- -------- ------------------
<S> <C> <C> <C>
Common stock........................ 365,218 $ 0.01 June 2, 2007(1)
Common stock........................ 16,200 $ 3.42 May 15, 2007(2)
Common stock........................ 6,598 $ 3.44 June 2, 2002(2)
Common stock........................ 7,268 $4.492 September 4, 2002(2)
Series B preferred stock............ 50,805(3) $4.492 January 31, 2008
Series B preferred stock............ 22,773(3) $4.492 June 30, 2008
Common stock........................ 8,285 $ 4.94 November 4, 2002(2)
Common stock........................ 31,458 $ 7.82 August 6, 2003(2)
Common stock........................ 318,500 $7.106 June 30, 2005
Common stock........................ 20,000 $7.106 August 7, 2003(2)
Common stock........................ 7,940 $10.44 January 15, 2004(2)
Common stock........................ 4,967 $10.44 April 6, 2004(2)
Common stock........................ 60,277 $16.59 May 31, 2009
Common stock........................ 15,067 $16.59 September 30, 2009(2)
Series D1 preferred stock........... 963,407(4) $16.59 November 12, 2004
Common stock........................ 46,004 $18.25 November 12, 2004
</TABLE>
(footnotes on next page)
59
<PAGE>
(1)These warrants become exercisable upon the initial public offering of
our common stock to the public.
(2)These warrants expire upon the earlier to occur of an acquisition of To-
tal Sports or the initial public offering of our common stock to the pub-
lic.
(3)These warrants will become exercisable for common stock upon the closing
of this offering.
(4)The mandatory conversion into common stock of the Series D preferred
stock resulting from this offering will cause these warrants to become ex-
ercisable for common stock upon the closing of this offering.
Registration Rights
We are party to an investor rights agreement, dated as of November 12, 1999,
with all the stockholders who purchased Series A, Series B, Series C, Series C1
and Series D preferred stock, Allen & Company, Inc. and NBC Sports, who will
collectively hold in the aggregate 12,967,141 shares of common stock upon the
completion of this offering. In the investor rights agreement, we have granted
the following rights:
. The right to demand that shares of common stock be registered under the
Securities Act of 1933, as amended, in a manner similar to the registration
of the shares that are offered by this prospectus. Any combination of the
stockholders party to the investor rights agreement collectively holding at
least 35% of such common stock may initiate one registration. In addition,
no request can be made within the six months following the effectiveness of
a registered public offering of our capital stock. Only one request can be
made every 12 months and each registration must include common stock with a
fair market value in excess of $5,000,000.
. The right to demand that shares of common stock be registered under the
Securities Act on Form S-3, when we are eligible to use that form. Any
combination of the stockholders party to the investor rights agreement
collectively holding at least 35% of such common stock may initiate four
such registrations. Only one request can be made every 12 months and each
registration must include common stock with a fair market value in excess of
$2,500,000.
. The right to have shares of common stock included in any registration of
common stock by us under the Securities Act, other than those effected on
Forms S-4 or S-8, subject to underwriter cut-backs.
We are required to bear the expenses of any registration or qualification de-
scribed above except for the fees of the stockholders' legal counsel, or under-
writers' discounts or commissions relating to the securities being registered.
These registration rights are transferable in certain circumstances.
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions; Anti-
Takeover Effects
Delaware Corporate Law
The State of Delaware has a statute designed to provide Delaware corporations
with additional protection against hostile takeovers. The takeover statute,
which is codified in Section 203 of the Delaware General Corporate Law, is in-
tended to discourage hostile takeover practices by impeding the ability of a
hostile acquiror to engage in transactions with the target company.
In general, Section 203 provides that a person who owns 15% or more of the out-
standing voting stock of Delaware corporation, referred to as an "interested
stockholder," may not consummate a merger or other business combination trans-
action with such corporation at any time during the 3-year period following the
date such person became an interested stockholder. The term "business combina-
tion" is defined broadly to cover a wide range of corporate transactions in-
cluding mergers, sales of assets, issuances of stock, transactions with subsid-
iaries and the receipt of disproportionate financial benefits.
The statute exempts the following transactions from the requirements of Section
203:
. any business combination if, prior to the date a person became an interested
stockholder, the board of directors approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder;
. any business combination involving a person who acquired at least 85% of the
outstanding voting stock in the transaction in which he became an interested
stockholder, with the number of shares outstanding calculated without regard
to those shares owned by the corporation's directors who are also officers
and by employee stock plans;
. any business combination with an interested stockholder that is approved by
the board of directors and by a two-thirds vote of the outstanding voting
stock not owned by the interested stockholder; and
60
<PAGE>
. business combinations that are proposed after the corporation had received
other acquisition proposals and that are approved or not opposed by a
majority of certain continuing members of the board of directors.
A corporation may exempt itself from the requirements of the statute by adopt-
ing an amendment to its certificate of incorporation or bylaws electing not to
be governed by Section 203. Our board of directors does not intend to propose
any such amendment.
Certificate of Incorporation and Bylaws
Our amended and restated certificate of incorporation, effective immediately
upon the consummation of this offering, will provide:
. for the authorization of the board of directors to issue, without further
action by the stockholders, up to 50,000,000 shares of preferred stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof;
. that any action required or permitted to be taken by our stockholders must
be effected at a duly called annual or special meeting of the stockholders
and may not be effected by a consent in writing;
. that special meetings of our stockholders may be called only by the chairman
of the board, the chief executive officer or a majority of the members of
the board of directors;
. for a classified board of directors; and
. that vacancies on the board of directors, including newly created
directorships, can be filled only by a majority of the directors then in
office.
Our amended and restated bylaws, effective immediately upon the consummation of
this offering, will include provisions (1) imposing advance notice requirements
for stockholder proposals and director nomination and (2) providing that our
directors may be removed only for cause and only by the affirmative vote of
holders at least 66 2/3% of the outstanding shares of voting stock together as
a single class.
These provisions in our amended and restated certificate of incorporation and
amended and restated bylaws are intended to enhance the likelihood of continu-
ity and stability in the composition of the board of directors and in the poli-
cies formulated by the board of directors and to discourage transactions that
might involve an actual or threatened change of control of Total Sports. These
provisions are designed to reduce our vulnerability to an unsolicited proposal
for a takeover that does not contemplate the acquisition of all of our out-
standing shares, or an unsolicited proposal for the restructuring or sale of
all or part of Total Sports. These provisions, however, could discourage poten-
tial acquisition proposals and could delay or prevent a change in control of
Total Sports. These provisions might also have the effect of preventing changes
in our management.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004.
61
<PAGE>
Shares Eligible For Future Sale
Prior to the offering, there has been no public market for our common stock,
and we cannot predict the effect, if any, that sales of shares of common stock
or the availability of shares of common stock for sale will have on the market
price of the common stock prevailing from time to time. Nevertheless, sales of
substantial amounts of common stock in the public market, or the perception
that these sales could occur, could depress the market price of our common
stock and could impair our future ability to raise capital through the sale of
our equity securities.
Upon completion of the offering and assuming no exercise of stock options after
December 31, there will be an aggregate of 16,869,385 shares of our common
stock outstanding. The 4,166,667 shares offered by this prospectus, or
4,791,667 shares if the underwriters' option is exercised in full, will be
freely transferable without restriction or limitation under the Securities Act
of 1933, as amended, unless purchased by our "affiliates" as that term is de-
fined in Rule 144 under the Securities Act. The remaining 12,702,718 shares
outstanding upon completion of the offering will be "restricted securities"
within the meaning of Rule 144 under the Securities Act, and are subject to re-
strictions under the Securities Act.
Our directors, officers and security holders holding in the aggregate
12,640,662 shares of our common stock will agree not to sell, offer for sale,
or otherwise dispose of any of our common stock for a period of 180 days from
the date of this prospectus without the prior written consent of J.P. Morgan
Securities Inc. In addition, during that 180-day period, we will agree not to
file any registration statement, except for the registration statement on Form
S-8 described below, with respect to our common stock or any securities con-
vertible into or exercisable or exchangeable for common stock without the prior
written consent of J.P. Morgan Securities Inc.
Subject to these lock-up agreements, the shares of common stock outstanding
upon the completion of this offering, not including the 4,166,667 shares of-
fered by this prospectus, assuming the exercise of outstanding options and war-
rants will be eligible for sale, subject to Rule 144, in the public market as
follows:
<TABLE>
<S> <C>
Immediately after this offering...................... 62,056 shares;
180 days after this offering......................... 5,508,808 shares;
1 year after this offering........................... 9,174,533 shares; and
2 years after this offering.......................... 147,820 shares.
</TABLE>
In general, under Rule 144, as currently in effect, a person, or persons whose
shares are required to be aggregated, who owns shares that were purchased from
us or any of our affiliates at least one year previously, is entitled to sell
in brokers transactions or to market makers, within any three-month period com-
mencing 90 days after the date of this prospectus, the number of shares of com-
mon stock that does not exceed the greater of (1) one percent of the number of
then outstanding shares, approximately 168,694 shares immediately after the of-
fering, or (2) the average weekly reported trading volume during the four cal-
endar weeks preceding the date on which the required notice of sale is filed
with the SEC. Sales under Rule 144 are generally subject to the availability of
current public information about Total Sports. Any person, or persons whose
shares are aggregated, who owns shares that were purchased from us or any of
our affiliates at least two years previously and who has not been an affiliate
of ours at any time during the 90 days preceding the sale, would be entitled to
sell those shares under Rule 144(k) without regard to the volume limitations or
manner of sale, public information or notice requirements of Rule 144.
Any of our employees, officers, directors or consultants who have purchased or
were awarded shares or options to purchase shares pursuant to a written compen-
satory plan or contract are entitled to rely on the resale provisions of Rule
701 under the Securities Act, which permits affiliates and non-affiliates to
sell such shares without having to comply with the holding period restrictions
of Rule 144, in each case commencing 90 days after the date of this prospectus.
In addition, non-affiliates may sell such shares without complying with the
public information, volume and notice provisions of Rule 144. Rule 701 is
available for our option holders as to all 13,389 shares issued pursuant to the
exercise of options granted prior to this offering.
After the offering, Total Sports intends to file a registration statement on
Form S-8 to register all of the 1,185,000 shares of common stock reserved for
issuance under our stock incentive plans and not eligible for sale under Rule
701. Accordingly, shares issued upon exercise of such options will be freely
tradeable by holders who are not our affiliates and, subject to the volume and
other limitations of Rule 144, by holders who are our affiliates.
In addition, Total Sports may raise additional equity capital through the sale
of equity securities. Sales of these shares in the public markets may cause fu-
ture dilution to our existing stockholders.
62
<PAGE>
Underwriting
We and the underwriters named below have entered into an underwriting agreement
covering the common stock to be offered in this offering. J.P. Morgan Securi-
ties Inc., Hambrecht & Quist LLC, Allen & Company Incorporated and U.S. Bancorp
Piper Jaffrey, Inc. are acting as representatives of the underwriters. Each un-
derwriter has agreed to purchase the number of shares of common stock opposite
its name below.
<TABLE>
<CAPTION>
---------
Number of
Shares
Underwriters ---------
<S> <C>
J.P. Morgan Securities Inc...........................................
Hambrecht & Quist LLC................................................
Allen & Company Incorporated.........................................
U.S. Bancorp Piper Jaffrey, Inc. ....................................
---------
Total.............................................................. 4,166,667
=========
</TABLE>
The underwriting agreement provides that if the underwriters take any of the
shares set forth in the table above, then they must take all of these shares.
No underwriter is obligated to take any shares allocated to a defaulting under-
writer except under limited circumstances.
The underwriters are offering the shares of common stock, subject to the prior
sale of shares, and when, as and if such shares are delivered to and accepted
by them. The underwriters will initially offer to sell shares to the public at
the initial public offering price set forth on the cover page of this prospec-
tus. The underwriters may sell shares to securities dealers at a discount of up
to $ per share from the initial public offering price. Any such securities
dealers may resell shares to other brokers or dealers at a discount of up to
$ per share from the initial public offering price. After the initial public
offering, the underwriters may vary the public offering price and other selling
terms.
If the underwriters sell more shares than the total number set forth in the ta-
ble above, the underwriters have the option to buy up to an additional shares
of common stock from us to cover such sales. They may exercise this option dur-
ing the 30-day period from the date of this prospectus. If any shares are pur-
chased with this option, the underwriters will purchase shares in approximately
the same proportion as set forth in the table above.
The underwriting discount is equal to the public offering price per share of
common stock less the amount paid by the underwriters to Total Sports per share
of common stock. The underwriting discount is expected to equal 7.0% of the
initial public offering price. The following table shows the per share and to-
tal underwriting discounts that we will pay to the underwriters. These amounts
are shown assuming both no exercise and full exercise of the underwriters' op-
tion to purchase additional shares.
<TABLE>
<CAPTION>
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share............................................ $ $
---- ----
Total................................................ $ $
==== ====
</TABLE>
The representatives have informed us that they do not expect discretionary
sales by the underwriters to exceed 5% of the shares being offered.
The underwriters may purchase and sell shares of common stock in the open mar-
ket in connection with this offering. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater num-
ber of shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
slowing a decline in the market price of the common stock while the offering is
in progress. The underwriters may also impose a penalty bid, which means that
an underwriter must repay to the other underwriters a portion of the underwrit-
ing discount received by it. An underwriter might be subject to a penalty bid
if the representatives of the underwriters, while engaging in stabilizing or
short covering transactions, repurchase shares sold by or for the account of
that underwriter. These activities might stabilize, maintain or otherwise af-
fect the market price of the common stock. As a result, the price of the common
stock might be higher than the price that otherwise would exist in the open
market. If the underwriters commence these activities, they
63
<PAGE>
may discontinue them at any time. The underwriters may carry out these transac-
tions on the Nasdaq National Market, in the over-the-counter market or other-
wise.
We estimate that the total expenses of this offering, excluding underwriting
discounts, will be $1,400,000.
We have agreed to indemnify the underwriters against various liabilities, in-
cluding liabilities under the Securities Act of 1933.
We and our directors, officers and securityholders holding in the aggregate
shares of our common stock have agreed with the underwriters not to transfer,
dispose of or hedge any of our or their common stock, or securities convertible
into or exchangeable for shares of common stock, for a period of 180 days after
the date of this prospectus, except with the prior written consent of J.P. Mor-
gan Securities Inc. and in other limited circumstances, including our granting
of options or our issuance of shares of common stock upon the exercise of op-
tions under our existing employee benefit plans.
In connection with our Series D preferred stock financing, we agreed to use our
best efforts to cause the managing underwriters of our initial public offering
to establish a program whereby the managing underwriters would offer the Series
D preferred stock investors the opportunity to purchase shares of our common
stock in our initial public offering. The number of shares of the common stock
to be offered to the Series D preferred stock investors pursuant to this pro-
gram will be equal to the greater of $5,000,000 or 10% of the aggregate gross
proceeds to the Company from this offering, and is subject to reduction under
some circumstances. The Series D preferred stock investors have no obligation
to purchase any of the shares offered to them. We intend that all offers to
purchase shares pursuant to this program will be made in compliance with all
federal and state securities laws and all applicable rules and regulations
promulgated by the National Association of Securities Dealers, Inc.
In addition, at our request, the underwriters have reserved 416,667 shares of
common stock for sale to our directors, officers, employees, family and friends
who have expressed an interest in participating in the offering. We expect
these persons to purchase no more than 10% of the common stock offered in the
offering. The number of shares available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. This directed
share program will be administered by Hambrecht & Quist LLC. Any reserved
shares of common stock which are not so purchased will be offered by the under-
writers to the general public on the same basis as the other shares of common
stock offered by this prospectus. We have agreed to indemnify the underwriters
against certain liabilities and expenses, including liabilities under the Secu-
rities Act, in connection with sales of the directed shares.
We have applied to have the common stock listed on the Nasdaq National Market
under the symbol "TSPT."
It is expected that delivery of the shares will be made to investors on or
about , 2000.
There has been no public market for the common stock prior to this offering. We
and the underwriters will negotiate the initial offering price. In determining
the price, we and the underwriters expect to consider a number of factors in
addition to prevailing market conditions. Primary considerations include:
. the history of and prospects for the industry and for Internet companies
generally;
. an assessment of our management;
. our present operations;
. our historical results of operations;
. the trend of our revenues and earnings; and
. our earnings prospects.
We and the underwriters will consider these and other relevant factors in rela-
tion to the price of similar securities of generally comparable companies. Nei-
ther we nor the underwriters can assure investors that an active trading market
will develop for the common stock, or that the common stock will trade in the
public market at or above the initial offering price.
From time to time in the ordinary course of their respective businesses, some
of the underwriters and their affiliates have engaged in and may in the future
engage in commercial banking and/or investment banking transactions with us and
our affiliates. In September 1998, we issued warrants to purchase 318,500
shares of common stock to Allen & Company Incorpo -
64
<PAGE>
rated in consideration for a financial advisory services letter agreement dated
May 8, 1998, pursuant to which Allen & Company Incorporated provides financial
advisory services to Total Sports Inc. In April 1999, employees of J.P. Morgan
Securities Inc. purchased 7,902 shares of our Series C1 preferred stock as part
of our Series C1 preferred stock offering. In November 1999, Hambrecht & Quist
California, Hambrecht & Quist Employer Venture Fund, L.P. II, Access Technology
Brokers Fund, L.P. and H&Q Total Sports Investors, LLC, affiliates of Hambrecht
& Quist LLC, purchased in the aggregate 24,104 shares of our Series D preferred
stock and warrants to purchase 10,848 shares of our Series D1 preferred stock
as part of our Series D preferred stock offering. In addition, Access Technolo-
gies Partners, L.P., a fund of outside investors that is managed by a subsidi-
ary of Hambrecht & Quist California, purchased 96,419 shares of our Series D
preferred stock and warrants to purchase 43,389 shares of our Series D1 pre-
ferred stock as part of our Series D preferred stock offering. Upon consumma-
tion of this offering, the warrants to purchase shares of Series D1 preferred
stock convert into warrants to purchase our common stock. The exercise price of
the warrants is $16.59 per share.
65
<PAGE>
Legal Matters
The validity of the common stock offered hereby will be passed on for us by Wy-
rick Robbins Yates & Ponton LLP, Raleigh, North Carolina. Attorneys of Wyrick
Robbins Yates & Ponton LLP beneficially own 14,484 shares of our common stock
and warrants to purchase 1,355 shares of common stock. Certain legal matters in
connection with the offering will be passed on for the underwriters by Cahill
Gordon & Reindel, New York, New York.
Experts
The consolidated financial statements of Total Sports as of December 31, 1998
and 1999 and for the period from February 20, 1997 (date of inception) through
December 31, 1997 and the years ended December 31, 1998 and 1999, included in
the prospectus, and the related financial statement schedule included elsewhere
in the registration statement, have been audited by Deloitte & Touche LLP, in-
dependent auditors, as stated in their reports appearing herein and elsewhere
in the registration statement, and have been so included based upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The statement of net assets acquired from KOZ inc., predecessor entity of Total
Sports, as of March 31, 1997, and the statements of operations and cash flows
from the sports content business acquired from KOZ inc. for the eleven-month
period ended March 31, 1997, included in the prospectus, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appear-
ing herein and elsewhere in the registration statement, and have been so in-
cluded based upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of Long Distance Technologies, Inc. as of December 31,
1997 and 1998 and for each of the two years ended December 31, 1998, included
in the prospectus, have been audited by Deloitte & Touche LLP, independent au-
ditors, as stated in their report appearing herein and elsewhere in the regis-
tration statement, and have been so included based upon the report of such firm
given upon their authority as experts in accounting and auditing.
Where You Can Find More Information
We have filed with the Commission a registration statement on Form S-1, includ-
ing exhibits, schedules and amendments, under the Securities Act with respect
to the shares of common stock to be sold in this offering. This prospectus does
not contain all the information included in the registration statement. For
further information about us and the shares of our common stock to be sold in
this offering, please refer to this registration statement. Complete exhibits
have been filed with our registration statement on Form S-1.
You may read and copy our registration statement and any contract, agreement or
other document filed as an exhibit to our registration statement or any other
information from our filings at the Commission's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the Commission.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for fur-
ther information about the public reference rooms. Our filings with the Commis-
sion, including our registration statement, are also available to you on the
Securities and Exchange Commission's Web site, http://www.sec.gov. As a result
of this offering, we will become subject to the information and reporting re-
quirements of the Securities Exchange Act of 1934, and will file periodic re-
ports, proxy statements and other information with the Commission. Upon ap-
proval of our common stock for quotation on the Nasdaq National Market, these
reports, proxy statements and other information may also be inspected at the
offices of Nasdaq Operations, 1735 K Street N.W., Washington, DC 20006.
We intend to furnish our stockholders with annual reports containing audited
financial statements, and make available to our stockholders quarterly reports
for the first three quarters of each year containing unaudited interim finan-
cial information.
66
<PAGE>
Index to Financial Statements
<TABLE>
<S> <C>
Consolidated Financial Statements of Total Sports Inc.:
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999............. F-3
Consolidated Statements of Operations for the period February 20, 1997
(date of inception) through December 31, 1997, and the years ended
December 31, 1998 and 1999.............................................. F-5
Consolidated Statements of Stockholders' Equity (Deficiency) for the
period February 20, 1997 (date of inception) through December 31, 1997,
and the years ended December 31, 1998 and 1999.......................... F-6
Consolidated Statements of Cash Flows for the period February 20, 1997
(date of inception) through December 31, 1997, and the years ended
December 31, 1998 and 1999.............................................. F-8
Notes to Consolidated Financial Statements............................... F-10
Financial Statements of KOZ inc.:
Independent Auditors' Report............................................. F-34
Statement of Net Assets Acquired from KOZ inc. as of March 31, 1997...... F-35
Statement of Operations of the Sports Content Business Acquired from KOZ
inc. for the period May 1, 1996 through March 31, 1997.................. F-36
Statement of Cash Flows from Operations of the Sports Content Business
Acquired from KOZ inc. for the period May 1, 1996 through March 31,
1997.................................................................... F-37
Notes to Financial Statements............................................ F-38
Financial Statements of Long Distance Technologies, Inc.:
Independent Auditors' Report............................................. F-40
Balance Sheets as of December 31, 1997 and 1998, and May 31, 1999
(unaudited)............................................................. F-41
Statements of Operations for the years ended December 31, 1997 and 1998,
and the five-month periods ended May 31, 1998 and June 4, 1999
(unaudited)............................................................. F-42
Statements of Shareholders' Equity (Deficiency) for the years ended
December 31, 1997 and 1998, and the five months ended May 31, 1999
(unaudited)............................................................. F-43
Statements of Cash Flows for the years ended December 31, 1997 and 1998,
and the five-month periods ended May 31, 1998 and June 4, 1999
(unaudited)............................................................. F-44
Notes to Financial Statements............................................ F-45
Unaudited Pro Forma Financial Data
Introduction to Unaudited Pro Forma Financial Data....................... F-52
Unaudited Pro Forma Statement of Operations Data for the year ended
December 31, 1999....................................................... F-53
Notes to Unaudited Pro Forma Statement of Operations Data................ F-54
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of
Total Sports Inc.
Raleigh, North Carolina
We have audited the accompanying consolidated balance sheets of Total Sports
Inc. and subsidiaries as of December 31, 1998 and 1999, and the related consol-
idated statements of operations, stockholders' equity (deficiency) and cash
flows for the period February 20, 1997 (date of inception) through December 31,
1997 and the years ended December 31, 1998 and 1999. These financial statements
are the responsibility of Total Sports' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Total Sports Inc. and subsidiaries
as of December 31, 1998 and 1999, and the results of their operations and their
cash flows for the period February 20, 1997 (date of inception) through Decem-
ber 31, 1997 and the years ended December 31, 1998 and 1999, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
January 24, 2000
F-2
<PAGE>
Total Sports Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
-------------------------
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 684,777 $17,671,279
Accounts receivable (less allowance for doubtful accounts;
1998--$24,832; 1999--$36,467) 1,039,755 1,197,013
Accounts receivable from employees and affiliates (Note
17) 13,800 229,878
Inventory (less allowance for obsolescence; 1998--
$143,983; 1999--$536,145) 168,396 294,127
Deferred publishing costs (Note 3) 97,049 373,859
Prepaid assets 184,465 240,525
Other current assets 16,965 1,106,882
---------- -----------
Total current assets 2,205,207 21,113,563
Investment in Affiliate (Note 2) 91,116
Deferred Publishing Costs (Note 3) 392,688 690,670
Property and Equipment, Net (Notes 2, 4, 6 and 7) 1,307,403 3,438,395
Goodwill (less accumulated amortization;
1998--$217,041; 1999--$1,736,725) (Note 2) 1,184,106 2,991,900
Databases (less accumulated amortization;
1998--$112,991; 1999--$206,477) (Note 2) 541,407 447,921
Other Assets 66,679 20,491
---------- -----------
Total Assets $5,697,490 $28,794,056
========== ===========
</TABLE>
F-3
<PAGE>
Total Sports Inc.
Consolidated Balance Sheets (Concluded)
<TABLE>
<CAPTION>
----------------------------------------------
Pro forma
December 31, December 31, December 31,
1998 1999 1999
------------ ------------ ------------
(Unaudited)
(Note 1)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable $ 615,804 $ 1,279,879 $ 1,279,879
Accrued expenses 1,297,267 3,118,216 3,118,216
Accrued expenses--related
parties (Note 17) 335,566 129,248 129,248
Deferred revenues 58,173 511,152 511,152
Reserve for sales returns 415,733 1,004,835 1,004,835
Excess of affiliate losses
over cost (Note 2) 9,077
Line of credit (Note 5) 3,083,483
Current maturities of notes
payable (Note 6) 42,392 43,241 43,241
Current maturities of notes
payable--related parties
(Note 6) 58,307 58,307
Current maturities of capital
lease obligations (Note 7) 73,972 282,867 282,867
<CAPTION>
-------------- -------------- --------------
<S> <C> <C> <C>
Total current liabilities 5,931,467 6,427,745 6,427,745
Notes payable, net of current
maturities (Note 6) 301,111 258,231 258,231
Notes payable--related parties,
net of current maturities
(Note 6) 51,077 51,077
Capital lease Obligations, net
of current maturities (Note 7) 121,658 268,849 268,849
Series A redeemable preferred
stock (Notes 9 and 11) $10.00
par value; 125,000 shares
authorized, issued and
outstanding at December 31,
1998 and 1999 ($1,250,000
aggregate liquidation value at
December 31, 1998 and 1999);
no shares issued and
outstanding, pro forma 1,342,824 1,536,829
Commitments and Contingencies
(Notes 7 and 16)
Stockholders' Equity
(Deficiency) (Notes 2, 9, 10
and 11):
Preferred stock, $.001 par
value; 1,925,000 shares
authorized at December 31,
1998 and 761,903 shares
authorized at December 31,
1999; no shares issued and
outstanding at December 31,
1998 and 1999
Series B convertible preferred
stock, $4.49 par value;
650,000 shares authorized at
December 31, 1998 and 518,841
shares authorized at December
31, 1999; 445,263 shares
issued and outstanding at
December 31, 1998 and 1999
($2,000,000 aggregate
liquidation value at December
31, 1998 and 1999); no shares
issued and outstanding, pro
forma 1,936,935 1,936,935
Series C convertible preferred
stock, $.001 par value;
1,500,000 shares authorized
at December 31, 1998 and
1,418,200 shares authorized
at December 31, 1999;
1,418,200 shares issued and
outstanding at December 31,
1998 and 1999 ($10,077,729
aggregate liquidation value
at December 31, 1998 and
1999); no shares issued and
outstanding, pro forma 1,418 1,418
Series C1 convertible
preferred stock, $.001 par
value; 800,000 shares
authorized at December 31,
1998; 630,756 shares
authorized, issued and
outstanding at December
31, 1999 ($5,985,874
aggregate liquidation value
at December 31, 1999); no
shares issued and
outstanding, pro forma 631
Series D convertible preferred
stock, $.001 par value;
2,230,260 shares authorized;
2,140,873 shares issued and
outstanding at December 31,
1999 ($71,034,166 aggregate
liquidation value at December
31, 1999); no shares issued
and outstanding, pro forma 2,141
Series D1 convertible
preferred stock, $.001 par
value; 1,003,617 shares
authorized; no shares issued
and outstanding at December
31, 1999; no shares issued
and outstanding, pro forma
Series E convertible preferred
stock, $.001 par value;
811,423 shares authorized,
issued and outstanding at
December 31, 1999
($26,054,793 aggregate
liquidation value at December
31, 1999); no shares issued
and outstanding, pro forma 811
Common stock, $.001 par value;
10,000,000 shares authorized
at December 31, 1998 and
1999; 1,755,180 shares issued
and outstanding at
December 31, 1998; 2,882,663
shares issued and outstanding
at December 31, 1999;
12,702,718 shares issued and
outstanding, pro forma 1,755 2,882 12,703
Stock issued for prepaid
advertising (12,584,821) (24,360,000)
Additional paid-in capital 11,067,755 66,835,259 112,542,033
Deficit (15,007,433) (35,943,931) (66,406,582)
-------------- -------------- --------------
Total stockholders' equity
(deficiency) (1,999,570) 20,251,325 21,788,154
-------------- -------------- --------------
Total Liabilities and
Stockholders' Equity
(Deficiency) $ 5,697,490 $ 28,794,056 $ 28,794,056
<CAPTION>
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
Total Sports Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
---------------------------------------------
Period
February 20, 1997 Year Ended Year Ended
Through December December 31, December 31,
31, 1997 1998 1999
----------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Digital publishing (Note
17)
(including revenue from
non-cash barter
transactions;
1997-$0; 1998-$572,000;
1999-$1,210,000) $ 738,019 $ 2,082,979 $ 5,396,906
Print publishing
(including revenue from
non-cash barter
transactions; 1997-$0;
1998-$97,000; 1999-$0) 257,344 1,314,692 1,831,208
E-Commerce 13,586 435,172 1,355,569
----------- ------------ ------------
Total revenues 1,008,949 3,832,843 8,583,683
Cost of Revenues:
Digital publishing (Note
17) 1,395,009 3,566,676 8,605,150
Print publishing 410,286 2,375,249 3,334,141
E-Commerce (Note 17) 1,249 331,720 1,191,376
----------- ------------ ------------
Total cost of revenues 1,806,544 6,273,645 13,130,667
----------- ------------ ------------
Gross Profit (Loss) (797,595) (2,440,802) (4,546,984)
Operating Expenses (Notes
14, 15 and 16):
Product development
(Note 17) 1,467,167 2,671,969 4,171,106
Sales and marketing
(Note 17) 600,472 2,743,899 5,388,561
General and
administrative (Note 17) 845,914 2,598,602 4,951,314
Amortization (Note 2) 31,556 185,485 1,519,684
----------- ------------ ------------
Total operating
expenses 2,945,109 8,199,955 16,030,665
----------- ------------ ------------
Operating Loss (3,742,704) (10,640,757) (20,577,649)
Other Income (Expense):
Minority interest in
joint venture losses
(earnings) (Note 17) 138,341 (41,493)
Equity in earnings
(loss) of affiliate
(Note 2) (24,076) 100,193
Interest income 5,119 18,332 87,718
Interest expense (Note
11) (100,336) (507,348) (578,295)
Other income 31,669 31,535
----------- ------------ ------------
Other income
(expense), net 43,124 (522,916) (358,849)
----------- ------------ ------------
Net loss (3,699,580) (11,163,673) (20,936,498)
Dividends on preferred
stock (144,180) (197,645) (194,005)
----------- ------------ ------------
Net loss applicable to
common stockholders $(3,843,760) $(11,361,318) $(21,130,503)
=========== ============ ============
Basic and diluted loss per
common share (Note 12) $ (3.17) $ (7.28) $ (11.88)
=========== ============ ============
Pro forma basic and
diluted loss per common
share (unaudited) $ (4.03)
============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
Total Sports Inc.
Consolidated Statements of Stockholders' Equity (Deficiency)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Series C1 Series D
Series B Series C Convertible Convertible Series E
Convertible Convertible Preferred Preferred Convertible
Preferred Stock Preferred Stock Stock Stock Preferred Stock Common Stock
------------------ ---------------- -------------- ------------- ---------------- ----------------
Number Number Number Number
of Number of of of of Number of
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------- ---------- --------- ------ ------- ------ ------ ------ ------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
February 20,
1997 $ $ $ $ $ $
Issuance of
shares to
founders 961,291 961
Additional
equity
contributions
from shareholder
Issuance of
common stock for
Sports Extra
acquisition 290,323 290
Debit to paid-in
capital in
connection with
KOZ acquisition
(Note 2)
Issuance of
warrants in
connection with
sale of Series A
redeemable
preferred stock
Advance from
stockholder
reclassified as
equity
contribution
Issuance of
Series B
convertible
preferred stock,
net of offering
costs of $63,065 445,263 1,936,935
Issuance of
common stock for
DesigNet
acquisition 33,142 33
Accrued
dividends on
Series A
redeemable
preferred stock
Discount
accretion on
Series A
redeemable
preferred stock
Net loss
------- ---------- --------- ------ ------- ----- ---- ----- --- -------- --------- ------
Balance, January
1, 1998 445,263 1,936,935 1,284,756 1,284
------- ---------- --------- ------ ------- ----- ---- ----- --- -------- --------- ------
Issuance of
common stock for
Total College
Communications
acquisition 418,971 419
Exercise of
common options 280 1
Issuance of
common stock 51,173 51
Issuance of
Series C
convertible
preferred stock,
net of offering
costs of
$301,758 1,418,200 1,418
Advance for
Series C1
convertible
preferred stock
Issuance of
Series B
cumulative
warrants
Issuance of
common stock
options
Accrued
dividends on
Series A
redeemable
preferred stock
Discount
accretion on
Series A
redeemable
preferred stock
Net loss
------- ---------- --------- ------ ------- ----- ---- ----- --- -------- --------- ------
Balance,
December 31,
1998 445,263 $1,936,935 1,418,200 $1,418 $ $ $ 1,755,180 $1,755
------- ---------- --------- ------ ------- ----- ---- ----- --- -------- --------- ------
<CAPTION>
Total
Stock Issued Additional Stockholders'
for Prepaid Paid-In Retained Equity
Advertising Capital Deficit (Deficiency)
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Balance,
February 20,
1997 $ $ $
Issuance of
shares to
founders 961
Additional
equity
contributions
from shareholder 648,738 648,738
Issuance of
common stock for
Sports Extra
acquisition 133,258 133,548
Debit to paid-in
capital in
connection with
KOZ acquisition
(Note 2) (1,286,522) (1,286,522)
Issuance of
warrants in
connection with
sale of Series A
redeemable
preferred stock 179,000 179,000
Advance from
stockholder
reclassified as
equity
contribution 125,000 125,000
Issuance of
Series B
convertible
preferred stock,
net of offering
costs of $63,065 1,936,935
Issuance of
common stock for
DesigNet
acquisition 16,538 16,571
Accrued
dividends on
Series A
redeemable
preferred stock (127,500) (127,500)
Discount
accretion on
Series A
redeemable
preferred stock (16,680) (16,680)
Net loss (3,699,580) (3,699,580)
------------ ------------ ------------- -------------
Balance, January
1, 1998 (183,988) (3,843,760) (2,089,529)
------------ ------------ ------------- -------------
Issuance of
common stock for
Total College
Communications
acquisition 462,278 462,697
Exercise of
common options 140 141
Issuance of
common stock 60,373 60,424
Issuance of
Series C
convertible
preferred stock,
net of offering
costs of
$301,758 9,774,553 9,775,971
Advance for
Series C1
convertible
preferred stock 1,000,000 1,000,000
Issuance of
Series B
cumulative
warrants 146,162 146,162
Issuance of
common stock
options 5,882 5,882
Accrued
dividends on
Series A
redeemable
preferred stock (150,000) (150,000)
Discount
accretion on
Series A
redeemable
preferred stock (47,645) (47,645)
Net loss (11,163,673) (11,163,673)
------------ ------------ ------------- -------------
Balance,
December 31,
1998 $11,067,755 $(15,007,433) $(1,999,570)
------------ ------------ ------------- -------------
</TABLE>
F-6
<PAGE>
Total Sports Inc.
Consolidated Statements of Stockholders' Equity (Deficiency)--(Concluded)
<TABLE>
<CAPTION>
Series C1 Series E
Series B Series C Convertible Series D Convertible
Convertible Convertible Preferred Convertible Preferred
Preferred Stock Preferred Stock Stock Preferred Stock Stock Common Stock
------------------ ---------------- -------------- ---------------- -------------- ----------------
Number Number Number
of Number of of Number of of Number of
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------- ---------- --------- ------ ------- ------ --------- ------ ------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
1, 1999 445,263 $1,936,935 1,418,200 $1,418 $ $ $ 1,755,180 $1,755
Issuance of
common stock 18,550 19
Exercise of
common stock
options 13,109 13
Issuance of
Series C1
convertible
preferred stock 630,756 631
Issuance of
common stock for
Long Distance
Technologies
acquisition 284,401 284
Issuance of
common stock
options
Issuance of
warrants in
connection with
convertible
promissory notes
payable
Issuance of
Series D
convertible
preferred stock 2,140,873 2,141
Issuance of
Series E
convertible
preferred stock
and common stock
for the NBC
Sports agreement 811,423 811 811,423 811
Advertising
received from
NBC Sports as
payment for
common stock
Accrued
dividends on
Series A
redeemable
preferred stock
Discount
accretion on
Series A
redeemable
preferred stock
Net loss
<CAPTION>
------- ---------- --------- ------ ------- ------ --------- ------ ------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1999 445,263 $1,936,935 1,418,200 $1,418 630,756 $ 631 2,140,873 $2,141 811,423 $ 811 2,882,663 $2,882
<CAPTION>
======= ========== ========= ====== ======= ====== ========= ====== ======= ====== ========= ======
<CAPTION>
-------------------------------------------------------
Total
Stock Issued Additional Stockholders'
for Prepaid Paid-In Retained Equity
Advertising Capital Deficit (Deficiency)
------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Balance, January
1, 1999 $ $11,067,755 $(15,007,433) $ (1,999,570)
Issuance of
common stock 28,734 28,753
Exercise of
common stock
options 14,589 14,602
Issuance of
Series C1
convertible
preferred stock 4,779,725 4,780,356
Issuance of
common stock for
Long Distance
Technologies
acquisition 3,227,667 3,227,951
Issuance of
common stock
options 106,174 106,174
Issuance of
warrants in
connection with
convertible
promissory notes
payable 318,374 318,374
Issuance of
Series D
convertible
preferred stock 34,026,360 34,028,501
Issuance of
Series E
convertible
preferred stock
and common stock
for the NBC
Sports agreement (13,461,508) 13,459,886
Advertising
received from
NBC Sports as
payment for
common stock 876,687 876,687
Accrued
dividends on
Series A
redeemable
preferred stock (150,000) (150,000)
Discount
accretion on
Series A
redeemable
preferred stock (44,005) (44,005)
Net loss (20,936,498) (20,936,498)
<CAPTION>
------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Balance, December
31, 1999 $(12,584,821) $66,835,259 $(35,943,931) $ 20,251,325
<CAPTION>
============= ============ ============= ==============
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
Total Sports Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period
February 20, 1997
Through Year Ended Year Ended
December 31, December 31, December 31,
1997 1998 1999
----------------- ------------- ------------
<S> <C> <C> <C>
Operating Activities:
Net loss $(3,699,580) $(11,163,673) $(20,936,498)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 255,442 760,495 3,417,052
Loss on sale of property and
equipment 7,212 7,433
Compensation expense for common
stock and options granted 23,474 106,174
Interest expense on line of
credit guarantee 42,665 28,753
Amortization of debt discount 146,162 105,337
Interest expense on notes
payable converted into equity 125,918
Advertising received as payment
for common stock 876,687
Provisions for doubtful
accounts 20,000 4,832 11,635
Reserve for sales returns 14,820 400,913 589,102
Provisions for inventory
obsolescence 37,138 106,845 392,162
Computer equipment received as
payment for advertising sales (100,000) (100,000)
Undistributed (earnings) losses
of affiliates 24,077 (100,193)
Minority interest in joint
venture earnings (losses) (138,341) 41,493
Changes in operating assets and
liabilities:
Accounts receivable (266,448) (742,092) (373,753)
Inventory (200,557) (111,822) (498,910)
Deferred publishing costs (124,910) (364,827) (1,436,375)
Prepaid expenses and other
current assets (66,543) (201,611) (966,378)
Accounts payable 337,097 349,430
Accrued expenses 343,586 744,304 1,461,661
Deferred revenues 58,173 452,979
----------- ------------- ------------
Net cash used in operating
activities (3,825,393) (9,860,365) (16,613,702)
Investing Activities:
Purchases of property and
equipment (357,371) (740,824) (2,154,442)
Equity investment in Golf.Com (250,000)
Cash from acquired companies 26,880 36,388
Acquisition of KOZ sports
content business (1,414,240)
----------- ------------- ------------
Net cash used in investing
activities (1,771,611) (963,944) (2,118,054)
Financing Activities:
Borrowings (repayments) on line
of credit, net 2,330,000 753,483 (3,083,483)
Proceeds from issuance of notes
payable and short-term advances 3,453,838 6,606,626
Principal repayments on notes
payable and short-term advances (12,847) (102,016) (492,568)
Principal repayments on capital
leases (29,524) (167,187)
Proceeds from issuance of common
stock and cash contributions 649,699 308 14,602
Proceeds from issuance of Series
A redeemable preferred stock,
net 750,998
Proceeds from issuance of
warrants in connection with
Series A redeemable offering
and convertible notes payable 179,000 146,162 318,374
Proceeds from issuance of Series
B Convertible Preferred stock,
net 1,936,935
Proceeds from issuance of Series
C Convertible Preferred stock,
net 6,050,054
Proceeds from issuance of Series
C1 Convertible Preferred stock 1,000,000 4,780,356
Proceeds from issuance of Series
D Convertible Preferred stock 27,741,538
----------- ------------- ------------
Net cash provided by financing
activities 5,833,785 11,272,305 35,718,258
Net Increase (Decrease) in Cash
and Cash Equivalents 236,781 447,996 16,986,502
Cash and Cash Equivalents,
Beginning of Period 236,781 684,777
----------- ------------- ------------
Cash and Cash Equivalents, End of
Period $ 236,781 $ 684,777 $ 17,671,279
=========== ============= ============
</TABLE>
See notes to consolidated financial statements
F-8
<PAGE>
Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Cash paid for interest............................... $37,287 $108,805 $577,415
<CAPTION>
======= ======== ========
</TABLE>
Supplemental disclosures of non-cash investing and financing activities:
Period February 20, 1997 through December 31, 1997:
As discussed in Note 2, Total Sports issued 290,323 shares of common stock val-
ued at $133,548 as consideration for the purchase of the assets and liabilities
of Sports Extra, Inc. In connection with the Sports Extra acquisition, Total
Sports forgave a note receivable of $100,000 from Sports Extra. Also related to
the Sports Extra acquisition, Total Sports assumed two notes payable, totaling
$93,046, including accrued interest, related to databases acquired from Sports
Extra.
As also discussed in Note 2, Total Sports issued 33,142 shares of common stock
valued at $16,571 as consideration for the purchase of the assets and liabili-
ties of DesigNet.
In connection with the Series A redeemable preferred stock offering, Total
Sports converted an advance from a stockholder of $250,000 into 25,000 shares
of Series A redeemable preferred stock.
Total Sports reclassified an advance from a founding stockholder of $125,000 as
paid-in capital.
Total Sports accrued dividends of $127,500 and discount accretion of $16,680
relating to the Series A redeemable preferred stock.
Year Ended December 31, 1998:
As also discussed in Note 2, Total Sports issued 418,971 shares of common stock
valued at $481,817 as consideration for the remaining 50% ownership of Total
College Communications Company.
Total Sports acquired certain computer databases for $361,359 by issuing a note
payable.
Total Sports acquired certain computer hardware valued at $225,154 by entering
into noncancelable capital leases.
Total Sports accrued dividends of $150,000 and discount accretion of $47,645
relating to the Series A redeemable preferred stock.
Notes payable and accrued interest totaling $3,725,918 were converted into Se-
ries C convertible preferred stock.
Year Ended December 31, 1999:
As discussed in Note 2, Total Sports issued 284,401 shares of common stock val-
ued at $3,227,951 as consideration for the purchase of the assets and liabili-
ties of Long Distance Technologies, Inc. d/b/a Motortrax Interactive.
Total Sports acquired certain computer hardware valued at $523,273 by entering
into noncancelable capital leases.
Total Sports acquired certain computer equipment valued at $114,921 by entering
into a 3-year promissory note with First Raleigh Telex.
Total Sports accrued dividends of $150,000 and discount accretion of $44,005
relating to the Series A redeemable preferred stock.
Notes payable totaling $6,500,000 were converted into Series D convertible pre-
ferred stock.
In connection with the NBC Sports, Inc. agreement discussed in Note 10, Total
Sports issued 811,423 stock units valued at $16.59 per unit in exchange for
prepaid advertising. Each stock unit consists of one share of common stock and
one share of Series E preferred stock.
See notes to consolidated financial statements
F-9
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements
1. Nature of Operations and Basis of Presentation
Total Sports is an event-centered, online sports media company. Total Sports
provides sports fans and enthusiasts with live, or real-time, simulcasts of
events in eight collegiate and professional sports, game summaries, in-depth
statistical analysis, breaking news and the opportunity to purchase sports-re-
lated merchandise. Total Sports' networks provide online sponsorship and e-com-
merce opportunities for advertisers and merchants associated with specific
sports, leagues, teams and events. Total Sports also publishes encyclopedias,
fan guides and other hard and soft cover books.
Total Sports Inc. was originally incorporated on February 20, 1997 as Total
Ltd., a North Carolina corporation. Prior to March 31, 1997, Total Ltd. con-
ducted no business and had no activity. Concurrent with the KOZ acquisition
(see Note 2), Total Ltd. began its principal operations.
On May 29, 1998, Total Sports Inc. was incorporated in the State of Delaware.
The capital structure of Total Sports Inc. was identical to Total Ltd.'s in
terms of the authorized number of shares, dividends, voting rights, liquidation
preference and redemption rights, except that the new capital structure autho-
rized Total Sports Inc. to issue up to 5,000,000 shares of preferred stock.
On June 2, 1998, Total Ltd. was merged with and into Total Sports Inc. The sep-
arate existence of Total Ltd. ceased, and Total Sports Inc. became the surviv-
ing corporation. Prior to the merger, Total Sports Inc. had no operations or
activity. As part of the merger, each share of Total Ltd.'s issued and out-
standing Series A redeemable, Series B convertible, and common stock was con-
verted into and exchanged for one share of Total Sports Inc.'s Series A redeem-
able preferred stock, Series B convertible preferred stock, and common stock,
respectively. The shareholders of the two companies were exactly the same prior
to and after the merger. As the ownership structures of the entities did not
change, the assets and liabilities transferred in the merger were recorded at
Total Ltd.'s historical book values with no goodwill or other step-up in basis
recorded.
Total Sports has experienced a substantial increase in operating expenses since
inception in connection with the growth of its operations and staffing and the
expansion of its service offerings. From its inception, Total Sports has in-
curred net losses of more than $35.8 million, including losses of approximately
$20.9 million in 1999. Total Sports expects to continue to incur net losses for
the foreseeable future as it implements its business strategy. Total Sports'
capital requirements for the year ending December 31, 2000 depend on numerous
factors, including the amount of resources to be devoted to:
. improving and extending services offerings;
. expanding strategic relationships;
. making investments in or acquisitions of businesses, products and technolo-
gies; and
. expanding sales and marketing programs and conducting more aggressive cam-
paigns to strengthen brand recognition.
As of December 31, 1999, Total Sports had approximately $17.6 million in cash
and cash equivalents. Management has determined that it must raise additional
funds to support its operations and implement its business strategy over the
next twelve months, and is undertaking efforts to raise additional capital.
These efforts include a planned initial public offering of Total Sports' common
stock in 2000, with expected net proceeds of approximately $45 million. Manage-
ment believes that the net proceeds from this offering, along with cash and
cash equivalents on hand, will be sufficient to fund Total Sports' cash re-
quirements for operations, working capital and capital expenditures for at
least the next twelve months. Thereafter, Total Sports may need to raise addi-
tional funds. In the event that this planned offering is not consummated, man-
agement believes that Total Sports will need to raise additional capital, ei-
ther from the sale of equity or debt securities, or from other sources such as
borrowings from banks, in order to continue with its current business strategy
on the planned timetable. Although no assurances can be given that the efforts
to raise additional capital will be successful, based on Total Sports' history
of raising equity, management believes that it can successfully raise funds
necessary to support its plans for the next twelve months. In the event that
Total Sports is not able to raise such additional funds, management has pre-
pared a contingency operating plan that consists of reduction in personnel and
marketing expenditures which, in the opinion of management, could be imple-
mented and would allow Total Sports to continue its operations for a reasonable
period of time. However, the implementation of this contingency plan could have
material adverse effects on Total Sports' long-term operations.
F-10
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
Principles of Consolidation
The accompanying consolidated financial statements are prepared on the accrual
basis of accounting and include the accounts of Total Sports and its wholly-
owned subsidiary, Sports Extra Acquisition Corporation. During 1997, Total
Sports formed Total College Communications Company as a joint venture with Host
Communications. From the formation of Total College Communications in July 1997
through January 1998, an employee of Total Sports served as chief executive of-
ficer of Total College Communications. In addition, Total Sports managed the
operations of Total College Communications and was its primary customer. As a
result, Total Sports effectively controlled the operations and management of
Total College Communications, and since its inception, Total College Communica-
tions' results of operations have been consolidated with Total Sports' opera-
tions. All intercompany transactions have been eliminated in consolidation. As
discussed in Note 2, Total Sports acquired the remaining 50% of Total College
Communications in June 1998.
The consolidated financial statements for the year ended December 31, 1999 also
include the accounts of Total Motorsports, Inc., a wholly-owned subsidiary,
which was formed during 1999 and acquired Long Distance Technologies, Inc. on
June 4, 1999, and Total Sports Publishing, Inc., a wholly-owned subsidiary,
which was also formed during 1999. All of the assets related to Total Sports'
print publishing segment were transferred to Total Sports Publishing, Inc., as
of June 30, 1999. All significant intercompany accounts and transactions have
been eliminated in consolidation.
The investment in Golf.Com is accounted for by the equity method of accounting
as Total Sports exerts significant influence over this entity.
Cash and Cash Equivalents
The Company considers all money market accounts, debt instruments purchased
with an original maturity of three months or less, and other highly liquid in-
vestments to be cash equivalents.
Concentration of Credit Risk
Total Sports relied on a single distributor for sales of all print titles dur-
ing 1997 and 1998. This distributor collected all sales proceeds and remitted
these monies, less the distribution fees, on a monthly basis. Effective Febru-
ary 1999, Total Sports entered into a termination agreement with the distribu-
tor that allows Total Sports to utilize another national distributor for all of
its titles except Total Hockey, with the original distributor receiving from 3%
to 5% of sales for all titles through June 2000. During the year ended December
31, 1999, Total Sports paid approximately $77,000 to the original distributor
under the terms of the termination agreement.
Inventory
Inventory consists primarily of the direct costs associated with the printing
of finished books, such as printing, jacket costs, etc. Costs are recorded as
titles are developed and are expensed on a per unit basis when sold. Total
Sports establishes an allowance for obsolete inventory based on historical and
industry experience. All book inventories are fully reserved upon the one-year
anniversary of the book's release.
Deferred Publishing Costs
Total Sports' investment in publishing costs is capitalized and amortized over
the estimated selling period of one year using the sum-of-the-months digits
method beginning on the release date of the related book. Costs incurred for
titles that have not been released are classified as long-term deferred pub-
lishing costs. Amortization expense was approximately $29,000 in 1997, $574,000
in 1998 and $862,000 in 1999.
Property and Equipment
Property and equipment is carried at historical cost and is being depreciated
using the straight-line method over the estimated useful lives of the related
assets over periods ranging from one to seven years.
Maintenance and repairs are charged to expense when incurred; improvements are
capitalized. Upon the sale or retirement of assets, the cost and accumulated
depreciation are removed from the account and any gain or loss is recognized.
Goodwill
Goodwill is amortized on a straight-line basis over the periods that expected
economic benefits will be provided, ranging from 19 months to 15 years. Manage-
ment estimates the period of economic benefit considering factors such as ex-
isting contracts and estimated lives of other operating assets acquired. Total
Sports evaluates the realizability of goodwill when events or circumstances in-
dicate a possible inability to recover the carrying amount. Events which could
indicate an
F-11
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
impairment of goodwill include loss of key contracts with sports leagues such
as the NCAA and NASCAR, a disposal of a segment or business line, and the ef-
fects of obsolescence, demand, and competition on our products and services.
In the event of a possible impairment, Total Sports evaluates enterprise level
goodwill using a market capitalization method based on quoted prices or cash
transactions of equity securities. If an impairment is indicated, the impair-
ment is measured as the net book value of Total Sports less the market value of
Total Sports' equity securities. Total Sports evaluates goodwill attributable
to acquired businesses whose operations are separately identifiable and which
have not been incorporated into Total Sports' general operations based on cash
flow and profitability projections of the existing businesses, discounted at
rates commensurate with the risks involved. Such discount rates are determined
after considering Total Sports' cost of capital and incremental borrowing
rates. If an impairment of goodwill from a separate business is indicated, the
impairment is measured as the excess of the carrying value of goodwill of the
separate businesses over the total discounted cash flows of the business. The
analyses require significant management judgment to evaluate the capacity of an
acquired business to perform within projections.
Databases
Databases represent the cost of acquiring historical statistical information
from outside parties in electronic formats. Databases are amortized on a
straight-line basis over a period of 7 years. Internal costs incurred to accu-
mulate statistical information are expensed as incurred.
Income Taxes
The tax effect of losses for all periods presented are recorded under the pro-
visions of Statement of Financial Accounting Standards ("SFAS") No. 109, Ac-
counting for Income Taxes. Under SFAS No. 109, deferred income taxes are recog-
nized for the tax consequences of "temporary" differences by applying enacted
statutory tax rates applicable to future years to differences between the fi-
nancial statement carrying amounts and the tax bases of existing assets and li-
abilities. Valuation allowances are established when necessary to reduce de-
ferred tax assets to the amount that is more likely than not expected to be re-
alized. As of December 31, 1998 and 1999, the net deferred tax assets have been
fully reserved.
Revenue Recognition
Total Sports derives revenues from three primary sources: digital publishing;
print publishing; and e-commerce. Digital publishing revenues result from the
sale of sponsorships and of banner advertisements, licensing of statistical
data and content, and providing web site development services for third par-
ties. Sponsorships revenues generally relate to specific sporting championship
events, such as the NCAA men's basketball championships. Advertising revenues
are typically derived from sales of banner advertisements on Total Sports' Web
sites. Sponsorship revenues are recognized in the period that the sponsored
event occurs and the sponsorships is displayed, provided that no significant
obligations remain, such as unmet commitments for guaranteed minimum impres-
sions ("page views" or "hits"). Advertising revenues are recognized ratably
over the period in which the advertisement is displayed, provided that no sig-
nificant obligations remain. In the event that sponsorships or advertising con-
tracts contain minimum impressions guarantees, revenue is recognized as pro-
gress is made toward the minimum impression commitments.
Licensing revenue for statistical data is recognized when the statistical data
has been delivered and Total Sports has no further obligations. Content licens-
ing revenue is recognized over the period of the license agreement as Total
Sports delivers the content. Web site development revenue is recognized as the
services are performed, provided that no significant obligations remain. If Web
site development fees relate to or originate from an agreement to license con-
tent, the development fees revenue is recognized over the content license peri-
od. Amounts billed or received for which services have not yet been provided
are recorded as deferred revenue in the current liabilities section of the bal-
ance sheets.
Print publishing revenues are derived from the sale of encyclopedias and other
hard cover and soft cover books. For titles Total Sports publishes, print pub-
lishing revenue is recognized upon the sale of books by a third-party distribu-
tor. For books that Total Sports co-published, revenue is recognized as Total
Sports earns fixed advances that are paid by the co-publisher. Upon the sale of
books where Total Sports is the publisher, a reserve for right of returns,
based on historical and industry averages, of approximately 37.0% is estab-
lished. Allowance for sales returns of books totaled approximately $416,000 at
December 31, 1998 and $985,000 at December 31, 1999.
E-commerce revenues represent sales of sports equipment, apparel and memora-
bilia through online stores and though live event merchandising. E-commerce
revenue is recognized upon the delivery of goods to our customers, which occurs
only
F-12
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
after credit card authorization. During 1998 and 1999, approximately 75% of e-
commerce transactions were purchased by Total Sports from third-party manufac-
turers or distributors after Total Sports received customer orders. For these
sales, Total Sports assumes credit risk and is responsible for pricing,
processing orders, arranging or authorizing delivery, processing all merchan-
dise returns, providing all customer support related to the transaction, and
resolving customer disputes. In the event goods are lost or damaged during
shipment from or return to the distributor and coverage is denied by the com-
mercial shipping company, Total Sports bears the risk of loss. Credit card
sales account for approximately 100% of total e-commerce sales in 1998 and
1999. Total Sports' policy is to record a sales returns reserve for antici-
pated future returns; however, prior to quarter ended June 30, 1999, e-com-
merce sales returns were immaterial and were netted from e-commerce revenue as
incurred. Subsequent to June 30, 1999, Total Sports has provided for estimated
e-commerce returns at the time of shipment based on historical data. Allowance
for e-commerce returns totaled approximately $20,000 at December 31, 1999.
Total Sports recognizes advertising revenue as a result of barter transactions
for advertising and direct links to Total Sports' TotalCasts for baseball and
other sports. Such revenue is recognized based on the fair value of the con-
sideration received, which generally consists of advertising and computer
equipment. Barter revenue and the corresponding expense are recognized in the
period the advertising is displayed.
Cost of Revenues
Digital publishing cost of revenues consists primarily of compensation and
benefits for the editorial and operations staff, contract labor, commissions,
royalty and license payments, content fees, and allocations of facilities and
other shared costs such as depreciation, telecommunications and computer-re-
lated expenses.
To provide content for its digital publishing activities, Total Sports ac-
quires statistical data and content from newspaper wire feeds. In addition,
Total Sports has the right to accumulate statistical data and content through
license agreements with sports leagues. Wire feeds are expensed as cost of
sales when incurred. Content licensing costs are paid at the beginning of the
license period and expensed as cost of sales ratably over the license period.
Costs incurred for wire feeds and content licensing costs totaled approxi-
mately $308,000, $786,000 and $1,163,000 for the periods ended December 31,
1997, 1998, and 1999.
Print publishing cost of revenues consists primarily of the direct costs of
books sold to customers, product fulfillment, amortization of deferred pub-
lishing costs such as author fees and royalty payments, license fees, and al-
locations of facilities and other shared costs.
E-commerce cost of revenues consists primarily of the direct costs of merchan-
dise sold to customers, and costs associated with credit card and other com-
missions, product fulfillment, outbound shipping and handling costs, and allo-
cations of facilities and other shared costs.
Product Development Costs
During its development and modification in 1997 and 1998, Total Sports'
TotalCast software was intended for internal use only and not for sale to
third-parties. As such, during that time Total Sports expensed all development
costs related to the TotalCast software as incurred. During 1999, Total Sports
adopted the provisions of AICPA Statement of Position 98-1, Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use, which re-
quires specified costs of developing or obtaining internal-use software to be
capitalized and amortized. Due to Total Sports' history of complete revisions
to its TotalCast software and the substantial uncertainty surrounding future
technological requirements, Total Sports expenses as incurred the costs of in-
ternally developed software with either expected useful lives of six months or
less or total project costs of $50,000 or less.
Advertising
Total Sports expenses advertising costs as incurred. Advertising expense was
approximately $86,000 for the period February 20, 1997 through December 31,
1997, $835,000 for the year ended December 31, 1998 and $1,358,000 for the
year ended December 31, 1999. There were no advertising costs reported as as-
sets at December 31, 1998. At December 31, 1999, there were advertising costs
totaling approximately $14,000 reported as prepaid assets.
Stock Compensation
Total Sports' stock option plan is accounted for in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. To-
tal Sports follows the disclosure requirements of SFAS No. 123, Accounting for
Stock Based Compensation.
F-13
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
Warrants
Stock purchase warrants issued in connection with debt and equity financings
are recorded at amounts based on their relative estimated fair values at time
of issuance and credited to additional paid-in capital. Any resulting debt dis-
count is amortized to interest expense over the term of the related debt using
the interest method.
Fair Value of Financial Instruments
Total Sports' financial instruments consist of cash and cash equivalents, trade
receivables, trade payables, line of credit and notes payable. The carrying
values of cash and cash equivalents, trade receivables and trade payables ap-
proximate fair value because of the short-term nature of these assets and lia-
bilities. The carrying values of the revolving line of credit approximates fair
value because the related interest rate is based on LIBOR. The estimated fair
values of notes payable, which consist of fixed-rate borrowings, are based on
future cash flows discounted at 7.75%. The estimated fair value of notes pay-
able, including current maturities, at December 31, 1998 is approximately
$337,000, as compared to a carrying value of $343,503. The estimated fair value
of notes payable at December 31, 1999 is approximately $417,000, as compared to
a carrying value of $410,580.
Net Loss Per Share
Total Sports computes net loss per share in accordance with Statement of Finan-
cial Accounting Standards No. 128, Earnings Per Share. Basic and diluted net
loss per share is computed by dividing the net loss available to common stock-
holders for the period by the weighted-average number of shares of common stock
outstanding during the period. The calculation of diluted net loss per share
excludes potential shares of common stock if the effect is antidilutive. Poten-
tial shares of common stock are composed of incremental shares of common stock
issuable upon the exercise of potentially dilutive stock options and warrants
and upon conversion of Total Sports' preferred stock. Diluted net loss per
share presented in the accompanying consolidated financial statements is the
same as basic net loss per share because Total Sports had losses for all peri-
ods presented and inclusion of potential shares would therefore be
antidilutive.
Pro Forma Stockholders' Equity and Net Loss per Share (Unaudited)
The accompanying pro forma stockholders' equity and net loss per share reflect
the following issuances of common stock, based on an assumed initial public of-
fering price of $12.00 per share (the mid point of the offering range):
. The redemption of the Series A redeemable preferred stock for $0.01 per
share;
. The conversion of all outstanding shares of Series B, C, C1, D and E stock
into an aggregate of 4,635,100 shares of common stock as of January 1, 1999,
or date of issuance if later;
. The issuance of 3,778,641 additional shares to Series D stockholders if the
initial public offering price is less than $33.18 (see Note 9), resulting in
a non-cash dividend to the Series D stockholders of $29,420,000;
. The issuance of 1,359,810 additional shares to NBC Sports if the initial
public offering price is less than $32.11 (see Note 10); and
. The assumed cashless exercise of 102,716 outstanding common stock warrants,
resulting in the issuance of 46,504 shares of common stock.
The additional common shares to be issued are included in the computation of
pro forma loss per share even though these issuances would be anti-dilutive. In
addition, contingently returnable shares issued to Long Distance Technologies,
Inc. in connection with the Long Distance acquisition and to NBC Sports in con-
nection with NBC Sports agreement are included in pro forma loss per share as
of the date of issuance.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Ac-
tual amounts could differ from these estimates.
Presentation
Certain amounts for 1997 and 1998 have been reclassified to conform to the 1999
presentation.
F-14
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, Re-
porting Comprehensive Income, and No. 131, Disclosures About Segments of an En-
terprise and Related Information. SFAS No. 130 requires that an enterprise
(a) classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet. Total Sports has adopted SFAS No. 130 as of Janu-
ary 1, 1998, however, this standard does not currently impact disclosures.
SFAS No. 131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. This statement
defines operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief op-
erating decision maker in deciding how to allocate resources and in assessing
performance. Total Sports has adopted SFAS No. 131 as of January 1, 1998.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, Accounting for the Cost of Computer Soft-
ware Developed or Obtained for Internal Use. SOP 98-1 is effective for finan-
cial statements for the years beginning after December 15, 1998. SOP 98-1 pro-
vides guidance over accounting for computer software developed or obtained for
internal use including the requirement to capitalize specified costs and amor-
tization of such costs. The adoption of SOP 98-1 during the year ended December
31, 1999 did not have a significant effect on the reported results of opera-
tions, financial position or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of Fi-
nancial Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities. This statement establishes accounting and reporting stan-
dards for derivative instruments, including certain derivative instruments em-
bedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as ei-
ther assets or liabilities in the statement of financial position and measure
those instruments at fair value. In June 1999, the Financial Accounting Stan-
dards Board issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133.
This statement postpones the effective date of SFAS No. 133. Total Sports will
be required to adopt the new reporting guidelines for the fiscal year beginning
January 1, 2001. Total Sports has not fully analyzed the provisions of this
statement or its effects on Total Sports.
2. Business Acquisitions and Equity Investments
KOZ Acquisition
On March 31, 1997, Total Sports purchased certain assets and assumed certain
liabilities of the sports content business of KOZ inc., a related company, for
an aggregate cash purchase price of $1,414,240. This acquisition was financed
by borrowings under a line of credit (see Note 5). The purchase price was based
on KOZ inc.'s and Total Sports' managements' estimates of the amount of KOZ
inc.'s activities to date related to the business lines sold to Total Sports.
At March 31, 1997, 99% of KOZ inc.'s and 98% of Total Sports' outstanding
shares were controlled by common ownership. Of these amounts, 51% of KOZ inc.'s
and 83% of Total Sports' outstanding shares were owned either directly or by
immediate family members of Frank Daniels, III, Chief Executive Officer of To-
tal Sports, and George Schlukbier, President and Chief Operating Officer of To-
tal Sports. Because the owners of Total Sports at the date of the KOZ inc. ac-
quisition were also substantially the owners of KOZ inc., the assets acquired
and liabilities assumed were recorded at KOZ inc.'s book values. The excess of
the purchase price over the net book values of the assets and liabilities ac-
quired has been recorded by Total Sports as a charge to stockholders' equity.
The following is a summary of the purchase price allocation in connection with
the KOZ inc. acquisition:
<TABLE>
<S> <C>
Current assets $ 120,546
Property and equipment 557,172
Liabilities assumed (550,000)
Charge to stockholders' equity 1,286,522
----------
$1,414,240
==========
</TABLE>
Total Sports also acquired deferred tax assets of approximately $503,000 relat-
ing to net operating and economic loss carryforwards in the acquisition. These
deferred tax assets were fully reserved at the acquisition date as management
determined it was more likely than not the loss carryforwards would not be re-
alized.
F-15
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
Sports Extra Acquisition
Concurrent with the KOZ acquisition, Total Sports purchased all the assets and
assumed all the liabilities of Sports Extra, Inc., an unrelated company, for an
aggregate purchase price of $233,548. The Sports Extra acquisition was funded
by forgiveness of a note receivable from Sports Extra of $100,000 and the issu-
ance of 290,323 shares of Total Sports' common stock valued at $133,548. Sports
Extra was merged into Sports Extra Acquisition Corporation, the surviving cor-
poration. The Sports Extra acquisition has been accounted for in accordance
with the purchase method of accounting and the accompanying consolidated finan-
cial statements of Total Sports reflect the purchase price allocated to assets
acquired and liabilities assumed based on their fair values as of the acquisi-
tion date. Goodwill resulting from the Sports Extra acquisition is being amor-
tized over 15 years. The following is a summary of the purchase price alloca-
tion in connection with the Sports Extra acquisition:
<TABLE>
<S> <C>
Property and equipment $ 7,049
Goodwill 631,142
Databases 293,039
Liabilities assumed (697,682)
---------
$ 233,548
=========
</TABLE>
Total College Communications Acquisition
In June 1998, Total Sports acquired the remaining 50% interest that it did not
own of Total College Communications Company. Total Sports issued Host Communi-
cations 418,971 shares of common stock valued at $418,817 for Host's 50% inter-
est in Total College Communications. Total College Communications was then
merged into Total Sports. The Total College Communication acquisition has been
accounted for in accordance with the purchase method of accounting and the ac-
companying consolidated financial statements of Total Sports reflect the pur-
chase price allocated to assets acquired and liabilities assumed based on their
fair values as of the acquisition date. Goodwill resulting from the Total Col-
lege Communication acquisition is being amortized over three years. The follow-
ing is a summary of the purchase price allocation of the Total College Communi-
cation acquisition:
<TABLE>
<S> <C>
Goodwill $ 496,384
Extinguishment of minority interest payable to joint venture
partner 28,152
Liabilities incurred in acquisition (42,719)
---------
$ 481,817
=========
</TABLE>
Golf.Com L.L.C. Investment
In May and July 1998, Total Sports invested a total of $250,000 for a 25% vot-
ing interest in Golf.Com L.L.C. At the time of the investment, Total Sports'
underlying ownership of Golf.Com's net assets approximated $15,000. The
$235,000 difference has been accounted for as goodwill and is being amortized
over three years. Total Sports is using the equity method of accounting for the
Golf.Com investment. As part of this investment, Total Sports assumed full con-
trol over the managerial and operation functions of the Golf.Com Web site. In
addition, Total Sports assumed the liability for all operating expenses of run-
ning the web site for a five-year period. Total expenses charged to operations
under the agreement, excluding the cost of e-commerce merchandise, were approx-
imately $193,000 for 1998 and approximately $1,312,000 for 1999.
Under the agreement, Total Sports initially receives a 15% stake in Golf.Com's
net profits and losses. If under Total Sports management the Golf.Com Web site
meets performance thresholds for both operating revenues and total Web page
views, Total Sports will receive an annual 2.5% increase in its share of
Golf.Com's net profits and losses with a maximum aggregate increase of 10%. The
performance thresholds consist of achieving annual operating revenues progress-
ing from $1,160,000 to $2,106,000 and achieving annual page views of approxi-
mately 47,000,000 to 85,300,000 over a four-year period. If the performance
thresholds are not met in any single year, but the thresholds are met in a sub-
sequent year, Total Sports will receive the current year's 2.5% increase as
well as all prior year's increases not previously granted. For the six months
ended December 31, 1998, Total Sports recorded 15% of Golf.Com's net loss of
approximately $160,000 totaling approximately $24,000. For the year ended De-
cember 31, 1999, Total Sports recorded 15% of Golf.Com's net income of approxi-
mately $668,000 totalling approximately $100,000. Total Sports is primarily re-
sponsible for operating the Golf.Com
F-16
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
Web site and selling and arranging advertising and sponsorships to be included
on the Web site. Summarized financial information of Golf.Com as of December
31, 1999 is as follows:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Total assets $ 883,151
Total liabilities $ 109,854
Net income for the year ended December 31, 1999 $ 668,000
</TABLE>
Long Distance Technologies Acquisition
On June 4, 1999, Total Sports acquired 100% of the common stock of Long Dis-
tance Technologies, Inc. d/b/a Motortrax Interactive and subsequently merged it
into a wholly-owned subsidiary of Total Sports named Total Motorsports, Inc.
The Long Distance Technologies acquisition was funded by issuance of 284,401
shares of Total Sports' common stock valued at $3,227,951. The acquisition was
accounted for in accordance with the purchase method of accounting. The final
purchase price allocation has not been finalized. Preliminary goodwill result-
ing from the purchase of Long Distance Technologies is being amortized over a
period of 19 months, the remaining life of its contract with NASCAR. The fol-
lowing is a summary of the preliminary purchase price allocation of the Long
Distance Technologies acquisition:
<TABLE>
<S> <C>
Current assets $ 127,001
Property and equipment 110,896
Goodwill 3,327,478
Liabilities assumed (337,424)
----------
$3,227,951
==========
</TABLE>
Total Sports also acquired deferred tax assets of approximately $394,000 relat-
ing to net operating and economic loss carryforwards in the acquisition. These
deferred tax assets were fully reserved at the acquisition date as management
determined it was more likely than not the loss carryforwards would not be re-
alized.
The 284,401 shares of Total Sports' common stock issued as consideration in the
Long Distance Technologies acquisition are being held in escrow until any and
all indemnification claims or disputed claims notices have been satisfied. One-
third of the shares held in escrow, less any portion to be forfeited to satisfy
any indemnification claims, are due to be released on June 4, 2000, subject to
the occurrence of a significant event. The escrow agreement defines a signifi-
cant event as the effectiveness of a registration statement for the sale of the
shares held in escrow in a underwritten public offering registered under the
Securities Act of 1933, or the consummation of a transaction or series of
events that result in the escrowed shares becoming publicly traded. If such a
significant event occurs before June 4, 2000, then at that date escrowed shares
with a value in excess of $4.0 million shall be released from escrow, less any
portion subject to a disputed claims notice. Upon the occurrence of a signifi-
cant event after June 4, 2000, an additional amount of escrowed shares then in
excess of $4.0 million shall be released, less any portion subject to a dis-
puted claims notice. The remainder of the escrowed shares shall be released De-
cember 4, 2000, to the extent the escrowed shares are not required to be for-
feited in satisfaction of indemnification claims or disputed claims notices.
The following unaudited pro forma information presents a summary of the consol-
idated results of operations of Total Sports as if the Long Distance Technolo-
gies acquisition occurred at January 1, 1998:
<TABLE>
<CAPTION>
---------------------------
Year Ended Year Ended
December 31, December 31,
1998 1999
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Total Revenues $ 3,946,000 $ 8,630,899
Loss before preferred dividends $(14,474,000) $(23,386,936)
Net loss available for common shareholders $(14,672,000) $(23,580,941)
</TABLE>
In management's opinion, the unaudited pro forma information is not necessarily
indicative of actual results that would have occurred had the acquisition been
consummated at January 1, 1998, or of future operations of the combined compa-
nies.
F-17
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
3. Deferred Publishing Costs
Deferred publishing costs at December 31, 1998 and 1999 are summarized as fol-
lows:
<TABLE>
<CAPTION>
---------------------
1998 1999
--------- ---------
<S> <C> <C>
Author fees $ 520,676 $ 611,513
License and content fees 68,219 377,411
Design costs 474,842 901,485
--------- ---------
Total deferred publishing costs 1,063,737 1,890,409
Less long-term portion 392,688 690,670
--------- ---------
Total current deferred publishing costs 671,049 1,199,739
Less accumulated amortization (574,000) (825,880)
--------- ---------
Current deferred publishing costs, net $ 97,049 $ 373,859
<CAPTION>
========= =========
</TABLE>
4. Property and Equipment
Property and equipment at December 31, 1998 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
----------------------------------
Depreciable
Lives 1998 1999
----------- ---------- ----------
<S> <C> <C> <C>
Fixtures and furniture 7 years $ 108,502 $ 190,882
Computer equipment 3 years 1,728,240 3,747,937
Software (external and internally
developed) 1-3 years 251,749 1,126,662
Leasehold improvements 3-7 years 12,815 144,560
---------- ----------
Total 2,101,306 5,210,041
Less accumulated depreciation (793,903) (1,771,646)
---------- ----------
Property and equipment, net $1,307,403 $3,438,395
<CAPTION>
========== ==========
</TABLE>
Certain property and equipment is pledged as collateral for notes payable and
capital leases.
5. Credit Facility
During 1998 and part of 1999 Total Sports maintained a line of credit facility
with a commercial lending institution in the amount of $3,500,000. This line of
credit bore interest at the LIBOR Market Index Rate plus 1.50% (6.60% at Decem-
ber 31, 1998). Subsequent to December 31, 1998, Total Sports entered into a se-
ries of renewals for the credit facility, which extended the maturity date to
November 30, 1999 and increased the facility by $500,000 until October 5, 1999
at the same terms and conditions. This credit facility was secured by Total
Sports' property and equipment and personally guaranteed by Total Sports'
Chairman and Chief Executive Officer. The line of credit facility was paid in
full during November 1999 with the proceeds of the Series D preferred stock of-
fering.
In March 1999, Total Sports renewed an irrevocable letter of credit for the
benefit of an office equipment vendor in the amount of $47,000 with an expira-
tion date of February 2, 2000.
F-18
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
6. Notes Payable
Notes payable outstanding at December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
---------------------
December 31,
---------------------
1998 1999
--------- ---------
<S> <C> <C>
Notes Payable:
Note payable for baseball publication assumed in
Sports Extra acquisition, payable in annual
installments of $6,992 each January 1 through
2001, including interest at 7.2% $ 18,287 $ 12,886
Note payable for baseball, football and basketball
databases, payable in $5,000 installments on
January 1 and June 1 each year through June 1,
2005, including interest at 7.2% 54,109 47,913
Note payable for hockey database license, payable
in annual installments of $50,000 on August 1
through 2002, and payments of $75,000 on August
1, 2003 and 2004, including interest at 7.2% 271,107 240,673
--------- ---------
Total notes payable: 343,503 301,472
Less current maturities of notes payable 42,392 43,241
--------- ---------
Notes payable, net of current maturities $ 301,111 $ 258,231
========= =========
Notes Payable--Related Parties:
Promissory note payable to First Raleigh Telex,
payable monthly through March 2002 with interest
at 9.0%, collateralized by computer/digital
equipment $ -- $ 89,384
Note payable to related party due December 31,
1999, with interest at 8% -- 20,000
--------- ---------
Total notes payable--related parties -- 109,384
Less current maturities of notes payable--related
parties -- 58,307
--------- ---------
Notes payable--related parties, net of current
maturities $ -- $ 51,077
========= =========
</TABLE>
Long term debt maturing after one year is as follows: 2000-$101,548; 2001-
$92,764; 2002-$54,810; 2003-$73,493; 2004-$78,782 and thereafter-$9,459.
In conjunction with the note payable for hockey databases, Total Sports issued
a warrant for 20,000 shares of common stock at an exercise price of $7.106 per
share, exercisable within 10 years.
7. Lease Commitments
Total Sports leases certain equipment under various operating leases. These
leases contain renewal clauses for terms of one to three years, with adjust-
ments in annual rentals for inflationary increases. Rental expense charged to
operations for all operating leases totaled approximately $102,000 during 1997,
$371,000 during 1998 and $649,000 during 1999. As of December 31, 1999, future
minimum lease commitments on leases that had initial or remaining non-cancel-
able lease terms of one year or longer, are as follows:
<TABLE>
<S> <C>
2000 $ 613,800
2001 605,506
2002 597,483
2003 534,762
2004 497,130
----------
Total minimum lease payments $2,848,681
==========
</TABLE>
Total Sports leases certain computer equipment under noncancelable leasing ar-
rangements, collateralized by the equipment, which are classified as capital
leases. The asset balance related to capital leases totaled $252,153 and
$775,426 at December 31, 1998 and 1999. Amortization expense related to assets
from capitalized leases was $36,696 and $145,094 for the years ended December
31, 1998 and 1999.
F-19
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
As of December 31, 1999, future minimum lease payments for capital leases that
have initial or remaining terms in excess of one year are as follows:
<TABLE>
<S> <C>
2000 $ 372,120
2001 244,065
2002 34,931
---------
Total minimum lease payments 651,116
Less amount representing executory costs 18,253
---------
Net minimum payments due 632,863
Less amount representing interest (11% to 26%) 81,147
---------
Present value of future minimum lease payments 551,716
Less current portion 282,867
---------
Long-term portion of capital lease obligations $ 268,849
=========
</TABLE>
On August 8, 1999, Total Sports entered into a ten-year lease for office space
with First Raleigh Telex, LLC. Frank Daniels, Jr., a Total Sports director and
stockholder, is the beneficial owner of First Raleigh Telex.
8. Income Taxes
The components of Total Sports' net deferred tax asset (liability) as of Decem-
ber 31, 1998 and 1999, is as follows:
<TABLE>
<CAPTION>
--------------------------
1998 1999
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 5,317,000 $ 12,461,000
Accrued vacation and salaries 68,000 127,000
Bad debt and sales return reserves 173,000 407,000
Inventory allowance 129,000 210,000
Depreciation 79,000 64,000
Amortization of goodwill 445,000 408,000
Capitalized development costs 98,000
Other 43,000 60,000
----------- ------------
Total deferred tax assets 6,254,000 13,835,000
----------- ------------
Valuation allowance (6,254,000) (13,835,000)
----------- ------------
Net deferred tax assets $ -- $ --
=========== ============
</TABLE>
Based on management's evaluation of the positive and negative evidence im-
pacting the realizability of the deferred tax assets, a valuation allowance has
been provided. Management has considered Total Sports' history of losses and
concluded that as of December 31, 1998 and 1999, the net deferred tax assets
should be fully reserved as it is more likely than not the deferred tax assets
will not be realized.
For the periods ended December 31, 1997, 1998 and 1999, reported income taxes
differ from income tax benefit that would result from applying the federal
statutory rate of 34% to pretax loss due to the following:
<TABLE>
<CAPTION>
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected tax benefit $(1,259,000) $(3,797,000) $(7,119,000)
State income tax benefit, net of
federal benefit (189,000) (571,000) (1,071,000)
Amortization 485,000
Advertising -- -- 298,000
Other 23,000 42,000 220,000
Change in valuation allowance 1,425,000 4,326,000 7,187,000
----------- ----------- -----------
Income tax benefit $ -- $ -- $ --
=========== =========== ===========
</TABLE>
F-20
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
During 1997 and 1999, Total Sports acquired deferred tax assets relating to net
operating loss carryforwards of approximately $503,000 and $394,000 from the
KOZ acquisition and Long Distance Technologies acquisition. These deferred tax
assets were fully reserved for at the acquisition dates as it was more likely
than not the assets would not be realized.
Total Sports has operating and economic loss carryforwards of approximately
$31,900,000 at December 31, 1999 expiring through 2019, which can be offset
against future federal and state taxable income. Under the Tax Reform Act of
1986, the amounts of and benefits from net operating losses carried forward may
be impaired or limited in certain circumstances. Events which might cause limi-
tations in the amount of net operating losses that Total Sports may utilize in
any one year include, but are not limited to, a cumulative change in ownership
of more than 50% over a three-year period. At December 31, 1999, the effect of
such limitations, if imposed, is not expected to be significant.
9. Stockholders' Equity
Series A Redeemable Preferred Stock
In June 1997, Total Sports raised net proceeds of $750,998 from the issuance of
100,000 shares of Series A redeemable preferred stock and $179,000 from the is-
suance of warrants to purchase 365,218 shares of common stock at $0.01 per
share to one institutional investor and one individual investor. These warrants
expire in June 2007 and are exercisable upon the occurrence of an extraordinary
event. An extraordinary event is defined as follows:
. A merger, consolidation, sale or reorganization in which Total Sports or
any of its subsidiaries is not the surviving corporation and in which
the warrant holders receive cash or securities.
. The consummation of a registered public offering of common stock or
other equity interests of Total Sports.
. A sale, lease or exchange, directly or indirectly, of all or
substantially all of the property and assets of Total Sports, whether or
not in the ordinary course of business, in which the warrant holders
receive cash or securities.
In conjunction with the execution of the Series A offering, Total Sports issued
to the placement agent warrants to purchase 6,598 shares of common stock with
an exercise price of $3.44 per share. The warrants expire upon the earliest to
occur of (a) June 2002, (b) the acquisition of Total Sports or (c) the consum-
mation of an initial public offering of common stock or other equity interests
of Total Sports. Concurrent with the Series A offering, an advance from a
stockholder of $250,000 was converted into 25,000 shares of Series A stock.
Unless previously redeemed, all shares of Series A stock shall, at the option
of the holders of a majority of the issued and outstanding shares of Series A
stock, be redeemed by Total Sports at a price per share of $10.00 plus all ac-
crued and unpaid dividends upon the earlier of (a) June 2, 2002 or (b) an ex-
traordinary or liquidating event, as defined above. The carrying value of the
Series A stock is increased by periodic accretion, in the form of accrued divi-
dends, so that the carrying value will equal the mandatory redemption value on
the mandatory redemption date of June 2, 2002. During 1997, 1998 and 1999 such
accretion totaled $16,680, $47,645 and $44,005, respectively.
Upon the occurrence of an extraordinary event, as defined above, Series A
stockholders will calculate the annual internal rate of return on the common
stock exercisable under their warrants. If the internal rate of return is less
than 45%, then the stockholders may require redemption by Total Sports at a
price per share of $10.00 plus all accrued and unpaid dividends. If the inter-
nal rate of return is greater than 45%, then Total Sports may redeem the Series
A stock and all accrued and unpaid dividends at the extraordinary event redemp-
tion price of $0.01 per share. At December 31, 1999, the price per share re-
quired to achieve greater than 45% internal rate of return was $8.67.
Series B Convertible Preferred Stock
In November 1997, Total Sports raised net proceeds of $1,936,935 from the issu-
ance of 445,263 shares of Series B stock to an institutional investor and sev-
eral individual investors. In conjunction with this transaction, Total Sports
issued to the placement agent warrants to purchase 8,285 shares of common stock
with an exercise price of $4.94 per share. Such warrants expire upon the earli-
est to occur of (a) June 2002, (b) the acquisition of Total Sports or (c) the
consummation of an initial public offering of common stock or other equity in-
terests of Total Sports.
Series C Convertible Preferred Stock
In August 1998, Total Sports raised net proceeds of $9,775,971 from the issu-
ance of 1,418,200 shares of Series C stock to both institutional and individual
investors. In conjunction with this transaction, Total Sports issued to the
placement agent
F-21
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
warrants to purchase 31,458 shares of common stock with an exercise price of
$7.82 per share. Such warrants expire upon the earliest to occur of (a) June
2003, (b) the acquisition of Total Sports or (c) the consummation of an ini-
tial public offering of common stock or other equity interests of Total
Sports.
Series C1 Convertible Preferred Stock
In December 1998, Total Sports received a $1,000,000 contribution of capital
towards the purchase of Series C1 stock from several existing stockholders .
In January and April 1999, Total Sports raised net proceeds of $5,780,356,
$1,000,000 of which was advanced by existing stockholders in December 1998,
from the issuance of 630,756 shares of Series C1 stock to both institutional
and individual investors. In conjunction with these transactions, Total Sports
issued to the placement agent warrants to purchase 12,907 shares of common
stock with an exercise price of $10.44 per share. Such warrants expire upon
the earliest to occur of (a) January 2004, (b) the acquisition of Total Sports
or (c) the consummation of an initial public offering of common stock or other
equity interests of Total Sports.
Series D Convertible Preferred Stock
On November 12, 1999, Total Sports raised net proceeds of $34,028,501 from the
issuance of 2,140,873 shares of Series D preferred stock and warrants exercis-
able for an aggregate 963,370 shares of Series D1 preferred stock, at an exer-
cise price of $16.59 per share, to a venture capital fund, various companies
and several individual investors. The Series D and D1 preferred stock is ini-
tially convertible into common stock on a ratio of one-to-one. In the event
that the per share price of common stock sold in an initial public offering is
less than $33.18, the conversion ratio of the Series D preferred stock will be
adjusted so that holders of Series D preferred stock will be entitled to re-
ceive additional common stock so that each preferred share will be convertible
into $33.18 of common stock. Under the provision of Emerging Issues Task Force
Abstract 98-5, Accounting for Convertible Securities with Beneficial Conver-
sion Features or Contingently Adjustable Conversion Ratios, in the event of an
initial public offering, Total Sports will be required to record the benefi-
cial conversion features associated with the Series D preferred as a dividend
of $29,402,000. This non-cash dividend will be credited to additional paid in
capital. In conjunction with this transaction, Total Sports issued 46,004
agents warrants to purchase common stock at an exercise price of $18.25 per
share. Such warrants are exercisable upon the occurrence of an extraordinary
event, as defined above, and expire in November 2003.
Series E Convertible Preferred Stock
In connection with the NBC Sports advertising and promotion agreement dis-
cussed in Note 10, NBC Sports received 811,423 stock units of Total Sports
valued at $16.59 per unit. Each stock unit consisted of one share each of To-
tal Sports' common stock and Series E Convertible Preferred Stock. The Series
E stock provides NBC Sports with a liquidation preference above common share-
holders but subordinate to all other preferred shareholders in the event of a
merger, acquisition or other liquidating event. The Series E shares are con-
vertible into one share of common stock for every 100,000 shares of Series E
stock at the option of NBC Sports at any time, and automatically convert into
common shares upon completion of Total Sports' initial public offering. The
Series E shares are not entitled to dividends and have voting rights limited
to matters that would adversely affect the rights of the Series E shares.
Preferred Stock Conversion Rights
Each holder of Series B, Series C, and Series C1 stock shall have the right to
convert all or any portion of such shares at any time into shares of Total
Sports' common stock at an initial conversion rate of 1:1. Upon either comple-
tion of a public offering of common stock of at least $20 million and a per
share price greater than $7.106 or the written consent of 80% of the Series B,
Series C, and Series C1 stockholders, all of the outstanding Series B, Series
C, and Series C1 shares automatically convert into shares of common stock at
the conversion rate then in effect. As discussed above, the Series D stock has
beneficial conversion features contingent upon the per share price of common
stock sold in an initial public offering. The Series E stock automatically
converts into one share of common stock for every 100,000 shares of Series E
stock upon completion of an initial public offering.
Preferred Stock Dividend Rights
The holders of the Series A stock are entitled to receive cumulative dividends
of $1.20 per share per annum, payable quarterly, when and if declared by Total
Sports' Board of Directors. To the extent not paid on the quarterly payment
date, all dividends which have accrued on each share of Series A stock out-
standing during the period ending upon each quar-
F-22
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
terly payment date shall be accumulated and remain accumulated dividends with
respect to such shares until paid to holders thereof. So long as any share of
Series A stock remains outstanding, no dividends shall be paid upon, or de-
clared or set apart for, the Series B convertible preferred stock, the Series C
convertible preferred stock, the Series C1 convertible preferred stock, the Se-
ries D convertible preferred stock or common stock or any other class of stock,
unless and until all cumulative dividends on the then outstanding Series A
stock for all past dividend periods have been or concurrently shall be paid.
Dividends of $127,500, $150,000 and $150,000 were accrued on the Series A stock
in 1997, 1998 and 1999, respectively. These dividends, in addition to the ac-
creted dividends discussed above, are reflected as the total increases in the
carrying value of Series A stock in the accompanying consolidated financial
statements.
After all cumulative dividends on the then outstanding shares of Series A stock
for all past dividend periods have been paid, the holders of Series B, Series
C, Series C1 and Series D stock are entitled to receive the following pro-rata
annual dividends per share, payable quarterly, when declared by Total Sports'
Board of Directors:
<TABLE>
<S> <C>
Series B $ 0.54
Series C $ 0.85
Series C1 $ 1.14
Series D $ 1.99
</TABLE>
To the extent not paid on the quarterly payment date, all dividends which have
accrued on each share of Series B, Series C, Series C1 and Series D stock out-
standing during the period ending upon each quarterly payment date shall be ac-
cumulated and remain accumulated dividends with respect to such shares until
paid to holder thereof or converted into shares of common stock in accordance
with the conversion privileges. Upon conversion of Series B, Series C, Series
C1 and Series D stock into shares of common stock in accordance with the con-
version privileges, any outstanding accumulated dividends shall be forfeited
upon such conversion. Subject to the restrictions referred to above related to
Series A dividends, if any shares of Series B, Series C, Series C1 and Series D
stock remain outstanding on September 30, 2004, then all accumulated and unpaid
dividends on Series B, Series C, Series C1 and Series D stock shall be paid in
cash to the holders thereof.
At December 31, 1999, cumulative unpaid dividends on the Series B, Series C,
Series C1 and Series D stock were as follows:
<TABLE>
<S> <C>
Series B $ 661,216
Series C $1,598,558
Series C1 $ 565,403
Series D $ 567,273
----------
Total $3,392,450
<CAPTION>
==========
</TABLE>
No dividends have been declared on the Series B, Series C, Series C1 and Series
D stock and accordingly no liability has been recorded.
The Series E convertible preferred stock is not entitled to dividends.
Preferred Stock Liquidation Privileges
Upon the dissolution, liquidation, or winding up of Total Sports, whether vol-
untary or involuntary, the holders of outstanding Series A stock shall be enti-
tled to receive $10 in cash for each share of Series A stock, together with all
accrued and unpaid dividends. If upon such liquidating event the assets of To-
tal Sports are insufficient to permit the payment of the Series A liquidation
value, the assets of Total Sports shall be distributed to the holders of Series
A stock ratably until the holders shall have received the full amount to which
they would otherwise be entitled.
Upon the dissolution, liquidation, or winding up of Total Sports, whether vol-
untary or involuntary, the holders of outstanding Series B, Series C, Series C1
and Series D stock shall be entitled to receive, after all obligations to the
Series A stockholders have been satisfied, the following liquidation rates in
cash for each share of Series B, Series C, Series C1 and Series D stock, to-
gether with all accrued and unpaid dividends:
<TABLE>
<S> <C>
Series B $ 4.492
Series C $ 7.106
Series C1 $ 9.49
Series D $ 33.18
</TABLE>
F-23
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
If upon such liquidating event, the assets of Total Sports are insufficient to
permit the payment of the Series B, Series C, Series C1 and Series D liquida-
tion values, the assets of Total Sports shall be distributed to the holders of
Series B, Series C, Series C1 and Series D stocks ratably until the holders
shall have received the full amount to which they would otherwise be entitled.
Upon the dissolution, liquidation, or winding up of Total Sports, whether vol-
untary or involuntary and after the payment in full of the Series A, Series B,
Series C, Series C1 and Series D liquidation preferences, the holders of out-
standing Series E stock shall be entitled to receive for each share of Series E
preferred stock cash for the amount by which $32.11 exceeds the amount distrib-
utable to each share of common stock.
Preferred Stock Covenants
All of Total Sports' preferred stock investment agreements contain covenants
restricting the ability of Total Sports and any of its subsidiaries without
prior written consent to among other things:
. Incur or assume additional indebtedness or obligations
. Incur liens
. Engage in mergers, acquisitions or asset sales
. Declare dividends or redeem or repurchase capital stock
. Engage in transactions with affiliates
Common Stock
Total Sports was originally capitalized with cash of $650,000 from a founding
stockholder. In February 1997, Total Sports issued 961,291 shares to founders
and related parties in connection with the incorporation of Total Sports.
As discussed in Note 2, Total Sports has issued common stock as consideration
in connection with the following acquisitions:
<TABLE>
<CAPTION>
-------------------------------
Number of
Acquired Entity Transaction Date Common Shares
--------------- ---------------- -------------
<S> <C> <C>
Sports Extra March 31, 1997 290,323
December 22,
DesigNet 1997 33,142
Total College Communications June 2, 1998 418,971
Long Distance Technologies June 4, 1999 284,401
</TABLE>
In May 1997, Total Sports issued warrants to purchase 16,200 shares of common
stock to two founding stockholders exercisable at $3.42 per share and expiring
upon the earliest to occur of (a) May 2007, (b) the acquisition of Total Sports
or (c) the consummation of an initial public offering of common stock or other
equity interests of Total Sports. No value was attributed to these warrants us-
ing the Black-Scholes model, because the exercise price was significantly
greater than the market value of the common stock on the date of grant. The
fair value of the common stock warrants was calculated on the date of the grant
with the following assumptions: dividend yield of 0%; risk-free rates of ap-
proximately 6%; and expected lives of 10 years.
During 1998, the Chairman and Chief Executive Officer received 37,100 shares of
common stock valued at $1.15 per share for his personal guarantee of Total
Sports' line of credit. The total value of these shares has been included in
interest expense for the year ended December 31, 1998.
On March 26, 1999, in connection with the refinancing of the $3,500,000 line of
credit as discussed in Note 4, Total Sports' Board of Directors approved the
issuance of 18,550 shares of common stock valued at $1.55 per share to its
Chairman and Chief Executive Officer. The Chairman and Chief Executive Officer
received these shares for his personal guarantee of Total Sports' line of
credit until July 15, 1999. The total value of these shares has been included
in interest expense for the year ended December 31, 1999.
F-24
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
The terms of Total Sports' Restated Certificate of Incorporation prohibit the
payment of dividends to common stockholders prior to payment of all accumulated
dividends on preferred stock.
10. NBC Sports Agreement
On November 12, 1999, Total Sports entered into an agreement with NBC Sports,
Inc. for promotion and advertising services. NBC Sports received 811,423 stock
units of Total Sports valued at $16.59 per stock unit in exchange for $17.4
million of on-air promotion and marketing of all of Total Sports' TotalCasts
for which it has the broadcast rights over a 51-month period. NBC Sports will
calculate the value of the promotion delivered at 100% of the rate charged by
NBC Sports to other customers for similar promotions during the time period.
Each stock unit issued to NBC Sports consisted of one share each of Total
Sports' common stock and Series E convertible preferred stock. NBC Sports also
received one seat on the Board of Directors of Total Sports. See Note 9 for
discussion of the rights and privileges of the Series E preferred stock.
The original stock units issued to NBC Sports are "earned" as NBC Sports
provides advertising to Total Sports. Advertising expense relating to the
earned shares will be valued and recorded by Total Sports at the average fair
value of the common stock during the period in which the advertising was
provided, up to $21.41 per share. The prepaid advertising from NBC Sports and
the unearned shares outstanding at each reporting date will be remeasured at
the then-current fair value of the common stock, up to $21.41 per share. The
prepaid advertising due from NBC Sports has been recorded as a debit to prepaid
advertising within the stockholders' equity (deficiency) section of the
accompanying balance sheet for the year ended December 31, 1999.
To the extent that NBC Sports does not meet the scheduled amount of promotion
during any quarter, NBC Sports will make up such shortfall the next quarter or
by June 30 of the following year. In the event any shortfall has not been made
up, NBC Sports is required to either pay the amount of such shortfall back to
Total Sports in cash or return common stock (plus any "Additional Shares" is-
sued in respect thereof as described below) equal to the amount of such
shortfall calculated using a value of $21.41 per share. If NBC Sports returns
common stock under the above terms, they must also return a pro rata portion of
the 811,423 Series E preferred shares.
If an advertising shortfall occurs that is not resolved to the satisfaction of
both parties, management of Total Sports expects NBC Sports to return common
stock if the fair value of the common stock is less than $21.41 per share. If
the fair value of the common stock exceeds $21.41 per share, management expects
NBC Sports to pay cash equal to the advertising shortfall. The practical obli-
gation of NBC Sports to pay cash for an advertising shortfall if the fair value
of the common stock is greater than $21.41 per share is deemed to be a disin-
centive for nonperformance sufficiently large enough so as to constitute a
performance commitment on the part of NBC Sports. Therefore, in accordance with
Emerging Issues Task Force Abstract 96-18, Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services, the shares earned by NBC Sports will be valued and
recorded at the average fair value of the common stock during the period in
which the advertising was provided, up to $21.41 per share. When the fair value
of the common stock exceeds $21.41 per share, the value of the advertising pro-
vided is capped at $21.41 per share.
In the event that an initial public offering of Total Sports common stock is
consummated at a price less than $32.11 per share, then Total Sports will issue
additional shares of common stock ("Additional Shares") to NBC Sports in an
amount such that NBC Sports receives stock worth $32.11 for each share origi-
nally issued to them. The issuance of Additional Shares would result in a
credit to common stock for the fair value of the Additional Shares, a debit to
prepaid advertising, and a debit to advertising expense equal to the pro rata
portion of the original stock units issued to NBC Sports that have been earned.
The Additional Shares will be remeasured at each reporting date based on the
then-current fair value of the common stock. If Additional Shares are issued,
the per share price at which NBC Sports has a disincentive to return the shares
will be lowered from $21.41 per share to a calculated value based on the total
number of shares issued. However, in no case will shares issued with a fair
value greater than $21.41 per share be remeasured to a lower per share value
until the fair value of the common stock drops below that per share price.
If Total Sports secures rights from the National Basketball Association (the
"NBA") to provide events coverage of NBA and Women's NBA (the "WNBA") regular
season games before July 31, 2000 (the "NBA Rights"), NBC Sports will commit to
deliver an additional $8.0 million of promotion of Total Sports' coverage of
NBA/WNBA events, subject to NBC Sports' ownership of television broadcast
rights for those events and NBC Sports' receipt of permission from the NBA (at
no cost to
F-25
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
NBC Sports) to run the promotion. The value of the additional promotion will be
calculated by NBC Sports at 100% of the rate charged by NBC Sports to other
customers for similar promotions during the time period. Within 60 days of To-
tal Sports' receiving the events coverage rights from the NBA, NBC Sports and
Total Sports shall agree on a schedule for the additional promotion commitment.
In return for its additional NBA/WNBA promotion commitment described above, NBC
Sports would receive $8.0 million in additional shares of Total Sports' common
stock. If Total Sports' common stock is not publicly traded on a nationally
recognized exchange, the additional shares will be granted at price per share
equal to the lower of (1) $25.69 or (2) the price per share associated with To-
tal Sports' round of private cash financing of at least $10.0 million completed
most recently prior to the acquisition of such NBA Rights, with such price per
share increased at a rate of 1% per month, compounded monthly, with such in-
crease commencing on the date of the closing of the private financing. If
shares of Total Sports' common stock are publicly traded on a nationally recog-
nized exchange, the additional shares would be granted at the 30-day trailing
average closing price as of the date on which Total Sports obtained the NBA
Rights in writing.
11. Stock Options and Warrants
Stock Options
Total Sports has a stock option plan pursuant to which employees, officers, and
directors of Total Sports may be granted stock options to acquire up to a maxi-
mum of 1,185,000 shares of Total Sports' common stock. On March 26, 1999, the
Board of Directors approved an increase in the employee option pool to 10% of
fully diluted shares outstanding. This resulted in an increase of approximately
470,000 shares. Generally, options granted vest over a three-year period as
follows: 25% at the end of year one, an additional 25% at the end of year two
and the remaining 50% at the end of year three. Certain 1999 option grants vest
monthly over a 3-year period. Incentive stock option exercise prices are no
less than 100% of the fair market value of the common stock at the date of
grant, as determined by Total Sports' Board of Directors. Non-qualified stock
options issued to directors have an exercise price of $0.01. Vested options may
be exercised for a period of up to ten years from the date of grant.
A summary of Total Sports' option plan as of December 31, 1997, 1998 and 1999
and changes during the period February 20, 1997 through December 31, 1997 and
the years ended December 31, 1998 and 1999 is presented below:
<TABLE>
<CAPTION>
------------------------------------------------------------------
1997 1998 1999
--------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year -- $ -- 20,538 $ 0.50 90,613 $ 0.66
Granted 20,538 0.50 77,444 0.71 405,207 10.99
Exercised -- -- (280) 0.50 (13,109) 1.13
Terminated -- -- (7,089) 0.71 (13,938) 7.84
--------- --------- ---------
Outstanding at end of
year 20,538 $ 0.50 90,613 $ 0.66 468,773 $ 9.37
========= ========= =========
Options exercisable at
year-end -- $ -- 9,437 $ 0.50 62,217 $ 7.07
========= ========= =========
</TABLE>
F-26
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
The following table summarizes information about fixed stock options outstand-
ing at December 31, 1999:
<TABLE>
<CAPTION>
---------------------------------------------------------
Options Outstanding Options Exercisable
---------------------------------- --------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 0.01 27,600 9 $ 0.01 3,461 $ 0.01
0.50 19,328 8 0.50 6,972 0.50
0.55 11,131 3 0.55 5,566 0.55
0.75 31,197 8 0.75 2,288 0.75
1.25 8,267 9 1.25 2,067 1.25
1.50 2,424 9 1.50 606 1.50
10.20 278,843 9 10.20 40,104 10.20
16.59 89,983 10 16.59 1,153 16.59
--------- ---------
468,773 9 $ 9.37 62,217 $ 7.07
========= =========
</TABLE>
During 1997, 1998 and 1999, the fair value of each option grant was estimated
on the date of the grant using the Black-Scholes option-pricing model with the
following assumptions:
<TABLE>
<CAPTION>
--------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Exercise price less than market price on
date of grants:
Weighted-average exercise price -- $ 0.71 $ 9.40
Weighted-average grant-date fair value -- $ 0.42 $ 3.01
Exercise price equal to market price on
date of grants:
Weighted-average exercise price $ 0.50 -- $ 16.59
Weighted-average grant-date fair value $ 0.47 -- $ 2.17
Dividend yield 0 % 0 % 0 %
Risk-free interest rate 6 % 5 % 6 %
1 to 3
Expected lives 4 years 3 years years
</TABLE>
Total Sports recognized compensation expense for stock-based compensation
awards in 1998 and 1999 of approximately $146,000 and $106,000. No compensation
expense for stock-based awards was recognized in 1997. Had compensation cost
for stock options granted in 1997, 1998 and 1999 been determined consistent
with SFAS No. 123, the effect on Total Sports' net loss for 1997, 1998 and 1999
would have been to increase the net loss by $500 in 1997, $7,000 in 1998, and
$87,000 in 1999 and would not have changed basic or diluted net loss per share
in 1997, 1998 or 1999.
F-27
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
Common Stock Warrants
Total Sports granted common stock warrants to preferred stockholders and issued
agent's warrants in connection with financing transactions during 1997, 1998
and 1999. All warrants granted have terms of five to ten years. All warrants
are fully exercisable at December 31, 1999 except for 365,218 warrants that are
exercisable upon an extraordinary event defined as a reorganization, merger,
initial public offering, sale of all assets or sale of substantially all as-
sets. A summary of the outstanding common stock warrants as of December 31,
1997, 1998 and 1999 and changes during the period February 20, 1997 through De-
cember 31, 1997 and the years ended December 31, 1998 and 1999 is presented be-
low:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
1997 1998 1999
--------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Warrants Price Warrants Price Warrants Price
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year -- $ -- 396,301 $ 0.31 773,527 $ 3.63
Granted 396,301 0.31 377,226 7.22 134,255 16.57
--------- --------- ---------
Outstanding at end of
year 396,301 $ 0.31 773,527 $ 3.63 907,782 $ 5.54
========= ========= =========
</TABLE>
The estimated weighted-average grant-date fair value of common stock warrants
granted during the period February 20, 1997 through December 31, 1997 and the
years ended December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
--------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Exercise price less than market price on
date of grants:
Weighted-average exercise price $ 0.01 $ -- $ --
Weighted-average grant-date fair value $ 0.49 $ -- $ --
Exercise price greater than market price
on date of grant:
Weighted-average exercise price $ 3.43 $ 7.12 $ 16.57
Weighted-average grant-date fair value $ -- $ -- $ 4.42
</TABLE>
The fair value of the common stock warrants was calculated on the dates of
grant with the following assumptions: volatility of approximately 27%; dividend
yield of 0%; risk-free rates of approximately 5-6%; and lives of five to ten
years.
The following table summarizes information about common stock warrants out-
standing at December 1999:
<TABLE>
<CAPTION>
----------------------------------
Common Stock Warrants Outstanding
----------------------------------
Weighted-
Average Weighted-
Range of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life Price
-------- ----------- ----------- ---------
<S> <C> <C> <C>
$ 0.01 365,218 7 $ 0.01
$3.42-$3.44 22,798 7 3.43
$4.49-$4.94 15,553 3 4.73
$7.11-$7.82 369,958 5 7.17
$10.44 12,907 4 10.44
$16.59-$18.25 121,348 7 17.22
---------
907,782 6 $ 5.54
=========
</TABLE>
In connection with the Series C1 financing, Total Sports issued to the place-
ment agent warrants to purchase 12,907 shares of common stock with an exercise
price of $10.44 per share during January and April 1999.
F-28
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
Total Sports granted warrants to purchase 39,888 shares of common stock with an
exercise price of $25.07 per share in connection with the $4,000,000 convert-
ible promissory note payable issued during 1999. The note was converted into
equity during the Series D round of preferred financing. The warrants were sub-
sequently adjusted to be exercisable for 60,277 shares of common stock at an
exercise price of $16.59 per share upon the sale of Series D preferred stock by
Total Sports. The fair value of the warrants was calculated on the date of
grant and is being amortized to interest expense over the life of the note pay-
able. These warrants were immediately exercisable for Total Sports' common
stock and expire on May 31, 2009.
Total Sports granted warrants to purchase 15,067 shares of common stock with an
exercise price of $16.59 per share in connection with $2,500,000 of convertible
promissory notes payable issued during 1999. The notes were converted into eq-
uity during the Series D round of preferred financing. The fair value of the
warrants was calculated on the date of the grants and is being amortized to in-
terest expense through the date the notes payable are converted into equity.
These warrants were immediately exercisable for Total Sports' common stock and
expire on May 31, 2009.
In connection with the Series D financing, Total Sports issued to the placement
agent warrants to purchase 46,004 shares of common stock with an exercise price
of $18.25 per share during November 1999.
Series B Preferred Warrants
Total Sports granted warrants to purchase 73,578 shares of Series B stock to
preferred stockholders in connection with bridge financing transactions during
1998. All warrants granted are immediately exercisable and have terms of ten
years. The warrants have an exercise price of $4.49 per share, grant date fair
values ranging from $0.42-$2.25, and remaining contractual lives of approxi-
mately eight years. The fair value was calculated on the date of the grant with
the following assumptions: volatility of approximately 27%; dividend yield of
0%; risk-free rates of approximately 5%; and expected lives of ten years. These
warrants will be exercisable for Total Sports' common stock upon conversion of
the Series B stock.
Series D1 Preferred Warrants
Total Sports granted warrants to purchase 963,370 shares of Series D1 stock to
a venture capital fund, various companies and several individual investors in
connection with the Series D financing during 1999. All warrants granted are
immediately exercisable and have a term of five years. The warrants have an ex-
ercise price of $16.59 per share, with a grant date fair value of $6.09, and
remaining contractual lives of approximately five years. The fair value was
calculated on the date of the grant with the following assumptions: volatility
of approximately 27%; dividend yield of 0%; risk-free rates of approximately
6%; and expected live of fives years. These warrants will be exercisable for
Total Sports' common stock upon conversion of the Series D stock.
12. Earnings Per Share
Total Sports computes earnings per share data in accordance with the require-
ments of Statement of Financial Accounting Standards No. 128, Earnings per
share. The following table reflects the calculation of basic and diluted earn-
ings per share.
<TABLE>
<CAPTION>
---------------------------------------
Period
February 20,
1997 through Year Ended Year Ended
December 31, December 31, December 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net loss applicable to common
shareholders:
Net loss $ 3,699,580 $11,163,673 $20,936,498
Dividends on preferred stock 127,500 150,000 150,000
Accretion of redeemable preferred
stock 16,680 47,645 44,005
---------- ----------- -----------
Net loss applicable to common
shareholders 3,843,760 11,361,318 21,130,503
Earnings per share--basic and diluted
Weighted-average shares outstanding 1,214,419 1,560,903 1,778,670
========== =========== ===========
Net loss per share--basic and
diluted $ (3.17) $ (7.28) $ (11.88)
========== =========== ===========
</TABLE>
F-29
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
The following securities and number of shares have been excluded from the di-
luted per share computation as they are antidilutive:
<TABLE>
<CAPTION>
--------------------------------------
December 31, December 31, December 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Redeemable preferred stock--Series
A 125,000 125,000 125,000
Convertible preferred stock--Series
B 445,263 445,263 445,263
Convertible preferred stock--Series
C -- 1,418,200 1,418,200
Convertible preferred stock--Series
C1 -- -- 630,756
Convertible preferred stock--Series
D -- -- 2,140,873
Convertible preferred stock--Series
E -- -- 811,423
Preferred stock warrants--Series B -- 73,578 73,578
Preferred stock warrants--Series D1 -- -- 963,370
Common stock held in escrow -- -- 284,401
Common stock warrants 396,301 773,527 907,739
Common stock options 20,538 90,613 468,773
Unearned common stock issued to NBC
Sports -- -- 758,579
</TABLE>
13. Segment Information
Total Sports is engaged primarily in digital and print publishing and e-com-
merce. Significantly all of Total Sports' revenues are to customers located
within the United States and significantly all long-lived assets are in the
United States.
<TABLE>
<CAPTION>
------------------------------------------------------------------
Period February 20, 1997 through
December 31, 1997 Year ended December 31, 1998
-------------------------------- ---------------------------------
Digital Print E-Commerce Digital Print E-Commerce
--------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 738,019 $ 257,344 $ 13,586 $2,082,979 $1,314,692 $ 435,172
Depreciation and
amortization expense 219,359 35,284 799 673,972 66,225 20,298
Equity in earnings
(losses) of affiliates -- -- -- (24,076) -- --
Interest Income 3,814 1,305 -- 8,158 10,174 --
Interest Expense 74,750 25,586 -- 228,307 279,041 --
Net Loss 1,965,358 1,522,417 211,805 5,708,379 4,697,630 757,664
Assets 1,609,226 977,418 51,571 3,628,279 1,989,423 79,788
Capital expenditures 267,677 59,938 29,756 685,431 42,884 12,509
</TABLE>
<TABLE>
<CAPTION>
--------------------------------
Year ended December 31, 1999
--------------------------------
Digital Print E-Commerce
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $5,396,906 $1,831,208 $1,355,569
Depreciation and amortization expense 2,282,715 1,700,427 126,910
Equity in earnings (losses) of affiliates 100,193
Interest Income 79,076 8,642
Interest Expense 521,323 56,972
Net Loss 14,157,214 5,004,531 1,774,753
Assets 25,932,601 2,833,985 27,470
Capital expenditures 2,725,156 178,376
</TABLE>
Barter revenues from one customer of Total Sports' digital publishing segment
represents approximately $336,800 or 12% of 1998 consolidated revenues.
Geographic information for sales by countries is determined by the location of
the customer. Total Sports had sales to the following countries during 1997,
1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
United States $ 990,251 $3,437,220 $8,303,466
Canada 395,623 230,717
Other countries 18,698 49,500
---------- ---------- ----------
$1,008,949 $3,832,843 $8,583,683
========== ========== ==========
</TABLE>
F-30
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
14. Employee Benefit Plan
Total Sports has a 401(k) plan for all eligible employees. Total Sports pro-
vides a 50% matching contribution of up to 6% of employee contributions. Em-
ployer contributions vest over a four-year period as follows: -0-% at the end
of year one, 33% at year two, 67% at year three, and 100% at year four. Total
Sports' contribution amounted to approximately $42,000 in 1997, $85,000 in
1998 and $106,000 in 1999.
15. Health Insurance Plan
During 1997, Total Sports began providing medical and health insurance to its
full-time employees under a partial self-insurance plan administered by an
outside insurer. Under the provisions of the plan, Total Sports is responsible
for claims filed by eligible employees up to $10,000 per employee per term
year, with a lifetime liability of $2,000,000 per employee. During the period
February 20, 1997 to December 31, 1997, Total Sports incurred expenses related
to the plan of approximately $88,000. During the years ended December 31, 1998
and 1999, Total Sports incurred expenses related to the plan of approximately
$193,000 and $237,000 respectively. A liability of approximately $28,000 and
$30,000 was recorded for the amount of claims incurred but not paid prior to
December 31, 1998 and 1999, respectively.
16. Commitments and Contingencies
Total Sports is involved in legal actions arising in the normal course of
business. In the opinion of management, based on a review of these legal pro-
ceedings, the ultimate outcome of these actions will not have a material ef-
fect on the consolidated financial statements.
Total Sports has entered into employment agreements with several key employ-
ees. The agreements generally provide annual base salary and termination pro-
visions. The minimum commitments under the agreements are set forth in the
following table:
<TABLE>
<S> <C>
2000 $ 312,500
2001 220,000
2002 155,834
---------
Total commitments $ 688,334
=========
</TABLE>
17. Related Party Transactions
KOZ inc., Total College Communications, Golf.Com, Host Communications (joint
venture partner until June 1998 and a stockholder until May 1999), Winstar New
Media (preferred stockholder), Bull Run Corporation Media (preferred stock-
holder), Carolina Financial Services LLC (warrant holder and common owner-
ship), and the Josephus Group (common ownership) are considered related par-
ties of Total Sports.
Total Sports entered into a radio show and advertising agreement with an af-
filiate of Winstar New Media as part of the Series C 1998 financing. The
agreement was for six months ending February 1999, and required the Winstar
affiliate to produce a Total Sports-branded radio show dedicated to a variety
of college and professional sports topics in exchange for $125,000. In addi-
tion, Total Sports committed to purchase $375,000 of advertising over a six-
month period on the Winstar affiliate's radio programs. The advertising was
valued at the market rate for similar advertising in effect at the time the
promotions were delivered. In 1999, with the mutual consent of both parties,
the agreement was allowed to expire with the advertising commitment partially
unfulfilled. Total Sports incurred approximately $344,000 in expenses for the
radio show sponsorship and advertising during 1998 and $28,000 in 1999. In-
cluded in accrued expenses--related party at December 31, 1998 and 1999, was
$188,819 and $0, respectively, due to the Winstar affiliate.
Total Sports has exclusive rights, through Host Communications, to provide
TotalCasts of NCAA championship events and receive sponsorship revenues from
corporate sponsors of the NCAA. Host Communications serves as an agent to To-
tal Sports under these agreements, in which Total Sports recognized sponsor-
ship revenues of approximately $818,000 in 1998 and $1,235,000 in 1999. In
connection with these agreements, Total Sports paid commissions to Host Commu-
nications of
F-31
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Continued)
approximately $164,000 in 1998 and $296,000 in 1999. In addition, Total Sports
paid approximately $264,000 to Host Communications in 1999 for consulting serv-
ices related to Web site development. At December 31, 1998 and 1999, Total
Sports had approximately $66,000 and $96,000 recorded in accrued expenses--re-
lated party due to Host Communications.
In connection with its management and sales agreements with Golf.Com, Total
Sports has exclusive rights to operate the Golf.Com online store. Total Sports
also has rights to sell advertising on the Golf.Com Web site, for which it pays
an annual license fee of $25,000 to Golf.Com. Total Sports recognized
$1,074,000 in 1999 from sales of sponsorships on the Golf.Com Web site. In con-
nection with these sponsorship sales, Total Sports paid commissions of approxi-
mately $897,000 to Golf.Com in 1999. Total Sports recognized $240,000 in 1998
and $478,000 in 1999 from e-commerce sales from the Golf.Com Web site. In con-
nection with these e-commerce sales, Total Sports paid commissions of approxi-
mately $34,000 in 1998 and $2,000 in 1999 to Golf.Com. At December 31, 1999,
Total Sports had approximately $174,000 in accounts receivable from employees
and affiliates due from Golf.com.
Total Sports incurred fees related to the different financing rounds from Caro-
lina Financial Services LLC totaling approximately $62,500 for the period ended
December 31, 1997, $249,000 for the year ended December 31, 1998 and $1,254,000
for the year ended December 31, 1999.
During 1998, Total Sports recognized $25,000 in sponsorship revenue from
Rawlings, a company owned by the Bull Run Corporation Media.
Total Sports leased office space from the Josephus Group during 1997, 1998 and
1999. Total Sports incurred rent expense to the Josephus Group of approximately
$107,000 during the period February 20, 1997 through December 31, 1997, $75,000
during the year ended December 31, 1998 and $108,000 during the year ended De-
cember 31, 1999.
During 1997, Total Sports accrued a liability of $75,000 for compensation to
its Chairman and Chief Executive Officer related to services performed prior to
February 20, 1997. For the period from February 20, 1997 to December 31, 1997
and the year ended December 31, 1998, the Chairman and Chief Executive Officer
did not receive any compensation. During the year ended December 31, 1999, the
Chairman and Chief Executive Officer received the $75,000 previously accrued.
During 1998, the Chairman and Chief Executive Officer received 37,100 shares of
common stock valued at $1.15 per share for his personal guarantee of Total
Sports' line of credit. In connection with the refinancing of the line of
credit on January 15, 1999 as discussed in Note 5, Total Sports' Board of Di-
rectors issued 18,550 shares of common stock valued at $1.55 per share to its
Chairman and Chief Executive Officer for his personal guarantee of the line of
credit.
On August 6, 1998, Total Sports entered into a consulting agreement with a To-
tal Sports director, whereby Total Sports issued 14,073 shares of common stock
valued at $1.25 per share to the director for consulting services previously
provided and to be provided. Either party has the right to terminate the agree-
ment at any time with at least thirty days prior written notice. Total costs of
this agreement charged to operations were $17,591. In addition, Total Sports
has an agreement with the director in which it receives a percentage of rental
income received by the director for certain business meetings. Total Sports re-
ceived payments of approximately $31,000 in 1999, which have been included in
other non-operating income.
On August 8, 1999, Total entered into a 10-year lease for office space with
First Raleigh Telex, LLC. Frank Daniels, Jr., a Total Sports director and
stockholder, is the beneficial owner of First Raleigh Telex, LLC. The lease
terms call for monthly rent of approximately $25,000 until November 1, 1999 and
monthly rent of $29,733 thereafter. Total recognized approximately $231,000 in
rent expense to First Raleigh Telex, LLC during 1999.
As discussed in Note 5, Total Sports entered into a three-year promissory note
with First Raleigh Telex in the amount of $114,921 during 1999. During 1999,
Total made payments totaling approximately $29,000 on the note and recognized
interest expense of approximately $7,000.
As discussed in Note 5, Total Sports assumed a $20,000 note payable during the
Long Distance Technologies acquisition. The note was payable to the president
of Long Distance Technologies, who became a stockholder of Total Sports upon
consummation of the acquisition. The note was due December 31, 1999 and was
paid in January 2000.
In September 1999 and November 1999, Total Sports issued 10% convertible prom-
issory notes in the aggregate principal amount of $2,500,000 and warrants exer-
cisable for an aggregate of 15,067 shares of common stock at an exercise price
of
F-32
<PAGE>
Total Sports Inc.
Notes to Consolidated Financial Statements--(Concluded)
$16.59 per share. Winstar Interactive Ventures, Piedmont Venture Partners, and
Nuray Tellwide Properties Limited, all Total Sports shareholders, participated
in $2,000,000 of the $2,500,000 and received warrants for 12,053 shares of com-
mon stock.
During October and November 1999, Total Sports received non-interest bearing
advances from Golf.Com totaling $425,000. These advances were used to pay
amounts owed by Total Sports to its vendors in connection with the Golf.Com
management agreement (see Note 2). The advances were repaid to Golf.Com in De-
cember 1999.
18. Subsequent Events
In January 2000, Total Sports entered into an operating lease agreement for ad-
ditional office space. In connection with the lease agreement, Total Sports
also entered into a letter of credit agreement for the benefit of the lessor in
the amount of approximately $433,000. The letter of credit expires on August 1,
2003.
F-33
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of
Total Sports Inc.
Raleigh, North Carolina
We have audited the accompanying statement of net assets acquired from KOZ
inc. as of March 31, 1997, and the related statements of operations and cash
flows from the sports content business acquired from KOZ inc. for the eleven
months ended March 31, 1997. These financial statements are the responsibility
of Total Sports Inc.'s management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audit provides a reasonable basis for our opin-
ion.
In our opinion, such financial statements present fairly, in all material re-
spects, the net assets acquired from KOZ inc. as of March 31, 1997, and the
results of operations and cash flows from operations of the sports content
business acquired from KOZ inc. for the eleven months then ended in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Raleigh, North Carolina
August 2, 1999
F-34
<PAGE>
Total Sports Inc.
Statement of Net Assets Acquired from KOZ inc.
<TABLE>
<CAPTION>
---------
As of
March 31,
1997
---------
<S> <C>
ASSETS ACQUIRED AND LIABILITIES ASSUMED
Current assets acquired:
Note receivable (Note 3) $ 100,000
Other assets 20,546
---------
Total current assets acquired 120,546
Property and equipment, net (Note 4) 557,172
---------
Total assets acquired 677,718
---------
Current liabilities assumed:
Accounts payable and accrued expenses 175,000
Advances from stockholders (Note 5) 375,000
---------
Total current liabilities assumed 550,000
---------
Net assets acquired $ 127,718
=========
</TABLE>
See notes to financial statements.
F-35
<PAGE>
Total Sports Inc.
Statement of Operations
from the Sports Content Business
Acquired from KOZ inc.
<TABLE>
<CAPTION>
-------------
Eleven Months
Ended
March 31,
1997
-------------
<S> <C>
Revenues from operations acquired $ 32,477
Operating expenses from operations acquired:
Salaries and employee benefits 1,145,477
General and administrative 695,738
Marketing and sales 25,738
Depreciation 112,586
-----------
Total operating expenses 1,979,539
-----------
Operating loss from operations acquired $(1,947,062)
===========
</TABLE>
See notes to financial statements.
F-36
<PAGE>
Total Sports Inc.
Statement of Cash Flows
from Operations of the Sports Content Business
Acquired from KOZ inc.
<TABLE>
<CAPTION>
-------------
Eleven Months
Ended
March 31,
1997
-------------
<S> <C>
Operating activities:
Operating loss from operations acquired $(1,947,062)
Adjustments:
Depreciation 112,586
Changes in assets and liabilities:
Other assets (20,546)
Accounts payable and accrued expenses 175,000
-----------
Net cash used in operating activities $(1,680,022)
===========
</TABLE>
See notes to financial statements.
F-37
<PAGE>
Total Sports Inc.
Notes to Statement of Net Assets
Acquired from KOZ inc. as of March 31, 1997
and Statements of Operations and Cash Flows
from the Sports Content Business
Acquired from KOZ inc.
Eleven Months Ended March 31, 1997
1. Background and Basis of Presentation
Total Sports Inc. (formerly Total Ltd.) was formed on February 20, 1997. On
March 31, 1997, Total Sports purchased certain assets and assumed certain lia-
bilities of the sports and entertainment content business of KOZ inc., a re-
lated company, for an aggregate purchase price of $1,414,240. The assets and
internally developed technology acquired from KOZ formed the nucleus of Total
Sports' ongoing business. As a result, KOZ's sports content business is consid-
ered the predecessor entity of Total Sports.
KOZ commenced operations in January 1996, but did not enter the sports enter-
tainment business until May 1996. Accordingly, the accompanying statements of
operations and cash flows from operations of the sports content business ac-
quired from KOZ have been presented for the eleven-month period ended March 31,
1997.
2. Summary of Significant Accounting Policies
Property and Equipment
Property and equipment is carried at historical cost and is being depreciated
using the straight-line method based on estimated useful lives of three to
seven years.
Fair Value of Financial Instruments
The carrying value of the accounts payable and accrued expenses purchased from
KOZ approximates fair value due to the short-term nature of tax liabilities.
The carrying value of the note receivable approximates fair value because the
interest rate is adjusted monthly to equal the current prime rate.
Revenue Recognition
Revenue from consulting services is recognized as the services are preferred,
provided that no significant obligations remain.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Ac-
tual results could differ from those estimates.
3. Note Receivable
Note receivable consists of a $100,000 advance by KOZ to Sports Extra, Inc.,
receivable in 21 monthly principal installments of $4,762 commencing on July 1,
1997, with final payment of all remaining outstanding principal and unpaid in-
terest due on March 31, 1999. The note bore interest at the prime rate (8.5% at
March 31, 1997), adjusted monthly. In connection with Total Sports' subsequent
acquisition of Sports Extra, the $100,000 note receivable was forgiven as par-
tial consideration of the purchase price of Sports Extra.
F-38
<PAGE>
Total Sports Inc.
Notes to Statement of Net Assets
Acquired from KOZ inc. as of March 31, 1997
and Statements of Operations and Cash Flows
from the Sports Content
Business Acquired from KOZ inc.
Eleven Months Ended March 31, 1997--(Concluded)
4. Property and Equipment
Property and equipment acquired from KOZ on March 31, 1997 was as follows:
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures $ 17,150
Computer equipment 652,608
---------
669,758
Less accumulated depreciation (112,586)
---------
Property and equipment, net $ 557,172
=========
</TABLE>
5. Advances from Stockholders
These advances are from two stockholders which are due on demand and are nonin-
terest-bearing.
F-39
<PAGE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
Long Distance Technologies, Inc.
Charlotte, North Carolina
We have audited the accompanying balance sheets of Long Distance Technologies,
Inc. as of December 31, 1997 and 1998, and the related statements of opera-
tions, shareholders' equity (deficiency) and cash flows for the years then end-
ed. These financial statements are the responsibility of Long Distance Technol-
ogies' management. Our responsibility is to express an opinion on these finan-
cial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, such financial statements present fairly, in all material re-
spects, the financial position of Long Distance Technologies, Inc. as of Decem-
ber 31, 1997 and 1998, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting princi-
ples.
Deloitte & Touche LLP
Raleigh, North Carolina
September 8, 1999
F-40
<PAGE>
Long Distance Technologies, Inc.
Balance Sheets
(Unaudited as to June 4, 1999 information)
<TABLE>
<CAPTION>
---------------------------------------
December 31, December 31, June 4,
1997 1998 1999
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,806 $ 154,769 $ 37,764
Accounts receivable 19,668 1,702 11,218
Inventory 23,100 18,982 18,982
Prepaid expenses and other current
assets (Note 3) 53,354 60,411
---------- ---------- ----------
Total current assets 63,574 228,807 128,375
---------- ---------- ----------
Property and equipment, net (Note 4) 81,899 117,950 110,896
Other assets 7,345
---------- ---------- ----------
Total assets $ 152,818 $ 346,757 $ 239,271
========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
DEFICIENCY
Current liabilities:
Accounts payable $ 145,756 $ 90,779 $ 258,232
Accrued expenses 15,638 9,676 2,818
Deferred revenues 69,497 44,969
Current maturities of note payable-
related party (Note 5) 20,000 20,000
---------- ---------- ----------
Total current liabilities 161,394 189,952 326,019
---------- ---------- ----------
Note payable-related party (Note 5) 20,000
Series a redeemable preferred stock
(Notes 5 and 12) 800,000 shares
authorized, issued and outstanding at
December 31, 1998 ($1,200,000
aggregate liquidation value at
December 31, 1998) 932,113
Commitments (Notes 8 and 11)
Shareholders' Deficiency (Notes 6, 9
and 12):
Series B convertible preferred stock,
$0.01 par value; 3,000,000 shares
authorized; 1,630,282 issued and
outstanding at December 31, 1998;
($249,433 aggregate liquidation
value at December 31, 1998) 16,303
Common stock, $0.01 par value;
15,000,000 shares authorized;
2,275,000 and 2,837,916 issued and
outstanding at December 31, 1997 and
1998; 9,071,993 issued and
outstanding at June 4, 1999 22,750 28,379 90,720
Additional paid-in capital 1,417,150 1,793,262 2,779,222
Deficit (1,468,476) (2,613,252) (2,956,690)
---------- ---------- ----------
Total shareholders' deficiency (28,576) (775,308) (86,748)
---------- ---------- ----------
Total liabilities and shareholders'
deficiency $ 152,818 $ 346,757 $ 239,271
========== ========== ==========
</TABLE>
See notes to financial statements.
F-41
<PAGE>
Long Distance Technologies, Inc.
Statements of Operations
(Unaudited as to May 31, 1998 and June 4, 1999 information)
<TABLE>
<CAPTION>
----------------------------------------------------
Five-Month Period Ended
Year Ended Year Ended ------------------------
December 31, December 31, May 31, June 4,
1997 1998 1998 1999
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 43,175 $ 113,561 $ 27,322 $ 47,216
Cost of revenues (Note
10) 445,443 395,430 137,056 173,502
----------- ----------- ---------- ----------
Gross loss (402,268) (281,869) (109,734) (126,286)
Operating expenses
(Notes 8 and 10) 878,383 863,095 265,227 218,274
----------- ----------- ---------- ----------
Operating loss (1,280,651) (1,144,964) (374,961) (344,560)
Other income (expense):
Interest income 7,741 16,097 9,588 1,122
Interest expense (2,017) (14,395) (13,448)
Gain (loss) on
disposal of property
and equipment 1,418 (1,514) (1,514)
----------- ----------- ---------- ----------
Other income
(expense), net 7,142 188 (5,374) 1,122
----------- ----------- ---------- ----------
Net loss $(1,273,509) $(1,144,776) $ (380,335) $ (343,438)
=========== =========== ========== ==========
</TABLE>
See notes to financial statements.
F-42
<PAGE>
Long Distance Technologies, Inc.
Statements of Shareholders' Equity (Deficiency)
(Unaudited as to June 4, 1999 information)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Series B Convertible Total
Preferred Stock Common Stock Additional Shareholders'
--------------------- --------------------- Paid-in Equity
Shares Amount Shares Amount Capital Deficit (Deficiency)
---------- --------- --------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997 $ 2,000,000 $ 20,000 $ 925,200 $ (150,267) $ 794,933
Issuance of common stock 105,000 1,050 193,950 195,000
Issuance of common stock
to an officer 140,000 1,400 208,600 210,000
Issuance of common stock
to a director 60,000 600 89,400 90,000
Purchase and retirement
of common stock (30,000) (300) (44,700) (45,000)
Net loss (1,273,509) (1,273,509)
---------- --------- --------- --------- ---------- ----------- ----------
Balance at December 31,
1997 2,275,000 22,750 1,417,150 (1,468,476) (28,576)
Issuance of warrants in
connection with note
payable and Series A
Redeemable Preferred
Stock 260,050 260,050
Issuance of Series B
Convertible Preferred
Stock and common stock
pursuant to anti-
dilution provisions of
Series A Redeemable
Preferred Stock, net of
offering costs of
$55,181 1,630,282 16,303 562,916 5,629 172,887 194,819
Accretion of discount on
Series A Redeemable
Preferred Stock (56,825) (56,825)
Net loss (1,144,776) (1,144,776)
---------- --------- --------- --------- ---------- ----------- ----------
Balance at December 31,
1998 1,630,282 16,303 2,837,916 28,379 1,793,262 (2,613,252) (775,308)
Activity January 1, 1999
through June 4, 1999
(unaudited):
Accretion of discount on
Series A Redeemable
Preferred Stock (27,060) (27,060)
Issuance of Series B
Convertible Preferred
Stock and warrants and
common stock pursuant
to anti-dilution
provisions of Series A
Redeemable Preferred
Stock and Series B
Convertible Preferred
Stock, net of offering
costs of $17,326 652,113 6,521 1,430,615 14,306 61,847 82,674
Conversion of Series A
Redeemable Preferred
Stock to common stock 800,000 8,000 951,173 959,173
Conversion of Series B
Convertible Preferred
Stock to common stock (2,282,395) (22,824) 2,282,395 22,824
Exercise of warrants 1,721,067 17,211 17,211
Net loss (343,438) (343,438)
---------- --------- --------- --------- ---------- ----------- ----------
Balance at June 4, 1999
(unaudited) -- $ -- 9,071,993 $ 90,720 $2,779,222 $(2,956,690) $ (86,748)
========== ========= ========= ========= ========== =========== ==========
</TABLE>
See notes to financial statements.
F-43
<PAGE>
Long Distance Technologies, Inc.
Statements of Cash Flows
(Unaudited as to May 31, 1998 and June 4, 1999 information)
<TABLE>
<CAPTION>
---------------------------------------------------
Five-Month Period Ended
Year Ended Year Ended -----------------------
December 31, December 31, May 31, June 4,
1997 1998 1998 1999
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating activities:
Net loss $(1,273,509) $(1,144,776) $ (380,335) $ (343,438)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization 10,498 24,974 14,120 9,500
(Gain) loss on disposal
of property and
equipment (1,418) 1,514 1,514
Interest expense related
to warrants issued with
note payable 10,500 10,500
Expense resulting from
common stock issued
below fair value 298,000
Changes in operating
assets and liabilities:
Accounts receivable 108,648 17,966 (9,516)
Inventory (23,101) 4,118 2,784
Prepaid expenses and
other current assets (53,354) (90,509) (7,057)
Other assets (7,345) 7,345
Accounts payable 110,139 (54,977) (93,272) 167,452
Accrued expenses 14,239 (5,962) (5,625) (6,857)
Deferred revenues 69,497 65,672 (24,528)
----------- ----------- --------- ---------
Net cash used in
operating activities (763,849) (1,123,155) (475,151) (214,444)
----------- ----------- --------- ---------
Investing activities:
Purchases of property and
equipment (98,317) (62,539) (57,311) (6,260)
Proceeds from disposal of
property and equipment 14,741 3,814
----------- ----------- --------- ---------
Net cash used in
investing activities (83,576) (62,539) (57,311) (2,446)
----------- ----------- --------- ---------
Financing activities:
Proceeds from issuance of
note payable with
warrants 220,000 220,000
Principal repayments on
note payable (220,000) (220,000)
Proceeds from issuance of
Series A Redeemable
Preferred Stock, net 875,288 875,288
Proceeds from issuance of
warrants in connection
with Series A Redeemable
Preferred Stock 249,550 249,550
Proceeds from issuance of
Series B Convertible
Preferred Stock and
warrants and common
stock, net 194,819 82,674
Proceeds from warrants
exercised 17,211
Proceeds from issuance of
common stock 197,000
Payment for purchase and
retirement of common
stock (45,000)
----------- ----------- --------- ---------
Net cash provided by
financing activities 152,000 1,319,657 1,124,838 99,885
----------- ----------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents (695,425) 133,963 592,376 (117,005)
Cash and cash equivalents,
beginning of period 716,231 20,806 20,806 154,769
----------- ----------- --------- ---------
Cash and cash equivalents,
end of period $ 20,806 $ 154,769 $ 613,182 $ 37,764
=========== =========== ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the
period for interest $ 2,017 $ 3,895 $ 2,948 $ --
=========== =========== ========= =========
</TABLE>
Supplemental disclosures of non-cash financing activities:
Year ended December 31, 1998:
During 1998, accretion of discount related to Series A Redeemable Preferred
Stock was $56,825.
Period from January 1, 1999 to June 4, 1999:
During the period ended June 4, 1999, accretion related to Series A Redeemable
Preferred Stock was $27,060.
As also discussed in Note 12, on June 4, 1999, all issued and outstanding Se-
ries A Redeemable Preferred Stock was converted into 800,000 shares of its com-
mon stock, with an aggregate par value of $8,000. The carrying value of the Se-
ries A Redeemable Preferred Stock at the date of conversion was $959,173. The
remaining $951,173 was credited to additional paid-in capital.
As also discussed in Note 12, on June 4, 1999, all issued and outstanding Se-
ries B Convertible Preferred Stock was converted into 2,282,395 shares of its
common stock, with an aggregate par value of $22,824. The carrying value of the
Series B Convertible Preferred Stock at the date of conversion was $22,824.
See notes to financial statements.
F-44
<PAGE>
Long Distance Technologies, Inc.
Notes to Financial Statements
(Unaudited as to May 31, 1998 and June 4, 1999 information)
1. Nature of Operations and Basis of Presentation
Long Distance Technologies, Inc. ("Long Distance") was incorporated on June 3,
1994. Long Distance is a privately held, North Carolina corporation located in
Charlotte, North Carolina and provides an interactive entertainment product
which delivers real-time driver/team audio from the racetrack during National
Association for Stock Car Auto Racing ("NASCAR") Winston Cup racing events via
the internet and telephone.
Long Distance primarily transacts its business within one business segment,
NASCAR Winston Cup racing. Events that have an adverse effect on NASCAR could
have an adverse effect on Long Distance's financial position and operating re-
sults.
Previous to 1997, Long Distance earned commissions from long distance carriers
under resale agreements on the resale of long distance services to business us-
ers. Though no longer a reseller of long distance services, Long Distance con-
tinues to receive commissions, or long distance residuals, from certain carri-
ers based on customer usage. Revenues from long distance residuals totaled ap-
proximately 73.6% and 26.6% of total revenues for the years ended December 31,
1997 and 1998, respectively.
On June 4, 1999, Long Distance was merged with and into Motortrax Acquisition
Corporation, Inc., a wholly-owned subsidiary of Total Sports Inc. Immediately
preceding the merger, all issued and outstanding shares of Series A Redeemable
and Series B Convertible preferred stock and all issued and outstanding war-
rants were converted or exercised, respectively, into Long Distance's common
stock.
Unaudited Financial Statements--The condensed financial statements as of and
for the five months ended May 31, 1998 and as of and for the period from Janu-
ary 1, 1999 to June 4, 1999 are unaudited. In the opinion of management, the
unaudited balance sheet at June 4, 1999, and the unaudited statements of opera-
tions, shareholders' equity (deficiency) and cash flows for the five months
ended May 31, 1998 and the period from January 1, 1999 to June 4, 1999, include
all adjustments, which include only normal recurring adjustments, necessary to
present the financial position and results of operations and cash flows for the
periods then ended in accordance with generally accepted accounting principles.
The results of operations for the period from January 1, 1999 through June 4,
1999 are not necessarily indicative of results to be expected for the full fis-
cal year or any other period.
2. Significant Accounting Policies
Cash and Cash Equivalents
Long Distance considers all highly liquid temporary cash investments with an
original maturity of ninety days or less to be cash equivalents.
Concentration of Credit Risk
Long Distance relies on a single vendor for maintaining an Internet web site
through which subscribers purchase and access the audio product. This vendor
also collects all subscription proceeds and remits these monies, less its fees
periodically, based on the frequency of NASCAR races.
Inventory
Long Distance's inventory at December 31, 1997 and 1998 consists primarily of
prepaid calling card supplies. Inventory is priced at the lower of cost or mar-
ket with cost being determined on a first-in, first-out method.
Advances on Driver Royalties
Long Distance has executed participation agreements with certain NASCAR driv-
ers. The agreements provide Long Distance with the right to receive and
retransmit the driver/team's two-way radio conversations. Royalties are earned
pursuant to a royalty pool arrangement based upon a percentage of gross pro-
ceeds as defined in the drivers' license agreement.
F-45
<PAGE>
Long Distance Technologies, Inc.
Notes to Financial Statements--(Continued)
Advances on minimum royalties, which are nonrefundable, are initially reflected
as prepaid expenses. Expense is recognized on a per race aggregate basis based
on the greater of amounts earned pursuant to the royalty pool arrangement or on
a straight-line basis over a 32-race NASCAR season.
Property and Equipment
Property and equipment is carried at historical cost and is being depreciated
and amortized using the straight-line method over the estimated useful lives of
the related assets, which is generally five years.
Maintenance and repairs are charged to expense when incurred; improvements are
capitalized. Upon the sale or retirement of assets, the cost and accumulated
depreciation are removed from the account and any gain or loss is recognized.
Income Taxes
The tax effect of losses for the years ended December 31, 1997 and 1998 are re-
corded under the provisions of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes ("SFAS 109"). Under SFAS 109, deferred income
taxes are recognized for the tax consequences of "temporary" differences by ap-
plying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Revenue Recognition
Revenue from Internet sales is recognized upon the completion of each NASCAR
race.
Long Distance enters into agreements with corporate customers for the sale of
promotional prepaid calling cards which provide prepaid telephone access (in
increments of minutes) to NASCAR race broadcasts for any race in a pre-defined
period of time (e.g., a racing season). Revenue and related expenses from the
sales of these promotional prepaid calling cards are initially deferred and are
recognized on a straight-line basis upon completion of each race within the
pre-defined period of time.
Revenue from long distance residuals is recognized as long distance services
are used.
Cost of Revenues
Cost of revenues consists primarily of license fees paid to drivers, fees paid
for processing, and transmitting two-way radio transmissions to the Internet
web site related to Long Distance's interactive entertainment product.
Advertising
Long Distance expenses advertising costs as incurred. Advertising expense was
approximately $100,000 and $151,000 for 1997 and 1998, respectively.
Research and Development Costs
Research and development costs are expensed as incurred. Such costs were ap-
proximately $35,600 and $76,200, for 1997 and 1998, respectively.
Stock Compensation
Long Distance's stock option plan is accounted for in accordance with Account-
ing Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to
Employees. Long Distance follows the disclosure requirements of Statement of
Financial Accounting Standards No. 123, Accounting for Stock Based Compensa-
tion.
Warrants
Stock purchase warrants issued in connection with debt instruments are recorded
at their estimated fair value and credited to additional paid-in capital. Any
resulting debt discount is amortized to interest expense over the term of the
related debt.
Stock purchase warrants issued in connection with equity issuances are recorded
at their estimated fair value and credited to additional paid-in capital.
F-46
<PAGE>
Long Distance Technologies, Inc.
Notes to Financial Statements--(Continued)
Fair Value of Financial Instruments
Long Distance's financial instruments consist of cash and cash equivalents,
trade receivables, trade payables and a note payable from a related party. The
carrying value of the note payable approximates fair value because the interest
rate is not significantly different from the current market rate. The carrying
values of the remaining instruments approximate fair value because of the
short-term nature of these assets and liabilities.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Ac-
tual amounts could differ from these estimates.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of Fi-
nancial Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities. This statement establishes accounting and reporting stan-
dards for derivative instruments, including certain derivative instruments em-
bedded in other contracts (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as ei-
ther assets or liabilities in the statement of financial position and measure
those instruments at fair value. Long Distance will be required to adopt the
new reporting guidelines for the fiscal year beginning January 1, 2001. Long
Distance has not fully analyzed the provisions of this statement or its effects
on its financial statements.
Reclassifications
Certain 1997 balances have been reclassified to conform with 1998 presentation.
3. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets are comprised of the following:
<TABLE>
<CAPTION>
-----------------------
December 31, June 4,
1998 1999
------------ ---------
<S> <C> <C>
Prepaid Promotional Card expense $ 41,812 $ 27,054
Prepaid Driver's Royalties -- 29,063
Security Deposits 4,494 4,294
Other prepaid expenses 7,048 --
--------- ---------
$ 53,354 $ 60,411
========= =========
</TABLE>
4. Property and Equipment
Property and equipment at December 31, 1997 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
---------------------
1997 1998
--------- ---------
<S> <C> <C>
Fixtures and furniture $ 17,362 $ 16,736
Computer equipment and software 77,186 138,458
--------- ---------
Total 94,548 155,194
Less accumulated depreciation and amortization (12,649) (37,244)
--------- ---------
Property and equipment, net $ 81,899 $ 117,950
========= =========
</TABLE>
F-47
<PAGE>
Long Distance Technologies, Inc.
Notes to Financial Statements--(Continued)
5. Notes Payable
At December 31, 1998 and 1997, the note payable to a related party totaled
$20,000 and was payable to an officer of Long Distance. The note has an inter-
est rate of 16 percent and is due with accrued interest on December 31, 1999.
In January 1998, Long Distance issued a promissory note in the amount of
$220,000 with detachable warrants to purchase 30,000 shares of Long Distance's
common stock. The note carried an interest rate of 12 percent. The effective
interest rate was 60.261 percent. The note was repaid with proceeds from the
Series A Redeemable convertible preferred stock offering executed in February
1998 (see Note 6). The warrants were exercised on June 4, 1999 at a price per
share of $0.01 (see Note 12).
6. Preferred Stock
Series A Redeemable Convertible Preferred Stock
In February 1998, Long Distance raised proceeds (net of offering costs of
$75,162) of $1,124,838 from the issuance of 800,000 shares of Series A Redeem-
able Convertible preferred stock ("Series A Preferred") and warrants to pur-
chase 713,000 shares of common stock at $0.01 per share to a venture capital
fund (the "Series A Offering"). The warrants were exercisable immediately and
would have expired in February 2008. Both the Series A Preferred and the war-
rants were subject to anti-dilution protection. The holders of Series A Pre-
ferred were entitled to vote the number of preferred shares outstanding on the
same basis as holders of Long Distance's common stock.
The holders of Series A Preferred were entitled to receive preferential divi-
dends in cash, when, as and if declared by Long Distance. No dividends were de-
clared or paid during 1997 or 1998.
The Series A Preferred was automatically converted into Long Distances' common
stock on June 4, 1999, on a 1:1 basis (see Note 12). The warrants were exer-
cised at a price per share of $.01 on June 4, 1999 (see Note 12).
The carrying value of the Series A Redeemable, which reflected an original dis-
count of $324,712 related to the warrants and issuance costs, was increased by
periodic accretions so that the carrying value would equal the mandatory re-
demption value of $1.50 per share on the earliest mandatory redemption date of
February 2003. During 1998, such accretion totaled $56,825.
Series B Convertible Preferred Stock
In December 1998, Long Distance raised proceeds (net of offering costs of
$55,181) of $194,819 from the issuance of 1,630,282 shares of Series B Convert-
ible preferred stock ("Series B Preferred") to a venture capital fund. The Se-
ries B Preferred was subject to anti-dilution protection. The holders of Series
B Preferred were entitled to vote the number of preferred shares outstanding on
the same basis as the holders of Long Distance's common stock.
The holders of Series B Preferred were entitled to receive preferential divi-
dends in cash, when, as and if declared by Long Distance, only after dividends
declared relating to Series A Preferred have been paid. No dividends were de-
clared or paid during 1997 or 1998.
The issuance of Series B Preferred triggered the anti-dilution provisions of
the Series A Offering. Under such provisions, 562,916 shares of common stock
and warrants to purchase 501,886 shares of common stock were issued to the
holders of the Series A Preferred during 1998. Common stock and additional
paid-in capital were increased by $5,629 and $228,068, respectively.
In March 1999, Long Distance raised proceeds of $82,674 (net of offering costs
of $17,326) through the issuance of 652,113 shares of Series B Convertible pre-
ferred stock and 256,087 shares of common stock to a venture capital fund.
The issuance of Series B Preferred in March 1999 triggered the anti-dilution
provisions of the Series A Offering and the initial Series B Offering. Under
such provisions, 534,312 shares of common stock and warrants to purchase
476,181 shares of common stock were issued to the holders of the Series A Pre-
ferred and 640,216 shares of common stock were issued to the holders of the Se-
ries B Preferred during 1999.
F-48
<PAGE>
Long Distance Technologies, Inc.
Notes to Financial Statements--(Continued)
Common stock and additional paid-in capital were increased by $14,306 and
$79,173, respectively, related to the anti-dilution provisions.
The Series B Preferred was automatically converted into Long Distances' common
stock on June 4, 1999 on a 1:1 basis (see Note 12).
7. Income Taxes
The components of Long Distance's net deferred tax asset as of December 31,
1997 and 1998, and June 4, 1999, were as follows:
<TABLE>
<CAPTION>
-----------------------------------
1997 1998 1999
--------- --------- -----------
(Unaudited)
<S> <C> <C> <C>
Non-current deferred tax assets
(liabilities):
Net operating loss carryforwards $ 429,800 $ 867,900 $ 1,008,100
Promotional expenses (16,200) (10,500)
Deferred revenues 27,000 17,500
Fixed assets 7,300 1,200 (2,300)
--------- --------- -----------
Total deferred tax assets 437,100 879,900 1,012,800
Valuation allowances (437,100) (879,900) (1,012,800)
--------- --------- -----------
Net deferred tax assets $ -- $ -- $ --
========= ========= ===========
</TABLE>
Based on management's evaluation of the positive and negative evidence im-
pacting the realizability of the deferred tax assets, a full valuation allow-
ance has been provided. Management considered Long Distance's history of losses
and concluded that as of December 31, 1997 and 1998, the deferred tax assets
should be fully reserved.
For the periods ended December 31, 1997 and 1998, reported income taxes dif-
fered from income tax benefit that would result from applying the federal stat-
utory rate of 34% to pretax loss due to the following:
<TABLE>
<CAPTION>
---------------------
1997 1998
--------- ---------
<S> <C> <C>
Federal income tax benefit $(433,000) $(389,200)
State tax benefit, net of federal income tax
benefit (61,000) (54,800)
Contract marketing expenses 34,680
Compensation expense 80,900 --
Meals and entertainment 750 700
Officers' life insurance 470 600
Change in valuation allowance 377,200 442,700
--------- ---------
Tax benefit $ -- $ --
========= =========
</TABLE>
At December 31, 1998, Long Distance had federal and state operating loss
carryforwards totaling approximately $2.2 million that could be offset against
future federal and state taxable income. Such loss carryforwards expire in 2016
(federal) and 2001 (state). Under the Tax Reform Act of 1986, the amounts of
and benefits from net operating losses carried forward might be impaired or
limited in certain circumstances. Long Distance will be limited in the amount
of net operating losses that may be utilized in any one year due to a cumula-
tive change in ownership of more than 50% over a three-year period. At December
31, 1997 and 1998, the effect of such limitations, if imposed, is not expected
to be significant.
F-49
<PAGE>
Long Distance Technologies, Inc.
Notes to Financial Statements--(Continued)
8. Lease Commitments
During 1997 and 1998, Long Distance leased office space and certain equipment
under various operating leases. Rental expense charged to operations for all
operating leases totaled approximately $34,000 and $74,000 for the years ended
December 31, 1997 and 1998, respectively. As of December 31, 1998, future mini-
mum lease commitments on leases that have initial or remaining non-cancelable
lease terms of one year or longer were as follows:
<TABLE>
<S> <C>
1999 $ 52,830
2000 46,286
2001 24,642
---------
Total minimum lease payments $ 123,758
=========
</TABLE>
9. Stock Options and Warrants
Stock Options
During 1998, Long Distance implemented a stock option plan (the "Plan") pursu-
ant to which employees and directors of Long Distance, as well as selected con-
sultants, will be granted stock options to acquire up to a maximum of 60,000
shares of Long Distance's common stock. The term of the Plan is until January
20, 2008. Option exercise prices are no less than 85% of the fair market value
of the common stock at the date of grant. Vested options may be exercised for a
period of up to ten years from the date of grant.
In March 1998, Long Distance granted an option to purchase 10,000 shares of
Long Distance's common stock to a driver's agent pursuant to the Plan. The op-
tion price is $2.00 per share. The option vests as follows: (i) 5,000 shares
were exercisable and vested immediately upon grant; and (ii) 5,000 became exer-
cisable on March 15, 1999. No compensation expense was recorded because the
fair value of the option was considered to be insignificant at the date of
grant.
Common Stock Warrants
During 1998 Long Distance issued warrants to purchase a total of 1,244,886
shares of common stock to holders of the Series A Preferred and to the holder
of the promissory note payable (see Notes 5 and 6). All warrants are immedi-
ately exercisable at a price per share of $0.01 up to ten years from the date
of closing of the respective financings. No warrants were exercised during
1998.
10. Related Party Transactions
In connection with common stock issued to an officer and a director of Long
Distance, compensation expense and marketing expense, respectively of $208,600
and $89,400, respectively, was recognized during 1997.
Long Distance paid approximately $58,000 and $103,000 in marketing expenses in
1997 and 1998, respectively, to a firm whose president is a director and share-
holder of Long Distance.
Long Distance paid approximately $27,000 and $20,000 in 1997 and 1998, respec-
tively, for logistics services provided by a shareholder of Long Distance.
Long Distance paid approximately $48,000 and $46,000 in legal expenses for 1997
and 1998, respectively, to a law firm of a director and shareholder of Long
Distance.
Long Distance paid approximately $56,000 in 1997, for commentator expenses to
shareholders of Long Distance.
11. Commitments
In May 1998, Long Distance entered into a licensing agreement with NASCAR,
which was subsequently amended in March 1999. The license fee for 1998 was
$40,000. Under such agreement, as amended, Long Distance has guaranteed a mini-
mum of $35,000 and $50,000 in licensing royalties to NASCAR in 1999 and 2000,
respectively.
F-50
<PAGE>
Long Distance Technologies, Inc.
Notes to Financial Statements--(Concluded)
12. Subsequent Events
On June 4, 1999, Long Distance was merged with and into Motortrax Acquisition
Corporation, Inc. The name of the surviving merged corporation was changed to
Total Motorsports, Inc. Immediately preceding the merger, all issued and out-
standing Series A Redeemable and Series B Convertible preferred stock was con-
verted on a 1:1 basis (see Note 6) into common stock. In addition, all issued
and outstanding warrants to purchase common stock were exercised at the stated
price per share ($0.01). Immediately prior to the merger, warrants to purchase
1,721,067 shares of Long Distance common stock had been granted and outstand-
ing. Proceeds from the exercise of warrants amounted to $17,211. As a result of
the conversion and exercise, 4,803,462 shares of common stock of Long Distance
were issued. The resulting issued and outstanding common stock of Long Dis-
tance, representing 9,071,993 shares, was then exchanged for 284,401 shares of
Total Sports Inc. common stock in a transaction valued at approximately $3.2
million. The conversion and exercise of all previously issued and outstanding
Series A Redeemable and Series B Convertible preferred stock and warrants has
been reflected in the accompanying unaudited interim condensed financial state-
ments at June 4, 1999.
In August 1999, Total Motorsports, Inc. entered into a sales agreement with a
third-party to sell certain prepaid calling cards. The contractual revenues un-
der this agreement are approximately $441,000. The committed term of the agree-
ment is through June 30, 2000.
F-51
<PAGE>
Unaudited Pro Forma Financial Data
The following unaudited pro forma consolidated financial data have been derived
by the application of pro forma adjustments to the historical financial state-
ments of Total Sports Inc. for the periods indicated. The adjustments are de-
scribed in the accompanying notes. The unaudited pro forma financial data give
effect solely to our June 4, 1999 acquisition of Long Distance Technologies,
Inc., which was financed by the issuance of 284,401 shares of our common stock
valued at $3,227,951. The acquisition has been accounted for under the purchase
method of accounting and is included in our audited balance sheet as of Decem-
ber 31, 1999. The unaudited pro forma statement of operations data for the year
ended December 31, 1999 give effect to the Long Distance Technologies acquisi-
tion as if it occurred on January 1, 1999.
The unaudited pro forma financial data are provided for informational purposes
only and do not represent our results of operations or financial position had
the Long Distance Technologies acquisition occurred on January 1, 1999, nor are
they indicative of our results of operations or financial position as of any
future date or period. The unaudited pro forma financial data and accompanying
notes should be read in conjunction with the consolidated financial statements
and accompanying notes thereto and the other financial information included
elsewhere in this prospectus.
F-52
<PAGE>
Unaudited Pro Forma Statement of Operations Data
Year Ended December 31, 1999
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Historical Historical
------------- -------------
Five Months
Year Ended Ended
December 31, May 31, 1999
1999 Total Long Distance Acquisition Total
Sports Technologies Subtotal Adjustments Pro Forma
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Digital publishing $ 5,396,906 $ 47,216 $ 5,444,122 $ 5,444,122
Print publishing 1,831,208 1,831,208 1,831,208
E-commerce 1,355,569 1,355,569 1,355,569
------------- ---------- ------------- ------------ -------------
Total revenues 8,583,683 47,216 8,630,899 -- 8,630,899
------------- ---------- ------------- ------------ -------------
Cost of Revenues:
Digital publishing 8,605,150 173,502 8,778,652 8,778,652
Print publishing 3,334,141 3,334,141 3,334,141
E-commerce 1,191,376 1,191,376 1,191,376
------------- ---------- ------------- ------------ -------------
Total cost of
revenues 13,130,667 173,502 13,304,169 -- 13,304,169
------------- ---------- ------------- ------------ -------------
Gross profit (loss) (4,546,984) (126,286) (4,673,270) (4,673,270)
Operating Expenses:
Product development 4,171,106 20,312 4,191,418 4,191,418
Sales and marketing 5,388,561 44,225 5,432,786 5,432,786
General and
administrative 4,951,314 153,737 5,105,051 5,000 (a) 5,110,051
Amortization 1,519,684 1,519,684 2,102,000 (b) 3,621,684
------------- ---------- ------------- ------------ -------------
Total operating
expenses 16,030,665 218,274 16,248,939 2,107,000 18,355,939
------------- ---------- ------------- ------------ -------------
Operating loss (20,577,649) (344,560) (20,922,209) (2,107,000) (23,029,209)
------------- ---------- ------------- ------------ -------------
Other income
(expense), net (358,849) 1,122 (357,727) (357,727)
------------- ---------- ------------- ------------ -------------
Net loss (20,936,498) (343,438) (21,279,936) (2,107,000) (23,386,936)
Dividends on
preferred stock (194,005) (194,005) (194,005)
------------- ---------- ------------- ------------ -------------
Net loss applicable
to common
shareholders $ (21,130,503) $ (343,438) $ (21,473,941) $ (2,107,000) $ (23,580,941)
============= ========== ============= ============ =============
Loss Per Share (c):
Basic and diluted $ (11.88) $ (13.26)
============= =============
Weighted-Average
Number of Shares
Outstanding (c):
Basic and diluted 1,778,670 1,778,670
============= =============
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations Data.
F-53
<PAGE>
Notes to Unaudited Pro Forma Statement of Operations Data
(a) Reflects additional depreciation expense in connection with the Long Dis-
tance Technologies acquisition.
(b) The Long Distance Technologies acquisition has been accounted for using
the purchase method of accounting. The purchase price allocation for the Long
Distance Technologies acquisition has not been finalized and is based on
available information, internal estimates and assumptions we believe are rea-
sonable. The purchase price will be allocated to the tangible and intangible
assets acquired and liabilities assumed based upon their respective fair val-
ues at the time the acquisition was consummated, pending completion of ap-
praisals of property and equipment acquired. The excess of the purchase price
over the historical basis of the net assets acquired has been allocated to
goodwill based on preliminary estimates. The actual allocation of the purchase
cost, however, and the resulting effect on income from operations may differ
significantly from the pro forma amounts included herein pending the comple-
tion of appraisals and other purchase price adjustments. The following table
summarize the preliminary purchase price allocation of the Long Distance Tech-
nologies acquisition:
<TABLE>
<S> <C>
Current assets................................ $ 127,001
Property and equipment........................ 110,896
Goodwill...................................... 3,327,478
Liabilities assumed........................... (337,424)
<CAPTION>
----------
<S> <C>
$3,227,951
<CAPTION>
==========
</TABLE>
Preliminary goodwill of $3,327,000 resulting from the Long Distance Technolo-
gies acquisition will be amortized over a period of 19 months, which coincides
with the remaining term of Long Distance Technologies' contract for NASCAR
broadcasting rights as of June 4, 1999, the date of acquisition.
The 284,401 shares of Total Sports' common stock issued as consideration in
the Long Distance Technologies acquisition are being held in escrow until any
and all indemnification claims or disputed claims notices have been satisfied.
One-third of the shares held in escrow, less a portion to be forfeited to sat-
isfy any indemnification claims, are due to be released on June 4, 2000, sub-
ject to the occurrence of a significant event. The escrow agreement defines a
significant event as the effectiveness of a registration statement for the
sale of the shares held in escrow in a underwritten public offering registered
under the Securities Act of 1933, or the consummation of a transaction or se-
ries of events that result in the escrowed shares becoming publicly traded. If
such a significant event occurs before June 4, 2000, then at that date
escrowed shares with a value in excess of $4.0 million shall be released from
escrow, less any portion subject to a disputed claims notice. Upon the occur-
rence of a significant event after June 4, 2000, an additional amount of
escrowed shares then in excess of $4.0 million shall be released, less any
portion subject to a disputed claims notice. The remainder of the escrowed
shares shall be released December 4, 2000, to the extent the escrowed shares
are not required to be forfeited in satisfaction of indemnification claims or
disputed claims notices.
(c) Basic and diluted weighted-average shares outstanding for the year ended
December 31, 1999 exclude 284,401 shares to arrive at pro forma weighted-aver-
age shares outstanding because all 284,401 shares of common stock issued in
consideration for the Long Distance Technologies acquisition are currently
held in escrow and the final number of shares to be issued is contingent upon
the satisfaction of any indemnification claims or disputed claims notices.
F-54
<PAGE>
[LOGO OF TOTAL SPORTS]
<PAGE>
Part II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than the under-
writing discount, payable by the registrant in connection with the sale of com-
mon stock being registered. All amounts are estimates except the SEC registra-
tion fee, the NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
----------
<S> <C>
SEC Registration Fees............................................... $ 15,985
NASD Fees........................................................... 6,250
Nasdaq National Market Listing Fees................................. 90,000
Printing and Engraving Expenses..................................... 150,000
Legal Fees and Expenses............................................. 450,000
Accounting Fees and Expenses........................................ 650,000
Blue Sky Fees and Expenses.......................................... 10,000
Transfer Agent Fees................................................. 20,000
Miscellaneous and Registrant's Costs................................ 7,765
----------
Total............................................................. $1,400,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides, in
effect, that any person made a party to any action by reason of the fact that
he is or was a director, officer, employee or agent of Total Sports may and, in
certain cases, must be indemnified by Total Sports against, in the case of a
non-derivative action, judgments, fines, amounts paid in settlement and reason-
able expenses (including attorneys' fees) incurred by him as a result of such
action, and in the case of a derivative action, against expenses (including at-
torneys' fees), if in either type of action he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
Total Sports. This indemnification does not apply, in a derivative action, to
matters as to which it is adjudged that the director, officer, employee or
agent is liable to Total Sports, unless upon court order it is determined that,
despite such adjudication of liability, but in view of all the circumstances of
the case, he is fairly and reasonably entitled to indemnity for expenses, and,
in a non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
Total Sports' certificate of incorporation, as amended, provides that no direc-
tor of Total Sports shall be liable to Total Sports or its stockholders for
monetary damages for breach of fiduciary duty as a director to the fullest ex-
tent permitted by the DGCL.
Total Sports' certificate of incorporation, as amended, also provides that To-
tal Sports shall indemnify to the fullest extent permitted by Delaware law any
and all of its directors and officers, or former directors and officers, or any
person who may have served at Total Sports' request as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise.
Reference is made to Section 7 of the underwriting agreement to be filed as Ex-
hibit 1.1 hereto, pursuant to which the Underwriters have agreed to indemnify
officers and directors of Total Sports against certain liabilities under the
Securities Act.
Total Sports has entered into Indemnification Agreements with each director of
Total Sports with each director of Total Sports, a form of which is filed an
Exhibit to this Registration Statement. Pursuant to such agreements, Total
Sports will be obligated, to the extent permitted by applicable law, to indem-
nify such directors against all expenses, judgments, fines and penalties in-
curred in connection with the defense or settlement of any actions brought
against them by reason of the fact that they were directors of Total Sports or
assumed certain responsibilities at the director of Total Sports. Total Sports
also intends to purchase directors and officers liability for indemnification
of directors and officers.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
In connection with the formation of Total Ltd., the predecessor of Total
Sports, Total Ltd. issued an aggregate of 961,291 shares of its common stock to
one accredited and ten nonaccredited individuals for an aggregate consideration
of $961.30. These shares were issued by Total Ltd. in reliance on the exemption
from registration under Section 4(2) of the Securities Act.
In March 1997, Total Ltd. issued 290,323 shares of its common stock in exchange
for the outstanding common stock of Sports Extra, Inc., a Connecticut corpora-
tion, pursuant to an agreement of merger and plan of reorganization. These
shares of common stock were issued in reliance on the exemption from registra-
tion under Section 4(2) of the Securities Act.
In May 1997, Total Ltd. issued stock purchase warrants to two accredited in-
vestors, Frank A. Daniels III, and Frank A. Daniels, Jr., exercisable for an
aggregate of 16,200 shares of common stock of Total Ltd., at an exercise price
of $3.42 per share. These warrants terminate on the earliest to occur of May
15, 2007, an acquisition of the Registrant or the closing of the Registrant's
initial public offering. These warrants were issued by Total Ltd. in reliance
on the exemption from registration under Section 4(2) of the Securities Act.
Pursuant to an investment agreement dated as of June 2, 1997, two accredited
investors, Piedmont Venture Partners Limited Partnership and Mr. Daniels, Jr.,
purchased, for an aggregate purchase price of $1,250,000, an aggregate of
125,000 shares of Total Ltd.'s Series A preferred stock and warrants exercis-
able for 365,218 shares of its common stock, at an exercise price of $0.01 per
share. These shares of Series A preferred stock and the warrants were issued by
Total Ltd. in reliance on the exemption from registration under the Securities
Act provided by Rule 506 of Regulation D thereunder.
In June 1997, Total Ltd. issued a stock purchase warrant to Carolina Financial
Securities, LLC, an accredited investor, exercisable for 6,598 shares of common
stock of Total Ltd. at an exercise price of $3.44 per share. This warrant ter-
minates on the earliest to occur of June 2, 2002, the acquisition of the Regis-
trant, or the closing of the Registrant's initial public offering. This issu-
ance was made by Total Ltd. in reliance upon the exemption from registration
under Section 4(2) of the Securities Act.
Pursuant to a Series B investment agreement, dated as of November 4, 1997, five
accredited investors, Nurray Telluride Properties Limited Partnership, Piedmont
Venture Partners, Mr. Daniels, Jr., Mr. Daniels, III and Julie Nowell, pur-
chased an aggregate of 445,263 shares of Series B preferred stock of Total Ltd.
for an aggregate purchase price of approximately $2,000,000. The shares of Se-
ries B preferred stock were issued by Total Ltd. in reliance upon the exemption
from registration under the Securities Act provided by Rule 506 of Regulation D
thereunder.
In November 1997, Total Ltd. issued stock purchase warrants to Carolina Finan-
cial Securities and four of its then current principals, all accredited invest-
ors, exercisable for an aggregate of 8,285 shares of common stock of Total Ltd.
at an exercise price of $4.94 per share. These warrants terminate on the earli-
est to occur of the date five years from the date of issuance, the acquisition
of the Registrant, or the closing of the Registrant's initial public offering.
These issuances were made by Total Ltd. in each case, in reliance upon the ex-
emption from registration under Section 4(2) of the Securities Act.
Pursuant to an asset purchase agreement and plan of reorganization dated as of
December 22, 1997, Total Ltd. issued an aggregate of 33,142 shares of its com-
mon stock to three nonaccredited individuals in exchange for the assets of
Designet, Inc., a North Carolina corporation. These shares of common stock were
issued by Total Ltd. in reliance on the exemption from registration under Sec-
tion 4(2) of the Securities Act.
Pursuant to note and warrant purchase agreements dated January 14, 1998, March
2, 1998 and April 7, 1998 Total Ltd. issued an aggregate of $2,500,000 10% con-
vertible promissory notes and issued stock purchase warrants exercisable for an
aggregate of 83,482 shares of Series B preferred stock, at an exercise price of
$4.492 per share, each expiring on January 31, 2008. On June 16, 1998, the war-
rants were amended to become exercisable for an aggregate 50,805 shares of Se-
ries B preferred stock at an exercise price of $4.492 per share. These notes
and warrants were sold for an aggregate consideration of $2,500,000 to three
accredited investors, Piedmont Venture Partners, Nuray Telluride Properties and
Mr. Daniels, III. These issuances were made by Total Ltd., in each case, in re-
liance upon the exemption from registration under Section 4(2) of the Securi-
ties Act.
On January 20, 1998, Total Ltd. issued a stock purchase warrant to Mr. Daniels,
III exercisable for 7,268 shares of common stock of the Registrant at an exer-
cise price of $4.492 per share, dated effective September 4, 1997. This warrant
terminates on the earliest to occur of September 4, 2002, the acquisition of
the Registrant, or the closing of the Registrant's initial public offering.
This warrant was issued by Total Ltd. on reliance of the exemption from regis-
tration under Section 4(2) of the Securities Act.
II-2
<PAGE>
In June 1998, pursuant to a reorganization and plan of merger, each outstanding
share of Total Ltd.'s common stock was converted into one share of Registrant's
common stock, each outstanding share of Total Ltd.'s Series A preferred stock
was converted into one share of Registrant's Series A redeemable preferred
stock, each outstanding share of Total Ltd.'s Series B preferred stock was con-
verted into one share of Registrant's Series B preferred stock, each outstand-
ing option to purchase shares of Total Ltd.'s common stock automatically con-
verted into an option to purchase the same number of shares of Registrant's
common stock and each outstanding warrant to purchase shares of Total Ltd.'s
common stock or Series B preferred stock automatically converted into a warrant
exercisable for the same number of shares of Registrant's common stock or Se-
ries B preferred stock. These issuances were made in reliance upon the exemp-
tion from registration under Section 4(2) of the Securities Act.
Pursuant to a subscription agreement dated as of June 2, 1998, the Registrant
issued 837,942 shares of its common stock to Total College Communications Com-
pany, L.L.C. which distributed such shares of common stock to its members, To-
tal Ltd. and Host Communications, Inc. These shares of common stock were issued
in reliance upon the exemption from registration under Section 4(2) of the Se-
curities Act.
Pursuant to a note and warrant purchase agreement, dated as of June 16, 1998,
the Registrant sold to Piedmont Venture Partners and one unaffiliated accred-
ited investor an aggregate of $1,100,000 10% convertible promissory notes and
stock purchase warrants exercisable for an aggregate of 22,773 shares of Series
B preferred stock at an exercise price of $4.492 per share, expiring on June
30, 2008. The issuance of these notes and warrants were made by the Registrant,
in each case, in reliance upon the exemption from registration under Section
4(2) of the Securities Act.
Pursuant to a Series C investment agreement, dated as of August 6, 1998, seven
accredited and 12 nonaccredited investors purchased an aggregate of 1,418,200
shares of Series C preferred stock for an aggregate purchase price of
$10,077,729.20 which included approximately $3,726,885 for the cancellation of
10% convertible promissory notes. In addition, four of those investors, includ-
ing WinStar Interactive Ventures I, Inc., Piedmont Venture Partners, Nuray
Telluride Properties and Mr. Daniels, III also received an option to purchase
an aggregate of up to 632,244 shares of Series C1 preferred stock, for an ag-
gregate purchase price of up to $5,999,995.59. These shares of Series C pre-
ferred stock were issued in reliance on the exemption from registration under
the Securities Act provided by Rule 506 of Regulation D thereunder.
In August 1998, the Registrant issued stock purchase warrants to Carolina Fi-
nancial Securities and five of its then current principals, all accredited in-
vestors, exercisable for an aggregate of 31,458 shares of common stock of the
Registrant at an exercise price of $7.82 per share. These warrants terminate on
the earliest to occur of the date five years from the date of issuance, the ac-
quisition of the Registrant, or the closing of the Registrant's initial public
offering. These issuances were made by the Registrant, in each case, in reli-
ance upon the exemption from registration under Section 4(2) of the Securities
Act.
The Registrant issued a stock purchase warrant dated as of August 7, 1998, to a
nonaccredited individual investor exercisable for 20,000 shares of the common
stock of the Registrant at an exercise price of $7.106 per share. This warrant
terminates on the earliest to occur of August 7, 2003, the acquisition of the
Registrant, or the closing of the Registrant's initial public offering. This
warrant was issued by the Registrant upon reliance upon the exemption from reg-
istration under Section 4(2) of the Securities Act.
Pursuant to a subscription agreement dated September 15, 1998, the Registrant
issued 37,100 shares of its common stock to Mr. Daniels, III in exchange for
his personal guaranty of the Registrant's line of credit with First Union Na-
tional Bank. These shares of common stock were issued by the Registrant in re-
liance upon the exemption from registration under Section 4(2) of the Securi-
ties Act.
Pursuant to a subscription agreement approved by the board of directors on Au-
gust 6, 1998, the Registrant issued to a director and accredited investor
14,073 shares of its common stock valued at $1.25 per share in exchange for
services provided and to be provided. These shares of common stock were issued
by the Registrant in reliance on the exemption from registration under Section
4(2) of the Securities Act.
On September 22, 1998, the Registrant issued a stock purchase warrant to an ac-
credited investor, Allen & Company Incorporated, exercisable for 318,500 shares
of common stock of the Registrant at an exercise price of $7.106 per share.
This warrant is exercisable on or before the earliest to occur of June 30, 2005
or the acquisition of the Registrant as a result of which stockholders of the
Registrant immediately prior to such acquisition dispose of at least 90% of
their voting power of the Registrant as a part of such acquisition. This issu-
ance was made by the Registrant in reliance upon the exemption from registra-
tion under Section 4(2) of the Securities Act.
II-3
<PAGE>
Pursuant to a stock purchase agreement, dated as of January 1999, 36 accredited
and 20 nonaccredited investors purchased an aggregate of 630,756 shares of Se-
ries C1 preferred stock for an aggregate purchase price of $5,985,874.44. These
shares of Series C1 preferred stock were issued by the Registrant in reliance
upon the exemption from registration under the Securities Act provided by Rule
506 of Regulation D thereunder.
In January 1999 and April 1999, the Registrant issued stock purchase warrants
to Carolina Financial Securities and seven of its principals, all accredited
investors, exercisable for an aggregate of 12,907 shares of the common stock of
the Registrant at an exercise price of $10.44 per share. These warrants termi-
nate on the earliest to occur of the date 5 years from the date of issuance of
such warrant, the acquisition of the Registrant, or the closing of the Regis-
trant's initial public offering. These warrants were issued by the Registrant
in reliance upon the exemption from registration under Section 4(2) of the Se-
curities Act.
Pursuant to a subscription agreement as of March 1999, the Registrant issued
18,550 shares of its common stock to Mr. Daniels, III in exchange for his con-
tinuing personal guaranty of the Registrant's line of credit with First Union
from January 15, 1999 to July 15, 1999. These shares of common stock were is-
sued by the Registrant in reliance on the exemption from registration under
Section 4(2) of the Securities Act.
Pursuant to a note and warrant purchase agreement dated as of June 1999, the
Registrant issued to Labatt Brewing Company Limited, a foreign investor, a
$4,000,000 10% convertible promissory note, due and payable on May 31, 2000 and
convertible into the same type of securities issued during the next round of
financing, and a stock purchase warrant exercisable for 39,888 shares of common
stock at an exercise price of $25.07 per share, terminating on May 31, 2009.
These notes and warrants were sold for an aggregate consideration of
$4,000,000. The warrants were subsequently adjusted to be exercisable for
60,277 shares of common stock at an exercise price of $16.59 per share upon the
sale of Series D preferred stock by the Registrant. The issuance of this note
and warrant was made by the Registrant in reliance upon the exemption from reg-
istration under the Securities Act provided by Section 4(2) thereunder.
Pursuant to an agreement and plan of merger, dated as of May 3, 1999 and effec-
tive on June 18, 1999, the Registrant issued an aggregate 284,401 shares of its
common stock to six institutional investors and 40 individual investors in ex-
change for all of the outstanding capital stock of Long Distance Technologies,
Inc. d/b/a/ Motortrax. The issuance of such common stock was made by Registrant
in reliance upon the exemption from registration under the Securities Act pro-
vided by Section 4(2) thereunder.
Pursuant to a note and warrant purchase agreement, dated as of September 14,
1999, the Registrant sold to six accredited investors an aggregate of
$2,500,000 convertible promissory notes and stock purchase warrants exercisable
for an aggregate 15,067 shares of common stock, at an exercise price of $16.59
per share, expiring on the earliest to occur of September 14, 2009, the acqui-
sition of the Registrant, or the closing of the Registrant's initial public of-
fering. These issuances were made by the Registrant, in each case, in reliance
upon the exemption from registration under the Securities Act provided by Rule
506 of Regulation D thereunder.
Pursuant to a Series D preferred stock and warrant purchase agreement, dated
November 12, 1999, 50 accredited investors purchased an aggregate of 2,140,873
shares of Series D preferred stock and warrants exercisable for 963,370 shares
of Series D preferred stock, at an exercise price of $16.59 per share, for an
aggregate purchase price of approximately $35,500,000. These shares of Series D
preferred stock and warrants were issued by the Registrant in reliance upon the
exemption from registration under the Securities Act provided by Rule 506 of
Regulation D thereunder.
Pursuant to a stock purchase agreement, dated November 12, 1999, the Registrant
issued 811,423 shares of common stock and 811,423 shares of Series E preferred
stock to NBC Sports, an accredited investor, in exchange for $17.4 million cer-
tain on-air promotion and marketing of Registrant's real-time live sporting
event coverage. These shares of common stock were issued by the Registrant in
reliance upon the exemption from registration under the Securities Act provided
by Rule 506 of Regulation D thereunder.
In November 1999, the Registrant issued stock purchase warrants to Carolina Fi-
nancial Securities and seven of its then current principals, all accredited in-
vestors, exercisable for an aggregate 46,004 shares of common stock of the Reg-
istrant at an exercise price of $18.25 per share, expiring on November 12,
2004. These issuances were made by the Registrant, in each case, in reliance
upon the exemption from registration under Section 4(2) of the Securities Act.
As of December 31, 1999, the Registrant had issued options to purchase an ag-
gregate of 468,773 shares of common stock pursuant to the Registrant's 1997
Stock Plan at an average exercise price of $9.37 per share. The Registrant has
also issued an aggregate of 13,389 shares of common stock to various employees
upon the exercise of options granted pursuant to the Registrant's 1997 Stock
Incentive Plan for an aggregate consideration of $14,895.00, at an average ex-
ercise price of $1.11 per share. These grants of options, and the sales of com-
mon stock upon the exercise of these options, were made in reliance on the ex-
emptions from registration under the Securities Act provided by Rule 701 there-
under.
II-4
<PAGE>
The following table sets forth information regarding these grants.
<TABLE>
<CAPTION>
-------------------
Securities
Underlying Exercise
Dates of Grant Option Price
- -------------- ---------- --------
<S> <C> <C>
November 10, 1997....................................... 20,538 $ .50
January 20, 1998........................................ 7,120 $ .50
January 20, 1998........................................ 11,131 $ .55
June 1, 1998............................................ 46,126 $ .75
September 28, 1998...................................... 8,267 $ 1.25
September 28, 1998...................................... 4,800 $ .01
January 20, 1999........................................ 2,424 $ 1.50
January 20, 1999........................................ 4,800 $ .01
June 23, 1999........................................... 290,000 $10.20
October 1, 1999......................................... 17,300 $16.59
October 1, 1999......................................... 8,100 $ .01
December 15, 1999....................................... 72,983 $16.59
</TABLE>
II-5
<PAGE>
Item 16. Exhibits and Financial Statements Schedules.
(a)Exhibits.
<TABLE>
- -------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation of Registrant.
3.2* Form of Restated Certificate of Incorporation of Registrant.
3.3** Bylaws of Registrant.
3.4* Form of Amended and Restated Bylaws of Registrant.
4.1* Specimen certificate for shares of common stock.
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the Certificate
of Incorporation and Bylaws of the Registrant defining rights of
holders of common stock of Registrant.
5.1 Opinion of Wyrick Robbins Yates & Ponton LLP.
10.1** Total Sports Inc. 1997 Stock Plan.
10.2** Employment and Noncompetition Agreement between the Registrant and
John Thorn, dated March 31, 1997.
10.3** Noncompetition, Nondisclosure and Inventions Agreement between the
Registrant and Frank A. Daniels, III, dated June 2, 1997.
10.4** Noncompetition, Nondisclosure and Inventions Agreement between the
Registrant and George Schlukbier, dated June 2, 1997.
10.5* Revolving Loan Agreement between the Registrant and First Union
National Bank, N.A.
10.6+ Letter Agreement between Registrant and NBC Sports, dated November 11,
1999.
10.7+ Web site and Cybercasting Agreement between the Registrant and Host
Communications, Inc., dated February 15, 1998, as amended February 1,
1999.
10.8+ TotalCast Agreement between the Registrant and Major League Baseball
Enterprises, Inc., dated April 1, 1999.
10.9+ Advertising Sales Representation Agreement between Registrant and
Golf.com L.L.C., dated January 1, 1999.
10.10+ Marketing and Distribution Agreement between Registrant and Publishers
Group West Incorporated, dated January 1, 1999.
10.11+ Agreement between the Registrant and Sports Illustrated, dated
November 10, 1999.
10.12** Lease Agreement between the Registrant and First Raleigh Telex, LLC,
dated December 1, 1998, as amended July 16, 1999.
10.13** Investor Rights Agreement, among Registrant and certain of its
stockholders, dated November 12, 1999.
10.14** Form of Common Stock Purchase Warrant, dated June 2, 1997.
10.15** Form of Series B Preferred Stock Purchase Warrant, dated January 14,
1998, March 2, 1998, April 7, 1998 and June 16, 1998.
10.16** Form of Common Stock Purchase Warrant, dated September 22, 1998.
10.17** Form of Common Stock Purchase Warrant, dated June 4, 1999.
10.18** Form of Series D1 Preferred Stock Purchase Warrant, dated November 12,
1999.
10.19** Form of Director Indemnification Agreement.
10.20 Employment Agreement between the Registrant and Marie Hasnain, dated
December 9, 1999.
10.21 Employment Agreement between Registrant and Petra Weishaupt, dated
June 18, 1999.
23.1 Consents of Deloitte & Touche LLP.
23.2 Consent of Wyrick Robbins Yates & Ponton LLP (contained in Exhibit
5.1).
24.1** Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
* To be filed in amendment.
** Previously Filed
+ Confidential treatment requested.
II-6
<PAGE>
(b) Financial Statement Schedules.
No schedules, other than Schedule II--Valuation and Qualifying Accounts and Re-
serves, are listed because the information required to be set forth therein is
not applicable or is shown in the Financial Statements or the related Notes.
Item 17. Undertakings.
The undersigned hereby undertakes to provide to the underwriter at the closing
specified in the underwriting agreements, certificates in such denominations
and registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise the registrant has been ad-
vised that in the opinion of the Securities and Exchange Commission such indem-
nification is against public policy as expressed in the Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such lia-
bilities (other than the payment by the registrant of expenses incurred or paid
by a director, officer, or controlling person of the registrant in the success-
ful defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person will unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of appro-
priate jurisdiction the question of 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.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) of
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and this offering of such securities at this time shall be deemed
to be the initial bona fide offering thereof.
II-7
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 2 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in The City of
Raleigh, State of North Carolina, on this 23rd day of February, 2000.
Total Sports Inc.
By: *
-------------------------------------
Name: Frank A. Daniels, III
Title:Chief Executive Officer
Power of Attorney
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the capaci-
ties indicated on the dates set forth below:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer February 23, 2000
______________________________________ and Chairman of the Board
Frank A. Daniels, III of Directors (Principal
Executive Officer)
* Controller (Principal February 23, 2000
______________________________________ Financial and Accounting
Petra Weishaupt Officer)
Director
______________________________________
Frank A. Daniels, Jr.
Director
______________________________________
Charles L. Jarvie
* Director February 23, 2000
______________________________________
William W. Neal
* Director February 23, 2000
______________________________________
Robert S. Prather, Jr.
* Director February 23, 2000
______________________________________
William E. Ray
* Director February 23, 2000
______________________________________
Stuart B. Rekant
* Director February 23, 2000
______________________________________
Gary R. Stevenson
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director February 23, 2000
______________________________________
C. Toms Newby, III
* Director February 23, 2000
______________________________________
John Rigas
Director
______________________________________
Kenneth D. Schanzer
/s/ George Schlukbier
*By: _________________________________
George Schlukbier
Attorney-in-Fact
</TABLE>
II-9
<PAGE>
Total Sports Inc.
Schedule II--Valuation and Qualifying Accounts and Reserves
<TABLE>
-----------------------------------------------
<CAPTION>
Additions Additions
Balance at Charged to Charged to Deductions Balance at
Beginning of Costs and Other For Payments End of
Period Expenses Accounts Or Writeoffs Period
------------ ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Period February 20, 1997
Through December 31,
1997:
Allowances for doubtful
accounts $ -- $ 22,000 $ -- $ (2,000) $ 20,000
Allowance for sales
returns -- 14,820 -- -- 14,820
Allowance for obsolete
inventory -- 37,138 -- -- 37,138
Deferred tax asset
valuation allowance -- 1,425,000 503,000 -- 1,928,000
<CAPTION>
------------ ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ -- $1,498,958 $ 503,000 $ (2,000) $ 1,999,958
<CAPTION>
------------ ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1998:
Allowance for doubtful
accounts 20,000 40,000 -- (35,168) 24,832
Allowance for sales
returns 14,820 543,244 -- (142,331) 415,733
Allowance for obsolete
inventory 37,138 143,983 -- (37,138) 143,983
Deferred tax asset
valuation allowance 1,928,000 4,326,000 -- 6,254,000
<CAPTION>
------------ ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$1,999,958 $5,053,227 $ -- $ (214,637) $ 6,838,548
========== ========== ========= ========= ===========
Year Ended December 31,
1999:
Allowance for doubtful
accounts 24,832 30,000 -- (18,365) 36,467
Allowance for sales
returns 415,733 1,430,009 -- (840,907) 1,004,835
Allowance for obsolete
inventory 143,983 487,466 -- (95,304) 536,145
Deferred tax asset
valuation allowance 6,254,000 7,187,000 394,000 13,835,000
<CAPTION>
------------ ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$6,838,548 $9,134,475 $ 394,000 $ (954,576) $15,412,447
========== ========== ========= ========= ===========
</TABLE>
S-1
<PAGE>
Exhibit Index
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation of Registrant.
3.2* Form of Restated Certificate of Incorporation of Registrant.
3.3** Bylaws of Registrant.
3.4* Form of Amended and Restated Bylaws of Registrant.
4.1* Specimen certificate for shares of common stock.
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the Certificate
of Incorporation and Bylaws of the Registrant defining rights of
holders of common stock of Registrant.
5.1 Opinion of Wyrick Robbins Yates & Ponton LLP.
10.1** Total Sports Inc. 1997 Stock Plan.
10.2** Employment and Noncompetition Agreement between the Registrant and
John Thorn, dated March 31, 1997.
10.3** Noncompetition, Nondisclosure and Inventions Agreement between the
Registrant and Frank A. Daniels, III, dated June 2, 1997.
10.4** Noncompetition, Nondisclosure and Inventions Agreement between the
Registrant and George Schlukbier, dated June 2, 1997.
10.5* Revolving Loan Agreement between the Registrant and First Union
National Bank, N.A.
10.6+ Letter Agreement between Registrant and NBC Sports, dated November 11,
1999.
10.7+ Web site and Cybercasting Agreement between the Registrant and Host
Communications, Inc., dated February 15, 1998, as amended February 1,
1999.
10.8+ TotalCast Agreement between the Registrant and Major League Baseball
Enterprises, Inc., dated April 1, 1999.
10.9+ Advertising Sales Representation Agreement between Registrant and
Golf.com L.L.C., dated January 1, 1999.
10.10+ Marketing and Distribution Agreement between Registrant and Publishers
Group West Incorporated, dated January 1, 1999.
10.11+ Agreement between the Registrant and Sports Illustrated, dated
November 10, 1999.
10.12** Lease Agreement between the Registrant and First Raleigh Telex, LLC,
dated December 1, 1998, as amended July 16, 1999.
10.13** Investor Rights Agreement, among Registrant and certain of its
stockholders, dated November 12, 1999.
10.14** Form of Common Stock Purchase Warrant, dated June 2, 1997.
10.15** Form of Series B Preferred Stock Purchase Warrant, dated January 14,
1998, March 2, 1998, April 7, 1998 and June 16, 1998.
10.16** Form of Common Stock Purchase Warrant, dated September 22, 1998.
10.17** Form of Common Stock Purchase Warrant, dated June 4, 1999.
10.18** Form of Series D1 Preferred Stock Purchase Warrant, dated November 12,
1999.
10.19** Form of Director Indemnification Agreement.
10.20 Employment Agreement between the Registrant and Marie Hasnain, dated
December 9, 1999.
10.21 Employment Agreement between Registrant and Petra Weishaupt, dated
June 18, 1999.
23.1 Consents of Deloitte & Touche LLP.
23.2 Consent of Wyrick Robbins Yates & Ponton LLP (contained in Exhibit
5.1).
24.1** Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
* To be filed in amendment.
** Previously Filed
+ Confidential treatment requested.
<PAGE>
EXHIBIT 1.1
TOTAL SPORTS INC.
Shares of Common Stock
Underwriting Agreement
, 2000
J.P. Morgan Securities Inc.
Hambrecht & Quist LLC
U.S. Bancorp Piper Jaffray Inc.
Allen & Company Incorporated
As Representatives of several Underwriters
listed in Schedule I hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
Total Sports Inc., a Delaware corporation (the "Company"), proposes to
-------
issue and sell to the several Underwriters listed in Schedule I hereto (the
"Underwriters"), for whom you are acting as representatives (the
- -------------
"Representatives"), an aggregate of shares (the "Underwritten
- ---------------- ------------
Shares") of Common Stock, no par value, of the Company (the "Common Stock") and,
------------
for the sole purpose of covering over-allotments in connection with the sale of
the Underwritten Shares, at the option of the Underwriters, up to an additional
shares of Common Stock of the Company (the "Option Shares"). The Underwritten
-------------
Shares and the Option Shares are herein referred to as the "Shares". As part of
------
the offering contemplated by this Agreement, Hambrecht & Quist LLC (the
"Designated Underwriter") has agreed to reserve out of the Underwritten Shares
- -----------------------
purchased by it under this Agreement, up to shares,
for sale to the Company's directors, officers, employees and other parties
associated with the Company (collectively, "Participants"), as set forth in the
------------
Prospectus (as defined herein) under the heading "Underwriting" (the "Directed
--------
Share Program"). The Underwritten Shares to be sold by the Designated
- -------------
Underwriter pursuant to the Directed Share Program (the "Directed Shares") will
---------------
be sold by the Designated Underwriter pursuant to this Agreement at the public
offering price. Any Directed Shares not orally confirmed for purchase by a
Participant by the end of the business day on which this Agreement is executed
will be offered to the public by the Underwriters as set forth in the
Prospectus.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
----------
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
--------------
<PAGE>
statement, including a prospectus, relating to the Shares. The registration
statement, as amended at the time when it shall become effective including
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Securities Act, is referred to
in this Agreement as the "Registration Statement", and the prospectus in the
----------------------
form first used to confirm sales of Shares is referred to in this Agreement as
the "Prospectus". If the Company has filed an abbreviated registration
----------
statement pursuant to Rule 462(b) under the Securities Act (the "Rule 462
--------
Registration Statement"), then any reference herein to the term "Registration
- ---------------------- ------------
Statement" shall be deemed to include such Rule 462 Registration Statement.
- ---------
The Company hereby agrees with the Underwriters as follows:
1. The Company agrees to issue and sell the Underwritten Shares to
the several Underwriters as hereinafter provided, and each Underwriter, upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase, severally and not jointly,
from the Company the respective number of Underwritten Shares set forth opposite
such Underwriter's name in Schedule I hereto at a purchase price per share of $
(the "Purchase Price").
--------------
In addition, the Company agrees to issue and sell the Option Shares to
the several Underwriters as hereinafter provided, and the Underwriters, on the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, shall have the option to purchase, severally and
not jointly, from the Company up to an aggregate of Option Shares at
the Purchase Price, for the sole purpose of covering over-allotments (if any) in
the sale of Underwritten Shares by the several Underwriters.
If any Option Shares are to be purchased, the number of Option Shares
to be purchased by each Underwriter shall be the number of Option Shares which
bears the same ratio to the aggregate number of Option Shares being purchased as
the number of Underwritten Shares set forth opposite the name of such
Underwriter in Schedule I hereto (or such number increased as set forth in
Section 9 hereof) bears to the aggregate number of Underwritten Shares being
purchased from the Company by the several Underwriters, subject, however, to
such adjustments to eliminate any fractional Shares as the Representatives in
their sole discretion shall make.
The Underwriters may exercise the option to purchase the Option Shares
at any time (but not more than once) on or before the thirtieth day following
the date of this Agreement, by written notice from the Representatives to the
Company. Such notice shall set forth the aggregate number of Option Shares as
to which the option is being exercised and the date and time when the Option
Shares are to be delivered and paid for which may be the same date and time as
the Closing Date (as hereinafter defined) but shall not be earlier than the
Closing Date nor later than the tenth full Business Day (as hereinafter defined)
after the date of such notice (unless such time and date are postponed in
-2-
<PAGE>
accordance with the provisions of Section 9 hereof). Any such notice shall be
given at least two Business Days prior to the date and time of delivery
specified therein.
2. The Company understands that the Underwriters intend (i) to make
a public offering of the Shares as soon after (A) the Registration Statement has
become effective and (B) the parties hereto have executed and delivered this
Agreement, as in the judgment of the Representatives is advisable and (ii)
initially to offer the Shares upon the terms set forth in the Prospectus.
3. Payment for the Shares shall be made by wire transfer in
immediately available funds to the account specified by the Company to the
Representatives in the case of the Underwritten Shares, on , 2000, or
at such other time on the same or such other date, not later than the fifth
Business Day thereafter, as the Representatives and the Company may agree upon
in writing or, in the case of the Option Shares, on the date and time specified
by the Representatives in the written notice of the Underwriters' election to
purchase such Option Shares. The time and date of such payment for the
Underwritten Shares is referred to herein as the "Closing Date" and the time and
------------
date for such payment for the Option Shares, if other than the Closing Date, are
herein referred to as the "Additional Closing Date". As used herein, the term
-----------------------
"Business Day" means any day other than a day on which banks are permitted or
- -------------
required to be closed in New York City.
Payment for the Shares to be purchased on the Closing Date or the
Additional Closing Date, as the case may be, shall be made against delivery to
the Representatives for the respective accounts of the several Underwriters of
the Shares to be purchased on such date registered in such names and in such
denominations as the Representatives shall request in writing not later than two
full Business Days prior to the Closing Date or the Additional Closing Date, as
the case may be, with any transfer taxes payable in connection with the transfer
to the Underwriters of the Shares duly paid by the Company. The certificates
for the Shares will be made available for inspection and packaging by the
Representatives at the office of J.P. Morgan Securities Inc. set forth above not
later than 1:00 P.M., New York City time, on the Business Day prior to the
Closing Date or the Additional Closing Date, as the case may be.
4. The Company represents and warrants to each Underwriter that:
(a) no order preventing or suspending the use of any preliminary prospectus has
been issued by the Commission, and each preliminary prospectus filed as
part of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities Act,
and did not contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
-3-
<PAGE>
made, not misleading; provided that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in
conformity with information relating to any Underwriter furnished to the
Company in writing by such Underwriter through the Representatives
expressly for use therein;
(b) no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceeding for that purpose has been instituted or,
to the knowledge of the Company, threatened by the Commission; and the
Registration Statement and Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) comply,
or will comply, as the case may be, in all material respects with the
Securities Act and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of the
date of the Prospectus and any amendment or supplement thereto, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and the Prospectus, as amended or supplemented, if
applicable, at the Closing Date or Additional Closing Date, as the case may
be, will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; except that
the foregoing representations and warranties shall not apply to statements
or omissions in the Registration Statement or the Prospectus made in
reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by such Underwriter through
the Representatives expressly for use therein;
(c) the financial statements, and the related notes thereto, included in the
Registration Statement and the Prospectus present fairly the consolidated
financial position of the Company and its consolidated subsidiaries as of
the dates indicated and the results of their operations and changes in
their consolidated cash flows for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis, and the supporting
schedules included in the Registration Statement present fairly the
information required to be stated therein; and the pro forma financial
information, and the related notes thereto, included in the Registration
Statement and the Prospectus has been prepared in accordance with the
applicable requirements of the Securities Act and is based upon good faith
estimates and assumptions believed by the Company to be reasonable;
(d) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change in
-4-
<PAGE>
the capital stock or long-term debt of the Company or any of its
subsidiaries, or any material adverse change, or any development involving
a prospective material adverse change, in or affecting the general affairs,
business, prospects, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries, taken as a
whole (a "Material Adverse Change"), otherwise than as set forth or
-----------------------
contemplated in the Prospectus; and except as set forth or contemplated in
the Prospectus neither the Company nor any of its subsidiaries has entered
into any transaction or agreement (whether or not in the ordinary course of
business) material to the Company and its subsidiaries, taken as a whole;
(e) the Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and has
been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other jurisdiction
in which it owns or leases properties, or conducts any business, so as to
require such qualification, other than where the failure to be so qualified
or in good standing would not have a material adverse effect on the general
affairs, business, prospects, management, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries, taken
as a whole (a "Material Adverse Effect");
-----------------------
(f) each of the Company's subsidiaries has been duly incorporated and is
validly existing as a corporation under the laws of its jurisdiction of
incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and has
been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each jurisdiction in
which it owns or leases properties, or conducts any business, so as to
require such qualification, other than where the failure to be so qualified
or in good standing would not have a Material Adverse Effect; and all the
outstanding shares of capital stock of each subsidiary of the Company have
been duly authorized and validly issued, are fully-paid and non-assessable,
and (except, in the case of foreign subsidiaries, for directors' qualifying
shares are owned by the Company), directly or indirectly, free and clear of
all liens, encumbrances, security interests and claims, provided, the
Company holds a 25% voting interest in Golf.Com L.L.C. as described in the
Prospectus;
(g) this Agreement has been duly authorized, executed and delivered by the
Company;
(h) the Company has an authorized capitalization as set forth in the Prospectus
and such authorized capital stock conforms as to legal matters to the
-5-
<PAGE>
description thereof set forth in the Prospectus, and all of the outstanding
shares of capital stock of the Company have been duly authorized and
validly issued, are fully-paid and non-assessable and are not subject to
any pre-emptive or similar rights; and, except as described in or expressly
contemplated by the Prospectus, there are no outstanding rights (including,
without limitation, pre-emptive rights), warrants or options to acquire, or
instruments convertible into or exchangeable for, any shares of capital
stock or other equity interest in the Company or any of its subsidiaries,
or any contract, commitment, agreement, understanding or arrangement of any
kind relating to the issuance of any capital stock of the Company or any
such subsidiary, any such convertible or exchangeable securities or any
such rights, warrants or options;
(i) the Shares to be issued and sold by the Company hereunder have been duly
authorized, and, when issued and delivered to and paid for by the
Underwriters in accordance with the terms of this Agreement, will be duly
issued and will be fully paid and non-assessable and will conform to the
descriptions thereof in the Prospectus; and except for the Company's
obligation to use best efforts to cause the Underwriters to establish a
program to offer Shares to holders of the Company's Series D Convertible
Preferred Stock as described in the Prospectus, which such obligation shall
be either satisfied or waived on or prior to the Closing Date, the issuance
of the Shares is not subject to any preemptive or similar rights;
(j) neither the Company nor any of its subsidiaries is, or with the giving of
notice or lapse of time or both would be, in violation of or in default
under, its certificate of incorporation (the "Certificate of
--------------
Incorporation") or by-laws (the "By-Laws") or any indenture, mortgage, deed
-------
of trust, loan agreement or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which it or any of them
or any of their respective properties is bound, except for violations and
defaults which individually and in the aggregate are not material to the
Company and its subsidiaries taken as a whole; the issue and sale of the
Shares and the performance by the Company of its obligations under this
Agreement and the consummation of the transactions contemplated herein will
not conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will any such action
result in any violation of the provisions of the Certificate of
Incorporation or the By-Laws of the Company or any applicable law or
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company, its subsidiaries or
any of their respective properties; and no consent, approval,
-6-
<PAGE>
authorization, order, license, registration or qualification of or with any
such court or governmental agency or body is required for the issue and
sale of the Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except such consents, approvals,
authorizations, orders, licenses, registrations or qualifications as have
been obtained under the Securities Act and as may be required under state
securities or Blue Sky Laws and the regulations of the National Association
of Securities Dealers, Inc. (the "NASD") in connection with the purchase
----
and distribution of the Shares by the Underwriters;
(k) other than as set forth or contemplated in the Prospectus, there are no
legal or governmental investigations, actions, suits or proceedings pending
or, to the knowledge of the Company, contemplated, threatened against or
affecting the Company or any of its subsidiaries or any of their respective
properties or to which the Company or any of its subsidiaries is or may be
a party or to which any property of the Company or any of its subsidiaries
is or may be the subject which, if determined adversely to the Company or
any of its subsidiaries, could individually or in the aggregate have, or
reasonably be expected to have, a Material Adverse Effect and, to the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others; and there are no
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required;
(l) the Company and its subsidiaries have good and marketable title in fee
simple to all items of real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described or referred to in the
Prospectus or such as do not materially affect the value of such property
and do not interfere with the use made or proposed to be made of such
property by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries are held by
them under valid, existing and enforceable leases with such exceptions as
are not material and do not interfere with the use made or proposed to be
made of such property and buildings by the Company or its subsidiaries;
(m) no relationship, direct or indirect, exists between or among the Company or
any or its subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of its
subsidiaries on the other hand, which is required by the Securities Act to
be described in the Registration Statement and the Prospectus which is not
so described;
(n) no person has the right to require the Company to register any securities
for offering and sale under the Securities Act by reason of the filing of
-7-
<PAGE>
the Registration Statement with the Commission or the issue and sale of the
Shares which have not been waived;
(o) the Company is not and, after giving effect to the offering and sale of the
Shares, will not be an "investment company" or an entity "controlled" by an
"investment company", as such terms are defined in the Investment Company
Act of 1940, as amended (the "Investment Company Act");
----------------------
(p) to the Company's knowledge, Deloitte & Touche LLP ("Deloitte & Touche"),
-----------------
who have certified certain financial statements of the Company and its
subsidiaries and who have certified certain financial statements of Long
Distance Technologies, Inc. and KOZ inc., are independent public
accountants as required by the Securities Act;
(q) the Company and its subsidiaries have filed all federal, state, local and
foreign tax returns which have been required to be filed and have paid all
taxes shown thereon and all assessments received by them or any of them to
the extent that such taxes have become due and are not being contested in
good faith; and, except as disclosed in the Registration Statement and the
Prospectus, there is no tax deficiency which has been or might reasonably
be expected to be asserted or threatened against the Company or any
subsidiary;
(r) the Company has not taken nor will it take, directly or indirectly, any
action designed to, or that might be reasonably expected to, cause or
result in stabilization or manipulation of the price of the Common Stock;
(s) except where a failure would not have a Material Adverse Effect, each of
the Company and its subsidiaries owns, possesses or has obtained all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities (including foreign
regulatory agencies), all self-regulatory organizations and all courts and
other tribunals, domestic or foreign, necessary to own or lease, as the
case may be, and to operate its properties and to carry on its business as
conducted as of the date hereof, and neither the Company nor any such
subsidiary has received any actual notice of any proceeding relating to
revocation or modification of any such license, permit, certificate,
consent, order, approval or other authorization, except as described in the
Registration Statement and the Prospectus, and each of the Company and its
subsidiaries is in compliance with all laws and regulations relating to the
conduct of its business as conducted as of the date hereof;
-8-
<PAGE>
(t) there are no existing or, to the knowledge of the Company, threatened labor
disputes with the employees of the Company or any of its subsidiaries which
are likely to have a Material Adverse Effect;
(u) the Company and its subsidiaries (i) are in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating
to the protection of human health and safety, the environment or hazardous
or toxic substances or wastes, pollutants or contaminants ("Environmental
-------------
Laws"), (ii) have received all permits, licenses or other approvals
----
required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a Material Adverse Effect;
(v) each employee benefit plan, within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that
-----
is maintained, administered or contributed to by the Company or any of its
affiliates for employees or former employees of the Company and its
affiliates has been maintained in compliance with its terms and the
requirements of any applicable statutes, orders, rules and regulations,
including but not limited to ERISA and the Internal Revenue Code of 1986,
as amended (the "Code"). No prohibited transaction, within the meaning of
----
Section 406 of ERISA or Section 4975 of the Code has occurred with respect
to any such plan excluding transactions effected pursuant to a statutory or
administrative exemption. For each such plan which is subject to the
funding rules of Section 412 of the Code or Section 302 of ERISA no
"accumulated funding deficiency" as defined in Section 412 of the Code has
been incurred, whether or not waived, and the fair market value of the
assets of each such plan (excluding for these purposes accrued but unpaid
contributions) exceeded the present value of all benefits accrued under
such plan determined using reasonable actuarial assumptions;
(w) the statistical and market-related data included in the Registration
Statement and the Prospectus are based on or derived from sources which are
believed by the Company to be reliable;
(x) except for compensation to be received by the Underwriters under this
Agreement, the Company does not know of any outstanding claims for
services, either in the nature of a finder's fee or origination fee, with
respect to any of the transactions contemplated hereby;
-9-
<PAGE>
(y) the Company owns, is licensed to use or otherwise possesses adequate rights
to use the patents, patent rights, licenses, inventions, trademarks,
service marks, trade names, copyrights and know-how, including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures (collectively, the
"Intellectual Property"), reasonably necessary to carry on the business
----------------------
conducted by it, except to the extent that the failure to own, license to
use or otherwise possess adequate rights to use such Intellectual Property
would not have a Material Adverse Effect, and, except as described in the
Registration Statement and the Prospectus, the Company has no knowledge of
infringement of or conflict with asserted rights of others with respect to
any Intellectual Property, except for notices the content of which if
accurate would not have a Material Adverse Effect;
(z) the Year 2000 Problem did not have a Material Adverse Effect or result in
any material loss or interference with the Company's business or operations
resulting from any of the Company's computer systems. The "Year 2000
---------
Problem" as used herein means any significant risk that computer hardware
-------
or software used in the receipt, transmission, processing, manipulation,
storage, retrieval, retransmission or other utilization of data or in the
operation of mechanical or electrical systems of any kind will not, in the
case of dates or time periods occurring after December 31, 1999, function
at least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000;
(aa) the Company carries insurance in such amounts and covering such risks as is
adequate for the conduct of the Company's business and the value of its
properties;
(bb) the Company has not offered, or caused the Underwriters to offer, any
Shares to any person pursuant to the Directed Share Program with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business
with the Company or (ii) a trade journalist or publication to write or
publish favorable information about the Company or its products.
5. The Company covenants and agrees with each of the several
Underwriters as follows:
(a) to use its best efforts to cause the Registration Statement to become
effective at the earliest possible time and, if required, to file the final
Prospectus with the Commission within the time periods specified by Rule
424(b) and Rule 430A under the Securities Act and to furnish copies of the
Prospectus to the Underwriters in New York City prior to 10:00 a.m., New
-10-
<PAGE>
York City time, on the Business Day next succeeding the date of this
Agreement in such quantities as the Representatives may reasonably request;
(b) to deliver, at the expense of the Company, to the Representatives
five signed copies of the Registration Statement (as originally filed) and
each amendment thereto, in each case including exhibits, and to each other
Underwriter a conformed copy of the Registration Statement (as originally
filed) and each amendment thereto, in each case without exhibits and,
during the period mentioned in paragraph (e) below, to each of the
Underwriters as many copies of the Prospectus (including all amendments and
supplements thereto) as the Representatives may reasonably request;
(c) before filing any amendment or supplement to the Registration Statement or
the Prospectus, whether before or after the time the Registration Statement
becomes effective, to furnish to the Representatives a copy of the proposed
amendment or supplement for review and not to file any such proposed
amendment or supplement to which the Representatives reasonably object;
(d) to advise the Representatives promptly, and to confirm such advice in
writing (i) when the Registration Statement has become effective, (ii) when
any amendment to the Registration Statement has been filed or becomes
effective, (iii) when any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representatives with copies
thereof, (iv) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or
for any additional information, (v) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or of any order preventing or suspending the use of any preliminary
prospectus or the Prospectus or the initiation or threatening of any
proceeding for that purpose, (vi) of the occurrence of any event, within
the period referenced in paragraph (e) below, as a result of which the
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, and (vii)
of the receipt by the Company of any notification with respect to any
suspension of the qualification of the Shares for offer and sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; and to use its best efforts to prevent the issuance of any such
stop order, or of any order preventing or suspending the use of any
preliminary prospectus or the Prospectus, or of any order suspending any
such qualification of the shares, or notification of any such order thereof
and, if issued, to obtain as soon as possible the withdrawal thereof;
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<PAGE>
(e) if, during such period of time after the first date of the public offering
of the Shares as in the opinion of counsel for the Underwriters a
prospectus relating to the Shares is required by law to be delivered in
connection with sales by the Underwriters or any dealer, any event shall
occur as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Prospectus to
comply with law, forthwith to prepare and furnish, at the expense of the
Company, to the Underwriters and to the dealers (whose names and addresses
the Representatives will furnish to the Company) to which Shares may have
been sold by the Representatives on behalf of the Underwriters and to any
other dealers upon request, such amendments or supplements to the
Prospectus as may be necessary so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus will comply with law;
(f) to endeavor to qualify the Shares for offer and sale under the securities
or Blue Sky laws of such jurisdictions as the Representatives shall
reasonably request and to continue such qualification in effect so long as
reasonably required for distribution of the Shares; provided that the
Company shall not be required to qualify to do business or file a general
consent to service of process in any jurisdiction;
(g) to make generally available to its security holders and to the
Representatives as soon as practicable an earnings statement covering a
period of at least twelve months beginning with the first fiscal quarter of
the Company occurring after the effective date of the Registration
Statement, which shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 of the Commission promulgated thereunder;
(h) during the period of five years after the date of this Agreement, to
furnish to the Representatives copies of all reports or other
communications (financial or other) furnished to holders of the Shares, and
copies of any reports and financial statements furnished to or filed with
the Commission or any national securities exchange;
(i) for a period of 180 days after the date of the initial public offering of
the Shares (the "Lock-up Period") not to (i) offer, pledge, announce the
--------------
intention to sell, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock or (ii) enter into any swap
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<PAGE>
or other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise without the
prior written consent of J.P. Morgan Securities, other than the Shares to
be sold hereunder and any options granted or shares of Common Stock of the
Company issued upon the exercise of options granted under existing employee
stock option plans; notwithstanding the foregoing, the Company may issue
shares of its Common Stock during the Lock-up Period in connection with
acquisitions, strategic alliances or joint ventures ("Excepted
--------
Transactions"); provided however, that (i) the Company shall give J.P.
Morgan Securities Inc. 5 days prior written notice of any such issuance
describing the Excepted Transaction in reasonable detail and stating the
number of shares of Common Stock proposed to be issued in the Excepted
Transaction, (ii) all Common Stock issued in connection with the Excepted
Transaction shall remain subject to the lock-up restrictions of this
Paragraph 5(i) for the remainder of the Lock-up Period, (iii) prior to any
such issuance of Common Stock, each person that is to acquire such Common
Stock shall sign a lock-up agreement in form and substance reasonably
acceptable to J.P. Morgan Securities Inc. covering all such Common Stock
for the remainder of the Lock-up Period and (iv) no such issuance shall be
made unless and until the requirements and conditions in the foregoing
clauses (i), (ii) and (iii) have been complied with and satisfied;
(j) to use the net proceeds received by the Company from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under
the caption "Use of Proceeds";
(k) to use its best efforts to list for quotation the Shares on the National
Market System of the Nasdaq Stock Market, Inc. (the "Nasdaq National
---------------
Market");
------
(l) to file with the Commission such reports as may be required by Rule 463
under the Securities Act;
(m) whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
costs and expenses incident to the performance of its obligations
hereunder, including without limiting the generality of the foregoing, all
costs and expenses (i) incident to the preparation, issuance, execution and
delivery of the Shares, (ii) incident to the preparation, printing and
filing under the Securities Act of the Registration Statement, the
Prospectus and any preliminary prospectus (including in each case all
exhibits, amendments and supplements thereto), (iii) incurred in connection
with the registration or qualification of the Shares under the laws of such
jurisdictions as the Representatives may designate (including fees of
counsel for the Underwriters and its disbursements), (iv) in connection
-13-
<PAGE>
with the listing of the Shares on the Nasdaq National Market, (v) related
to the filing with, and clearance of the offering by, the NASD, (vi) in
connection with the printing (including word processing and duplication
costs) and delivery of this Agreement, the Preliminary and Supplemental
Blue Sky Memoranda and the furnishing to the Underwriters and dealers of
copies of the Registration Statement and the Prospectus, including mailing
and shipping, as herein provided, (vii) any expenses incurred by the
Company in connection with a "road show" presentation to potential
investors, (viii) the cost of preparing stock certificates and (ix) the
cost and charges of any transfer agent and any registrar;
(n) In connection with the Directed Share Program, the Company will ensure that
the Directed Shares will be restricted to the extent required by the NASD
or the NASD rules from sale, transfer, assignment, pledge or hypothecation
for a period of three months following the date of the effectiveness of the
Registration Statement. The Designated Underwriter will notify the Company
as to which Participants will need to be so restricted. The Company will
direct the transfer agent to place stop transfer restrictions upon such
securities for such period of time; and
(o) The Company will pay all reasonable fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Shares Program
and stamp duties, similar taxes or duties or other taxes, if any, incurred
by the Underwriters in connection with the Directed Share Program.
Furthermore, the Company covenants with the Underwriters that the
Company will comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program.
6. The several obligations of the Underwriters hereunder to
purchase the Shares on the Closing Date or the Additional Closing Date, as the
case may be, are subject to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) the Registration Statement shall have become effective (or if a post-
effective amendment is required to be filed under the Securities Act, such
post-effective amendment shall have become effective) not later than 5:00
P.M., New York City time, on the date hereof; and no stop order suspending
the effectiveness of the Registration Statement or any post-effective
amendment shall be in effect, and no proceedings for such purpose shall be
pending before or threatened by the Commission; the Prospectus shall have
been filed with the Commission pursuant to Rule 424(b) within the
applicable time period prescribed for such filing by the rules and
regulations under the Securities Act and in accordance with Section 5(a)
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<PAGE>
hereof; and all requests for additional information shall have been
complied with to the satisfaction of the Representatives;
(b) the representations and warranties of the Company contained herein are true
and correct on and as of the Closing Date or the Additional Closing Date,
as the case may be, as if made on and as of the Closing Date or the
Additional Closing Date, as the case may be, and the Company shall have
complied with all agreements and all conditions on its part to be performed
or satisfied hereunder at or prior to the Closing Date or the Additional
Closing Date, as the case may be;
(c) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any Material
Adverse Change, or any development involving a prospective Material Adverse
Change, otherwise than as set forth or contemplated in the Prospectus, the
effect of which in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares on the Closing Date or the Additional Closing Date,
as the case may be, on the terms and in the manner contemplated in the
Prospectus; and neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included in the Prospectus any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Prospectus;
(d) the Representatives shall have received on and as of the Closing Date or
the Additional Closing Date, as the case may be, a certificate of an
executive officer of the Company, with specific knowledge about the
Company's financial matters, satisfactory to the Representatives to the
effect set forth in subsections (a) through (c) (with respect to the
respective representations, warranties, agreements and conditions of the
Company) of this Section;
(e) Wyrick Robbins Yates & Ponton LLP, counsel for the Company, shall have
furnished to the Representatives their written opinion, dated the Closing
Date or the Additional Closing Date, as the case may be, in form and
substance satisfactory to the Representatives, to the effect that:
(i) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction
of incorporation, with power and authority (corporate and other)
to own its properties and conduct its business as described in
the Prospectus;
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<PAGE>
(ii) the Company has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the
laws of each other jurisdiction in which it owns or leases
properties, or conducts any business, so as to require such
qualification, other than where the failure to be so qualified or
in good standing would not have a Material Adverse Effect;
(iii) each of the Company's subsidiaries has been duly incorporated or
organized and is validly existing as a corporation under the laws
of its jurisdiction of incorporation or organization with power
and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus and has been
duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts
any business, so as to require such qualification, other than
where the failure to be so qualified and in good standing would
not have a Material Adverse Effect; and all of the outstanding
shares of capital stock of each subsidiary have been duly and
validly authorized and issued, are fully paid and non-assessable,
and (except, in the case of foreign subsidiaries, for directors'
qualifying shares) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or
claims, provided, the Company holds a 25% voting interest in
Golf.com L.L.C. as described in the Prospectus;
(iv) other than as set forth or contemplated in the Prospectus, there
are no legal or governmental investigations, actions, suits or
proceedings pending or, to such counsel's knowledge, threatened
against or affecting the Company or any of its subsidiaries or
any of their respective properties or to which the Company or any
of its subsidiaries is or may be a party or to which any property
of the Company or its subsidiaries is or may be the subject
which, if determined adversely to the Company or any of its
subsidiaries, could individually or in the aggregate have, or
reasonably be expected to have, a Material Adverse Effect; to
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
and such counsel does not know of any statutes, regulations,
contracts or other documents that are required to be described in
the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement that are not described or
filed as required;
(v) this Agreement has been duly authorized, executed and delivered
by the Company;
(vi) the authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus;
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<PAGE>
(vii) the shares of capital stock of the Company outstanding prior to
the issuance of the Shares to be sold by the Company have been
duly authorized and are validly issued, fully paid and non-
assessable;
(viii) the Shares to be issued and sold by the Company hereunder have
been duly authorized, and when delivered to and paid for the
Underwriters in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable and the
issuance of the Shares is not subject to any preemptive or
similar rights;
(ix) the statements in the Prospectus under "Shares Eligible for
Future Sale", "Description of Capital Stock" and "Underwriting",
and in the Registration Statement in Items 14 and 15, insofar as
such statements constitute a summary of the terms of the Common
Stock, legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect
to such terms, legal matters, documents or proceedings;
(x) such counsel is of the opinion that the Registration Statement
and the Prospectus and any amendments and supplements thereto
(other than the financial statements and related schedules
therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements
of the Securities Act and believes that (other than the
financial statements and related schedules therein, as to which
such counsel need express no belief) the Registration Statement
and the prospectus included therein at the time the Registration
Statement became effective did not contain any untrue statement
of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein
not misleading, and that the Prospectus, as amended or
supplemented, if applicable, does not contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
(xi) the Registration Statement has been declared effective under
Securities Act and, to such counsel's knowledge, no stop order
proceedings with respect thereto are pending before or
threatened by the Commission under the Securities Act;
(xii) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities,
because of the filing of the Registration Statement by the
Company have waived such rights or such rights have expired by
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<PAGE>
reason of lapse of time following notification of the Company's
intent to file the Registration Statement;
(xiii) neither the Company nor any of its subsidiaries is, or with the
giving of notice or lapse of time or both would be, in violation
of or in default under, its Certificate of Incorporation or By-
Laws or any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such counsel to which
the Company or any of its subsidiaries is a party or by which it
or any of them or any of their respective properties is bound,
except for violations and defaults which individually and in the
aggregate are not material to the Company and its subsidiaries
taken as a whole; the issue and sale of the Shares being
delivered on the Closing Date or the Additional Closing Date, as
the case may be, and the performance by the Company of its
obligations under this Agreement and the consummation of the
transactions contemplated herein will not conflict with or
result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known to
such counsel to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, nor will any such action
result in any violation of the provisions of the Certificate of
Incorporation or the By-Laws of the Company or, to such
counsel's knowledge, any applicable law or statute or any order,
rule or regulation of any court or governmental agency or body
having jurisdiction over the Company, its subsidiaries or any of
their respective properties;
(xiv) no consent, approval, authorization, order, license,
registration or qualification of or with any court or
governmental agency or body is required for the issue and sale
of the Shares or the consummation of the other transactions
contemplated by this Agreement, except such consents, approvals,
authorizations, orders, licenses, registrations or
qualifications as have been obtained under the Securities Act
and as may be required under state securities or Blue Sky laws
and NASD regulations in connection with the purchase and
distribution of the Shares by the Underwriters;
(xv) the Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or
entity "controlled" by an "investment company", as such terms
are defined in the Investment Company Act;
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<PAGE>
(xvi) to such counsel's knowledge, except where a failure would not
have a Material Adverse Effect, each of the Company and its
subsidiaries owns, possesses or has obtained all licenses,
permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings
with, all federal, state, local and other governmental
authorities (including foreign regulatory agencies), all self-
regulatory organizations and all courts and other tribunals,
domestic or foreign, necessary to own or lease, as the case may
be, and to operate its properties and to carry on its business
as conducted as of the date hereof, and neither the Company nor
any such subsidiary has received any actual notice of any
proceeding relating to revocation or modification of any such
license, permit, certificate, consent, order, approval or other
authorization, except as described in the Registration Statement
and the Prospectus; and to such counsel's knowledge, each of the
Company and its subsidiaries is in compliance with all laws and
regulations relating to the conduct of its business as conducted
as of the date of the Prospectus;
(xvii) the Company and each of its subsidiaries owns, is licensed to
use or otherwise possesses adequate rights to use the
Intellectual Property reasonably necessary to carry on the
business conducted by it, except to the extent that the failure
to own, be licensed to use or otherwise possess adequate rights
to use such Intellectual Property would not have a Material
Adverse Effect; except as set forth in the Prospectus, the
Company has not received any notice of infringement of or
conflict with, and to such counsel's knowledge, there is no
infringement of or conflict with, asserted rights of others with
respect to the Intellectual Property, the discoveries,
inventions, products or processes of the Company referred to in
the Registration Statement and the Prospectus do not, to such
counsel's knowledge, infringe or conflict with any right or
patent of any third party, or any discovery, patent product or
process which is the subject of a patent application filed by
any third party;
(xviii) the Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title
to all personal property owned by them, in each case free and
clear of all liens, encumbrances and defects except such as are
described or referred to in the Prospectus or such as do not
materially affect the value of such property and do not
interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, existing and
enforceable leases with such exceptions as are not material and
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<PAGE>
do not interfere with the use made or proposed to be made of
such property and buildings by the Company or its subsidiaries;
and
(xix) each of the Company and its subsidiaries is in compliance with
all Environmental Laws, except, in each case, where
noncompliance, individually or in the aggregate, would not have
a Material Adverse Effect; there are no legal or governmental
proceedings pending or, to the knowledge of such counsel,
threatened against or affecting the Company or any of its
subsidiaries under any Environmental Law which, individually or
in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
In rendering such opinions, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States
and the States of Delaware and North Carolina, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon
an opinion or opinions (in form and substance reasonably satisfactory to
Underwriters' counsel) of other counsel reasonably acceptable to the
Underwriters' counsel, familiar with the applicable laws; (B) as to matters
of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and certificates or other written
statements of officials of jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company. The
opinion of such counsel for the Company shall state that the opinion of any
such other counsel upon which they relied is in form satisfactory to such
counsel and, in such counsel's opinion, the Underwriters and they are
justified in relying thereon. With respect to the matters to be covered in
subparagraph (x) above counsel may state their opinion and belief is based
upon their participation in the preparation of the Registration Statement
and the Prospectus and any amendment or supplement thereto and review and
discussion of the contents thereof but is without independent check or
verification except as specified.
The opinion of Wyrick Robbins Yates & Ponton LLP described above shall
be rendered to the Underwriters at the request of the Company and shall so
state therein;
(f) on the effective date of the Registration Statement and the effective date
of the most recently filed post-effective amendment to the Registration
Statement and also on the Closing Date or Additional Closing Date, as the
case may be, Deloitte & Touche shall have furnished to you letters, dated
the respective dates of delivery thereof, in form and substance
satisfactory to you, containing statements and information of the type
customarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectus;
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<PAGE>
(g) the Representatives shall have received on and as of the Closing Date or
Additional Closing Date, as the case may be, an opinion of Cahill Gordon &
Reindel, counsel to the Underwriters, with respect to the due authorization
and valid issuance of the Shares, the Registration Statement, the
Prospectus and other related matters as the Representatives may reasonably
request, and such counsel shall have received such papers and information
as they may reasonably request to enable them to pass upon such matters;
(h) the Shares to be delivered on the Closing Date or Additional Closing Date,
as the case may be, shall have been approved for listing on the Nasdaq
National Market, subject to official notice of issuance;
(i) on or prior to the Closing Date or Additional Closing Date, as the case may
be, the Company shall have furnished to the Representatives such further
certificates and documents as the Representatives shall reasonably request;
and
(j) the lock-up agreements of the Company's officers, directors and certain
stockholders previously identified by the Underwriters, in the form
delivered to the Company, shall be in full force and effect on the Closing
Date or Additional Closing Date, as the case may be.
7. The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, from and against any and all losses, claims, damages and liabilities
(including, without limitation, the legal fees and other expenses incurred in
connection with any suit, action or proceeding or any claim asserted) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through the Representatives expressly for use therein.
The Company agrees to indemnify and hold harmless the Designated
Underwriter and each person, if any, who controls the Designated Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act (the "Designated Entities"), from and against any and all
-------------------
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) (i) caused by any untrue statement or
-21-
<PAGE>
alleged untrue statement of a material fact contained in any material prepared
by or with the consent of the Company for distribution to Participants in
connection with the Directed Share Program or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) caused by the
failure of any Participant to pay for and accept delivery of Directed Shares
that the Participant agreed to purchase; or (iii) related to, arising out of, or
in connection with the Directed Share Program, other than losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or negligence of the
Designated Entities.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement and each person who controls the Company within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act to the same extent
as the foregoing indemnity from the Company to each Underwriter, but only with
reference to information relating to such Underwriter furnished to the Company
in writing by such Underwriter through the Representatives expressly for use in
the Registration Statement, the Prospectus, any amendment or supplement thereto,
or any preliminary prospectus.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall promptly
------------------
notify the person against whom such indemnity may be sought (the "Indemnifying
------------
Person") in writing, and the Indemnifying Person, upon request of the
- ------
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the fees and
expenses of such counsel related to such proceeding. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Person has failed within
a reasonable time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood that the Indemnifying Person shall not, in connection with any
proceeding or related proceeding in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such fees and expenses shall
be reimbursed as they are incurred. Any such separate firm for the Underwriters
and such control persons of Underwriters shall be designated in writing by J.P.
Morgan Securities Inc. and any such separate firm for the Company, its
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<PAGE>
directors, its officers who sign the Registration Statement and such control
persons of the Company shall be designated in writing by the Company. The
Indemnifying Person shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the Indemnifying Person agrees to
indemnify any Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Person shall have requested an Indemnifying Person
to reimburse the Indemnified Person for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such Indemnifying Person of the
aforesaid request and (ii) such Indemnifying Person shall not have reimbursed
the Indemnified Person in accordance with such request prior to the date of such
settlement. No Indemnifying Person shall, without the prior written consent of
the Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Person,
unless such settlement includes an unconditional release of such Indemnified
Person from all liability on claims that are the subject matter of such
proceeding.
If the indemnification provided for in the first three paragraphs of
this Section 7 is unavailable to an Indemnified Person or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each Indemnifying Person under such paragraph, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the
Underwriters on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other hand shall be deemed
to be in the same respective proportions as the net proceeds from the offering
(before deducting expenses) received by the Company and the total underwriting
discounts and the commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate public
offering price of the Shares. The relative fault of the Company on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company by the Underwriters and the parties'
-23-
<PAGE>
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purposes) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall an
Underwriter be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section ll(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares set forth opposite their names in Schedule I hereto,
and not joint.
The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
The indemnity and contribution agreements contained in this Section 7
and the representations and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Underwriter or any person controlling any Underwriter or by or on behalf
of the Company, its officers or directors or any other person controlling the
Company and (iii) acceptance of and payment for any of the Shares.
8. Notwithstanding anything herein contained, this Agreement (or
the obligations of the several Underwriters with respect to the Option Shares)
may be terminated in the absolute discretion of the Representatives, by notice
given to the Company, if after the execution and delivery of this Agreement and
prior to the Closing Date (or, in the case of the Option Shares, prior to the
Additional Closing Date) (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange or the American Stock Exchange, the NASD, the Chicago Board Options
Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii)
trading of any securities of or guaranteed by the Company shall have been
-24-
<PAGE>
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York shall have been declared
by either Federal or New York State authorities, or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in the judgment of the Representatives,
is material and adverse and which, in the judgment of the Representatives, makes
it impracticable to market the Shares being delivered at the Closing Date or the
Additional Closing Date, as the case may be, on the terms and in the manner
contemplated in the Prospectus.
9. This Agreement shall become effective upon the later of (x)
execution and delivery hereof by the parties hereto and (y) release of
notification of the effectiveness of the Registration Statement (or, if
applicable, any post-effective amendment) by the Commission.
If on the Closing Date or the Additional Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
which it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of Shares to be purchased on such date, the other Underwriters
shall be obligated severally in the proportions that the number of Shares set
forth opposite their respective names in Schedule I bears to the aggregate
number of Underwritten Shares set forth opposite the names of all such non-
defaulting Underwriters, or in such other proportions as the Representatives may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 9 by an
amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If on the Closing Date or the Additional Closing
Date, as the case may be, any Underwriter or Underwriters shall fail or refuse
to purchase Shares which it or they have agreed to purchase hereunder on such
date, and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date, and arrangements satisfactory to the Representatives and the
Company for the purchase of such Shares are not made within 36 hours after such
default, this Agreement (or the obligations of the several Underwriters to
purchase the Option Shares, as the case may be) shall terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case either you or the Company shall have the right to postpone the Closing
Date (or, in the case of the Option Shares, the Additional Closing Date), but in
no event for longer than seven days, in order that the required changes, if any,
in the Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
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<PAGE>
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
10. If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company shall be unable to perform its obligations under
this Agreement or any condition of the Underwriters' obligations cannot be
fulfilled, the Company agrees to reimburse the Underwriters or such Underwriters
as have so terminated this Agreement with respect to themselves, severally, for
all out-of-pocket expenses (including the fees and expenses of its counsel)
reasonably incurred by the Underwriter in connection with this Agreement or the
offering contemplated hereunder.
11. This Agreement shall inure to the benefit of and be binding
upon the Company, the Underwriters, any controlling persons referred to herein
and their respective successors and assigns. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any other person, firm
or corporation any legal or equitable right, remedy or claim under or in respect
of this Agreement or any provision herein contained. No purchaser of Shares from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
12. Any action by the Underwriters hereunder may be taken by the
Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of the
Underwriters, and any such action taken by the Representatives jointly or by
J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260 (telefax: 648-5705); Attention: Syndicate Department. Notices to the
Company shall be given to it at 234 Fayetteville St. Mall, Raleigh, NC 27601
(telefax: (919) 573-8080); Attention: President.
13. This Agreement may be signed in counterparts, each of which
shall be an original and all of which together shall constitute one and the same
instrument.
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS
OF LAWS PROVISIONS THEREOF.
-26-
<PAGE>
If the foregoing is in accordance with your understanding, please sign
and return four counterparts hereof.
Very truly yours,
TOTAL SPORTS INC.
By:
---------------------------------
Name:
Title:
-27-
<PAGE>
Accepted as of the date first
written above:
J.P. MORGAN SECURITIES INC.
HAMBRECHT & QUIST LLC
U.S. BANCORP PIPER JAFFRAY INC.
ALLEN & COMPANY INCORPORATED
Acting severally on behalf
of themselves and the
several Underwriters listed
in Schedule I hereto.
By: J.P. MORGAN SECURITIES INC.
By:
---------------------------------
Name:
Title:
-28-
<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
Number of
Underwritten Shares
Underwriter To Be Purchased
- ---------------------------------------------------------------- ---------------------------
<S> <C>
J.P. Morgan Securities Inc......................................
Hambrecht & Quist LLC...........................................
U.S. Bancorp Piper Jaffray Inc..................................
Allen & Company Incorporated....................................
---------------------------
Total
===========================
</TABLE>
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<PAGE>
Exhibit 5.1
February 23, 2000
Total Sports Inc.
234 Fayetteville Street
Raleigh, North Carolina 27601
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by Total Sports
Inc., a Delaware corporation (the "Company"), with the Securities and Exchange
Commission on November 12, 1999 and amended on January 11, 2000 and on the date
hereof (the "Registration Statement"), in connection with the registration under
the Securities Act of 1933, as amended, of 4,791,667 shares of the Company's
Common Stock, $0.001 par value per share (the "Shares"), which includes an over-
allotment option for 625,000 shares granted to the underwriters, as described in
the Registration Statement. The Shares are to be sold to the underwriters for
resale to the public as described in the Registration Statement and pursuant to
the Underwriting Agreement filed as an exhibit thereto. In our examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity with the original of
all documents submitted to us as copies thereof.
As your legal counsel, we have examined the proceedings taken, and are
familiar with the proceedings proposed to be taken, in connection with the sale
and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, including the proceedings being taken in order to permit such
transaction to be carried out in accordance with applicable state securities
laws, the Shares when issued and sold in the manner referred to in the
Registration Statement and in accordance with the resolutions adopted by the
Board of Directors of the Company, will be legally and validly issued, fully
paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
/s/ WYRICK ROBBINS YATES & PONTON LLP
<PAGE>
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 9th day
of December 1999 (the "Agreement") by and between Total Sports Inc. ("Employer"
or the "Company") and Marie Hasnain ("Executive").
RECITALS
WHEREAS, Both the Company and Executive desire to continue their
employment relationship and are willing to do so upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
IT IS HEREBY AGREED AS FOLLOWS:
AGREEMENT
1. Employment. Subject to and upon the terms and conditions herein
----------
provided, the Employer hereby agrees to employ the Executive and the Executive
hereby agrees to be employed by the Employer for the term of this Agreement,
which term shall begin as of the Agreement Date and shall continue until
terminated as provided herein.
2. Executive Responsibilities. In the performance of Executive's
--------------------------
responsibilities, Executive shall be subject to all of Employer's policies,
rules and regulations applicable to Company Executives of comparable status.
Executive shall perform duties consistent with Executive's knowledge, experience
and position with the Company. In performing such duties, Executive shall be
subject to and shall abide by all policies and procedures developed by Employer
for comparable Executives of the Company.
During the Term, Executive shall devote his entire business time,
energies, skills and attention to the affairs and activities of Employer and the
discharge of his duties and responsibilities.
3. Compensation.
------------
3.1 Base Salary. In consideration for the services provided
-----------
hereunder, Employer shall pay to Executive an annual base salary of $110,000
(the "Base Salary"). The Base Salary shall be payable in conformity with
Employer's customary payroll practices. Such Base Salary shall be subject to
periodic review and adjustment in the sole discretion of the Company's Board of
Directors (the "Board").
3.2 Bonus. During the Term of this Agreement, Executive shall be
-----
eligible to receive certain incentive payments ("Bonus Compensation") based upon
the achievement by the Company of certain established performance milestones.
Such milestones and the amounts of
<PAGE>
any resulting Bonus Compensation payable to Executive shall be determined by the
Board in its sole discretion.
3.3 Additional Compensation. In addition to Base Salary and any
-----------------------
Bonus Compensation, Executive shall be eligible for the following additional
compensation.
a. Executive, at Employer's expense, shall be eligible to
participate in all Executive benefit plans as may be provided by
Employer from time to time to its Executives on the same basis as other
Executives of the Company are eligible, subject to and to the extent
that Executive is eligible under such benefit plans in accordance with
their respective terms.
b. Executive shall be eligible to participate in any stock
option, purchase or other equity compensation plans of the Company on
the same basis as other Executives of the Company are eligible. Grants
of stock options under Employer's existing stock option programs are
discretionary.
c. Executive shall be eligible to participate in any annual or
long-term cash bonus plan that is offered to other Executives of the
Company on the same basis as such other Executives are eligible.
d. Executive shall be entitled to reasonable periods of paid
vacation, personal and sick leave during the Term in accordance with
Employer's policies regarding vacation and leaves for executive
Executives of the Company.
e. During the Term, Employer shall provide the Executive with
health insurance, in scope and coverage equivalent to that provided to
other Executives of the Company.
4. Term. The term of this Agreement shall commence and this Agreement
----
(the "Term") shall be effective as of the date hereof (the "Effective Time"))
and shall continue for a term of [three (3) years], unless sooner terminated as
provided herein. Subject to the terms hereof, this Agreement and Executive's
employment hereunder may be terminated by either party prior to the expiration
of the Term, for any reason and with or without prior notice. In addition, this
Agreement shall terminate immediately upon the Executive's death and may be
terminated upon a determination that Executive has become permanently disabled,
as defined in Section 5.4 hereof.
5. Termination.
-----------
5.1 For Cause By Employer. During the Term, Employer may terminate
---------------------
Executive's employment under this Agreement at any time for "Cause."
For purposes of this Agreement, "Cause" means:
2
<PAGE>
a. Executive's conviction of any crime (whether or not
involving Employer) that constitutes a felony in the jurisdiction
involved (other than unintentional motor vehicle felonies);
b. any act of theft, fraud or embezzlement, or any other
willful misconduct or dishonest behavior by Executive in connection
with Executive's work with Employer;
c. Executive's continuing failure or refusal to perform
Executive's reasonably assigned duties (consistent with past practice
of the Company) under this Agreement in accordance with Section 2
(other than due to his incapacity due to illness or injury), provided
that such failure or refusal continues uncorrected for a period of
thirty (30) days after Executive shall have received written notice
stating the nature of such failure or refusal; or
d. Executive's violation of any of Executive's material
obligations contained in this Agreement or that certain Nondisclosure
and Developments Agreement previously executed by Executive.
5.2 Without Cause by Employer. During or after the Term,
-------------------------
Employer may terminate Executive's employment under this Agreement at any time
and for any reason without Cause. If Employer terminates Executive's employment
pursuant to the provisions of this Section 5.2 during the Term, Executive shall,
in addition to all accrued but unpaid Base Salary and Bonus Compensation through
the date of termination, continue to receive the Base Salary being paid to him
immediately prior to such termination and the benefits provided for in Sections
3.3(a) (except pension, profit-sharing, disability and 401(k) plans) and 3.3(e)
(collectively, the "Severance Payment") for the remainder of the Term (the
"Severance Period"). Executive shall also receive payment for all accrued but
unused vacation pay as of the date of termination. Notwithstanding the
foregoing, if Executive secures employment with another employer during the
Severance Period, then the benefits portion of the Severance Payment shall be
reduced by the amount of other benefits payable to Executive pursuant to such
new employment. In the event of any such termination, Executive shall be
entitled to the applicable Severance Payment set forth above and no further
severance or other compensation benefits. For purposes of this Agreement,
termination "without cause" shall mean the voluntary termination by Executive of
Executive's employment with the Company in the event of (a) a diminution in the
responsibilities of Executive or (b) a reduction in Base Salary of Executive.
5.3 By Executive. During the Term, Executive may voluntarily
------------
terminate Executive's employment by giving Employer written notice no less than
two (2) weeks in advance of the effective date of such termination. Except as
set forth above in Section 5.2, if Executive voluntarily terminates Executive's
employment pursuant to the provisions of this Section 5.3 or dies, Executive (or
his estate) shall not be entitled to receive any compensation or benefits for
the period following the date of such termination or death other than the
proceeds of, or payment of any benefits under, any pension plans or other
similar plans in effect on the date thereof. In the event of any such
termination, Executive (or Executive's estate) shall be entitled to accrued and
unpaid salary and vacation through the termination date and no further severance
or other compensation benefits.
3
<PAGE>
5.4 Termination for Disability. During the Term, Executive's
--------------------------
employment may be terminated by either party in the event Executive suffers a
physical or mental disability (as defined below) which in the reasonable opinion
of Employer renders him substantially unable to perform his duties under this
Agreement. Executive shall be deemed to be permanently disabled in the event
that Executive has been unable, for a period of ninety (90) consecutive days or
one hundred eighty (180) nonconsecutive days during any 360-day period, to
perform the services contemplated hereby as a result of incapacity caused by a
physical or mental illness or injury. If Executive is terminated under this
Section 5.4, Executive shall be entitled to such benefits as are generally
available under Employer's disability insurance policies, if any.
6. Possession. Executive agrees that upon termination of this
----------
Agreement, or upon request by Employer, Executive shall turn over to Employer
all documents, files, office supplies and any other material or work product in
Executive's possession or control which were created pursuant to or derived from
Executive's services to Employer.
7. Noncompetition.
--------------
7.1 Noncompetition Provisions. Executive recognizes and agrees
-------------------------
that Employer has many substantial, legitimate business interests that can be
protected only by Executive agreeing not to compete with Employer or its
subsidiaries under certain circumstances. These interests include, without
limitation, Employer's contacts and relationships with its customers, Employer's
reputation and goodwill in the industry, the financial and other support
afforded by Employer, and Employer's rights in its confidential information.
Executive therefore agrees that during his employment with the Company and for
the greater of (i) the one (1) year period of time following the termination of
such employment, regardless of the manner or cause of such termination or (ii)
the period during which Executive is receiving severance payments pursuant to
this Agreement, Executive will not, without the prior written consent of
Employer, engage in any of the following activities within the countries of
North America (the "Protected Zones"), relating to the Protected Businesses (as
defined below):
a. engage in, manage, operate, control or supervise, or
participate in the management, operation, control or supervision of,
any business or entity which provides products or services competitive
with those being developed, manufactured, marketed, sold or otherwise
provided by Employer or its subsidiaries as of the date hereof,
including but not limited to, any business or entity providing sports
related content, information or programming over the Internet (the
"Protected Businesses") in the Protected Zones;
b. have any ownership or financial interest, directly or
indirectly, in any entity in the Protected Zones engaged in the
Protected Businesses, including, without limitation, as an individual,
partner, shareholder (other than as a shareholder of a publicly-owned
corporation in which Executive owns less than 1% of the outstanding
shares of such corporation), officer, directly, Executive, principal,
agent or consultant;
4
<PAGE>
c. solicit, acquire or conduct any Protected Business from
or with any customers of Employer or its subsidiaries (as defined
below) in the Protected Zones;
d. solicit any of the Executives or independent contractors
of Employer or its subsidiaries or induce any such persons to terminate
their employment or contractual relationships with any such entities or
take action contrary to the best interest of the Company; or
e. serve as an officer or director of, or hold an equity
interest in, any entity engaged in any of the Protected Businesses in
the Protected Zones.
For purposes of this Section 7, customers of Employer or its subsidiaries shall
include those customers to whom Employer or its subsidiaries was providing
products or services at the termination of Executive's employment, or had
proposals outstanding for the provision of services, at the time of such
termination.
7.2 Separate Covenants. The parties understand and agree that
------------------
the noncompetition agreement set forth in this Section 7 shall be construed as a
series of separate covenants not to compete: one covenant for each country,
state and province within the Protected Zone, one for each separate line of
business of Employer, and one for each month of the noncompetition period. If
any restriction set forth in this Section 7 is held by a court of competent
jurisdiction to be unenforceable with respect to one or more geographic areas,
lines of business and/or months of duration, then Executive agrees, and hereby
submits, to the reduction and limitation of such restriction to the minimal
effect necessary so that the provisions of this Section 7 shall be enforceable.
7.3 Limitation. Nothing contained in this Agreement attached
----------
shall prohibit Executive from utilizing Executive's skill, acumen or experience
after a termination of employment with Employer in any business not in violation
of this Section 7 at any location not in violation of this Section 7.
8. Saving Provision. Employer and Executive agree and stipulate
----------------
that the agreements set out in Section 7 above are fair and reasonably necessary
for the protection of the business, goodwill, confidential information, and
other protectable interests of Employer in light of all of the facts and
circumstances of the relationship between Executive and Employer. In the event a
court of competent jurisdiction should decline to enforce those provisions, they
shall be deemed to be modified to restrict Executive to the maximum extent which
the court shall find enforceable; however, in no event shall the above
provisions be deemed to be more restrictive to Executive than those contained
herein.
9. Injunctive Relief. Executive acknowledges that the breach or
-----------------
threatened breach of any of the nondisclosure or noncompetition covenants
contained herein would give rise to irreparable injury to Employer which injury
would be inadequately compensable in money damages. Accordingly, Employer may
seek and obtain a restraining order and/or injunction prohibiting the breach or
threatened breach of any provision, requirement or covenant of this Agreement,
in addition to and not in limitation of any other legal remedies which may be
5
<PAGE>
available. Executive further acknowledges and agrees that the agreements set out
above are necessary for the protection of Employer's legitimate goodwill and
business interests and are reasonable in scope and content.
10. Enforcement. The provisions of this Agreement shall be enforceable
------------
notwithstanding the existence of any claim or cause of action against Employer
by Executive or against Executive by Employer, whether predicated on this
Agreement or otherwise.
11. Governing Law. This Agreement, the employment relationship
-------------
contemplated herein and any claim arising from such relationship, whether or not
arising under this Agreement, shall be governed by and construed in accordance
with the internal laws of the State of North Carolina, without regard to
conflict of law principles.
12. Waiver of Breach. The waiver of any breach of any provision of this
----------------
Agreement or failure to enforce any provision hereof shall not operate or be
construed as a waiver of any subsequent breach by any party.
13. Modification. This Agreement may be modified, and the rights,
------------
remedies and obligations contained in any provision hereof may be waived, only
in accordance with this Section. No waiver by either party or any breach by the
other or any provision hereof shall be deemed to be a waiver of any later or
other breach thereof or as a waiver of any other provision of this Agreement.
This Agreement may not be waived, changed, discharged or terminated orally or by
any course of dealing between the parties, but only by an instrument in writing
signed by the party against whom any waiver, change, discharge or termination is
sought. No modification or waiver by Employer shall be effective without the
consent of at least a majority of the members of the Board of Directors of
Employer then in office at the time of such modification or waiver.
14. Entirety. This Agreement, including any exhibits hereto, as it may
--------
be amended pursuant to the terms hereof, represents the complete and final
agreement of the parties and shall control over any other statement,
representation or agreement by Employer (e.g., as may appear in employment or
policy manuals). ---
16. Survival. The provisions of this Agreement relating to
--------
post-termination compensation (including, without limitation, the Severance
Payment and related rights), confidentiality and noncompetition shall survive
the expiration or termination of this Agreement.
17. Severability. Without in any way limiting the provisions of Section
------------
7.2, in case any one or more of the provisions contained in this Agreement for
any reason shall be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement, but this Agreement shall be construed and reformed
to the maximum extent permitted by law.
18. Binding Effect; Successors. This Agreement shall inure to the
--------------------------
benefit of Executive and Executive's heirs, successors, personal representatives
and assigns. Executive acknowledges that the services to be rendered by
Executive thereunder are unique and personal
6
<PAGE>
in nature. Accordingly, Executive may not assign any of Executive's rights or
delegate any of Executive's duties or obligations under this Agreement. The
Company shall have the right to assign or transfer this Agreement to any
successor of all of its business or assets, provided, however, that the Company
shall require any such successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" and "Employer" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law or otherwise.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement effective as of the day and year first set forth above.
EMPLOYER:
--------
TOTAL SPORTS INC.
By: /s/ George Schlukbier
--------------------------------------
Name: George Schlukbier
--------------------------------------
Title: President
--------------------------------------
EXECUTIVE:
---------
/s/ Marie Hasnain
---------------------------------------------
Marie Hasnain
<PAGE>
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 18th day
of June 1999 (the "Agreement") by and between Total Sports Inc. ("Employer" or
the "Company") and Petra Weishaupt ("Executive").
RECITALS
WHEREAS, Both the Company and Executive desire to continue their
employment relationship and are willing to do so upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
IT IS HEREBY AGREED AS FOLLOWS:
AGREEMENT
1. Employment. Subject to and upon the terms and conditions
----------
herein provided, the Employer hereby agrees to employ the Executive and the
Executive hereby agrees to be employed by the Employer for the term of this
Agreement, which term shall begin as of the Agreement Date and shall continue
until terminated as provided herein.
2. Executive Responsibilities. In the performance of Executive's
--------------------------
responsibilities, Executive shall be subject to all of Employer's policies,
rules and regulations applicable to Company Executives of comparable status.
Executive shall perform duties consistent with Executive's knowledge, experience
and position with the Company. In performing such duties, Executive shall be
subject to and shall abide by all policies and procedures developed by Employer
for comparable Executives of the Company.
During the Term, Executive shall devote his entire business time,
energies, skills and attention to the affairs and activities of Employer and the
discharge of his duties and responsibilities.
3. Compensation.
------------
3.1 Base Salary. In consideration for the services provided
-----------
hereunder, Employer shall pay to Executive an annual base salary of $110,000
(the "Base Salary"). The Base Salary shall be payable in conformity with
Employer's customary payroll practices. Such Base Salary shall be subject to
periodic review and adjustment in the sole discretion of the Company's Board of
Directors (the "Board").
3.2 Bonus. During the Term of this Agreement, Executive shall
-----
be eligible to receive certain incentive payments ("Bonus Compensation") based
upon the achievement by the Company of certain established performance
milestones. Such milestones and the amounts of
<PAGE>
any resulting Bonus Compensation payable to Executive shall be determined by the
Board in its sole discretion.
3.3 Additional Compensation. In addition to Base Salary and
-----------------------
any Bonus Compensation, Executive shall be eligible for the following additional
compensation.
a. Executive, at Employer's expense, shall be eligible to
participate in all Executive benefit plans as may be provided by
Employer from time to time to its Executives on the same basis as other
Executives of the Company are eligible, subject to and to the extent
that Executive is eligible under such benefit plans in accordance with
their respective terms.
b. Executive shall be eligible to participate in any stock
option, purchase or other equity compensation plans of the Company on
the same basis as other Executives of the Company are eligible. Grants
of stock options under Employer's existing stock option programs are
discretionary.
c. Executive shall be eligible to participate in any annual
or long-term cash bonus plan that is offered to other Executives of the
Company on the same basis as such other Executives are eligible.
d. Executive shall be entitled to reasonable periods of paid
vacation, personal and sick leave during the Term in accordance with
Employer's policies regarding vacation and leaves for executive
Executives of the Company.
e. During the Term, Employer shall provide the Executive
with health insurance, in scope and coverage equivalent to that
provided to other Executives of the Company.
4. Term. The term of this Agreement shall commence and this
----
Agreement (the "Term") shall be effective as of the date hereof (the "Effective
Time")) and shall continue for a term of [three (3) years], unless sooner
terminated as provided herein. Subject to the terms hereof, this Agreement and
Executive's employment hereunder may be terminated by either party prior to the
expiration of the Term, for any reason and with or without prior notice. In
addition, this Agreement shall terminate immediately upon the Executive's death
and may be terminated upon a determination that Executive has become permanently
disabled, as defined in Section 5.4 hereof.
5. Termination.
-----------
5.1 For Cause By Employer. During the Term, Employer may
---------------------
terminate Executive's employment under this Agreement at any time for "Cause."
For purposes of this Agreement, "Cause" means:
2
<PAGE>
a. Executive's conviction of any crime (whether or not
involving Employer) that constitutes a felony in the jurisdiction
involved (other than unintentional motor vehicle felonies);
b. any act of theft, fraud or embezzlement, or any other
willful misconduct or dishonest behavior by Executive in connection
with Executive's work with Employer;
c. Executive's continuing failure or refusal to perform
Executive's reasonably assigned duties (consistent with past practice
of the Company) under this Agreement in accordance with Section 2
(other than due to his incapacity due to illness or injury), provided
that such failure or refusal continues uncorrected for a period of
thirty (30) days after Executive shall have received written notice
stating the nature of such failure or refusal; or
d. Executive's violation of any of Executive's material
obligations contained in this Agreement or that certain Nondisclosure
and Developments Agreement previously executed by Executive.
5.2 Without Cause by Employer. During or after the Term,
-------------------------
Employer may terminate Executive's employment under this Agreement at any time
and for any reason without Cause. If Employer terminates Executive's employment
pursuant to the provisions of this Section 5.2 during the Term, Executive shall,
in addition to all accrued but unpaid Base Salary and Bonus Compensation through
the date of termination, continue to receive the Base Salary being paid to him
immediately prior to such termination and the benefits provided for in Sections
3.3(a) (except pension, profit-sharing, disability and 401(k) plans) and 3.3(e)
(collectively, the "Severance Payment") for the remainder of the Term (the
"Severance Period"). Executive shall also receive payment for all accrued but
unused vacation pay as of the date of termination. Notwithstanding the
foregoing, if Executive secures employment with another employer during the
Severance Period, then the benefits portion of the Severance Payment shall be
reduced by the amount of other benefits payable to Executive pursuant to such
new employment. In the event of any such termination, Executive shall be
entitled to the applicable Severance Payment set forth above and no further
severance or other compensation benefits. For purposes of this Agreement,
termination "without cause" shall mean the voluntary termination by Executive of
Executive's employment with the Company in the event of (a) a diminution in the
responsibilities of Executive or (b) a reduction in Base Salary of Executive.
5.3 By Executive. During the Term, Executive may voluntarily
------------
terminate Executive's employment by giving Employer written notice no less than
two (2) weeks in advance of the effective date of such termination. Except as
set forth above in Section 5.2, if Executive voluntarily terminates Executive's
employment pursuant to the provisions of this Section 5.3 or dies, Executive (or
his estate) shall not be entitled to receive any compensation or benefits for
the period following the date of such termination or death other than the
proceeds of, or payment of any benefits under, any pension plans or other
similar plans in effect on the date thereof. In the event of any such
termination, Executive (or Executive's estate) shall be entitled to accrued and
unpaid salary and vacation through the termination date and no further severance
or other compensation benefits.
3
<PAGE>
5.4 Termination for Disability. During the Term, Executive's
--------------------------
employment may be terminated by either party in the event Executive suffers a
physical or mental disability (as defined below) which in the reasonable opinion
of Employer renders him substantially unable to perform his duties under this
Agreement. Executive shall be deemed to be permanently disabled in the event
that Executive has been unable, for a period of ninety (90) consecutive days or
one hundred eighty (180) nonconsecutive days during any 360-day period, to
perform the services contemplated hereby as a result of incapacity caused by a
physical or mental illness or injury. If Executive is terminated under this
Section 5.4, Executive shall be entitled to such benefits as are generally
available under Employer's disability insurance policies, if any.
6. Possession. Executive agrees that upon termination of this
----------
Agreement, or upon request by Employer, Executive shall turn over to Employer
all documents, files, office supplies and any other material or work product in
Executive's possession or control which were created pursuant to or derived from
Executive's services to Employer.
7. Noncompetition.
--------------
7.1 Noncompetition Provisions. Executive recognizes and agrees
-------------------------
that Employer has many substantial, legitimate business interests that can be
protected only by Executive agreeing not to compete with Employer or its
subsidiaries under certain circumstances. These interests include, without
limitation, Employer's contacts and relationships with its customers, Employer's
reputation and goodwill in the industry, the financial and other support
afforded by Employer, and Employer's rights in its confidential information.
Executive therefore agrees that during his employment with the Company and for
the greater of (i) the one (1) year period of time following the termination of
such employment, regardless of the manner or cause of such termination or (ii)
the period during which Executive is receiving severance payments pursuant to
this Agreement, Executive will not, without the prior written consent of
Employer, engage in any of the following activities within the countries of
North America (the "Protected Zones"), relating to the Protected Businesses (as
defined below):
a. engage in, manage, operate, control or supervise, or
participate in the management, operation, control or supervision of,
any business or entity which provides products or services competitive
with those being developed, manufactured, marketed, sold or otherwise
provided by Employer or its subsidiaries as of the date hereof,
including but not limited to, any business or entity providing sports
related content, information or programming over the Internet (the
"Protected Businesses") in the Protected Zones;
b. have any ownership or financial interest, directly or
indirectly, in any entity in the Protected Zones engaged in the
Protected Businesses, including, without limitation, as an individual,
partner, shareholder (other than as a shareholder of a publicly-owned
corporation in which Executive owns less than 1% of the outstanding
shares of such corporation), officer, directly, Executive, principal,
agent or consultant;
4
<PAGE>
c. solicit, acquire or conduct any Protected Business from or
with any customers of Employer or its subsidiaries (as defined below)
in the Protected Zones;
d. solicit any of the Executives or independent contractors of
Employer or its subsidiaries or induce any such persons to terminate
their employment or contractual relationships with any such entities or
take action contrary to the best interest of the Company; or
e. serve as an officer or director of, or hold an equity
interest in, any entity engaged in any of the Protected Businesses in
the Protected Zones.
For purposes of this Section 7, customers of Employer or its subsidiaries shall
include those customers to whom Employer or its subsidiaries was providing
products or services at the termination of Executive's employment, or had
proposals outstanding for the provision of services, at the time of such
termination.
7.2 Separate Covenants. The parties understand and agree that
------------------
the noncompetition agreement set forth in this Section 7 shall be construed as a
series of separate covenants not to compete: one covenant for each country,
state and province within the Protected Zone, one for each separate line of
business of Employer, and one for each month of the noncompetition period. If
any restriction set forth in this Section 7 is held by a court of competent
jurisdiction to be unenforceable with respect to one or more geographic areas,
lines of business and/or months of duration, then Executive agrees, and hereby
submits, to the reduction and limitation of such restriction to the minimal
effect necessary so that the provisions of this Section 7 shall be enforceable.
7.3 Limitation. Nothing contained in this Agreement attached
----------
shall prohibit Executive from utilizing Executive's skill, acumen or experience
after a termination of employment with Employer in any business not in violation
of this Section 7 at any location not in violation of this Section 7.
8. Saving Provision. Employer and Executive agree and stipulate
----------------
that the agreements set out in Section 7 above are fair and reasonably necessary
for the protection of the business, goodwill, confidential information, and
other protectable interests of Employer in light of all of the facts and
circumstances of the relationship between Executive and Employer. In the event a
court of competent jurisdiction should decline to enforce those provisions, they
shall be deemed to be modified to restrict Executive to the maximum extent which
the court shall find enforceable; however, in no event shall the above
provisions be deemed to be more restrictive to Executive than those contained
herein.
9. Injunctive Relief. Executive acknowledges that the breach or
-----------------
threatened breach of any of the nondisclosure or noncompetition covenants
contained herein would give rise to irreparable injury to Employer which injury
would be inadequately compensable in money damages. Accordingly, Employer may
seek and obtain a restraining order and/or injunction prohibiting the breach or
threatened breach of any provision, requirement or covenant of this Agreement,
in addition to and not in limitation of any other legal remedies which may be
5
<PAGE>
available. Executive further acknowledges and agrees that the agreements set out
above are necessary for the protection of Employer's legitimate goodwill and
business interests and are reasonable in scope and content.
10. Enforcement. The provisions of this Agreement shall be enforceable
-----------
notwithstanding the existence of any claim or cause of action against Employer
by Executive or against Executive by Employer, whether predicated on this
Agreement or otherwise.
11. Governing Law. This Agreement, the employment relationship
-------------
contemplated herein and any claim arising from such relationship, whether or not
arising under this Agreement, shall be governed by and construed in accordance
with the internal laws of the State of North Carolina, without regard to
conflict of law principles.
12. Waiver of Breach. The waiver of any breach of any provision of
----------------
this Agreement or failure to enforce any provision hereof shall not operate or
be construed as a waiver of any subsequent breach by any party.
13. Modification. This Agreement may be modified, and the rights,
------------
remedies and obligations contained in any provision hereof may be waived, only
in accordance with this Section. No waiver by either party or any breach by the
other or any provision hereof shall be deemed to be a waiver of any later or
other breach thereof or as a waiver of any other provision of this Agreement.
This Agreement may not be waived, changed, discharged or terminated orally or by
any course of dealing between the parties, but only by an instrument in writing
signed by the party against whom any waiver, change, discharge or termination is
sought. No modification or waiver by Employer shall be effective without the
consent of at least a majority of the members of the Board of Directors of
Employer then in office at the time of such modification or waiver.
14. Entirety. This Agreement, including any exhibits hereto, as it may
--------
be amended pursuant to the terms hereof, represents the complete and final
agreement of the parties and shall control over any other statement,
representation or agreement by Employer (e.g., as may appear in employment or
policy manuals).
16. Survival. The provisions of this Agreement relating to post-
--------
termination compensation (including, without limitation, the Severance Payment
and related rights), confidentiality and noncompetition shall survive the
expiration or termination of this Agreement.
17. Severability. Without in any way limiting the provisions of
------------
Section 7.2, in case any one or more of the provisions contained in this
Agreement for any reason shall be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall be construed and
reformed to the maximum extent permitted by law.
18. Binding Effect; Successors. This Agreement shall inure to the
--------------------------
benefit of Executive and Executive's heirs, successors, personal representatives
and assigns. Executive acknowledges that the services to be rendered by
Executive thereunder are unique and personal
6
<PAGE>
in nature. Accordingly, Executive may not assign any of Executive's rights or
delegate any of Executive's duties or obligations under this Agreement. The
Company shall have the right to assign or transfer this Agreement to any
successor of all of its business or assets, provided, however, that the Company
shall require any such successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" and "Employer" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law or otherwise.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement effective as of the day and year first set forth above.
EMPLOYER:
--------
TOTAL SPORTS INC.
By: /s/ George Schlukbier
-------------------------------------
Name: George Schlukbier
-------------------------------------
Title: President
-------------------------------------
EXECUTIVE:
---------
/s/ Petra Weishaupt
--------------------------------------------
Petra Weishaupt
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of
Total Sports Inc.
Raleigh, North Carolina
We consent to the use in this Amendment No. 2 to Registration Statement No. 333-
90905 of Total Sports Inc. of our report on the consolidated financial
statements of Total Sports Inc., dated January 24,2000, appearing in the
Prospectus, which is a part of this Registration Statement, and to the reference
to us under the heading "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Total Sports Inc., listed in
Item 16. This financial statement schedule is the responsibility of Total
Sports' management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Raleigh, North Carolina
February 23, 2000
<PAGE>
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Shareholders of
Total Sports Inc.
Raleigh, North Carolina
We consent to the use in this Amendment No. 2 to Registration Statement No. 333-
90905 of Total Sports Inc. of our report on the statement of net assets acquired
from KOZ inc. as of March 31, 1997 and the statements of operations and cash
flows from operations of the sports content business acquired from KOZ inc. for
the period May 1, 1996 through March 31, 1997, dated August 2, 1999, appearing
in the Prospectus, which is a part of this Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Raleigh, North Carolina
February 23, 2000
<PAGE>
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Shareholders of
Total Sports, Inc.
Raleigh, North Carolina
We consent to the use in this Amendment No. 2 to Registration Statement No. 333-
90905 of Total Sports Inc. of our report on the financial statements of Long
Distance Technologies, Inc., dated September 8, 1999, appearing in the
Prospectus, which is a part of this Registration Statement, and to the reference
to us under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Raleigh, North Carolina
February 23, 2000
