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SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Global Sports, Inc.
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(Name of Registrant as Specified In Its Charter)
Not Applicable
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Not Applicable
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(2) Aggregate number of securities to which transaction applies:
Not Applicable
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
Purchase Price of $17,160,000 comprised of cash ($13,200,000) and
assumption of liabilities ($3,960,000)
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(4) Proposed maximum aggregate value of transaction:
$17,160,000
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(5) Total fee paid:
$3,432
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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May 5, 2000
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Global Sports, Inc. which will be held on Thursday, May 25, 2000 at 10:00 a.m.
(Philadelphia Time) at the Downtown Club, 620 Chestnut Street, Philadelphia,
PA 19106. The official notice of the Annual Meeting together with a proxy
statement and proxy card are enclosed. Please give this information your
careful attention.
At the meeting, shareholders of Global are being asked to elect seven
directors of Global, to approve the sale of Global's Off-Price and Action
Sports Division, to approve indemnification agreements to be entered into with
Global's directors and certain of its officers, to approve Global's 2000
Employee Stock Purchase Plan, to increase the number of shares issuable under
Global's Equity Incentive Plan and to act upon such other business as may
properly come before the meeting.
The Board of Directors has considered and approved the sale of the Off-Price
and Action Sports Division, the Indemnification Agreements, the 2000 Employee
Stock Purchase Plan and the amendment to the Equity Incentive Plan and has
determined that they are fair to and in the best interests of the Company and
its shareholders. The Board of Directors unanimously recommends that you vote
for approval of the Acquisition Agreement, as amended, and the sale of the
Off-Price and Action Sports Division, for approval of the Indemnification
Agreements, for approval of Global's 2000 Employee Stock Purchase Plan. and
for approval of the amendment to the Equity Incentive Plan. Because each
member of the Board of Directors will be a party to and, as such, a
beneficiary of the rights contained in the Indemnification Agreements, there
is an inherent conflict of interest in the Board's recommending the
Indemnification Agreements. Nonetheless, for the reasons set forth in the
accompanying Proxy Statement, the Board of Directors unanimously recommends
that you vote for approval of the Indemnification Agreements.
Whether or not you expect to attend the meeting in person, it is important
that your shares be voted at the meeting. I urge you to specify your choices
by marking the enclosed proxy and returning it promptly.
Sincerely,
/s/ Michael G. Rubin
Chairman of the Board and
Chief Executive Officer
1075 First Avenue, King of Prussia, PA 19406 (610) 265-3229
<PAGE>
Global Sports, Inc.
1075 First Avenue
King of Prussia, PA 19406
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held May 25, 2000
----------------
TO OUR SHAREHOLDERS:
Notice is hereby given that the Annual Meeting of Shareholders (the "Annual
Meeting") of Global Sports, Inc. ("Global") will be held on Thursday, May 25,
2000, at 10:00 a.m. (Philadelphia Time), at the Downtown Club, 620 Chestnut
Street, Philadelphia, PA 19106, for the following purposes:
1. To elect seven directors named herein to serve for terms described in
the accompanying Proxy Statement and until their successors are elected and
qualified, as more fully described in the accompanying Proxy Statement;
2. To approve (i) the Acquisition Agreement, dated September 24, 1999, as
amended, among Global, Gen-X Acquisition (U.S.), Inc., Gen-X Acquisition
(Canada) Inc., DMJ Financial, Inc., James J. Salter and Kenneth J.
Finkelstein (a copy of the Acquisition Agreement, without all exhibits, is
attached as Appendix A to the accompanying Proxy Statement and a complete
copy of the Acquisition Agreement can be obtained by accessing Global's
Form 10-Q/A for the period ended September 30, 1999, filed March 22, 2000),
relating to the sale of Global's Off-Price and Action Sports Division,
including the sale of all of the issued and outstanding capital stock of
Global's wholly-owned subsidiaries Gen-X Holdings Inc. and Gen-X Equipment
Inc., and (ii) the sale of Global's Off-Price and Action Sports Division;
3. To approve Indemnification Agreements to be entered into with Global's
directors and certain of its officers (a copy of the form of
Indemnification Agreements is attached as Appendix C to the accompanying
Proxy Statement);
4. To approve Global's 2000 Employee Stock Purchase Plan (a copy of the
2000 Employee Stock Purchase Plan is attached as Appendix D);
5. To approve an amendment to Global's 1996 Equity Incentive Plan to
increase the number of shares of Global Common Stock issuable thereunder
from 3,000,000 shares to 4,500,000 shares; and,
6. To act upon such other business as may properly come before the Annual
Meeting or any postponement or adjournment thereof.
The Board of Directors is not aware of any other business to come before the
Annual Meeting.
The Board of Directors has fixed March 30, 2000 as the record date for the
determination of shareholders entitled to vote at the Annual Meeting. Only
shareholders of record at the close of business on that date will be entitled
to notice of, and to vote at, the Annual Meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER OR
NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE URGED TO SIGN,
DATE AND PROMPTLY RETURN THE ENCLOSED PROXY. A SELF-ADDRESSED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE; NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
By Order of the Board of Directors,
Arthur H. Miller
Secretary
King of Prussia, Pennsylvania
May 5, 2000
<PAGE>
Global Sports, Inc.
1075 First Avenue
King of Prussia, PA 19406
PROXY STATEMENT
The accompanying Proxy is solicited by and on behalf of the Board of
Directors of Global Sports, Inc. ("Global" or the "Company") for the Annual
Meeting of Shareholders (the "Annual Meeting") to be held on Thursday, May 25,
2000, at 10:00 a.m. (Philadelphia Time), for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders, and at any postponement
or adjournment thereof. The Annual Meeting will be held at the Downtown Club,
620 Chestnut Street, Philadelphia, PA 19106. This Proxy Statement, the Notice
of Annual Meeting and the Proxy are first being mailed to shareholders on or
about May 5, 2000. Unless the context requires otherwise, references to
"Global," the "Company," "we," "us" or "our" refer to Global and its
subsidiaries.
The cost of soliciting proxies will be borne by the Company. In addition to
solicitation by mail, proxies may be solicited in person or by telephone,
telegraph or fax by directors, officers or employees of Global without
additional compensation. Upon request by brokers, dealers, banks or voting
trustees, or their nominees who are record holders of Global's Common Stock,
Global will pay the reasonable expenses incurred by such record holders for
mailing proxy materials to any beneficial owners of the Common Stock.
Record Date and Quorum
Only shareholders of record at the close of business on March 30, 2000 (the
"Record Date") will be entitled to notice of, and to vote at, the Annual
Meeting. As of the Record Date, the Company had 18,564,780 shares of Common
Stock issued and outstanding and 8,000 shares of Series A Preferred Stock
issued and outstanding. Each share of Common Stock outstanding is entitled to
one vote on each matter which may be brought before the Annual Meeting. The
shares of Series A Preferred Stock outstanding have no voting rights with
respect to any matter which may be brought before the Annual Meeting.
In order for a quorum to be present at the Annual Meeting, a majority of the
outstanding shares of Global's Common Stock as of the close of business on the
Record Date must be present in person or represented by proxy at the Annual
Meeting. All such shares that are present in person or represented by proxy at
the Annual Meeting including abstentions and broker non-votes will be counted
in determining whether a quorum is present.
Voting of Shares
A Proxy is enclosed. If properly executed and received in time for voting,
and not revoked, the enclosed Proxy will be voted in accordance with the
instructions indicated by the shareholders. If no instructions to the contrary
are indicated, the persons named in the enclosed Proxy will vote all shares of
Common Stock represented by such Proxy:
(i) FOR election of all nominees for director hereinafter named;
(ii) FOR approval of (A) the Acquisition Agreement, dated September 24,
1999, as amended, among Gen-X Acquisition (U.S.), Inc. and Gen-X
Acquisition (Canada) Inc. (collectively, the "Purchaser"), DMJ
Financial, Inc. ("DMJ Financial"), James J. Salter, Kenneth J.
Finkelstein and Global (the "Acquisition Agreement"), relating to
the sale of Global's Off-Price and Action Sports Division, including
the sale of all of the issued and outstanding capital stock of
Global's wholly-owned subsidiaries Gen-X Holdings Inc. and Gen-X
Equipment Inc., and (B) the sale of Global's Off-Price and Action
Sports Division;
(iii) FOR approval of the Indemnification Agreements;
(iv) FOR approval of Global's 2000 Employee Stock Purchase Plan;
(v) FOR approval of the amendment to Global's 1996 Equity Incentive Plan;
and
(vi) in the discretion of the persons named in the enclosed Proxy as to
any other matter that may properly come before the Annual Meeting.
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The election of directors will be determined by a plurality vote. The
affirmative vote of a majority of the shares of Common Stock outstanding on
the Record Date is required to approve the Acquisition Agreement and the sale
of the Off-Price and Action Sports Division. The affirmative vote of a
majority of the shares of Common Stock present or represented by proxy at the
Annual Meeting is required to approve the Indemnification Agreements, to
approve the 2000 Employee Stock Purchase Plan and to approve the amendment to
the 1996 Equity Incentive Plan. An abstention, withholding of authority to
vote or broker non-vote on any proposal, other than the election of directors,
will have the same legal effect as an "against" vote.
As of the Record Date, directors and executive officers of Global, and their
affiliates, owned in the aggregate issued and outstanding shares of Global
Common Stock representing approximately 77.5% of the shares of Global Common
Stock issued and outstanding as of the Record Date. Michael G. Rubin, Chairman
and Chief Executive Officer of Global, and certain affiliates of SOFTBANK
America Inc. (collectively, "SOFTBANK"), who beneficially owned shares of
Global Common Stock representing approximately 43.2% and 33.2%, respectively,
of the shares of Global Common Stock issued and outstanding as of the Record
Date, have indicated that they intend to vote for approval of the Acquisition
Agreement and the sale of the Off-Price and Action Sports Division, for
approval of the Indemnification Agreements, for approval of the 2000 Employee
Stock Purchase Plan and for approval of the amendment to the 1996 Equity
Incentive Plan. If Mr. Rubin and SOFTBANK vote together, they will control the
outcome of each of these proposals being submitted to the shareholders at the
Annual Meeting.
Revocation of Proxies
Sending in a signed Proxy will not affect the shareholder's right to attend
the Annual Meeting and vote in person since the Proxy is revocable. Any
shareholder giving a Proxy has the power to revoke it by delivering a later
dated Proxy or giving written notice to the Secretary of Global at any time
before the Proxy is exercised. Attendance at the Annual Meeting will not, by
itself, revoke a Proxy.
Change in Fiscal Year End
Beginning with the fiscal year commencing January 1, 1999, Global operates
on a 52-53 week year so that each fiscal year end is the Saturday closest to
December 31. As used in this Proxy Statement, "fiscal 1995", "fiscal 1996",
"fiscal 1997", "fiscal 1998", "fiscal 1999" and "fiscal 2000" refer to
Global's fiscal years ended or ending December 31, 1995, December 31, 1996,
December 31, 1997, December 31, 1998, January 1, 2000 and December 30, 2001,
respectively.
Partners
Although we refer to the traditional sporting goods retailers, general
merchandiser, Internet companies and media companies for which we develop and
operate e-commerce sporting goods businesses as our "partners," we do not act
as an agent or legal representative for any of our partners. We do not have
the power or authority to legally bind any of our partners. Similarly, our
partners do not have the power or authority to legally bind us. In addition,
we do not have the types of liabilities for our partners that a general
partner of a partnership would have. Our current partners include
BlueLight.com, Dunham's Sports, Healtheon/WebMD, MC Sports, Oshman's Sporting
Goods, Sports Chalet, The Athlete's Foot and The Sports Authority.
FORWARD-LOOKING STATEMENTS
This Proxy Statement contains certain "forward-looking" statements,
including, among others, the statements regarding the ability to consummate
the sale of the Off-Price and Action Sports Division, industry conditions and
prospects and Global's future operating results. Without limiting the
foregoing, words such as "anticipates", "believes", "expects", "intends",
"plans" and similar expressions are intended to identify "forward-looking"
statements. All of these "forward-looking" statements are inherently
uncertain, and shareholders must recognize that actual events could cause
actual results to differ materially from management's expectations. Key risk
factors that could, in particular, have an adverse impact on the Company's
ability to effect the sale of the Off-Price and Action Sports Division on a
timely basis include satisfaction or waiver of all closing conditions.
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RISK FACTORS
Risks Related to the Sale of the Off-Price and Action Sports Division
Upon consummation of the sale of the Off-Price and Action Sports Division,
Global will have sold the two divisions which, until the fourth quarter of
1999, accounted for 100% of Global's revenues.
On December 29, 1999, Global consummated the sale of its Branded Division,
through which Global designed, marketed and distributed two footwear products,
the "RYKA" brand and the "Yukon" brand. Until the fourth quarter of 1999, when
Global launched the websites it operates for certain sporting goods retailers,
100% of Global's revenues had been generated by the Branded Division and the
Off-Price and Action Sports Division. Upon consummation of the sale of the
Off-Price and Action Sports Division, 100% of Global's revenues will be
generated through its e-Commerce business. To date, Global's e-Commerce
business has generated limited revenues while incurring substantial expenses
for its development. If Global is not successful implementing and operating
its e-Commerce business, it will have a material adverse effect on Global's
business, results of operations and financial condition.
The Company recognized a loss on the sale of its Branded Division and expects
to recognize a loss on the sale of its Off-Price and Action Sports Division.
Management initially expected to recognize a gain on the sale of its Branded
Division and Off-Price and Action Sports Division. On December 29, 1999, the
Company sold substantially all of the assets of its Branded Division, other
than accounts receivable of approximately $6.6 million, for a cash payment of
approximately $10.4 million, resulting in a loss of approximately $12.1
million. The proceeds from the sale of the Branded Division were substantially
lower than initially expected because the division continued to accrue losses
until its sale which occurred later than anticipated. During the first quarter
of fiscal 2000, the Company amended the terms of the Acquisition Agreement to
reduce the purchase price for the Off-Price and Action Sports Division as a
result of more of the purchase price being paid in cash. As a result,
management estimates that it will recognize a loss on disposition of
discontinued operations of approximately $17.3 million.
Certain conditions may prevent the closing of the sale of the Off-Price and
Action Sports Division.
There are several conditions precedent to the closing of the sale of the
Off-Price and Action Sports Division, including, but not limited to the
truthfulness of the parties' representations and warranties, satisfaction of
the parties' obligations to be satisfied on or before the closing and the
absence of proceedings, judgments and laws that prohibit the sale of the Off-
Price and Action Sports Division. Even if the sale is approved by the
shareholders, there can be no assurance that all of the other conditions will
be met or waived by the parties. In such event, the sale of the Off-Price and
Action Sports Division would not be completed and Global would be forced to
either search for another prospective purchaser or to continue to operate the
Off-Price and Action Sports Division. Searching for another prospective
purchaser could be costly and time consuming and there is no guarantee that
Global would find another prospective purchaser to acquire the Off-Price and
Action Sports Division on terms acceptable to Global. If Global is required to
continue to operate the Off-Price and Action Sports Division and Global's
senior management might be prevented from focusing exclusively on its e-
Commerce business, Global's capital resources may not be sufficient to fund
the e-Commerce business while maintaining and growing the Off-Price and Action
Sports Division, which business might create a conflict of interest with
Global's e-Commerce business. For a more complete description of such
conditions and such potential conflict, see "Proposal 2 -Approval of the
Acquisition Agreement and the Sale of the Off-Price and Action Sports
Division--Terms of Acquisition Agreement" and "Background and Reasons for the
Sale" and the Acquisition Agreement included with this Proxy Statement as
Appendix A.
The Purchaser is controlled by a group led by the Chief Executive Officer and
the President and Chief Financial Officer of the Off-Price and Action Sports
Division.
The Purchaser of the Off-Price and Action Sports Division is controlled by a
group led by James J. Salter, who is currently the Chief Executive Officer of
the Off-Price and Action Sports Division, and Kenneth J. Finkelstein, who is
the President and Chief Financial Officer of the Off-Price and Action Sports
Division. The duties owed by Messrs. Salter and Finkelstein to Global's
shareholders conflict with their desire to pay Global the lowest possible
purchase price for the Off-Price and Action Sports Division.
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Global shareholders are not entitled to appraisal rights in connection with
the sale of the Off-Price and Action Sports Division.
Under Delaware law, Global shareholders are not entitled to appraisal rights
for their shares of Global Common Stock in connection with the sale of the
Off-Price and Action Sports Division or to any similar rights under Delaware
law.
Risks Particular to Global
Our future success cannot be predicted based upon our limited e-commerce
operating history.
Although we commenced operations in 1987, we did not initiate our e-commerce
business until the first quarter of 1999 and did not begin operating the e-
commerce sporting goods businesses of our partners until the fourth quarter of
1999. Prior to the fourth quarter of 1999, when we launched the e-commerce
sporting goods business we operate for our partners, 100% of our revenues had
been generated by our discontinued operations. Upon completion of the sale of
discontinued operations, 100% of our revenues will be generated through our
e-commerce business. Based on our limited experience with our e-commerce
business, it is difficult to predict whether we will be successful. Thus, our
chances of financial and operational success should be evaluated in light of
the risks, uncertainties, expenses, delays and difficulties associated with
operating a business in a relatively new and unproven market, many of which
may be beyond our control. Our failure to address these issues could have a
material adverse effect on our business, results of operations and financial
condition.
We expect significant increases in our operating expenses and continuing
losses.
We incurred substantial losses for fiscal 1999 and, as of January 1, 2000 we
had an accumulated deficit of $43.1 million. We have not achieved
profitability from our continuing operations. We may not obtain enough
customer traffic or a high enough volume of purchases from our partners' e-
commerce sporting goods businesses to generate sufficient revenues to achieve
profitability. We believe that we will continue to incur operating and net
losses for the next few years. We believe that our losses in fiscal 2000 will
be significantly greater than our losses in fiscal 1999. There can be no
assurances that we will be able to reverse these accelerating losses. We
intend to increase our operating expenses substantially as we:
. enhance and expand our third-party distribution and order fulfillment
capabilities or develop our own;
. improve our order processing systems and capabilities by transitioning
order processing from our current third-party provider to in-house;
. develop enhanced technologies and features to improve our partners' e-
commerce sporting goods businesses;
. expand our customer service capabilities to better serve our customers'
needs;
. increase our general and administrative functions to support our growing
operations; and
. increase our sales and marketing activities.
Because we will incur many of these expenses before we receive any revenues
from our efforts, our losses will be greater than the losses we would incur if
we developed our business more slowly. In addition, we may find that these
efforts are more expensive than we currently anticipate, which would further
increase our losses. Also, the timing of these expenses may contribute to
fluctuations in our quarterly operating results.
Our success is tied to the success of the sporting goods industry and our
partners for which we operate e-commerce sporting goods businesses.
Our future success is substantially dependent upon the success of the
sporting goods industry and our partners for which we operate e-commerce
sporting goods businesses. From time to time, the sporting goods industry has
experienced downturns. Any downturn in the sporting goods industry could
adversely affect our
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business. In addition, if our partners were to have financial difficulties or
seek protection from their creditors, or if we are unable to replace our
partners or obtain new partners, it could adversely affect our business,
financial condition and results of operations.
We enter into long-term contracts with our partners. If we do not maintain
good working relationships with our partners or perform as required under
these agreements it could adversely affect our business.
We enter into contracts with our partners with terms ranging from five to 15
years. These agreements establish new and complex relationships between our
partners and us. We spend a significant amount of time and effort to maintain
our relationships with our partners and address the issues that from time to
time may arise from these new and complex relationships. If we do not maintain
a good working relationship with our partners or perform as required under
these agreements, our partners could seek to terminate the agreements prior to
the end of the term or they could decide not to renew the contracts at the end
of the term. This could adversely affect our business, financial condition and
results of operations. Moreover, our partners could decide not to renew these
contracts for reasons not related to our performance.
Although we refer to the traditional sporting goods retailers, general
merchandisers, Internet companies and media companies for which we develop and
operate e-commerce sporting goods businesses as our "partners," we do not act
as an agent or legal representative for any of our partners. We do not have
the power or authority to legally bind any of our partners. Similarly, our
partners do not have the power or authority to legally bind us. In addition,
we do not have the types of liabilities for our partners that a general
partner of a partnership would have. Our current partners include The
Athlete's Foot, BlueLight.com, Dunham's Sports, Healtheon/WebMD, MC Sports,
Oshman's Sporting Goods, Sport Chalet and The Sports Authority.
Our operating results are difficult to predict. If we fail to meet the
expectations of public market analysts and investors, the market price of our
common stock may decline significantly.
Our annual and quarterly operating results may fluctuate significantly in
the future due to a variety of factors, many of which are outside of our
control. Because our operating results may be volatile and difficult to
predict, quarter-to-quarter comparisons of our operating results may not be a
good indication of our future performance. In some future quarter our
operating results may fall below the expectations of securities analysts and
investors. In this event, the trading price of our common stock may decline
significantly.
Factors that may harm our business or cause our operating results to
fluctuate include the following:
. our inability to retain existing partners or to obtain new partners;
. our inability to obtain new customers at a reasonable cost, retain
existing customers or encourage repeat purchases;
. decreases in the number of visitors to the e-commerce sporting goods
businesses operated by us or the inability to convert these visitors
into customers;
. our failure to offer an appealing mix of sporting goods, apparel,
footwear and other products;
. our inability to adequately maintain, upgrade and develop our partners'
Web sites, the systems used to process customers' orders and payments or
our computer network;
. the ability of our competitors to offer new or superior e-commerce
sporting goods businesses, services or products;
. price competition that results in lower profit margins or losses;
. our inability to obtain specific products and brands or unwillingness of
vendors to sell their products to us;
. unanticipated fluctuations in the amount of consumer spending on
sporting goods and related products, which tend to be discretionary
spending items;
. increases in the cost of Internet or other advertising;
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. increases in the amount and timing of operating costs and capital
expenditures relating to expansion of our operations;
. unexpected increases in shipping costs or delivery times, particularly
during the holiday season;
. technical difficulties, system security breaches, system downtime or
Internet slowdowns;
. seasonality;
. our inability to manage inventory levels or control inventory theft;
. our inability to manage distribution operations or provide adequate
levels of customer service;
. an increase in the level of our product returns;
. government regulations related to use of the Internet for commerce; and
. unfavorable economic conditions specific to the Internet, e-commerce or
the sporting goods industry.
Seasonal fluctuations in the sales of sporting goods could cause wide
fluctuations in our quarterly results.
We expect to experience seasonal fluctuations in our revenues. These
seasonal patterns will cause quarterly fluctuations in our operating results.
In particular, we expect that our fourth fiscal quarter will account for a
large percentage of our total annual sales. In anticipation of increased sales
activity during our fourth fiscal quarter, we may hire a significant number of
temporary employees to bolster our permanent staff and significantly increase
our inventory levels. For this reason, if our revenues were below seasonal
expectations during the fourth fiscal quarter, our annual operating results
could be below the expectations of securities analysts and investors.
Due to the limited operating history of our e-commerce business, it is
difficult to predict the seasonal pattern of our sales and the impact of this
seasonality on our business and financial results. In the future, our seasonal
sales patterns may become more pronounced, may strain our personnel, product
distribution and shipment activities and may cause a shortfall in revenues as
compared to expenses in a given period.
We have been unable to fund our e-commerce operations with the cash generated
from our business. If we do not generate cash sufficient to fund our
operations, we may need additional financing to continue our growth or our
growth may be limited.
Because we have not generated sufficient cash from operations to date, we
have funded our e-commerce operations primarily from the sale of equity
securities. Cash from revenues must increase significantly for us to fund
anticipated operating expenses internally. If our cash flows are insufficient
to fund these expenses, we may need to fund our growth through additional debt
or equity financings or reduce costs. Further, we may not be able to obtain
financing on satisfactory terms. Our inability to finance our growth, either
internally or externally, may limit our growth potential and our ability to
execute our business strategy. If we issue securities to raise capital, our
existing stockholders may experience additional dilution or the new securities
may have rights senior to those of our common stock.
We must develop and maintain relationships with key brand manufacturers to
obtain a sufficient assortment and quantity of quality merchandise on
acceptable commercial terms. If we are unable to do so, it could adversely
affect our business, results of operation and financial condition.
We primarily purchase the products we offer directly from the manufacturers
of the products. If we are unable to develop and maintain relationships with
these manufacturers, we may be unable to obtain or continue to carry a
sufficient assortment and quantity of quality merchandise on acceptable
commercial terms and our business could be adversely impacted. We do not have
written contracts with most of our manufacturers. Manufacturers could stop
selling products to us and may ask us to remove their products or logos from
our partners' Web sites. In some circumstances, our partners purchase products
directly from manufacturers for sale on their Web sites. If we or our partners
are unable to obtain products directly from manufacturers, especially popular
brand manufacturers, we may not be able to obtain the same or comparable
merchandise in a timely
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manner or on acceptable commercial terms. We currently do not offer some
popular brands of sporting goods, such as Nike. There can be no assurance that
we will be able to offer these brands in the future. If we are unable to offer
a sufficient assortment and quantity of quality products at acceptable prices,
we may lose sales and market share.
Capacity constraints or system failures could materially and adversely affect
our business, results of operations and financial condition.
Any system failure, including network, software or hardware failure, that
causes interruption of the availability of our partners' Web sites could
result in decreased usage of these Web sites. If these failures are sustained
or repeated, they could reduce the attractiveness of our partners' Web sites
to customers, vendors and advertisers. Our operations are subject to damage or
interruption from:
. fire, flood, earthquake or other natural disasters;
. power losses, interruptions or brown-outs;
. Internet, telecommunications or data network failures;
. physical and electronic break-ins or security breaches;
. computer viruses; and
. other similar events.
We launched our first six partners' e-commerce sporting goods businesses in
the fourth quarter of fiscal 1999. The limited time during which we have been
operating these businesses, as well as the inherent unpredictability of the
events described above, makes it difficult to predict whether the occurrence
of any of these events is likely. If any of these events do occur, they could
result in interruptions, delays or cessations in service to users of our
partners' Web sites, which could have a material adverse effect on our
business, results of operations and financial condition.
In addition, we maintain our computers on which we operate our partners' Web
sites at the site of a third-party provider. We cannot control the maintenance
and operation of this site, which is also susceptible to similar disasters and
problems. We have no formal disaster recovery plan, and our insurance policies
may not adequately compensate us for any losses that we may incur. Any system
failure that causes an interruption in our service or a decrease in
responsiveness could harm our relationships with our customers and result in
reduced revenues. See "Business--Technology."
We may be unable to protect our proprietary technology or keep up with that of
our competitors.
Our success depends to a significant degree upon the protection of our
software and other proprietary intellectual property rights. We may be unable
to deter misappropriation of our proprietary information, detect unauthorized
use and take appropriate steps to enforce our intellectual property rights. In
addition, our competitors could, without violating our proprietary rights,
develop technologies that are as good as or better than our technology. Our
failure to protect our software and other proprietary intellectual property
rights or to develop technologies that are as good as our competitors' could
put us at a disadvantage to our competitors. In addition, the failure of our
partners to protect their intellectual property rights, including their domain
names, could impair our operations. These failures could have a material
adverse effect on our business, results of operations and financial condition.
If we do not respond to rapid technological changes, our services could become
obsolete and we could lose customers.
We may face material delays in introducing new services, products and
enhancements. If this happens, our customers may forego the use of our
partners' e-commerce sporting goods businesses and use those of our
competitors. To remain competitive, we must continue to enhance and improve
the functionality and features of
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<PAGE>
our partners' e-commerce sporting goods businesses. The Internet and the
online commerce industry are rapidly changing. If competitors introduce new
products and services using new technologies or if new industry standards and
practices emerge, our partners' existing Web sites and our proprietary
technology and systems may become obsolete.
Developing our partners' e-commerce sporting goods businesses and other
proprietary technology entails significant technical and business risks. We
may use new technologies ineffectively or we may fail to adapt our partners'
Web sites, our order processing systems and our computer network to meet
customer requirements or emerging industry standards.
We may be subject to intellectual property claims that could be costly and
could disrupt our business.
Third parties may assert that our business or technologies infringe their
intellectual property rights. From time to time, we may receive notices from
third parties questioning our right to present specific images or logos on our
partners' Web sites, or stating that we have infringed their trademarks or
copyrights. We may in the future receive claims that we are engaging in unfair
competition or other illegal trade practices. We may be unsuccessful in
defending against any of these claims, which could result in substantial
damages, fines or other penalties. The resolution of a claim could also
require us to change how we do business, redesign our partners' Web sites and
other systems or enter into burdensome royalty or licensing agreements. These
license or royalty agreements, if required, may not be available on acceptable
terms, if at all, in the event of a successful claim of infringement. Our
insurance coverage may not be adequate to cover every claim that third parties
could assert against us. Even unsuccessful claims could result in significant
legal fees and other expenses, diversion of management's time and disruptions
in our business. Any of these claims could also harm our reputation.
We rely on our developing relationships with online services, search engines
and directories to drive traffic to the e-commerce sporting goods businesses
we operate. If we are unable to develop or maintain these relationships, our
business, financial condition and results of operations could be adversely
affected.
We are developing relationships with online services, search engines and
directories to provide content and advertising banners that link to our
partners' Web sites. We expect to rely on these relationships as significant
sources of traffic to our partners' Web sites and to generate new customers.
If we are unable to develop satisfactory relationships with high-traffic Web
sites on acceptable terms, our ability to attract new customers could be
harmed. Further, many of the Web sites with which we may have online
advertising arrangements could provide advertising services for other
marketers of sporting goods. As a result, these Web sites may be reluctant to
enter into or maintain relationships with us. Failure to achieve sufficient
traffic or generate sufficient revenue from purchases originating from third-
party Web sites may result in termination of these types of relationships.
Without these relationships, we may not be able to sufficiently increase
market share and our business, financial condition and results of operations
could be adversely affected.
Our success is dependent upon our executive officers and other key personnel.
Our success depends to a significant degree upon the contribution of our
executive officers and other key personnel, particularly Michael G. Rubin,
Chairman and Chief Executive Officer. We have employment agreements with some
of our executive officers and key personnel. We cannot be sure, however, that
we will be able to retain or attract executive, managerial and other key
personnel. We have obtained key person life insurance for Mr. Rubin in the
amount of $7.25 million. We have not obtained key person life insurance on any
of our other executive officers or key personnel.
We may be unable to hire and retain the skilled personnel necessary to develop
our business.
We intend to hire a significant number of skilled personnel in fiscal 2000
and beyond. Competition for these individuals is intense, and we may not be
able to attract, assimilate or retain highly qualified personnel in the
future. Our failure to attract and retain the highly trained personnel that
are integral to our business may limit our growth rate, which would harm our
business.
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We may not be able to compete successfully against current and future
competitors, which could harm our margins and our business.
The e-commerce market is new, rapidly evolving and extremely competitive. In
addition, there is a significant amount of capital currently available to fund
existing and potential competitors. Increased competition could result in
price reductions, reduced gross margins and loss of market share, any of which
could seriously harm our business, financial condition and results of
operations. We compete with a variety of companies, including:
. online sporting goods retailers such as Chipshot.com, Fogdog.com and
Gear.com;
. general merchandise e-commerce companies such as Mercata.com,
Onsale.com, and uBid.com;
. full-line electronic retailers that are associated with full-line
sporting goods stores such as Dsports.com associated with Dick's
Sporting Goods, MVP.com, associated with Galyans, and Shopsports.com
associated with Copeland's
. e-commerce businesses of specialty sporting goods retailers and catalogs
such as Footaction.com, Footlocker.com and REI.com;
. e-commerce businesses of traditional general merchandise retailers such
as Target.com and Wal-Mart.com; and
. e-commerce businesses of sporting goods manufacturers such as adidas.com
and Nike.com.
In addition, we compete with companies that can provide part of our
solutions to companies that wish to establish e-commerce sporting goods
businesses, including:
. Web site developers, such as Sapient, Scient and Viant; and
. third-party fulfillment and customer services providers, such as
Fingerhut, Keystone Internet Services and ClientLogic.
Finally, we compete with traditional channels of distribution for sporting
goods, including full-line sporting goods retailers, specialty sporting goods
retailers, general merchandise retailers, catalogs and manufacturers' direct
stores.
If we experience problems in our fulfillment, warehouse and distribution
operations, we could lose customers.
We currently rely upon a third-party to handle the fulfillment of our
customer orders and the warehousing of our inventory. We also rely upon
multiple third parties to handle the shipment of our products. As a result, we
are subject to the risks associated with the ability of these third parties to
successfully and timely fulfill and ship customer orders and to successfully
handle our inventory delivery services to meet our shipping needs. The failure
of these third parties to provide these services, or the termination or
interruption of these services, could adversely affect our business, results
of operations and financial condition.
We currently plan to assume responsibility for the fulfillment of large and
oversized product orders during fiscal 2000 and may assume responsibility for
the fulfillment of other product orders in fiscal 2000. We could experience
problems during the transition of control from third-party to us. If
transition problems arise, it could result in additional expenses and could
divert management's attention from other aspects of our business. If we are
unable to successfully, timely and cost efficiently effect this transition and
perform these fulfillment services, our business, results of operations and
financial condition could be adversely affected.
Sporting goods and apparel are subject to changing consumer preferences. If we
fail to anticipate these changes, we could experience lower sales, higher
inventory markdowns and lower margins.
Our success depends upon our ability to anticipate and respond to trends in
sporting goods merchandise and consumers' participation in sports. Consumers'
tastes in apparel and sporting goods equipment are subject to
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frequent and significant changes, due in part to manufacturers' efforts to
incorporate advanced technologies into some types of sporting goods. In
addition, the level of consumer interest in a given sport can fluctuate
dramatically. Prior to commencing our e-commerce business, our businesses were
primarily concentrated in athletic footwear and apparel. Accordingly, we do
not have experience in the full range of sporting goods. If we fail to
identify and respond to changes in sporting goods merchandising and
recreational sports participation, our sales could suffer and we could be
required to mark down unsold inventory. This would depress our profit margins.
In addition, any failure to keep pace with changes in consumers' recreational
sports habits could allow our competitors to gain market share which could
have an adverse effect on our business, results of operations and financial
condition.
High merchandise returns could adversely affect our business, financial
condition and results of operations.
Our policy for allowing our customers to return products is consistent with
the policies of each of our partners for which we operate e-commerce sporting
goods businesses. Our ability to handle a large volume of returns is unproven.
If merchandise returns are significant, our business, financial condition and
results of operations could be adversely affected.
We may be subject to product liability claims that could be costly and time
consuming.
We sell products manufactured by third parties, some of which may be
defective. If any product that we sell were to cause physical injury or injury
to property, the injured party or parties could bring claims against us as the
retailer of the product. Our insurance coverage may not be adequate to cover
every claim that could be asserted. Similarly, we could be subject to claims
that users of our partners' Web sites were harmed due to their reliance on our
product information, product selection guides, advice or instructions. If a
successful claim were brought against us in excess of our insurance coverage,
it could adversely affect our business. Even unsuccessful claims could result
in the expenditure of funds and management time and could have a negative
impact on our business.
We may be liable if third parties misappropriate our customers' personal
information.
If third parties are able to penetrate our network security or otherwise
misappropriate our customers' personal information or credit card information,
we could be subject to liability. This liability could include claims for
unauthorized purchases with credit card information, impersonation or other
similar fraud claims. They could also include claims for other misuses of
personal information, including unauthorized marketing purposes. These claims
could result in litigation. Liability for misappropriation of this information
could adversely affect our business. In addition, the Federal Trade Commission
and state agencies have been investigating various Internet companies
regarding their use of personal information. We could incur additional
expenses if new regulations regarding the use of personal information are
introduced or if government agencies investigate our privacy practices.
We are controlled by certain principal stockholders.
As of April 28, 2000, Michael G. Rubin, our Chairman and Chief Executive
Officer, beneficially owned 43.2% and funds affiliated with SOFTBANK America
Inc., referred to as SOFTBANK, beneficially owned 33.1% of our outstanding
common stock. Mr. Rubin and SOFTBANK are in a position to exercise control
over most matters requiring stockholder approval, including the election or
removal of directors, approval of significant corporate transactions, and the
ability generally to direct our affairs. Furthermore, the stock purchase
agreements pursuant to which SOFTBANK acquired its shares of our common stock
provide that SOFTBANK has the right to designate up to three members of our
board, depending on the number of shares of our common stock held by SOFTBANK.
This concentration of ownership and SOFTBANK's right to designate members to
our board may have the effect of delaying or preventing a change in control of
us, including transactions where stockholders might otherwise receive a
premium over current market prices for their shares.
There are risks associated with potential acquisitions. As a result, we may
not achieve the expected benefits of potential acquisitions.
If we are presented with appropriate opportunities, we may make investments
in complementary companies, products or technologies or we may purchase other
companies. We may not realize the anticipated benefits of
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any investment or acquisition. We may not be able to successfully assimilate
the additional personnel, operations, acquired technology and products into
our business. The proposed acquisition may further strain our existing
financial and managerial controls and reporting systems and procedures. In
addition, key personnel of the acquired company may decide not to work for us.
These difficulties could disrupt our ongoing business, distract our management
and employees or increase our expenses. Further, the physical expansion in
facilities that would occur as a result of any acquisition may result in
disruptions that seriously impair our business. Finally, we may have to incur
debt or issue equity securities to pay for any acquisitions or investments,
the issuance of which could be dilutive to our stockholders.
We may expand our business internationally, causing our business to become
increasingly susceptible to numerous international business risks and
challenges that could affect our profitability.
We believe that the current globalization of the economy requires businesses
to consider pursuing international expansion. In the future, we may expand
into international markets. International sales are subject to inherent risks
and challenges that could adversely affect our profitability, including:
. the need to develop new supplier and manufacturer relationships,
particularly because major sporting goods manufacturers may require that
our international operations deal with local distributors;
. unexpected changes in international regulatory requirements and tariffs;
. difficulties in staffing and managing foreign operations;
. longer payment cycles from credit card companies;
. greater difficulty in accounts receivable collection;
. potential adverse tax consequences;
. price controls or other restrictions on foreign currency; and
. difficulties in obtaining export and import licenses.
To the extent we generate international sales in the future, any negative
aspects on our international business could negatively impact our business,
operating results and financial condition as a whole. In particular, gains and
losses on the conversion of foreign payments into United States dollars may
contribute to fluctuations in our results of operations and fluctuating
exchange rates could cause reduced gross revenues and/or gross margins from
dollar-denominated international sales.
We have never paid dividends on our common stock and do not anticipate paying
dividends in the foreseeable future.
We have never paid cash dividends on our common stock and do not anticipate
that any cash dividends will be declared or paid in the foreseeable future.
There are risks relating to our Year 2000 compliance.
Many existing computer software programs and operating systems were designed
such that the year 1999 is the maximum date that many computer systems will be
able to process. We addressed the potential problems posed by this limitation
in our systems software to assure that it was prepared for the Year 2000. We
did not incur any Year 2000 problem as a result of the passage of January 1,
2000. However, it is possible that problems may occur even after arrival of
the Year 2000. If we or third parties with which we conduct material business
experience problems caused by Year 2000 problems, there may be a material
adverse effect on our results of operations.
It may be difficult for a third-party to acquire our company and this could
depress our stock price.
Pursuant to our amended and restated certificate of incorporation, we have
authorized a class of 1,000,000 shares of preferred stock, which the board of
directors may issue with terms, rights, preferences and designations as the
board may determine and without any vote of the stockholders, unless otherwise
required by law. Issuing
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the preferred stock, depending upon the rights, preferences and designations
set by the board, may delay, deter or prevent a change in control of our
company. Issuing additional shares of common stock could result in dilution of
the voting power of the current holders of our common stock. In addition,
"anti-takeover" provisions of Delaware law may restrict the ability of the
stockholders to approve a merger or business combination or obtain control of
our company.
There are limitations on the liabilities of our directors.
Pursuant to our amended and restated certificate of incorporation and under
Delaware law, our directors are not liable to us or our stockholders for
monetary damages for breach of fiduciary duty, except for liability for breach
of a director's duty of loyalty, acts or omissions by a director not in good
faith or which involve intentional misconduct or a knowing violation of law,
for dividend payments or stock repurchases that are unlawful under Delaware
law or any transaction in which a director has derived an improper personal
benefit.
Risks Related to the Internet Industry
Our success is tied to the continued growth in the use of the Internet and the
adequacy of the Internet infrastructure.
Our future success is substantially dependent upon continued growth in the
use of the Internet. The number of users and advertisers on the Internet may
not increase and commerce over the Internet may not become more accepted and
widespread for a number of reasons, including:
. actual or perceived lack of security of information, including credit
card numbers;
. lack of access and ease of use;
. congestion of traffic on the Internet;
. inconsistent quality of service and lack of availability of cost-
effective, high-speed service;
. possible disruptions, computer viruses or other damage to the Internet
servers or to users' computers;
. excessive governmental regulation;
. uncertainty regarding intellectual property ownership; and
. lack of high-speed modems and other communications equipment.
Published reports have also indicated that growth in the use of the Internet
has resulted in users experiencing delays, transmission errors and other
difficulties. As currently configured, the Internet may not support an
increase in the number or requirements of users. In addition, there have been
outages and delays on the Internet as a result of damage to the current
infrastructure. The amount of traffic on our partners' Web sites could be
materially affected if there are outages or delays in the future. The use of
the Internet may also decline if there are delays in the development or
adoption of modifications by third parties that are required to support
increased levels of activity on the Internet. If none of the foregoing changes
occur, or if the Internet does not become a viable commercial medium, our
business, results of operations and financial condition could be materially
adversely affected. In addition, even if those changes occur, we may be
required to spend significant capital to adapt our operations to any new or
emerging technologies relating to the Internet.
The technology of the Internet is changing rapidly and could render the Web
sites which we operate obsolete.
The technology of the Internet and e-commerce is evolving rapidly for many
reasons, including:
. customers frequently changing their requirements and preferences;
. competitors frequently introducing new products and services; and
. industry associations and others creating new industry standards and
practices.
These changes could render the Web sites which we operate obsolete. Our
ability to attract customers could be seriously impaired if we do not
accomplish the following tasks:
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. continually enhance and improve our partners' Web sites;
. identify, select and obtain leading technologies useful in our business;
and
. respond to technological advances and emerging industry standards in a
cost-effective manner and timely manner.
Customers may be unwilling to use the Internet to purchase goods.
Our long-term future depends heavily upon the general public's willingness
to use the Internet as a means to purchase goods. The failure of the Internet
to develop into an effective commercial tool would seriously damage our future
operations. E-commerce is a new concept, and large numbers of customers may
not begin or continue to use the Internet to purchase goods. The demand for
and acceptance of products sold over the Internet are highly uncertain, and
most e-commerce businesses have a short track record. If consumers are
unwilling to use the Internet to conduct business, our business may not
develop profitably. The Internet may not succeed as a medium of commerce
because of delays in developing elements of the needed Internet
infrastructure, such as a reliable network, high-speed modems, high-speed
communication lines and other enabling technologies.
The security risks of e-commerce may discourage customers from purchasing
goods from us.
In order for the e-commerce market to develop successfully, we and other
market participants must be able to transmit confidential information securely
over public networks. Third parties may have the technology or know-how to
breach the security of customer transaction data. Any breach could cause
customers to lose confidence in the security of our partners' Web sites and
choose not to purchase from those Web sites. If someone is able to circumvent
our security measures, he or she could destroy or steal valuable information
or disrupt the operation of our partners' Web sites. Concerns about the
security and privacy of transactions over the Internet could inhibit the
growth of the Internet and e-commerce. Our security measures may not
effectively prohibit others from obtaining improper access to the information
on our partners' Web sites. Any security breach could expose us to risks of
loss, litigation and liability and could seriously disrupt our operations.
Our business is subject to United States and foreign governmental regulation
of the Internet and taxation.
Congress and various state and local governments have recently passed
legislation that regulates various aspects of the Internet, including online
content, copyright infringement, user privacy, sales and advertising of
certain products and services and taxation. In addition, federal, state, local
and foreign governmental organizations are also considering legislative and
regulatory proposals that would regulate the Internet. Areas of potential
regulation include libel, pricing, quality of products and services and
intellectual property ownership. A number of proposals have been made at the
state and local level that would impose taxes on the sale of goods and
services through the Internet. These proposals, if adopted, could
substantially impair the growth of e-commerce and could adversely affect our
future business, results of operation and financial condition.
In addition, United States and foreign laws regulate our ability to use
customer information and to develop, buy and sell mailing lists. New
restrictions in this area could limit our ability to operate as planned and
result in significant compliance costs.
Regulations imposed by the Federal Trade Commission may adversely affect the
growth of our Internet business or its marketing efforts.
The Federal Trade Commission has adopted regulations regarding the
collection and use of personal identifying information obtained from children
under 13. In addition, bills pending in Congress would extend online privacy
protections to adults. Laws and regulations of this kind may include
requirements that we establish procedures to disclose and notify users of
privacy and security policies, obtain consent from users for collection and
use of information and provide users with the ability to access, correct and
delete personal information stored by us. These regulations may also include
enforcement and remedial provisions. Even in the absence of those regulations,
the Federal Trade Commission has begun investigations into the privacy
practices of other
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companies that collect information on the Internet. One investigation resulted
in a consent decree under which an Internet company agreed to establish
programs to implement the principles noted above. We could become a party to a
similar investigation or enforcement proceeding, or the Federal Trade
Commission's regulatory and enforcement efforts may harm our ability to
collect demographic and personal information from users, which could be costly
or adversely affect our marketing efforts.
PROPOSAL 1--ELECTION OF DIRECTORS
The Company's Bylaws, as amended, provide that the number of directors shall
be as established by the Board of Directors. The Board of Directors increased
the number of Directors from four to five in July 1999 in connection with the
investment in the Company by SOFTBANK, from five to six in March 2000 and from
six to seven in April 2000 in connection with the investment in the Company by
SOFTBANK and TMCT Ventures, L.P. ("TMCT"). The stock purchase agreements
pursuant to which SOFTBANK acquired its shares of Global Common Stock provide
that SOFTBANK has the right to designate up to three members of Global's Board
of Directors, depending on the number of shares of Global Common Stock held by
SOFTBANK. Additionally, one of the SOFTBANK directors will be entitled to
serve as a member of each committee of the Board of Directors. Charles R. Lax
and Ronald D. Fisher were elected as directors of the Company to serve as
SOFTBANK nominees. The stock purchase agreement pursuant to which TMCT
acquired its shares of Global Common Stock provides that TMCT has the right to
designate one member of Global's Board of Directors. Mark S. Menell was
elected as director of the Company to serve as TMCT's nominee.
The following table sets forth certain information regarding the Company's
nominees for election to the Board of Directors to serve for one-year terms
until the 2001 Annual Meeting and until their respective successors are
elected and qualified.
<TABLE>
<CAPTION>
Term
Position(s) Held in the Director to
Name Age(1) Company Since Expire
------------------- ----- ------------------------- -------- ------
<S> <C> <C> <C> <C>
Michael G. Rubin 27 Chairman of the Board and 1995 2001
Chief Executive Officer
Kenneth J. Adelberg 47 Director 1995 2001
Harvey Lamm 64 Director 1998 2001
Jeffrey F. Rayport 40 Director 1999 2001
Charles R. Lax 40 Director 1999 2001
Ronald D. Fisher 52 Director 2000 2001
Mark S. Menell 35 Director 2000 2001
</TABLE>
- --------
(1) As of March 30, 2000.
The principal occupation of each director of the Company is set forth below.
Michael G. Rubin has served as Chairman of the Board and Chief Executive
Officer of the Company since July 31, 1995 and as President and Director of
KPR Sports International, Inc., Apex Sports International, Inc. and MR
Management, Inc. since their formation in 1990. Mr. Rubin received the 1995
Entrepreneur of the Year Award for the Delaware Valley Region, which is
sponsored by Inc. magazine and Ernst & Young. Mr. Rubin attended Villanova
University, Villanova, Pennsylvania.
Kenneth J. Adelberg has served as President and Chief Executive Officer of
HiFi House Group of Companies, a privately-held company based in Broomall,
Pennsylvania, since 1987. Mr. Adelberg is a director and founding stockholder
of US Wats, Inc., a publicly-traded company specializing in business
telecommunications services, located in Bala Cynwyd, Pennsylvania, which was
established in 1989. Mr. Adelberg is a founding stockholder and director of
Republic Bank, Philadelphia, Pennsylvania, a publicly-traded bank which has
been in operation since 1989. Mr. Adelberg holds Bachelor of Science degrees
in Biophysics
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and Physiological Psychology from Pennsylvania State University and attended
the MBA program at Drexel University, Philadelphia, Pennsylvania.
Harvey Lamm has served as a director and Chief Executive Officer of Vintek
Corporation, a privately-held company based in Philadelphia, Pennsylvania
since 1996. Vintek specializes in automated title management and the
development of tools to reduce cost and manage risk for automotive finance
institutions. From 1990 to 1996, Mr. Lamm spent his time managing his
investments. From 1967 until 1990, Mr. Lamm served as Chairman of the Board,
Chief Executive Officer, President and Chief Operating Officer of Subaru of
America, Inc., until its acquisition by Fuji Heavy Industries Ltd. Mr. Lamm
helped found Subaru of America, which was the exclusive importer of Subaru
brand vehicles in the United States and was a publicly traded company listed
on the Nasdaq National Market. Mr. Lamm holds degrees from Pennsylvania State
University and Drexel University.
Jeffrey F. Rayport has been executive director of the Monitor Marketspace
Center, a technology and e-commerce media unit based at Monitor Company, a
global strategy consulting firm headquartered in Cambridge, Massachusetts,
since September, 1998. Dr. Rayport has also been a faculty member in the
Service Management Interest Group at the Harvard Business School since prior
to 1995. Dr. Rayport went on leave from the Harvard Business School in
September, 1998. Dr. Rayport earned an A.B. from Harvard College, an M.Phil.
in International Relations at the University of Cambridge and an A.M. in the
History of American Civilization and a Ph.D. in Business History at Harvard
University.
Charles R. Lax has been one of Global's directors since July, 1999. Mr. Lax
is a general partner and a co-founder of SOFTBANK Capital Partners, an
investment group founded in July 1999. Mr. Lax has also been a general partner
of SOFTBANK Technology Ventures IV, L.P. since November 1997. From March 1996
to November 1997, he was Vice President at SOFTBANK Holdings Inc. Mr. Lax was
previously a venture partner at Vimac Partners LLC, a venture capital firm
specializing in investments in the information technology and Internet-related
industries, from June 1993 to March 1996. Mr. Lax is also a director of Art
Technology Group, Inc., 1-800-Flowers.com, Inc., Interliant, Inc., Webhire,
Inc. and a number of private companies, including ThirdAge Media, Inc.,
LIMITrader Securities, Inc., Gamesville.com and Reciprocal, Inc. Mr. Lax holds
a bachelor of science degree from Boston University.
Ronald D. Fisher has been one of Global's directors since March 2000. Mr.
Fisher has been managing general partner of SOFTBANK Capital Partners since
October 1999. From October 1995 to March 2000, Mr. Fisher was vice chairman of
SOFTBANK Holdings Inc., a U.S. subsidiary of SOFTBANK Corp. From January 1990
to September 1995, Mr. Fisher was chief executive officer of Phoenix
Technologies, Ltd., a developer and marketer of system software products. Mr.
Fisher is also a director of InsWeb Corporation, Ziff Davis Publishing,
PeoplePC and OptiMark Technologies. Mr. Fisher received a Bachelor of Commerce
degree from the University of Witwatersand in South Africa and an MBA from
Columbia University.
Mark S. Menell has been one of Global's directors since April 2000. Mr.
Menell has been a partner of TMCT Ventures since January 2000. From August
1990 to January 2000, Mr. Menell was an investment banker at Morgan Stanley
Witter, most recently as Principal and co-head of Morgan Stanley Dean Witter's
Technology Mergers and Acquisitions Group, based in Menlo Park, CA. Mr. Menell
received a B.A. magna cum laude in economics from the University of
Pennsylvania and a B.S. magna cum laude in finance and an MBA from the
University of Pennsylvania's Wharton School of Business.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
NOMINEES FOR DIRECTORS.
Board, Committees and Attendance at Meetings
The Board of Directors of Global held seven meetings during fiscal 1999.
During fiscal 1999, no director attended fewer than 75% of the aggregate of
the total number of Board meetings and the total number of
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meetings held by committees of the Board of Directors on which he served. The
following is a description of each of the committees of the Board of Directors
of Global.
Audit Committee. The members of the Audit Committee are Messrs. Adelberg, Lamm
and Lax. The Audit Committee reviews Global's audited financial statements and
makes recommendations to the Board of Directors concerning Global's accounting
practices and policies and the selection of independent accountants. No
meetings of the Audit Committee were held during fiscal 1999.
Compensation Committee. The members of the Compensation Committee are Messrs.
Adelberg, Lax and Rayport. The Compensation Committee is responsible for
establishing salaries, bonuses and other compensation for the executive
officers and administers the Company's stock option plans. No meetings of the
Compensation Committee were held during fiscal 1999.
Compensation of Directors
Under the Company's current policy, upon election to the Board of Directors,
non-employee directors of the Company receive an option to purchase 30,000
shares of the Company's Common Stock as compensation for their services to the
Company. The directors do not receive any cash compensation for their services
on behalf of the Company but are reimbursed for reasonable travel and lodging
expenses incurred in attending meetings of the Board of Directors and any
Committee. Mr. Rubin, the only director who is also an officer of the Company,
does not receive any separate fee for acting in his capacity as a director.
On September 19, 1995, the Board of Directors adopted, and on November 15,
1995, the shareholders approved, the 1995 Non-Employee Directors' Stock Plan
(the "Directors' Plan"). Pursuant to the Directors' Plan, options originally
could be granted with respect to an aggregate of 12,500 shares of Common
Stock. Effective December 31, 1997, the Board of Directors terminated the
Directors' Plan, which remains in effect only as to unexercised options
granted thereunder.
PROPOSAL 2--APPROVAL OF THE ACQUISITION AGREEMENT
AND THE SALE OF THE OFF-PRICE AND ACTION SPORTS DIVISION
General
On September 24, 1999, the Company entered into the Acquisition Agreement
providing for the sale of the Company's Off-Price and Action Sports Division,
including the sale of all of the issued and outstanding capital stock of the
Company's wholly-owned subsidiaries Gen-X Holdings Inc. and Gen-X Equipment
Inc. (collectively, the "Gen-X Companies"). On March 13, 2000, the Acquisition
Agreement was amended to, inter alia, (i) extend the date after which either
party could terminate the Acquisition Agreement, (ii) provide for a larger
portion of the purchase price to be paid in cash instead of a combination of
cash and promissory notes, (iii) to reduce the purchase price as a result of
more of the purchase price being paid in cash, (iv) to provide Purchaser with
a breakup fee of $1.5 million, and (v) to accelerate the vesting of options to
purchase an aggregate of 281,930 shares of Global Common Stock held by certain
employees of Global, of which options to acquire 80,000 shares are held by
each of Messrs Salter and Finkelstein. Pursuant to the terms of the
Acquisition Agreement, as amended, the aggregate purchase price for the Off-
Price and Action Sports Division is approximately $17.2 million, consisting of
a cash payment of $6.0 million deposited in an escrow account by the Purchaser
on March 13, 2000, a cash payment at closing of $7.2 million and assumption of
certain notes payable by Global in the aggregate principal amount of
approximately $4.0 million.
A copy of the Acquisition Agreement, as amended, without all exhibits, is
attached as Appendix A to this Proxy Statement. A complete copy of the
Acquisition Agreement, as amended, can be obtained by accessing Global's Form
10-Q/A for the period ended September 30, 1999, filed March 22, 2000.
The Off-Price and Action Sports Division accounted for approximately 60.5%
and 66% of the Company's net sales in fiscal 1999 and fiscal 1998,
respectively, and approximately 27.0% and 31.5% of the Company's
16
<PAGE>
assets as of the end of fiscal 1999 and the end of fiscal 1998, respectively.
As a result, the sale of the Off-Price and Actions Sports Division may be
considered to be a sale of substantially all of the Company's assets under
applicable law. Shareholders are, therefore, being asked to approve the sale
of the Off-Price and Action Sports Division.
Background and Reasons for the Sale
During the fourth quarter of 1998, the Company began to investigate whether
it would be beneficial for the Company to expand its business to include the
sale of athletic footwear and sporting goods through the internet. At that
time, electronic commerce ("e-Commerce") was rapidly growing, and Global
believed the internet provided a unique opportunity for it to leverage its
existing relationships with vendors and sporting goods retailers.
By the end of 1998, the Company had developed a business model in which the
Company would enter into exclusive contracts with land-based sporting goods
retailers to operate their e-Commerce businesses and pay the retailers a share
of sales made through the websites. The business model provided that Global
would develop the retailer's website, maintain the website, buy and warehouse
inventory, ship customer orders and provide customer service. Global believed
that such retailers were well suited to compete in the internet sporting goods
industry due to their established brand names, existing customer traffic and
existing relationships with and access to merchandise from vendors. Global's
business model enabled it to leverage the marketing and advertising budgets of
these retailers by requiring integration of the retailers' website addresses
into their marketing and communications materials.
In January 1999, the Company formed Global Sports Interactive, Inc. ("GSI")
to implement its e-Commerce strategy and began to market its business model to
land-based retailers in the sporting goods industry. During the first quarter
of 1999, Global was successful in signing exclusive agreements to operate the
internet businesses of multiple sporting goods retailers, including The Sports
Authority, Inc., The Athlete's Foot Stores, Inc., Sport Chalet, Inc., Michigan
Sporting Goods Distributors, Inc. (MC Sports) and Dunham's Athleisure
Corporation.
While marketing its business model, Global realized that the amount of
management time necessary to launch and operate its e-Commerce business would
be substantial. As a result, the Company began to recruit a senior management
team from both the e-Commerce and sporting goods industries to develop and
manage its new e-Commerce business. Although Global was successful in
expanding its senior management team, the operation of Global's existing
businesses prevented senior management from focusing exclusively on its e-
Commerce business.
Global also realized that its capital resources would not be sufficient to
fund its rapidly growing e-Commerce business while maintaining and growing its
existing businesses and that its existing businesses might create a conflict
of interest with its e-Commerce business.
As a result, Global concluded that it should focus exclusively on its e-
Commerce business. On April 20, 1999, Global formalized a plan to divest its
non-internet businesses which consisted of its Off-Price and Action Sports
Division and its Branded Division.
Based on its decision to focus exclusively on its e-Commerce business,
Global began preliminary discussions in early April,1999 with Deutsche Bank
Securities Inc. ("Deutsche Bank") (formerly BT Alex. Brown Incorporated). On
April 17, 1999, Global's Board of Directors engaged Deutsche Bank to
familiarize itself with Global's operations, properties and financial
condition and assist Global in identifying and evaluating prospective
purchasers of the Company's Off-Price and Action Sports Division and the
Company's Branded Division.
Between April 20, 1999 and June 20, 1999, Global worked with Deutsche Bank
to prepare an offering memorandum for the sale of the Off-Price and Action
Sports Division. Twenty-two parties were contacted
17
<PAGE>
regarding their interest in acquiring the Off-Price and Action Sports
Division. The offering memorandum was circulated to 12 prospective purchasers
between June 21, 1999 and July 15, 1999. All prospective purchasers were
required to execute confidentiality agreements prior to receiving a copy of
the offering memorandum.
Prospective purchasers were also provided with certain publicly available
financial information and confidential information regarding the Off-Price and
Action Sports Division and Global such as data on significant customers and
suppliers and financial projections for fiscal 1999.
Based upon the information contained in the offering memorandum, Global
received one proposal for the Off-Price and Action Sports Division. The
proposal was submitted by a management group led by James J. Salter and
Kenneth J. Finkelstein. Mr. Salter is currently the Chief Executive Officer of
the Off-Price and Action Sports Division and Mr. Finkelstein is the President
and Chief Financial Officer of the Off-Price and Action Sports Division. In
May 1998, Global had acquired the capital stock of the Gen-X Companies, which
comprise part of the Off-Price and Action Sports Division, from Messrs. Salter
and Finkelstein and other shareholders of the Gen-X Companies.
Approval by Board of Directors
Global and its financial advisors negotiated the specific terms of the sale
of the Off-Price and Action Sports Division with Messrs. Salter and
Finkelstein from mid June 1999 through July 1999. The initial offer made by
Messrs. Salter and Finkelstein was approximately $16.0 million, consisting of
a cash payment of $6.0 million and a note in the amount of $10.0 million.
Between June 1999 and July 1999, the parties had several meetings and numerous
telephone conversations regarding the purchase price and the payment terms for
the sale. In early August 1999, the parties finally agreed upon a purchase of
approximately $20.0 million, consisting of a cash payment of approximately
$6.0 million, a note in the amount of $10.0 million and the assumption of debt
in the amount of approximately $4.0 million. During August, 1999 through
September 15, 1999, counsel for the parties drafted and negotiated the
specific terms of the Acquisition Agreement and the related agreements. See
"--Terms of the Acquisition Agreement." The negotiations of the specific terms
of the Acquisition Agreement included one meeting in which Mr. Rubin, Steven
A. Wolf, Vice President of Global, and Messrs. Salter and Finkelstein were
present along with legal counsel and financial advisors for Global and legal
counsel for the management group led by Messrs. Salter and Finkelstein.
Several telephone conference calls were also held by the above individuals
during such negotiations.
On September 15, 1999, Global and Messrs. Salter and Finkelstein
preliminarily agreed to the terms and conditions of the sale of the Off-Price
and Action Sports Division and the Acquisition Agreement, subject to certain
customary closing conditions, including approval by Global's Board of
Directors, approval by Global's shareholders and a review of the Purchaser's
documents relating to the Purchaser's proposed restructuring of the Off-Price
and Action Sports Division. The Purchaser contemplated a restructuring which
was to occur immediately prior to and immediately following the consummation
of the sale of the Off-Price and Action Sports Division. However, the
documents necessary to effectuate the restructuring had not at that time been
provided to Global or its legal counsel for review.
On September 16, 1999, Global's Board of Directors held a meeting to review
and consider the sale of the Off-Price and Action Sports Division. The meeting
was attended by all of the members of Global's Board of Directors,
representatives of Deutsche Bank, Global's legal counsel, Global's Chief
Financial Officer and Global's Senior Vice President of Strategic Development.
The Board of Directors deferred approval of the sale of the Off-Price and
Action Sports Division to the Purchasers until Global and its legal counsel
were provided with and were able to review the Purchaser's proposed
restructuring documents.
Global and its legal counsel were provided with copies of the restructuring
documents on September 20, 1999. Between September 20, 1999 and September 23,
1999, Global and its legal counsel reviewed and negotiated the restructuring
documents of the Purchaser. The restructuring documents, as executed, provide
for the following:
. the redemption by Global of 7,200 of the 8,000 outstanding shares of
Series A Preferred Stock of Global in exchange for a promissory note in
the principal amount of $360,000, which note will be convertible into an
obligation of Gen-X Holdings Inc.;
18
<PAGE>
. the amendment and restatement of the contingent notes with an aggregate
outstanding principal balance of $3.6 million issued by Global in
connection with the acquisition of the Gen-X Companies in May, 1998 to
make such notes convertible into obligations of Gen-X Holdings Inc.;
. conversion of the above notes into a promissory note from Gen-X Holdings
Inc. in the principal amount of approximately $4.0 million;
. cancellation of the note in the approximate amount of $4.0 million in
exchange for Gen-X Holdings Inc. issuing a promissory note convertible
into preferred stock of Gen-X Holdings Inc.;
. Global's issuance of a promissory note in favor of Gen-X Holdings Inc.
in the principal amount of approximately $4.0 million, which note will
be assumed by the Purchaser in connection with the sale of the Off-Price
and Action Sports Division; and
. certain other transactions between the Purchaser and its affiliates
which will occur after the consummation of the sale of the Off-Price and
Action Sports Division and which will not affect Global.
On September 24, 1999, Global's Board of Directors held another meeting to
review and consider the sale of the Off-Price and Action Sports Division to
the Purchaser. The meeting was attended by all of the members of Global's
Board of Directors other than Jeffrey Rayport, representatives of Deutsche
Bank, Global's General Counsel, Chief Financial Officer and Senior Vice
President of Strategic Development. After a review of the terms and conditions
of the Acquisition Agreement and related agreements by Global's General
Counsel and a review of the financial terms of the proposed sale of the Off-
Price and Action Sports Division by a representative of Deutsche Bank, the
Board of Directors unanimously determined that the terms and conditions of the
sale of the Off-Price and Action Sports Division to the Purchaser are fair to,
and in the best interests of, the Company and approved the sale of the Off-
Price and Action Sports Division and the Acquisition Agreement and related
agreements.
The Acquisition Agreement was executed on September 24, 1999. Pursuant to
its original terms, the Acquisition Agreement could be terminated by either
party if the closing did not occur on or before February 28, 2000. On or
around March 1, 2000, Global and the Purchaser decided to extend the date
after which either party could terminate the Acquisition Agreement until May
31, 2000 and to amend the purchase price and payment terms for the sale.
Between March 1, 2000 and March 7, 2000, Global and Messrs. Salter and
Finkelstein negotiated the terms of the amendment to the Acquisition
Agreement.
The Acquisition Agreement, as originally agreed to, provided for $10 million
of the purchase price for the Off-Price and Action Sports Division to be paid
with subordinated promissory notes to be paid over 7 1/2 years. Global agreed
to a reduction in the purchase price of approximately $2.8 million because the
payment terms were amended to provide that the entire purchase price would be
paid in cash.
On March 12, 2000, Global's Board of Directors held a meeting to review and
consider the proposed amendment to the Acquisition Agreement. The meeting was
attended by all of the members of Global's Board of Directors, representatives
of Deutsche Bank, Global's General Counsel, Chief Financial Officer and Senior
Vice President of Strategic Development. After a review of the terms and
conditions of the amendment to the Acquisition Agreement by Global's General
Counsel and a review of the revised financial terms of the proposed sale of
the Off-Price and Action Sports Division by a representative of Deutsche Bank,
the Board of Directors unanimously determined that the revised terms and
conditions of the sale of the Off-Price and Action Sports Division to the
Purchaser are fair to, and in the best interests of, the Company and approved
the amendment to the Acquisition Agreement.
Terms of the Acquisition Agreement
The following is a summary of the material provisions of the Acquisition
Agreement, dated September 24, 1999, as amended, between Global, Gen-X
Acquisition (U.S.), Inc., Gen-X Acquisition (Canada) Inc., DMJ Financial,
James J. Salter and Kenneth J. Finkelstein. A copy of the Acquisition
Agreement, as amended, without all exhibits, is attached as Appendix A to this
Proxy Statement. A complete copy of the Acquisition Agreement, as amended, can
be obtained by accessing Global's Form 10-Q/A for the period ended September
30, 1999, filed
19
<PAGE>
March 22, 2000. The Acquisition Agreement is incorporated into this Proxy
Statement by reference and should be read carefully.
General
The Acquisition Agreement provides for the sale by Global to Gen-X
Acquisition (U.S.), Inc. of all of the issued and outstanding shares of
capital stock of Gen-X Holdings and the sale by Global to Gen-X Acquisition
(Canada), Inc. of all of the issued and outstanding shares of capital stock of
Gen-X Equipment. The sale of the Off-Price and Action Sports Division will be
consummated only if the Acquisition Agreement and the transactions
contemplated by the Acquisition Agreement are approved and adopted by the
affirmative vote of a majority of the shares of Global Common Stock
outstanding on the Record Date. If approved, the closing of the sale of the
Off-Price and Action Sports Division will take place shortly after the Annual
Meeting. There can be no assurance, however, that the conditions to the
closing will be satisfied by that time, or at all, or that the Acquisition
Agreement will not be terminated. See "--Conditions to Closing."
Purchase Price
The purchase price to be paid to Global for the capital stock of Gen-X
Holdings consists of the following: (i) a cash payment in the amount of $6.0
million deposited in an escrow account by the Purchaser on March 13, 2000, to
be delivered to Global at closing, (ii) a cash payment at closing in the
amount of $3.6 million, and (iii) the assumption of certain notes, payable by
Global to Gen-X Holdings, in the aggregate principal amount of approximately
$4.0 million, together with all accrued and unpaid interest thereon. This
purchase price is subject to certain adjustments in the event the Purchaser
sells or otherwise transfers the capital stock of the Gen-X Companies within
certain periods of time following the closing. The purchase price to be paid
to Global for the capital stock of Gen-X Equipment consists of a cash payment
at closing in the amount of $3.6 million.
Related Agreements
In connection with the Acquisition Agreement, Global has agreed to enter
into a Right of First Offer Agreement and a Non-Competition Agreement, each
effective as of the closing of the sale of the Off-Price and Action Sports
Division.
Under the Noncompetition Agreement, Global and Michael G. Rubin will not
compete, for a period of five years following the closing of the sale of the
Off-Price and Action Sports Division, in the action sports and off-price
sporting goods business, as currently conducted by the Gen-X Companies. Global
will not be prohibited or restricted under the Noncompetition Agreement from
conducting its e-Commerce business. The Noncompetition Agreement may be
terminated prior to the end of its five year term upon the occurrence of
certain defaults or breaches by the parties to the Acquisition Agreement.
In addition, Global and the other parties to the Acquisition Agreement have
agreed to enter into agreements to terminate, as of the closing of the sale of
the Off-Price and Action Sports Division, the employment agreements of Messrs.
Salter and Finkelstein and the noncompetition agreement entered into by
Merssrs Salter and Finkelstein and DMJ Financial in connection with the
purchase by Global of the Gen-X Companies in May, 1998.
In order to secure the obligations to Global under the Notes, the Purchaser
and its operating subsidiaries have agreed to execute and deliver to Global
guarantees, security agreements, pledge agreements and trademark security
agreements.
Representations and Warranties
The Acquisition Agreement contains certain representations and warranties by
Global relating to, among other things: (i) the due organization, valid
existence and power of the Gen-X Companies, (ii) the capitalization and
ownership of the Gen-X Companies, (iii) the authorization, execution,
delivery, enforceability and
20
<PAGE>
performance of the Acquisition Agreement and related agreements by Global,
(iv) no conflicts under Global's charter or bylaws or violations of agreements
or applicable laws or judgments, (v) the absence of legal proceedings and
judgments, and (vi) brokerage fees.
The Acquisition Agreement also contains certain representations and
warranties by the Purchaser, DMJ Financial and Messrs. Salter and Finkelstein
relating to, among other things: (i) the due organization, valid existence and
power of the Purchaser and DMJ Financial, (ii) the authorization, execution,
delivery, enforceability and performance of the Acquisition Agreement and
related agreements by the Purchaser, DMJ Financial and Messrs. Salter and
Finkelstein, (iii) the absence of any business activities, operations or
obligations of the Purchaser prior to closing of the sale of the Off-Price and
Action Sports Division, (iv) the absence of proceedings and judgments, (v)
brokerage fees, (vi) representations as to investment matters, (vii) the
absence of any obligations incurred by DMJ Financial or Messrs. Salter or
Finkelstein on behalf of Global or any of its subsidiaries other than the Gen-
X Companies, and (viii) the non-applicability of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") and the
Competition Act (Canada).
Conditions to Closing
Unless otherwise waived, the obligations of Global to be performed at the
closing of the sale of the Off-Price and Action Sports Division are subject to
the satisfaction of certain conditions, including the following: (i) the
representations and warranties of the Purchaser, DMJ Financial and Messrs.
Salter and Finkelstein must have been true in all material respects when made
and must be true in all material respects on and as of the date of the
closing, (ii) all of the obligations to be satisfied or performed by the
Purchaser on or before the closing must have been substantially satisfied or
performed, (iii) approval of the sale of the Off-Price and Action Sports
Division must have been obtained from the shareholders of Global, (iv) no
proceeding, judgment or law has been instituted, issued or enacted that
prohibits the transactions contemplated by the Acquisition Agreement and
related agreements, and (v) Global has received the written opinion of its
financial advisor that the consideration to be received by Global is fair,
from a financial point of view, to Global.
Unless otherwise waived, the obligations of the Purchaser, DMJ Financial and
Messrs. Salter and Finkelstein to be performed at the closing of the sale of
the Off-Price and Action Sports Division are subject to the satisfaction of
certain conditions, including the following: (i) the representations and
warranties of Global must have been true in all material respects when made
and must be true in all material respects on and as of the date of the
closing, and (ii) all of the obligations to be satisfied or performed by
Global on or before the closing must have been substantially satisfied or
performed.
Nondisclosure and Noncompetition Obligations
In connection with the sale of the Off-Price and Action Sports Division,
Global has agreed not to disclose any confidential information about the Gen-X
Companies and the Purchaser, DMJ Financial and Messrs. Salter and Finkelstein
have agreed not to disclose any confidential information about Global.
Indemnification
Pursuant to the terms of the Acquisition Agreement, Global has agreed to
indemnify the Purchaser, DMJ Financial and Messrs. Salter and Finkelstein from
and against any damages arising out of or in connection with certain matters,
including the following: (i) any misrepresentation, breach or failure of any
representation or warranty made by Global in the Acquisition Agreement or any
of the related agreements, and (ii) any failure or refusal by Global to
satisfy or perform any covenant, term, obligation or condition of the
Acquisition Agreement or any of the related agreements required to be
satisfied or performed by it.
The Purchaser, DMJ Financial and Messrs. Salter and Finkelstein, jointly and
severally, have agreed to indemnify Global from and against any damages
arising out of or in connection with certain matters, including the following:
(i) any misrepresentation, breach or failure of any representation or warranty
made by the
21
<PAGE>
Purchaser, DMJ Financial or Messrs. Salter or Finkelstein in the Acquisition
Agreement or any of the related agreements, (ii) any failure or refusal by the
Purchaser, DMJ Financial, Salter or Finkelstein to satisfy or perform any
covenant, term, obligation or condition of the Acquisition Agreement or any of
the related agreements required to be satisfied or performed by them, (iii)
any act or omission of the Gen-X Companies or their representatives at any
time after the closing, and (iv) any claim against Global by Customs Canada.
Termination
The Acquisition Agreement may be terminated under any of the following
circumstances: (i) upon the mutual written consent of Global and the
Purchaser, (ii) by Global or the Purchaser if the closing does not occur on or
before May 31, 2000, (iii) by the Purchaser if it becomes certain that any of
the conditions to the closing obligations of the Purchaser, DMJ Financial or
Messrs. Salter and Finkelstein cannot be satisfied, (iv) by Global if it
becomes certain that any of the conditions to the closing obligations of
Global cannot be satisfied, (v) by the Purchaser if Global breaches any of its
representations, warranties, covenants or agreements contained in the
Acquisition Agreement, (vi) by Global if the Purchaser, DMJ Financial or
Messrs. Salter or Finkelstein breach any of their representations, warranties,
covenants or agreements contained in the Acquisition Agreement, or (vii) by
Global if Global receives an offer from a third party to acquire the Gen-X
Companies and the Board of Directors of Global determines, in good faith, that
its fiduciary duties require Global to accept such offer. If Global terminates
the Acquisition Agreement because it has received an offer from a third party
to acquire the Gen-X Companies and the Board of Directors of Global
determines, in good faith, that its fiduciary duties require Global to accept
such offer, and Purchaser is not then in breach of the Acquisition Agreement,
Global will be required to pay Purchaser a nonrefundable fee in the amount of
$1.5 million.
Opinion of Deutsche Bank Securities Inc.
Deutsche Bank has acted as financial advisor to Global in connection with
the proposed sale of the Company's Off-Price and Action Sports Division,
including the sale of the Gen-X Companies.
At the March 12, 2000 meeting of Global's Board of Directors, Deutsche Bank
delivered its oral opinion, subsequently confirmed in writing as of the same
date, to the Global Board of Directors to the effect that, as of the date of
such opinion, based upon and subject to the assumptions made, matters
considered and limits of the review undertaken by Deutsche Bank, the
consideration to be received by Global in connection with the sale of the Off-
Price and Action Sports Division is fair, from a financial point of view, to
Global.
The full text of Deutsche Bank's written opinion, dated March 12, 2000 (the
"Deutsche Bank Opinion"), which sets forth, among other things, the
assumptions made, matters considered and limits on the review undertaken by
Deutsche Bank in connection with the opinion is attached as Appendix B to this
Proxy Statement and is incorporated herein by reference. Global shareholders
are urged to read the Deutsche Bank Opinion in its entirety. The summary of
the Deutsche Bank Opinion set forth in this Proxy Statement is qualified in
its entirety by reference to the full text of the Deutsche Bank Opinion.
In connection with Deutsche Bank's role as financial advisor to Global, and
in arriving at its opinion, Deutsche Bank has, among other things, reviewed
certain publicly available financial information and other information
concerning the Off-Price and Action Sports Division and certain internal
analyses and other information furnished to it by the Off-Price and Action
Sports Division and Global such as accounts receivable aging reports,
available-to-sell inventory reports, inventory aging reports and data on
significant customers and suppliers. Deutsche Bank also held discussions with
the members of the senior management of the Off-Price and Action Sports
Division and Global regarding the businesses and prospects of the Off-Price
and Action Sports Division. In addition, Deutsche Bank has (i) reviewed the
financial performance of the Off-Price and Action Sports Division, (ii)
reviewed the financial terms of certain recent acquisitions which it deemed
comparable in whole or in part, (iii) reviewed the terms of the Acquisition
Agreement and certain related documents and (iv) performed such other studies
and analyses and considered such other factors as it deemed appropriate.
Deutsche Bank found no publicly-traded companies that are comparable to the
Off-Price and Action Sports Division.
22
<PAGE>
Accordingly, Deutsche Bank was unable to value the Off-Price and Action Sports
Division based upon comparable market valuations. In addition, based upon the
nature of the Off-Price and Action Sports Division's business, management of
the Off-Price and Action Sports Division and Global believe it is impractical
to produce financial projections; consequently, Deutsche Bank was unable to
perform a discounted cash flow valuation analysis or leveraged buyout
valuation analysis.
Deutsche Bank has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning the Off-Price and Action Sports
Division, including, without limitation, any financial information or
forecasts considered in connection with the rendering of its opinion.
Accordingly, for purposes of its opinion, Deutsche Bank has assumed and relied
upon the accuracy and completeness of all such information and Deutsche Bank
has not conducted a physical inspection of any of the properties or assets and
has not prepared or obtained any independent evaluation or appraisal of any of
the assets or liabilities of the Off-Price and Action Sports Division.
Deutsche Bank's opinion is necessarily based upon economic, market and other
conditions as in effect on, and the information made available to it as of,
the date of such opinion.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in
all respects material to its analysis, the representations and warranties of
the Off-Price and Action Sports Division, Global and the Purchaser contained
in the Acquisition Agreement are true and correct and that Global and the
Purchaser will each perform all of the covenants and agreements to be
performed by it under the Acquisition Agreement and all conditions to the
obligations of each of Global and the Purchaser to consummate the sale of the
Off-Price and Action Sports Division will be satisfied without any waiver
thereof. Deutsche Bank has also assumed that all material governmental,
regulatory or other approvals and consents required in connection with the
consummation of the sale of the Off-Price and Action Sports Division will be
obtained and that in connection with obtaining any necessary governmental,
regulatory or other approvals and consents, or any amendments, modifications
or waivers to any agreements, instruments or orders to which Global is a party
or is subject or by which it is bound, no limitations, restrictions or
conditions will be imposed or amendments, modifications or waivers made that
would have a material adverse effect on Global.
Set forth below is a brief summary of all material financial analyses
performed by Deutsche Bank in connection with its opinion and reviewed with
the Global Board of Directors at its meeting on March 12, 2000.
Discussion of the Total Aggregate Consideration for the Off-Price and Action
Sports Division.
Deutsche Bank reviewed the proposed form and terms of financial
consideration to Global by the Purchaser and based on Deutsche Bank's
analysis, valued the proposed total aggregate consideration at $46.0 million.
The total aggregate consideration is comprised of the following:
<TABLE>
<CAPTION>
($ in millions)
Consideration Value
------------- -----
<S> <C>
Retention by Global of insured
accounts receivable.................. $10.5
Cash payment for inventory............ $ 1.0
Cash purchase price................... 13.2
Assumption of Global's contingent
liability............................ 3.4(1)
Assumption of long-term debt.......... 2.7
Assumption of short-term debt......... 15.2
-----
Total............................... $46.0
=====
</TABLE>
- --------
(1) Fair market value. The $4.0 million face value of contingent consideration
liability to be assumed by the Purchaser has been discounted at 11%.
23
<PAGE>
The "total aggregate consideration" of $46.0 million for the Off-Price and
Action Sports Division differs from the $17.2 million purchase price to be
received by Global for the Gen-X Companies for the following reasons: (i) the
contingent notes to be assumed by the Purchaser in the aggregate principal
amount of $4.0 million have been discounted, and (ii) the amount of cash
received by the Company for inventory, the value of accounts receivable held
in the Off-Price and Action Sports Division to be retained by the Company, and
the amount of the liabilities held by the Gen-X Companies have been added to
the purchase price.
Analysis of Selected Precedent Transactions.
Deutsche Bank reviewed the financial terms, to the extent publicly
available, of five pending or completed merger and acquisition transactions
since January 1994 involving companies in the off-price distribution industry
and action sports industry (the "Selected Transactions"). Deutsche Bank
calculated various financial multiples based on the Transaction Value (the
market value of the equity plus net debt and preferred securities) and certain
publicly available information for each of the Selected Transactions and
compared them to corresponding financial multiples for the proposed sale of
the Off-Price and Action Sports Division. The transactions reviewed and the
multiples were as follows:
. the August 8, 1994 purchase of C.A.S. Sports International by Ride,
Inc.;
. the October 11, 1996 purchase of C.A.S. Sports International, Inc. by
Gen-X Corporation;
. the May 12, 1998 purchase of the Gen-X Companies by Global Sports, Inc.;
. the March 26, 1999 purchase of Morrow Snowboards, Inc. by K2 Inc.; and
. the October 7, 1999 purchase of Ride Inc. by K2 Inc.
<TABLE>
<CAPTION>
Multiples
-----------------------------------
<S> <C> <C> <C> <C> <C>
Multiple of Transaction value to: Low Mean High Proposed Transaction
LTM Revenues 0.1x 0.4x 0.6x 0.6x
LTM EBITDA (1) 1.6x 4.1x 5.4x 11.9x
LTM EBIT (2) 1.9x 4.4x 5.9x 14.9x
Multiple of Equity value to:
Book Value 0.9x 1.8x 3.3x 1.5x
</TABLE>
- --------
(1) Trailing twelve months EBITDA (earnings before interest, taxes,
depreciation and amortization)
(2) Trailing twelve months EBIT (earnings before interest and taxes)
All multiples for the Selected Transactions were based on public information
available at the time of announcement of such transaction, without taking into
account differing market and other conditions during the five-year period
during which the Selected Transactions occurred. The purchase of Morrow
Snowboards, Inc. by K2 Inc. and the purchase of Ride Inc. by K2 Inc. only
provided multiples of revenue and book value as neither target generated
positive EBIT or EBITDA during the 12 months prior to the transaction.
In addition to the above analyses, Deutsche Bank considered the following
additional material factors in rendering its opinion to Global's Board of
Directors. First, the Off-Price and Action Sports Division missed its original
net sales budget for the second quarter of 1999 by 16.7%, or $2.7 million,
generating losses of $1.9 million and $1.7 million at the EBIT and EBITDA
levels, respectively. The projected financial performance for this business
had been for EBIT and EBITDA of $1.8 million and $2.0 million, respectively.
In addition, the projected financial results were revised substantially
downward resulting in a $3.0 million, or 36.0% reduction in EBITDA compared to
the original forecast, for the third and fourth quarter of 1999. These
factors, in turn, increased concerns potential buyers expressed during the
marketing process about the future financial performance of the business
without the participation of Michael G. Rubin, the Chief Executive Officer of
Global. Second, the significant contribution Michael Rubin made to the Off-
Price and Action Sports Division.
24
<PAGE>
Mr. Rubin played an integral role in the management of the Off-Price and
Action Sports Division until May 1999 when Global announced a change in
strategic focus. Thereafter, Mr. Rubin focused on the Company's e-commerce
initiative and assumed a diminished role in the management of Global's non-
internet businesses. Deutsche Bank partially attributed the significant
decline in the financial performance of the Off-Price and Action Sports
Division to Mr. Rubin's reduced involvement. Third, management is the primary
asset of the off-price sporting goods businesses. Due to the importance of the
industry relationships that existing management has developed, the current
management team is integral to the value of the Off-Price and Action Sports
Division. Furthermore, unlike integrated off-price retailers, close-out
distribution businesses have no captive retail distribution through which they
can sell off-price goods, no franchise value, no infrastructure and no name
recognition. Finally, the Company's actual 1999 calendar year financial
results significantly underperformed the revised projections for calendar year
1999; 1999 actual EBITDA for the Company's Off-Price and Action Sports Divison
totalled $3.9 million versus the revised projection of $6.4 million.
The foregoing summary describes all analyses and factors that Deutsche Bank
deemed material in its presentation to Global's Board of Directors, but is not
a comprehensive description of all analyses performed and factors considered
by Deutsche Bank in connection with preparing its opinion. The preparation of
a fairness opinion is a complex process involving the application of
subjective business judgment in determining the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and, therefore, is not readily susceptible to summary
description. Deutsche Bank believes that its analyses must be considered as a
whole and that considering any portion of such analyses and of the factors
considered without considering all analyses and factors could create a
misleading view of the process underlying the opinion.
In conducting its analyses and arriving at its opinion, Deutsche Bank
utilized generally accepted valuation methods. The analyses were prepared
solely for the purpose of enabling Deutsche Bank to provide its opinion to
Global's Board of Directors as to the fairness of the consideration to Global
for the sale of the Off-Price and Action Sports Division and does not purport
to be appraisals or necessarily reflect the prices at which businesses or
securities actually may be sold, which are inherently subject to uncertainty.
Deutsche Bank was not requested to render an opinion regarding the fairness of
the terms of the sale of the Off-Price and Action Sports Division to the
Company's unaffiliated shareholders or to the Company's shareholders generally
because such shareholders are not parties to the Acquisition Agreement. The
consideration to be received by the Company in connection with the sale of the
Off-Price and Action Sports Division is not going to be distributed to any of
the shareholders of the Company and Deutsche Bank's opinion was therefore
limited to the fairness of the sale, from a financial point of view, to the
Company.
The terms of the sale of the Off-Price and Action Sports Division were
determined through negotiations between Global and the Purchaser and were
approved by Global's Board of Directors. Although Deutsche Bank provided
advice to Global during the course of these negotiations, the decision to
enter into the sale of the Off-Price and Action Sports Division was solely
that of Global's Board of Directors. As described above, the opinion and
presentation of Deutsche Bank to Global's Board of Directors were only one of
a number of factors taken into consideration by the Global Board of Directors
in making its determination to approve the sale of the Off-Price and Action
Sports Division. Deutsche Bank's opinion was provided to Global's Board of
Directors to assist it in connection with its consideration of the sale of the
Off-Price and Action Sports Division and does not constitute a recommendation
to any holder of Global Common Stock as to how to vote with respect to the
sale of the Off-Price and Action Sports Division.
Global selected Deutsche Bank as financial advisor in connection with the
sale of the Off-Price and Action Sports Division based on Deutsche Bank's
qualifications, expertise, reputation and experience in retailing and mergers
and acquisitions. Global had retained BT Alex. Brown Incorporated pursuant to
a letter agreement dated April 20, 1999 (the "Engagement Letter"). Deutsche
Bank is the successor to the investment banking and client advisory businesses
of BT Alex. Brown and has assumed BT Alex. Brown's rights and responsibilities
under the Engagement Letter. As compensation for Deutsche Bank's services in
connection with the sale of the Off-Price and Action Sports Division, Global
has paid Deutsche Bank a cash fee of $225,000 and has agreed to pay an
25
<PAGE>
additional cash fee of $663,000 if the sale of the Off-Price and Action Sports
Division is consummated. Regardless of whether the sale of the Off-Price and
Action Sports Division is consummated, Global has agreed to reimburse Deutsche
Bank for reasonable fees and disbursements of Deutsche Bank's counsel and all
of Deutsche Bank's reasonable travel and other out-of-pocket expenses incurred
in connection with the sale of the Off-Price and Action Sports Division or
otherwise arising out of the retention of Deutsche Bank under the Engagement
Letter. Global has also agreed to indemnify Deutsche Bank and certain related
persons to the full extent lawful against certain liabilities, including
certain liabilities under the federal securities laws arising out of its
engagement or the sale of the Off-Price and Action Sports Division. Deutsche
Bank is an internationally recognized investment banking firm experienced in
providing advice in connection with mergers and acquisitions and related
transactions. Deutsche Bank is an affiliate of Deutsche Bank AG (together with
its affiliates, the "DB Group").
One or more members of the DB Group have, from time to time, provided
investment banking and other financial services to Global or its affiliates
for which it has received compensation. During the past two years neither
Deutsche Bank nor its affiliates has had a material relationship with Global
or its affiliates other than Deutsche Bank's services in connection with the
sale of the Off-Price and Action Sports Division described above and Deutsche
Bank's representing Global as exclusive sale agent in the divestiture of its
Branded Division. As compensation for Deutsche Bank's services in connection
with the sale of the Branded Division, Global has paid or agreed to pay
Deutsche Bank a cash fee of $500,000 and has agreed to reimburse Deutsche Bank
for out-of-pocket expenses incurred in connection with the sale of the Branded
Division in the aggregate amount of approximately $20,000.
In the ordinary course of business, members of the DB Group may actively
trade in the securities and other instruments and obligations of Global for
their own accounts and for the accounts of their customers. Accordingly, the
DB Group may at any time hold a long or short position in such securities,
instruments and obligations.
Projections
Prospective purchasers of Global's Off-Price and Action Sports Division were
provided with the financial projections set forth below. The projections were
excerpted from information provided by Global management. Global does not as a
matter of course publicly disclose projections as to future revenues or
earnings. The projections are included in this Proxy Statement only because
the information was made available to prospective purchasers of Global's Off-
Price and Action Sports Division. The initial projections were prepared in the
second quarter of 1999 and the revised projections were prepared in the third
quarter of 1999 based on management's estimates and assumptions regarding the
Off-Price and Action Sports Division at that time.
The projections set forth below were not prepared with a view to public
disclosure or compliance with the published guidelines of the SEC or the
guidelines established by the American Institute of Certified Public
Accountants regarding projections. The projections do not purport to present
operations in accordance with generally accepted accounting principles.
Neither Global nor any of its financial advisors or any of their respective
directors or officers has verified or provides any assurances with respect to
the accuracy of the projections. Global's independent accountants have not
examined or compiled the projections presented herein and, accordingly, assume
no responsibility for them and do not express an opinion or any other form of
assurance with respect thereto. In addition, because the estimates and
assumptions, many of which are not set forth herein, underlying the
projections are inherently subject to significant economic and competitive
uncertainties and contingencies which are difficult or impossible to predict
accurately and are beyond Global's control, there can be no assurance that the
projections will be realized at the times or in the amounts indicated.
The projections set forth below are not based on historical facts and, as
such, constitute "forward looking statements" that involve uncertainties and
risk. The actual results of the Off-Price and Action Sports Division differed
from Global's projections.
26
<PAGE>
Initial 1999 Projected Quarterly Financial Results for Off-Price & Action
Sports Division
The following table sets forth the projections provided by Global during the
second quarter of fiscal 1999 for fiscal 1999.
<TABLE>
<CAPTION>
For the
For the Quarter Ended Year Ended
-------------------------------------------------- -----------
March 31, June 30, September January 1, January 1,
1999 1999 30, 1999 2000 2000
(actual) (estimated) (estimated) (estimated) (estimated)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales............... $20,565,666 $15,909,334 $34,000,000 $20,000,000 $90,475,000
Cost of Sales........... 15,410,868 11,732,907 25,112,371 14,700,000 66,956,146
----------- ----------- ----------- ----------- -----------
Gross Profit.......... 5,154,798 4,176,427 8,887,629 5,300,000 23,518,854
Margin................ 25.1% 26.3% 26.1% 26.5% 26.0%
G&A..................... 1,366,217 1,366,217 1,366,217 1,366,217 5,464,868
Selling and Marketing... 729,481 565,095 1,236,211 756,583 3,287,370
Distribution............ 519,735 402,615 880,767 539,045 2,342,162
Development and Design.. 21,700 21,700 21,700 21,700 86,800
----------- ----------- ----------- ----------- -----------
Total Operating
Expenses............. 2,637,133 2,355,627 3,504,895 2,683,544 11,181,199
Operating Profit...... 2,517,665 1,820,800 5,382,734 2,616,456 12,337,655
+ Depreciation........ 49,590 49,590 49,590 49,590 198,358
+ Amortization........ 177,506 177,506 177,506 177,506 710,024
EBITDA................ 2,744,761 2,047,896 5,609,830 2,843,552 13,246,037
Ending Inventory...... 12,278,330 15,240,000 12,127,629 12,127,629 12,127,629
Average Inventory..... 13,631,425 13,759,165 13,683,815 12,127,629 13,556,074
Inventory Turnover.... 1.1x 0.9x 1.8x 1.2x 4.9x
Accounts Receivable..... $26,818,627 $22,727,961 $32,977,961 $25,977,961 $25,977,961
Receivables Turnover.... 0.8x 0.7x 1.0x 0.8x 3.5x
Receivables Days........ 117.4 128.6 87.3 116.9 104.8
</TABLE>
Revised 1999 Projected Quarterly Financial Results for Off-Price & Action
Sports Division
The following table sets forth the projections provided by Global during the
third quarter of fiscal 1999 for fiscal 1999 as well as the actual unaudited
results of operations of Global's Off-Price and Action-Sports Division for
fiscal 1999.
<TABLE>
<CAPTION>
For the Quarter Ended For the Year Ended
-------------------------------------------------- ------------------------
September
March 31, June 30, 30, January 1, January 1, January 1,
1999 1999 1999 2000 2000 2000
(actual) (actual) (estimated) (estimated) (estimated) (actual)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales............... $20,565,666 $13,252,045 $25,000,000 $15,000,000 $73,817,711 $71,789,523
Cost of Sales........... 15,410,868 12,468,373 19,000,000 11,400,000 58,279,241 59,284,529
----------- ----------- ----------- ----------- ----------- -----------
Gross Profit............ 5,154,798 783,672 6,000,000 3,600,000 15,538,470 12,504,944
Margin.................. 25.07% 5.91% 24.00% 24.00% 21.05% 17.42%
General &
Administrative......... 1,366,217 930,689 1,150,000 1,050,000 4,496,906 3,644,538
Selling and Marketing... 729,481 903,237 900,000 500,000 3,032,718 4,127,267
Distribution............ 519,735 828,746 625,000 375,000 2,348,481 1,433,760
Development & Design.... 21,700 57,346 21,700 21,700 122,446 220,230
----------- ----------- ----------- ----------- ----------- -----------
Operating Expenses...... 2,637,133 2,720,018 2,696,700 1,946,700 10,000,551 9,425,795
----------- ----------- ----------- ----------- ----------- -----------
Operating Profit(loss).. 2,517,665 (1,936,346) 3,303,300 1,653,300 5,537,919 3,079,149
Plus:
Depreciation............ 49,590 50,000 50,000 50,000 199,590 164,418
Amortization............ 177,506 175,000 175,000 175,000 702,506 622,935
----------- ----------- ----------- ----------- ----------- -----------
EBITDA.................. $ 2,744,761 $(1,711,346) $ 3,528,300 $ 1,878,300 $ 6,440,015 3,866,502
=========== =========== =========== =========== =========== ===========
</TABLE>
27
<PAGE>
Absence of Appraisal Rights
Under Delaware law, the shareholders of Global are not entitled to appraisal
rights for their shares of Global's capital stock in connection with the
transactions contemplated by the sale of the Off-Price and Action Sports
Division, or to any similar rights under Delaware law.
Market Price Information
Global's Common Stock is currently included for quotation on the Nasdaq
National Market. On September 24, 1999, the trading date immediately prior to
the public announcement of the transactions contemplated by the Acquisition
Agreement, Global Common Stock closed at $21.625 per share and the high and
low trading prices were $22.9375 and $21.1875, as reported on the Nasdaq
National Market.
Accounting Treatment
The sale of the Off-Price and Action Sports Division has been reflected on
Global's financial statements as the disposal of a segment of a business
within the meaning of Accounting Principles Board Opinion No. 30.
Federal Income Tax Consequences
The following is a summary of all material federal income tax consequences
of the sale of the Off-Price and Action Sports Division by Global and is not
intended to be tax advice to any person, nor is it binding upon the Internal
Revenue Service. In addition, no information is provided herein with respect
to the tax consequences of the sale of the Off-Price and Action Sports
Division under applicable foreign, state, local or other laws.
Except as otherwise discussed below, Global will generally recognize taxable
loss on the sale of the Off-Price and Action Sports Division equal to the
difference between (i) the amount realized by Global from the sale and (ii)
Global's adjusted tax basis in the capital stock of the Gen-X Companies. The
amount realized will equal the sum of cash payments received by Global for the
capital stock of the Gen-X Companies plus the amount of the liabilities
assumed by the Purchaser. The sale of the Off-Price and Action Sports Division
will not result in any federal income tax consequences to shareholders of
Global.
EACH HOLDER OF SHARES OF COMMON STOCK IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH SHAREHOLDER OF
THE SALE OF THE OFF-PRICE AND ACTION SPORTS DIVISION (INCLUDING THE
APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS).
Government and Regulatory Approvals
Global does not believe any regulatory approvals are required in connection
with the sale of the Off-Price and Action Sports Division. Based on the
representations made by the Purchasers, DMJ Financial and Messrs. Salter and
Finkelstein in the Acquisition Agreement relating to the size of the
Purchasers' operations and the size of the Purchasers' ultimate parents, the
Company does not believe that any filings are required under the HSR Act.
Interests of Certain Persons
Other than James J. Salter and his business partner Kenneth J. Finkelstein,
no director or executive officer of Global, or associate of any such director
or executive officer, has any substantial interest in the sale of the Off-
Price and Action Sports Division, other than any interest arising from the
ownership of Global's securities (in which case each such owner receives no
extra or special benefit not shared on a pro rata basis by all other holders
of the same class of securities). For a description of the holdings of
Global's securities by the directors and certain of the executive officers of
Global, see "Principal Shareholders".
28
<PAGE>
Mr. Salter, along with Mr. Finkelstein, is leading the group of investors
which is proposing to purchase all of the issued and outstanding capital stock
of the Gen-X Companies from Global. On May 12, 1998, Global acquired all of
the issued and outstanding stock of the Gen-X Companies from Messrs. Salter
and Finkelstein and substantially the same group of investors. The Gen-X
Companies, which are headquartered in Toronto, Ontario, specialize in (i)
selling off-price sporting goods and winter sports equipment (including ski
and snowboard equipment), in-line skates, sunglasses, skateboards and
specialty athletic footwear and (ii) designing and distributing product orders
specifically designed for selected retailers.
The consideration paid by Global for the capital stock of the Gen-X
Companies in May, 1998 consisted of (i) 1,500,000 shares of Global's Common
Stock, (ii) 10,000 shares of Global's preferred stock, mandatorily redeemable
over 5 years in the maximum aggregate amount of $500,000, and (iii)
noninterest-bearing contingent notes payable over 5 years in the maximum
aggregate amount of $4.5 million. The Company valued the Common Stock issued
in the May, 1998 transaction based on the average market price of the Common
Stock during the 5-day period beginning two trading days before and ending two
trading days after May 12, 1998. The redemption price of the preferred stock
and the payment amount of the contingent notes are dependent upon the
Company's Off-Price and Action Sports Division achieving certain sales and
gross profit targets. In June, 1999, the Company redeemed 2,000 shares of the
preferred stock for an aggregate of $100,000 and paid $900,000 of the
principal amount of the contingent notes in accordance with the terms of such
stock and notes.
Subsequent to the purchase of the Gen-X Companies in May, 1998, the Company
has effectively consolidated its Off-Price and Action Sports Division into the
Gen-X Companies. As a result, a comparison of the purchase price of the
capital stock of the Gen-X Companies in May, 1998 and the consideration to be
paid under the Acquisition Agreement for the capital stock of the Gen-X
Companies would not be meaningful.
Recommendation of Board of Directors
Before concluding that Global should divest its Off-Price and Action Sports
Division in order to focus exclusively on its e-Commerce business, the Board
of Directors considered the following alternatives: (i) liquidating the Off-
Price and Action Sports Division; and (ii) continuing to operate the Off-Price
and Action Sports Division. The Board of Directors decided against liquidation
of the Off-Price and Action Sports Division because a greater value could be
obtained by selling the Off-Price and Action Sports Division as a going
concern. The Board of Directors decided against continuing the operation of
the Off-Price and Action Sports Division because: (i) the current operating
performance and competitive position of the Off-Price and Action Sports
Division were declining; (ii) the close-out distribution business is highly
dependent upon personal relationships and Michael Rubin, Global's Chief
Executive Officer, had reduced his involvement in the management of Global's
non-internet businesses; and (iii) close-out distribution businesses have no
captive retail distribution through which they can sell off-price goods, no
franchise value, no infrastructure and no name recognition.
In arriving at the conclusion that the sale of the Off-Price and Action
Sports Division is in the best interest of Global and its shareholders, the
Board of Directors considered the following factors: (i) the process used to
procure prospective purchasers described above; (ii) the alternatives to the
sale of the Off-Price and Action Sports Division discussed above; (iii) the
overall value of the proposal made by the Purchaser and the opinion of
Deutsche Bank that the consideration to be received by Global under the
Acquisition Agreement is fair, from a financial point of view, to Global; and
(iv) the payment terms of the consideration to be received by Global under the
Acquisition Agreement.
Global's Board of Directors concluded that the sale of the Off-Price and
Action Sports Division is in the best interests of Global and its
shareholders. All of the factors considered by the Board supported the Board's
conclusion. Accordingly, the Board of Directors unanimously approved the sale
of the Off-Price and Action Sports Division at a meeting held on September 24,
1999.
THE BOARD OF DIRECTORS OF GLOBAL UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" APPROVAL OF ACQUISITION AGREEMENT AND THE SALE OF THE OFF-PRICE AND
ACTION SPORTS DIVISION.
29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following table presents portions of Global's financial statements and
is not complete. The following selected consolidated financial data should be
read together with Global's consolidated financial statements and related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Proxy Statement.
On April 20, 1999, Global formalized a plan to sell its Branded Division and
Off-Price and Action Sports Division in order to focus exclusively on its e-
commerce business. Accordingly, for financial statement purposes, the assets,
liabilities, results of operations and cash flows of these divisions have been
segregated from that of continuing operations and are presented as
discontinued operations. The following selected consolidated financial data
and consolidated financial statements included in this Proxy Statement have
been reclassified to reflect this presentation.
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended
---------------------------------- January 1,
1995 1996 1997 1998 2000
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues................... $ -- $ -- $ -- $ -- $ 5,511
Cost of revenues............... -- -- -- -- 3,817
------- ------- ------- ------- --------
Gross profit.................. -- -- -- -- 1,694
Operating expenses:
Sales and marketing........... -- -- -- -- 11,609
Product development........... -- -- -- -- 7,264
General and administrative.... 5,644 2,853 2,389 3,453 9,311
Stock-based compensation,
primarily related to sales
and marketing................ -- -- -- -- 2,655
------- ------- ------- ------- --------
Total Operating Expenses.... 5,644 2,853 2,389 3,453 30,839
------- ------- ------- ------- --------
Other (income) expenses:
Interest expense.............. 796 1,152 2,013 2,367 313
Interest income............... -- -- -- -- (774)
Other, net.................... -- -- -- -- (2)
------- ------- ------- ------- --------
Total other (income)
expense.................... 796 1,152 2,013 2,367 (463)
------- ------- ------- ------- --------
Loss from continuing operations
before income taxes........... (6,440) (4,005) (4,402) (5,820) (28,682)
Benefit from income taxes...... -- -- -- 1,979 2,222
------- ------- ------- ------- --------
Loss from continuing
operations.................... (6,440) (4,005) (4,402) (3,841) (26,460)
Discontinued operations:
Income from discontinued
operations................... 6,465 3,261 247 9,665 550
Loss on disposition of
discontinued operations...... -- -- -- -- (17,337)
------- ------- ------- ------- --------
Net income (loss).............. $ 25 $ (744) $(4,155) $ 5,824 $(43,247)
======= ======= ======= ======= ========
Earnings (losses) per share--
basic and diluted(1) :
Loss from continuing
operations................... $ (3.75) $ (1.56) $ (1.47) $ (.34) $ (1.78)
Income from discontinued
operations................... 3.76 1.27 .08 .85 .04
Loss on disposition of
discontinued operations...... -- -- -- -- (1.17)
------- ------- ------- ------- --------
Net income (loss)........... $ .01 $ (.29) $ (1.39) $ .51 $ (2.91)
======= ======= ======= ======= ========
Weighted average common shares
outstanding(1):
Basic and diluted............. 1,717 2,568 2,996 11,379 14,874
======= ======= ======= ======= ========
Number of common shares
outstanding(1)................ 2,307 2,832 10,418 11,925 18,475
======= ======= ======= ======= ========
Balance Sheet Data:
Working capital................ $ 2,839 $ 2,022 $19,748 $34,846 $ 40,558
Net assets of discontinued
operations.................... 12,673 11,797 24,129 41,128 18,381
Total assets................... 15,030 16,435 28,043 45,053 82,736
Total long-term debt........... 5,001 5,905 20,975 20,993 2,040
Stockholders' equity
(deficiency).................. 93 (552) 2,157 17,094 59,310
</TABLE>
- --------
(1) All share and per share amounts give effect to the December 15, 1997 1-
for-20 reverse stock split as if it had occurred for all periods
presented.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with the consolidated financial
statements and the notes to those statements appearing elsewhere in this Proxy
Statement. This discussion and analysis contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking statements as a
result of factors including those discussed in "Risk Factors" and elsewhere in
this Proxy Statement.
Overview
We develop and operate e-commerce sporting goods businesses for traditional
sporting goods retailers, general merchandisers, Internet companies and media
companies under exclusive long-term agreements. We enable our partners to
capitalize on their existing brand assets to exploit online opportunities in
the $45.8 billion sporting goods retail industry. We customize the design of a
partner's Web site with a broad range of characteristics that includes a
differentiated user interface, partner-specific content pages, an extensive
electronic catalog of product descriptions and images, a searchable database
and interactive communication tools. We currently derive virtually all of our
revenues from the sale of merchandise through or to our partners' e-commerce
sporting goods businesses. It is possible, however, that in the future we may
derive revenues from providing services in connection with the design,
development, operation and promotion of our partners' e-commerce sporting
goods businesses. We launched our initial six partners' e-commerce sporting
goods businesses in November 1999: www.dunhamssports.com, www.mcsports.com,
www.sportchalet.com, www.theathletesfoot.com, www.thesportsauthority.com and
store.webmd.com. We have announced agreements with BlueLight.com and Oshman's
Sporting Goods to launch their e-commerce sporting goods businesses in the
second quarter of 2000.
Company Background
Prior to our decision to initiate our e-commerce sporting goods business, we
operated two primary businesses, our Branded Division and our Off-Price and
Action Sports Division. From inception in 1986 through December 1999, we
designed, marketed and distributed high performance athletic footwear
exclusively for women under the RYKA brand name. From December 1997 through
December 1999, as part of our Branded Division, we also designed, marketed and
distributed outdoor footwear under the Yukon brand name. During the same
period, as part of our Off-Price and Action Sports Division, we purchased
closeouts, overstocks, canceled orders and excess inventories of athletic,
outdoor, casual and specialty footwear, athletic apparel and athletic
equipment from manufacturers and retailers for resale, and designed and
distributed special make-up athletic equipment.
In April 1999, we formalized our plan to divest these divisions in order to
focus exclusively on the development of our e-commerce business. Accordingly,
for financial statement purposes, the assets, liabilities, results of
operations and cash flows of these divisions have been segregated from that of
continuing operations and are presented as discontinued operations. Our
consolidated financial statements included in this Proxy Statement have been
reclassified to reflect this presentation.
On June 10, 1999, in order to finance our e-commerce business, we agreed to
sell to funds affiliated with SOFTBANK 6,153,850 shares of common stock at a
price of $13.00 per share for an aggregate purchase price of approximately
$80.0 million. The purchase price reflected the closing price of our common
stock on May 26, 1999, the day prior to the day we and SOFTBANK agreed in
principle to the transaction. The sale of these shares was completed on July
23, 1999.
On September 24, 1999, in furtherance of our plan to sell our historical
businesses, we entered into an agreement, as amended on March 13, 2000, to
sell our Off-Price and Action Sports Division for a cash payment at closing of
$13.2 million and the assumption by the purchaser of $4.0 million in
indebtedness. We are seeking stockholder approval of this sale at the Annual
Meeting. Michael G. Rubin, our Chairman and Chief Executive Officer, who, as
of the Record Date, beneficially owned approximately 43.2% of our outstanding
shares, and SOFTBANK, who, as of the Record Date, beneficially owned
approximately 33.2% of our outstanding shares, have indicated that they intend
to vote for approval of the sale. We expect the sale to close soon after the
Annual Meeting. For fiscal 1999, we have recognized a loss of approximately
$5.2 million related to the disposition of this division.
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On December 29, 1999, we sold substantially all of the assets of our Branded
Division, other than accounts receivable of approximately $6.6 million, for a
cash payment of approximately $10.4 million. For fiscal 1999, we have
recognized a loss of approximately $12.1 million related to the disposition of
this division.
On April 27, 2000, in order to continue financing our e-commerce operations,
we agreed to sell to funds affiliated with SOFTBANK 2,500,000 shares of common
stock and to TMCT Ventures, L.P. ("TMCT") 625,000 shares of common stock at a
price of $8.00 per share for an aggregate purchase price of $25.0 million. In
addition, we issued to the funds affiliated with SOFTBANK warrants to purchase
1,250,000 shares of common stock, and to TMCT warrants to purchase 312,500
shares of common stock, at an exercise price of $10.00 per share. The sale of
these shares and warrants was completed on May 1, 2000.
Financial Presentation
We did not launch our partners' e-commerce businesses until the fourth
quarter of 1999. As a result, our historical financial statements are of
limited use in making an investment decision because they principally reflect
our discontinued operations. Our financial statements for the fourth quarter
of 1999 and forward will reflect our e-commerce business. These financial
statements will present:
. revenues, which are derived from the sale of merchandise, net of
returns, and are recognized when the merchandise is shipped;
. cost of revenues, which consists of the cost of the products sold and
net freight costs, other than outbound shipping costs related to our
temporary free shipping promotions which are included in sales and
marketing expenses;
. sales and marketing expenses, which consist primarily of advertising and
promotional expenses, including temporary free-shipping, distribution
facility and fulfillment expenses, order processing fees, payroll and
related expenses for personnel engaged in marketing, buying,
merchandising, client services, partner revenue shares and customer
service;
. product development expenses, which consist primarily of expenses
associated with content development; developing and operating our
partners' Web sites; payroll and related expenses for engineering,
production, creative and management information systems; and
depreciation expense related to capitalized hardware and software;
. general and administrative expenses, which consist primarily of payroll
and related expenses for administrative, finance, human resources, legal
and executive personnel, and costs associated with the operation and
maintenance of our headquarters facility and professional services; and
. stock-based compensation expense, which relates to the grant of options,
warrants and stock awards considered to be compensatory, because the
estimated fair value for accounting purposes of the options and stock
awards granted to employees was greater than the stock price on the date
of grant or because the options or warrants were granted to non-
employees.
Results of Operations
Fiscal 1999 and Fiscal 1998
Net Revenues. We had net revenues from continuing operations of $5.5 million
for fiscal 1999 and no net revenues from continuing operations for fiscal
1998. In fiscal 1999, we operated www.dunhamssports.com, www.mcsports.com,
www.sportchalet.com, www.theathletesfoot.com, www.thesportsauthority.com, and
store.webmd.com. We derived $2.8 million of our total net revenues from
Healtheon/WebMD through the sale of product to support the launch of the WebMD
Sports & Fitness Store, store.webmd.com. This product was sold to
Healtheon/WebMD in connection with a one-time promotion in which
Healtheon/WebMD distributed the products to its physician subscribers to
promote the launch of the WebMD Sports & Fitness Store. We derived no net
revenues from continuing operations for any period prior to November 1999 as
we did not operate any Web sites during those periods.
Cost of Revenues. We incurred cost of revenues from continuing operations of
$3.8 million for fiscal 1999 and no cost of revenues from continuing
operations for fiscal 1998. As a percentage of net revenues, cost of revenues
was 69.3% for fiscal 1999. These costs included the cost of the products sold
and inbound freight costs related to these products, as well as outbound
shipping costs other than those related to our temporary free shipping
promotions which are included in sales and marketing expenses.
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Gross Profit. We had gross profit from continuing operations of $1.7 million
for fiscal 1999 and no gross profit from continuing operations for fiscal
1998. As a percentage of net revenues, gross profit from continuing operations
was 30.7% for fiscal 1999.
Sales and Marketing Expenses. We incurred sales and marketing expenses from
continuing operations of $11.6 million for fiscal 1999 and no sales and
marketing expenses from continuing operations for fiscal 1998. These expenses
included advertising and promotional expenses including temporary free
shipping, distribution facility expenses, order processing fees and payroll
and related expenses. Also included in this amount are partner revenue shares
which are payments made to our partners in exchange for the use of their brand
assets, the promotion of their URL's in marketing and communication materials,
the implementation of programs to provide incentives to in-store customers to
shop online and other programs and services provided to the customers of our
partners' Web sites. Partner revenue shares charges were not significant in
fiscal 1999.
Product Development Expenses. We incurred product development expenses from
continuing operations of $7.3 million for fiscal 1999 and no product
development expenses from continuing operations for fiscal 1998. A meaningful
portion of our product development expenses in fiscal 1999 was paid to third
parties. Because we are currently handling more development internally, we do
not anticipate that a significant portion of our product development expenses
in fiscal 2000 will be for third-party Web site development services.
General and Administrative Expenses. We incurred general and administrative
expenses from continuing operations of $9.3 million for fiscal 1999 and $3.5
million for fiscal 1998. While our continuing operations were not in existence
in fiscal 1998, the recorded expenses reflect costs for personnel, facilities
and professional fees that are currently associated with our continuing
operations.
Stock-Based Compensation, Primarily Related to Sales and Marketing,
Expense. We recorded stock-based compensation expense from continuing
operations of $2.7 million for fiscal 1999. This expense related to the
amortization of deferred compensation expense for options granted to employees
and some non-employees and to the value of the options or warrants granted to
some other non-employees. Of the $2.7 million of stock-based compensation
expense, $1.9 million related to warrants granted to our partners, $555,000
related to options or warrants granted to non-employees and $217,000 related
to options granted to employees. As of January 1, 2000, we had an aggregate of
$1.6 million of deferred compensation remaining to be amortized.
Interest. Interest income consists of interest earned on cash and cash
equivalents. Interest expense relates primarily to bank borrowings. In fiscal
1999, we had interest income of $463,000, net of interest expense. In fiscal
1998, we had $2.4 million of interest expense, net of interest income.
Fiscal 1998 and Fiscal 1997
Because our continuing operations were not in existence in fiscal 1998 or
fiscal 1997, we had no net revenues, cost of sales or operating expenses
related to our continuing operations, other than general and administrative
expenses of $3.5 million in fiscal 1998 and $2.4 million in fiscal 1997. These
general and administrative expenses reflect the costs of personnel, facilities
and professional fees that are currently associated with our continuing
operations. Accordingly, comparisons of results from continuing operations for
fiscal 1998 and fiscal 1997 are not meaningful.
Liquidity and Capital Resources
Historically, we financed our operations through a combination of internally
generated funds, equity financings, subordinated borrowings and bank credit
facilities. We used our bank credit facilities to fund our investment in
accounts receivable and inventory necessary to support our historical
businesses.
In connection with our decision to focus exclusively on our e-commerce
business, we raised approximately $80.0 million in gross proceeds through our
equity financing with SOFTBANK in July 1999. We used part of
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the proceeds from this financing to repay the balance on our then outstanding
lines of credit, reduce trade payables and provide operating capital related
to our historical businesses. We also used part of the proceeds to acquire
property and equipment and fund working capital for our e-commerce business.
As of January 1, 2000, we had cash and cash equivalents of approximately $27.3
million, and working capital of approximately $40.6 million, which included
approximately $18.4 million of net assets of discontinued operations.
We have incurred substantial costs to develop our e-commerce business and to
recruit, train and compensate personnel for our creative, engineering,
marketing, advertising, merchandising, customer service and administration
departments. As a result, we have incurred substantial losses for fiscal 1999
and, as of January 1, 2000, had an accumulated deficit of $43.1 million. In
order to expand our e-commerce business, we intend to invest heavily in
operations, Web site development, marketing, merchandising and additional
personnel. We therefore expect to continue to incur substantial operating
losses for the foreseeable future.
We used approximately $22.2 million in net cash for operating activities of
continuing operations in fiscal 1999, while we generated approximately $1.1
million in net cash from operating activities of continuing operations in
fiscal 1998. Net cash used in operating activities of continuing operations in
fiscal 1999 was primarily the result of net losses from continuing operations
and changes in inventory and accounts receivable, partially offset by changes
in accounts payable and accrued expenses and stock-based compensation expense.
Net cash generated from operating activities of continuing operations in
fiscal 1998 was primarily the result of net losses from continuing operations
and changes in accounts payable and accrued expenses.
Our investing activities in fiscal 1999 consisted of purchases of property
and equipment. We made capital expenditures of approximately $18.4 million in
fiscal 1999, which were partially offset by $10.4 million in proceeds of the
sale of our Branded Division.
As of January 1, 2000, we had commitments of $6.4 million relating to the
implementation of advertising and promotion programs. In addition, we have
agreed to provide Yahoo! with not less than $5.0 million of barter media
during the term of our agreement with Yahoo!. The barter media consists of
including the Yahoo! logo on mutually agreed upon advertising in a partner's
retail stores and newspaper promotions. See Note 11 to our consolidated
financial statements.
In the second quarter of fiscal 2000, we expect to receive a cash payment of
$13.2 million relating to the sale of our Off-Price and Action Sports
Division.
To date, we have financed our e-commerce operations primarily from the sale
of equity securities. Management expects that our current cash position
combined with the proceeds from the sale of our Off-Price and Action Sports
Division, will be sufficient to meet our anticipated cash needs for at least
the next 12 months. However, our revenues must increase significantly to
internally fund our anticipated operating expenses. If cash flows are
insufficient to fund these expenses, we may need to raise additional funds in
future periods through public or private financings or other arrangements to
fund our operations until we achieve profitability. Failure to raise capital
when needed could seriously harm our business and operating results. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our stockholders would be reduced. Furthermore, these
equity securities might have rights, preferences or privileges senior to our
common stock.
Seasonality
We expect to experience seasonal fluctuations in our revenues. These
seasonal patterns will cause quarterly fluctuations in our operating results.
In particular, we expect that the fourth fiscal quarter will account for a
large percentage of our total annual sales. We believe that results of
operations for a quarterly period may not be indicative of the results for any
other quarter or for the full year.
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Inflation
Management believes that inflation has not had a material effect on our
operations.
Year 2000
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These
systems and software products need to accept four digit entries to distinguish
21st century dates from 20th century dates. This could result in system
failures or miscalculations causing disruption of operations for any company
using computer programs or hardware.
With respect to our Branded Division and Off-Price and Action Sports
Division, we maintained a management information system that provided, among
other things, comprehensive customer order processing, inventory, production,
accounting and management information for the marketing, selling,
manufacturing and distribution functions of our business. Subsequent to the
sale of the Branded Division on December 29, 1999, we use these systems only
for the Off-Price and Action Sports Division and in connection with the
collection of the accounts receivable of the Branded Division which it
retained.
We completed, as of April 1, 1999, a Year 2000 project which evaluated,
identified, corrected, reprogrammed, and tested our existing systems for Year
2000 compliance. We enhanced our key information systems to improve our
functionality and increase performance during the first quarter of 1999,
making these applications Year 2000 compliant. The costs of these upgrades of
approximately $150,000 were charged to operations as incurred. Upon
consummation of the sale of the Off-Price and Action Sports Division and
collection of the accounts receivable of the Branded Division, we will not
have any need for these systems.
Our e-commerce business is a new enterprise and accordingly, we have
purchased or developed most of the software and hardware we use in our e-
commerce business during fiscal 1999. While this does not uniformly protect us
against Year 2000 exposure, we believe our exposure is limited because the
systems we use are not based upon legacy hardware or software systems.
We updated our office networking system software to be Year 2000 compliant
during the third quarter of fiscal 1999. The costs of the process did not have
a material impact on our results of operations, financial position, liquidity
or capital resources.
In addition to making our own systems Year 2000 compliant, we contacted the
customers and key suppliers of our Branded Division and Off-Price and Action
Sports Division to determine the extent to which the systems of these
customers and suppliers are Year 2000 compliant and the extent to which we
could be affected by the failure of these third parties to become Year 2000
compliant. We cannot presently estimate the impact of the failure of these
third parties to become Year 2000 compliant, however, subsequent to January 1,
2000, we have not encountered any problems related to Year 2000 issues. There
can be no assurance, however, that future Year 2000 issues, if any, will not
arise.
Quantitative and Qualitative Disclosures about Market Risk
We have not used derivative financial instruments in our investment
portfolio. We invest our excess cash in debt instruments of the United States
Government and its agencies and in high-quality corporate issuers. We limit
the amount of credit exposure to any one issuer. We protect and preserve our
invested funds by limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning-
instruments carries a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest
rates, while floating rate securities may produce less income than expected if
interest rates fall. Due in part to these factors, our future investment
income may fall short of expectations due to changes in interest rates or we
may
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suffer losses in principal if forced to sell securities which have declined in
market value due to changes in interest rates.
The Company is exposed to changes in interest rates primarily as a result of
the long-term debt of its discontinued operations. The Company's objective in
managing its exposure to interest rate changes is to limit the impact of
interest rate changes on cash flows and to lower its overall borrowing costs.
A portion of the Company's long-term debt is issued at a choice of LIBOR plus
certain basis points or the prime rate less certain basis points, which gives
the Company a certain degree of flexibility to manage interest rate risk. As
of January 1, 2000, a 1% increase in these rates would result in an increase
in interest costs of approximately $150,000. As of December 31, 1998, a 1%
increase in these rates would result in an increase in interest costs of
approximately $370,000. See Note 18 to the Company's consolidated financial
statements beginning on page F-1.
BUSINESS
Overview
We develop and operate e-commerce sporting goods businesses for traditional
sporting goods retailers, general merchandisers, Internet companies and media
companies under exclusive long-term agreements. We enable our partners to
capitalize on their existing assets to exploit online opportunities in the
sporting goods retailing industry, which is estimated by the National Sporting
Goods Association to be $45.8 billion in size. Our scalable business model
takes advantage of our proprietary technology and product database, customer
service capabilities, fulfillment capabilities, relationships with vendors and
centralized inventory management. Based on these capabilities, we can quickly
and cost-effectively implement a customized e-commerce sporting goods
businesses for a broad range of partners.
We enable our partners to remain focused on their core businesses and to
avoid making substantial investments in e-commerce infrastructure and
personnel. Depending on the specific needs of the partner, we can undertake
either a complete outsourcing of its online activities or a more customized
"back-end" operation. We benefit from the traffic generated by our partners'
established brand franchises, extensive advertising, retail traffic and vendor
relationships to achieve operational efficiencies, lower customer acquisition
costs and economies of scale. We offer our partners the following:
. design, development and maintenance of customized Web sites under our
partners' banners;
. access to our centralized database of product descriptions and images,
as well as performance data from vendors and independent sources;
. extensive technology that runs, operates and manages all aspects of
multiple Web sites;
. access to a broad assortment of brand-name inventory from over 500
brands encompassing more than 60,000 stock keeping units, referred to as
SKUs;
. customer service, order processing and fulfillment capabilities; and
. marketing our partners' Web sites through arrangements with Internet
portals such as Yahoo!, as well as incremental online and offline
advertising.
We provide some or all of these services to each of our partners. We
currently derive virtually all of our revenues from the sale of merchandise
through or to our partners' e-Commerce sporting goods businesses. It is
possible,however, that in the future we may derive revenues from providing
these services to our partners.
We believe our ability to quickly and cost-effectively add new partners
creates advantages for us over other online competitors. These advantages
include lower product costs, broader merchandise availability and greater
operating efficiencies. In addition, we believe our approach can generate
attractive economic returns by operating multiple Web sites for established
brands on a common scalable e-commerce infrastructure.
We launched our initial six partners' e-commerce sporting goods businesses
in November 1999 located at the URLs www.dunhamssports.com, www.mcsports.com,
www.sportchalet.com, www.theathletesfoot.com,
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www.thesportsauthority.com and store.webmd.com. During the first two months
after we launched our initial six partners' e-commerce sporting goods
businesses, we had net revenues of approximately $5.5 million. We had a net
loss of $43.2 million for fiscal 1999, including the loss from discontinued
operations. On December 30, 1999, we entered into an agreement with Oshman's
Sporting Goods, and we expect to launch its e-commerce sporting goods business
in the second quarter of 2000. According to estimates by Sports Trend, a trade
publication, our current partners and their affiliates generated over $5.0
billion in combined annual sporting goods revenues through their traditional
retail channels in 1998. The combined sales of our partners in 1998
represented 10.9% of the estimated United States retail sporting goods market.
Historical Businesses
Until the second quarter of fiscal 1999, we operated two sporting goods
businesses, our Branded Division and our Off-Price and Action Sports Division.
On April 20, 1999, we formalized a plan to sell these divisions in order to
focus exclusively on our e-commerce business. For a more complete description
of the Branded Division and Off-Price and Action Sports Division, see "--
Discontinued Operations."
Recent Developments
On February 28, 2000, we entered into an agreement with BlueLight.com, the
exclusive online partner of Kmart. We expect to launch the e-commerce sporting
goods business of BlueLight.com in the second quarter of fiscal 2000.
On April 27, 2000, we agreed to sell to funds affiliated with SOFTBANK
2,500,000 shares of common stock and to TMCT 625,000 shares of common stock at
a price of $8.00 per share for an aggregate purchase price of $25.0 million.
The sale of these shares was completed on May 1, 2000. ln addition, we issued
to the funds affiliated with SOFTBANK warrants to purchase 1,250,000 shares of
common stock, and to TMCT warrants to purchase 312,500 shares of common stock,
at an exercise price of $10.00 per share.
Industry Background
Sporting Goods Retail Industry. The retail market for sporting goods
products, which includes apparel, footwear, equipment and related products
such as table games and sports memorabilia, represents a significant market
opportunity. The National Sporting Goods Association estimated this market at
$45.8 billion at retail in 1999, representing a compound annual growth rate of
3.5% since 1994. The number of people who actively engaged in sports, fitness
and outdoor activities in 1998 was 167 million according to Sporting Goods
Manufacturers Association estimates. We believe the sporting goods industry
will continue to benefit from growing participation and interest in sports,
fitness and outdoor activities and, as a result, we expect consumer demand to
increase over time. In addition, the ten largest sporting goods retailers in
the United States accounted for 36% of all sporting goods sales in 1998, and
no single retailer represented more than 10% of the market, according to
Sports Trend estimates. As a result, we believe significant opportunities
exist to better fulfill customer and manufacturer needs by centralizing
inventory and creating a comprehensive product database from among the
thousands of vendors and millions of SKUs in the sporting goods industry.
We believe that e-commerce will contribute to additional growth in the
sporting goods industry. E-commerce revenues are expected to represent
approximately 8% of sporting goods sales by 2004, according to Forrester
Research estimates. Forrester Research also estimates that online sales of
sporting goods reached $165.0 million in 1999 and are projected to exceed $4.2
billion by 2004, a compound annual growth rate of 91%. In addition, we believe
that total catalog sales of sporting goods products are sizeable, supporting
the notion that customers are willing to purchase sporting goods through
direct sales.
Advantages of Online Retailing. The Internet has emerged as one of the
fastest growing communications, information and commerce mediums.
International Data Corporation estimates that there were approximately 62.8
million Internet users in the United States at the end of 1998 and expects
this number to grow to approximately 177.0 million by the end of 2003.
Business' and consumers' acceptance of the Internet as a
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communication, information and commerce platform has created the foundation
for significant growth in business-to-consumer and business-to-business
commerce. The number of online purchasers is projected to increase from
approximately 21.1 million at the end of 1998 to approximately 72.1 million by
2003, according to International Data Corporation. Forrester Research
estimates that online purchases by United States consumers will grow from
approximately $20.3 billion in 1999 to approximately $184.5 billion in 2004.
The Internet is an attractive marketplace for both online retailers and
consumers. Online retailers are able to "display" a larger number and wider
variety of products at a lower cost than physical stores and catalogs, which
have limitations on inventory, shelf and catalog space. In addition, online
retailers do not incur the costs of managing and maintaining a retail store
base or the significant printing and mailing costs of catalogs. Online
retailers also enjoy significant merchandising flexibility with the ability to
easily and frequently adjust their featured selections and editorial content
to better respond to consumers' needs. Finally, online retailers can more
easily obtain demographic and behavioral data about customers. This increases
opportunities for targeted marketing programs and to provide personalized
services to their customers.
The Internet also offers a number of advantages to consumers. Consumers can
enjoy the time savings, convenience and flexibility of shopping online 24
hours a day, seven days a week with access to a broader selection of products
than is traditionally available in a retail store. In addition, online
retailing allows for personalized shopping experiences through the delivery of
content, purchasing advice, community and electronic features such as reminder
and suggestion services. Consumers also benefit from greater access to product
information and heightened attention to customer service.
Challenges of Online Retailing. We believe traditional sporting goods
retailers face significant obstacles to compete successfully in e-commerce.
Traditional retailers must develop a separate infrastructure for their
Internet operations, including Web design, order processing, fulfillment,
customer service and a descriptive product database. Traditional retailers
must also make significant capital investments to develop in-house technology
systems as well as to attract and retain personnel to support an online
business. Given the smaller size of the leading sporting goods retailers
relative to leading retailers in other consumer goods categories, it is
particularly difficult for sporting goods retailers to generate levels of e-
commerce sales that justify building a separate infrastructure. Furthermore,
we believe very few viable outsourcing options exist for sporting goods
retailers to build their online business.
Online sporting goods retailers confront obstacles to establish cost-
efficient operations in the sporting goods business. Due to the lack of master
distributors and the multitude of independent vendors in the sporting goods
industry, online retailers face the challenge of establishing and maintaining
relationships with hundreds of vendors. This makes it difficult for them to
access a broad selection of branded sporting goods products. In addition, we
believe that it is costly for single-brand online retailers to own inventory
and build sophisticated fulfillment infrastructure while simultaneously
spending to build their brand and drive traffic. Because most online retailers
rely on a single brand, they find it more difficult to establish multiple
partnerships with traditional retailers. Online retailers tend to make large
investments to build and maintain their brand awareness, resulting in high
customer acquisition costs. In addition, online retailers have a disadvantage
to traditional retailers in that they do not offer in-store returns and
exchanges and can not satisfy customers' desire to touch and feel products,
such as athletic footwear and sporting apparel. Also, it is difficult for
online retailers to support the cost of aggregating and maintaining
comprehensive inventory in each category. This difficulty arises because
sporting goods products come in an extensive array of shapes, sizes and
weights, ranging from small fishing lures to bulky motorized treadmills.
The Global Sports Solution
We believe our business model allows us to provide a comprehensive solution
to many of the challenges facing traditional and online sporting goods
retailers. Our platform allows us to rapidly develop and operate customized e-
commerce sporting goods businesses with characteristics appropriate for each
of our partners. Our solution enables our partners to remain focused on their
core businesses and to avoid making substantial
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investments in e-commerce infrastructure and personnel. In addition, we
believe we can generate attractive economic returns by operating multiple Web
sites on a common scalable e-commerce infrastructure. We derive further
economic benefit by operating under the established brands of our partners.
The following are key features of our solution:
Rapid Deployment of a Comprehensive E-Commerce Business. We can quickly
develop and implement all aspects of an e-commerce sporting goods business.
These aspects include Web site design, buying and merchandising, order
processing, fulfillment and customer service. We customize the design of a
partner's Web site with a broad range of characteristics that include a
differentiated user interface, partner-specific content pages, an extensive
electronic catalog of product descriptions and images, a searchable database
and interactive communication tools. Our solution allows the partner to avoid
the lengthy start-up, the complex integration effort and the substantial fixed
cost required to build and operate an e-commerce business.
Creation of Distinct Online Identities Under Existing Brand Names. We enable
our partners to establish distinct e-commerce businesses. We believe this
contributes to the development of their independent online brand, reinforces
their existing brand identity and reduces cannibalization from other online
competitors. In addition, we seek to increase the value of their entire
business by establishing an online image and a shopping experience that is
commensurate with their brand.
Increased Return on Investment Opportunity. We operate multiple e-commerce
sporting goods businesses on a common infrastructure. This allows us to
capitalize on our core computer technology, which we refer to as The Common
Engine(TM), and centralized inventory, product database, order processing,
fulfillment and customer service. Because we focus exclusively on sporting
goods e-commerce, we can derive economies of scale and add additional partners
with minimal incremental spending. In addition, we aggregate demand from all
of our partners' Web sites and fulfill all customer orders from a common
inventory pool. Although we customize part of the product assortment on each
partner's Web site we operate, a large quantity of SKUs is common among
multiple Web sites. By centralizing inventory management across multiple
partner Web sites, we are able to increase the frequency of inventory turns,
thus reducing obsolescence risk and financing costs.
Positive and Convenient Shopping Experience. We offer a compelling online
shopping experience by providing a broad selection of merchandise, easy to use
Web sites, competitive prices, value added content and strong customer
service. We believe our 24 hours a day, seven days a week in-house customer
service and high order accuracy promotes strong brand loyalty for our
partners. In addition, we believe our ability to respond to customer inquiries
by e-mail, telephone and online chat to provide detailed product information
makes the shopping experience easy and enjoyable and drives repeat purchases.
The customer's online shopping experience is further enhanced by the option to
return goods purchased online to most of our partners' respective retail
stores.
Efficient Customer Acquisition. We benefit from the brand assets and
substantial marketing budgets of our partners to reduce our customer
acquisition costs. Our partners' existing marketing budgets allow us to
generate exposure and drive traffic to the Web sites without expensive
incremental investment in customer acquisition. For example, each partner is
contractually obligated to include its Web site address, referred to as a URL,
in its marketing and communication materials. In addition, during fiscal 1999,
our current traditional sporting goods retail partners, Dunham's Sports, MC
Sports, Oshman's Sporting Goods, Sport Chalet, The Athletes Foot and The
Sports Authority, spent on a combined basis in excess of $100.0 million on
marketing. This included television, radio, print and outdoor advertising,
point of purchase displays, cash register receipts, shopping bags, employee
uniforms and promotional events designed to attract and retain customers.
Finally, our retail partners have valuable, established brand franchises and
existing customer bases. We believe this provides us with a competitive
advantage because our retail partners have a heritage and reputation that
lends a degree of comfort to the customer. By having an established history of
purchasing from our partners' retail stores, we believe a customer will be
more inclined to purchase from their online stores.
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Benefit from Relationships with Vendors. Our partners maintain long-standing
relationships with sporting goods vendors. We also maintain strong
relationships with these vendors. Therefore, unlike many entrants to the
online sporting goods marketplace, we are able to obtain direct access to most
major brands. We believe this provides us with one of the most extensive,
authorized selections of sporting goods brands and products available on the
Internet today. In addition, we benefit from the buying experience of our
partners, which further reduces our costs and improves our margins.
Growth Strategy
Our objective is to generate attractive economic returns by capitalizing on
our unique business model to become the leading e-commerce company in the
sporting goods category. The key elements of our growth strategy are as
follows:
Expand Our Partner Base. We intend to increase our market share by adding
new partners with strong brand franchises who are seeking to enter the e-
commerce sporting goods business. New partners could include companies with
major brand names in specialty and full-line retail, consumer products,
Internet and media. For example, in January 2000 we announced a new alliance
with Oshman's Sporting Goods and in March 2000, we announced a new alliance
with BlueLight.com. We expect to launch these e-commerce sporting goods
businesses during the second quarter of fiscal 2000.
Promote Our Online Brands. We intend to build awareness and drive traffic to
our partners' e-commerce sporting goods businesses by capitalizing on the
brand assets, large marketing budgets and retail traffic of our partners. Each
of our partners prominently features and promotes its URL in its marketing and
communications materials. We have initiated programs with our traditional
retail partners to provide incentives, such as coupons, to in-store customers
to shop online. We also plan to continue to selectively use a variety of
online and offline marketing strategies to reach our customers, including
direct marketing, co-branding, co-op advertising, public relations, affiliate
programs, portal relationships, traditional print and broadcast media
advertising. In addition, we intend to test in-store computer kiosks with
direct links to some of our traditional retail partners' online sporting goods
businesses to provide customers with access to inventory not available in the
retail stores.
Increase Repeat Purchases. We intend to build customer loyalty and drive
repeat purchases by implementing the following strategies:
. continually enhancing our level of customer service;
. expanding our customer and product databases;
. offering new products and product categories;
. implementing direct marketing techniques to target customers; and
. increasing the level of personalization on our partners' online sporting
goods businesses.
We believe these initiatives will drive repeat purchases as consumers become
increasingly satisfied with their online shopping experiences.
Enhance the Online Shopping Experience. We plan to continually enhance and
expand our online stores to address the evolving needs of our customers. We
plan to invest in technology to maximize the flexibility and speed to market
of our partners' Web sites. We intend to improve the presentation of our
product offerings by taking advantage of the unique characteristics of the
Internet as a retail medium. Specifically, we plan to develop features that
improve the functionality, speed, navigation and ease of use of our partners'
Web sites. Another key factor in enhancing the online shopping experience will
be to continue building and expanding upon our fulfillment and order
processing capabilities.
Capitalize on International Market Opportunities. We plan to explore
offering our e-commerce solution in international markets to address the
global demand to purchase sporting goods products online. We believe
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our business model is well suited for penetration of these markets by
partnering with well-established local companies.
Pursue Growth by Acquisitions. From time to time we assess strategic
investments and acquisitions that are aligned with our goal of increasing our
partner and customer base and expanding our product offerings.
Global Sports' Operations
Web Site and Content Design, Implementation, and Maintenance
We design most of our partners' Web sites. We have dedicated in-house
personnel that are responsible for Web site design, management, maintenance,
creative and content modifications. We implement all changes to current Web
sites and oversee the creation of new front-end Web sites for most new
partners, ensuring that the look and feel of their Web sites meet all parties'
satisfaction. We also generate content for each of our partners' Web sites,
including product images, product descriptions, buying guides, sport-specific
information, as well as related sports and informational content. For example,
we have produced buying guides which will help customers with their
merchandise selection and to provide information about selected sports. These
guides provide customers with helpful information in selecting various pieces
of sports equipment and provide tips on sports play. In addition, we have an
in-house photography studio and generate approximately 70% of our photographic
images. We receive the remainder of our photographic images from our vendors.
Technology. The three major elements of our partners' Web sites' technology
are The Common Engine(TM), the front-end and the data center.
The Common Engine(TM). We have created a core computer technology system,
The Common Engine(TM), that operates and manages all of the applications and
functionality across all of our partners' Web sites. This system allows us to
add new front-end Web sites with minimal incremental costs. The Common
Engine(TM) is a template that is used to create and personalize each Web site
to fit the brand equity and identity of the individual partners. We update The
Common Engine(TM) continually to improve our partners' Web sites and enrich
the overall customer experience.
The Front-End. The front-end represents the overall look and feel of our
partners' Web sites. The front-end is the interface with the customer and
includes content development, logo placement, graphic design, color palette,
navigation and links. We use the front-end to communicate special promotions,
content feature and product collections as well as the unique merchandising
strategy of each of our partners.
The Data Center. The data center is our database management system that
controls all of the information housed within our partners' Web sites,
including all product images and descriptions, customer log-in data, customer
profiles, verification requirements, brand information and tax and shipping
data. Our database management system was created utilizing Oracle technologies
and runs on Sun Microsystems hardware. A third-party provider hosts our data
center. System security is managed both by internal staff as well as by
security staff at our third-party host.
Additional Technology Information. Our technology infrastructure is
supported by a fully-integrated back-up system. We believe this ensures our
operations can move forward seamlessly in the event of computer malfunctions.
In addition, we continuously strive to improve our partners' Web sites by
conducting functional testing.
Buying, Vendor Relationships and Merchandising
Buying. We offer a broad assortment of brands and items on each of our
partners' Web sites. We currently offer customers over 500 brands and more
than 60,000 SKUs across our partners' Web sites and continue to add additional
brands and SKUs. We have dedicated buyers for the following merchandise
categories: footwear,
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licensed/team products, men's branded apparel, women's and children's branded
apparel, accessories, exercise, indoor recreation, outdoor recreation, golf,
racquet sports and team sports.
We capitalize on our partners' merchandising experience to offer a wide
brand and product assortment for our customers. When deciding which brands and
merchandise to carry, we first review what our partners are offering in their
retail stores and determine what items we believe will be successful on our
partners' Web sites. We believe that we will be able to offer a wider variety
of merchandise on our partners' Web sites than might be found in one of their
retail stores because we are not hindered by space availability, although not
all of our partners' Web sites carry the same product and brand assortment. In
this connection, we currently do not offer some popular brands of sporting
goods, such as Nike, and our partners typically have the right to require us
not to sell products which are not sold in their land-based stores. After
consulting a partner on their buying strategy, we then work to enhance product
selection. We expand product lines, provide brand extensions and look to add
significant value to the product selection currently offered in our partners'
stores. These types of extensions might include a broader diversity of sizes
and styles and a larger range of price points.
Vendor Relationships. We believe we have solid relationships with our
vendors, and while we currently do not offer some popular brands of sporting
goods, such as Nike, we are working to continuously add new vendors and
brands. Our buyers work with merchandisers to streamline the strategies for
product offerings, merchandise locations within the Web sites and promotional
activities of our partners. During fiscal 1999, we purchased $2.2 million of
inventory from Icon Health & Fitness, Inc. and $1.8 million of inventory from
ASICS Tiger Corp. These purchases accounted for 15% and 12% of the total
amount of inventory we purchased during fiscal 1999.
Merchandising. Our merchandising strategy allows us to offer a highly
customized and flexible product mix. We work with our partners to ensure that
our product offerings are consistent with any upcoming in-store promotions or
advertising specials. We make changes to the home pages and lead category
pages of our partners' Web sites frequently to reflect seasonal or promotional
trends and to keep their Web sites fresh.
Pricing
We establish the prices for all products offered on our partners' Web sites.
We strategically price these products to be consistent with the prices in our
partners' retail stores. Accordingly, we maintain different pricing structures
for products across each of our partners' Web sites. We use our proprietary
technology to implement these pricing structures and to make daily updates to
our prices, including markdowns and sales.
Marketing
Web Site Integration. We work with each of our partners to make certain that
URL and Web site integration are a mainstay of their marketing and advertising
campaigns. Our retail sporting goods partners spend more than $100.0 million
per year to build and promote their brands, and BlueLight.com's exclusive
retail partner, Kmart, dedicates a meaningful portion of space within its 72
million weekly advertising circulars to promote its sporting goods business.
Each of our partners is contractually obligated to incorporate its URL into
every type of advertising, marketing, promotion and communication vehicles it
creates. These marketing vehicles not only incorporate the URL into the copy
or design, but the message also educates people about these e-commerce
sporting goods businesses and drives traffic to these Web sites. We believe
our partners embrace this strategy because they realize the value in alerting
their customers to an additional distribution channel within their brand.
Online Marketing Relationships. In 1999, we signed a marketing agreement
with Yahoo!, a leading global Internet company, in which our partners' Web
sites are featured throughout the Yahoo! Shopping service and other areas of
the Yahoo! Network. We also formed a marketing relationship with PeoplePC, in
which our partners' Web sites will be featured to PeoplePC members throughout
PeoplePC's multiple channels of outreach. We have a marketing relationship
with Rodale, the publisher of well-known publications such as Men's Health,
Prevention, New Woman, and Runner's World, which provides users of our
partners' Web sites with access to sports and fitness content and information
from Rodale's range of sports and fitness book titles. We are dedicated
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to managing, strengthening and improving our customer relationships. We have
implemented personalized customer e-mail campaigns, which inform customers
about upcoming specials, promotions, new brands, or merchandise in which they
might be interested.
Offline Marketing Opportunities. We periodically produce advertising or
marketing materials to communicate a special event or promotion occurring on
one of our partners' Web sites. We produce these materials to augment our
partners' own advertising campaigns.
Affiliate Network. We have agreements with many outside Web sites, referred
to as affiliates, which enable them to link to one of our partners' Web sites.
When a visitor clicks through an affiliate to one of our partners' Web sites,
and the visit generates a sale, then the affiliate is compensated with a
portion of the sale proceeds. We have implemented a sliding scale for revenue
payments to affiliates depending on the volume of sales generated from the
link.
Order Processing and Fulfillment
Order Processing. We use Priority Fulfillment Services, referred to as PFS,
as our third-party order processing vendor. We use JDA software for our
internal order processing technology vendor. During fiscal 2000, we plan to
assume the responsibility of all order processing, returns processing, claims
processing and crediting of customers. Order processing activities include
electronically capturing the order, processing the payment method, determining
the shipping costs, adding any applicable sales tax, facilitating any coupon
or promotional discounts and printing a pick ticket. The pick ticket includes
the name of the partner from whom the order was received, a packing slip,
return labels and detailed order list.
Fulfillment. We currently use PFS as our third-party fulfillment vendor.
During fiscal 2000, we plan to assume responsibility for the fulfillment for
all large and oversized items, referred to as Less than Truckload or LTL, sold
on our partners' Web sites. These large items will be fulfilled by us within a
90,000 square foot facility to be leased in Memphis, Tennessee. PFS will
continue to manage the fulfillment of non-LTL items.
We have our own dedicated warehouse and fulfillment space within PFS'
facilities. The portion of PFS' facility that we use is completely separated
and segregated from all other PFS customers and/or operations. We use
approximately 200,000 square feet of PFS' facilities in Memphis, Tennessee for
fulfillment of non-LTL items for the forseeable future.
After a pick ticket is generated, it either will be forwarded to PFS for
fulfillment, in the case of non-LTL items, or will be forwarded to our
fulfillment center in Memphis, in the case of LTL items. Fulfillment will be
handled in the same way, whether it is managed by us or by PFS. After the pick
ticket is reviewed, the ordered items are gathered, the accuracy of items are
verified and the items, appropriate receipts and return labels are packed,
sealed and shipped. After an item has been ordered by a customer, PFS
electronically notifies us when the order has been received, packed and
shipped. Our computer system then automatically sends an e-mail to that
customer informing them that their merchandise is on its way
We also provide value-added fulfillment services, such as at-home assembly
of LTL items and racquet stringing. At-home assembly for LTL items can be
purchased for an additional charge on some of our partners' Web sites. These
Web sites automatically offer the customer the opportunity to purchase at-home
assembly at the time of sale. If a customer purchases at-home assembly of an
item, information about coordinating their at-home assembly is included in the
package during the fulfillment phase. The customer can then call Huffy
Corporation, our assembly provider, to coordinate and schedule the at-home
assembly of their product.
Distribution. We currently use UPS as our shipping carrier for non-LTL items
and use Associated Global for our LTL distribution. We ship virtually all of
the orders received on our partners' Web sites within one business day.
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Returns. We accept returns through our partners' respective stores and
through mailing or delivery services. All of our retail partners, except
Dunham's Sports, accept in-store returns of items purchased on their Web site.
If a customer returns an item to a retail store, the store will offer the
customer a credit or exchange. If it is an item that the particular store
location carries, then the store will reshelve the item. If the specific
retail location does not carry that item, the store will return the item to us
to reshelve. If a customer returns an item directly to us, we provide the
customer with either a credit or exchange from our partners' Web site and then
reshelve the item.
In the case of BlueLight.com, where we only manage their sporting goods
product database and facilitate merchandise procurement and fulfillment,
BlueLight.com will process the orders, generate the pick tickets and forward
them to us for fulfillment. We will then either fulfill the order or forward
it to PFS as appropriate. BlueLight.com has agreed to use commercially
reasonable efforts to have Kmart accept in-store returns for merchandise
purchased on BlueLight.com. Any returns made to a Kmart store will be
forwarded to BlueLight.com's return processing center, from which
BlueLight.com will coordinate regular shipments of products back to us to be
reshelved.
Customer Service
General. We are committed to providing the highest level of customer
service. We believe that superior customer service is critical to retaining
long-term and repeat customers. We offer 24 hours a day, seven days a week
live customer service for all of our partners, except BlueLight.com, who will
manage their own customer service functions. However, we will be assisting
BlueLight.com's representatives with problem-solving and product-oriented
issues. We currently have significant excess capacity in our call center. We
expect to increase our customer service staff as we increase both the number
of our partners and our overall volume. We programmed our computer systems to
automatically identify from which partner the customer needs information or
service. Our customer service facility is located within our headquarters.
Category Experts and Service Experts. In our effort to provide customers
with the most thorough and accurate information possible, we have both
category experts and service experts on staff within the customer service
department. Category experts have a particular interest in and detailed
knowledge of particular sports or products. These professionals are able to
answer detailed questions about various sports and products to help customers
select the best equipment or merchandise for them. Service experts are trained
and experienced in working with a variety of complex customer service issues.
E-Mail, Telephone or Online Chat. Customers can obtain assistance through e-
mail, telephone or online chat. Our online chat capabilities are called
LiveRep. We utilize eGain's application process for our LiveRep solution.
During LiveRep sessions, customer service representatives can answer simple
merchandise questions or help a person navigate the site page-by-page in more
complex situations. We aim to answer all customer e-mails within 24 hours, and
are often able to respond within a shorter period of time.
Company Overview
Description of Agreements with our Partners
According to Sports Trend, the combined retail sporting goods sales of our
partners and their affiliates was $5.1 billion in 1998, accounting for 11.1%
of the estimated United States retail sporting goods market. In 1999, our
partners and their affiliates had in the aggregate approximately 3,300 stores
covering all 50 states. We estimate that Dunham's Sports, MC Sports, Oshman's
Sporting Goods, Sport Chalet, The Athlete's Foot and The Sports Authority
invested in excess of $100.0 million in marketing their retail stores to
consumers in 1999. In addition, a majority of the approximately 72 million
weekly newspaper circulars distributed in 1999 by BlueLight.com's retail
partner, Kmart, featured sporting goods products.
We currently have three different structures for our agreements:
. Exclusive Licensing Agreements. These agreements give us the exclusive
right to operate a partner's e-commerce sporting goods business. We
purchase inventory from vendors, sell the inventory on our partners' Web
sites, record all revenues generated on the Web sites and pay a
percentage of those
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revenues to the partners in exchange for the e-commerce rights to their
brand names and in-store promotions of the e-commerce sporting goods
businesses in the partners' retail stores.
. Subsidiary and Exclusive License Agreement. We have formed a subsidiary,
The SportsAuthority.com, Inc., which is 80.1% owned by us and 19.9%
owned by The Sports Authority. The Sports Authority's ownership position
in the subsidiary could increase to 49.9% over time, depending upon the
achievement of financial and sales goals or the exercise of options set
forth in the agreement. The SportsAuthority.com has the exclusive right
to operate The Sports Authority's e-commerce sporting goods business. We
purchase inventory from vendors, sell the inventory on The
SportsAuthority.com's Web site, record all revenues generated on the Web
site and pay a nominal royalty to The Sports Authority based on a
percentage of sales generated by the subsidiary in exchange for the e-
commerce right to the Sports Authority's brand name and in-store
promotions of its e-commerce sporting goods business in its retail
stores.
. Long-Term Distribution Agreement. We entered into an agreement with
BlueLight.com. whereby we will provide a product information database to
BlueLight.com that it will use to merchandise the sporting goods
department of its flagship Web site. BlueLight.com will process orders
for sporting goods on its Web site and deliver the orders to us
electronically. We will then sell the products from our inventory and
transfer title to BlueLight.com at a predetermined discount to their
selling price and pick, pack and ship the products to consumers on
behalf of BlueLight.com. BlueLight.com will perform all its own customer
service.
The following table summarizes the different agreements we have with each of
our partners.
<TABLE>
<CAPTION>
Partner URL Nature of Agreement Date Operational Term
- ----------------------- -------------------------- -------------------------------- ------------------------- -------------
<S> <C> <C> <C> <C>
BlueLight.com www.bluelight.com long-term distribution agreement Expected to launch in the Five years
second quarter of 2000
Dunham's Sports www.dunhamssports.com exclusive licensing agreement November 1999 Ten years
Healtheon/WebMD store.webmd.com exclusive licensing agreement November 1999 Five years*
MC Sports www.mcsports.com exclusive licensing agreement November 1999 Ten years
Oshman's Sporting Goods www.oshmans.com exclusive licensing agreement Expected to launch in the Five years
second quarter of 2000
Sport Chalet www.sportchalet.com exclusive licensing agreement November 1999 Five years
The Athlete's Foot www.theathletesfoot.com exclusive licensing agreement November 1999 Five years
The Sports Authority www.thesportsauthority.com majority-owned subsidiary and November 1999 Fifteen years
exclusive licensing agreement
</TABLE>
- --------
* The letter of intent that we entered into with Healtheon/WebMD contemplated
a five-year agreement. Although this letter of intent has expired, the
parties are in the process of negotiating a definitive agreement. See"--
Description of Agreement with our Partners--Healtheon/WebMD."
Our typical agreement gives us the long-term exclusive rights to a partner's
e-commerce sporting goods business and the commitment from the partner to
promote its Web site. In exchange, we commit to develop and operate a unique
and customized Web site for the partner and pay to the partner a percentage of
all net sales generated on the Web site.
BlueLight.com. The sporting goods inventory on the BlueLight.com sporting
goods department will consist of items provided by us, enhanced by a range of
current Kmart product offerings. As Kmart's exclusive e-commerce partner,
BlueLight.com is uniquely positioned to capture a large portion of their
customers that shop online. BlueLight.com's retail partner, Kmart, is the
third largest retailer of sporting goods in the United States, with estimated
annual sporting goods sales in excess of $2.0 billion according to Sports
Trend. BlueLight.com will capitalize on its relationship with Kmart to drive
customers to its e-commerce shopping portal. We believe that the nationwide
retailer's powerful brand, supported by more than $36.0 billion in annual
sales, will be utilized to actively promote BlueLight.com throughout its more
than 2,100 retail stores and through its 72 million weekly advertising
circulars.
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Dunham's Sports. Dunham's Sports operates 107 full-line sporting goods
stores, located in strip shopping centers, in 11 states, with a focus on the
Mid-Atlantic and Great Lakes regions of the country. Its 1998 sales were
estimated by Sports Trend to be $225.0 million. Dunham's Sports positioning
is, "The big names bring you in, the low prices bring you back."
Healtheon/WebMD. We entered into a binding letter of intent with The Sports
Authority and Healtheon/WebMD to create and operate a sports, medicine and
fitness e-commerce sporting goods business. The letter of intent expired on
October 29, 1999, but the parties generally have been operating under the
terms of the letter of intent. We expect to enter into a definitive agreement
in the second quarter of fiscal 2000. Healtheon/WebMD has committed extensive
promotional resources to drive traffic to the Web site, including taking
advantage of its strategic relationships with MSN, Lycos, Excite, Readers'
Digest and CNN. Through TheSportsAuthority.com, we record 100% of the revenue
from the transactions on the Healtheon/WebMD health and fitness e-commerce
store, and Healtheon/WebMD receives a percentage revenue share payment on all
product sales. We derived $2.8 million of our total net revenues from
Healtheon/WebMD through the sale of product to support the launch of the WebMD
Sports & Fitness Store, store.webmd.com. This product was sold to
Healtheon/WebMD in connection with a one-time promotion in which
Healtheon/WebMD distributed the products to its physician subscribers to
promote the launch of the WebMD Sports & Fitness Store. Healtheon/WebMD is the
first end-to-end Internet healthcare company connecting physicians and
consumers to the entire healthcare industry. Healtheon/WebMD was formed in
November 1999 as a result of the merger of Healtheon Corporation, WebMD, Inc.,
MEDE America and Medcast.
MC Sports. MC Sports operates 66 full-line sporting goods stores located in
shopping malls and strip shopping centers in six states, primarily in the
Midwest and Great Lakes areas. Its 1998 sales were estimated by Sports Trend
to be $235.0 million. MC Sports is heavily involved in its local communities
and is positioned as a "hometown," caring retailer.
Oshman's Sporting Goods. Oshman's operates 42 super stores and 16
traditional stores located in strip shopping centers and enclosed malls in 15
states, with concentration in the Southwest and Northwest United States. Its
1999 sales were $306.0 million. Oshman's utilizes an oval racetrack store
theme, featuring concept shops and demo areas where customers can try
merchandise prior to purchasing.
Sport Chalet. Sport Chalet operates 21 big box full-line sporting goods
stores located in shopping malls and strip shopping centers in Southern
California. Its 1998 sales were $155.0 million. Sport Chalet positions itself
as a leading sporting goods retailer in Southern California providing
outstanding customer service and the best brands available.
The Athlete's Foot. The Athlete's Foot operates 750 specialty athletic
footwear stores located in shopping malls and strip shopping centers, in 40
countries around the world. Its 1998 sales were estimated by Sports Trend to
be $700.0 million. The Athlete's Foot positions itself as the world's
definitive athletic and leisure footwear retailer.
The Sports Authority. The Sports Authority operates 196 stores located in
strip shopping centers and urban street locations in 32 states, most of which
are big box stores. Its 1999 sales were $1.5 billion. The Sports Authority
positions itself as "The Authority" on sporting goods with a large assortment
of merchandise encompassing a wide range of both team and individual sports.
Competition
The online market is new, rapidly evolving and intensely competitive. Our
primary competitors are currently:
. online e-commerce sporting goods retailers such as Chipshot.com,
Fogdog.com and Gear.com;
. general merchandise e-commerce companies such as Mercata.com, Onsale.com
and uBid.com;
. full-line electronic retailers that are associated with full-line
sporting goods stores such as Shopsports.com, associated with
Copeland's, Dsports.com, associated with Dick's Sporting Goods, and
MVP.com, associated with Galyans;
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. e-commerce businesses of specialty sporting goods retailers and catalogs
such as Footaction.com, Footlocker.com and REI.com;
. e-commerce businesses of traditional general merchandise retailers such
as Target.com and Wal-Mart.com; and
. e-commerce businesses of sporting goods manufacturers such as adidas.com
and Nike.com.
In addition, we compete with companies that can provide part of our
solutions to companies that wish to establish e-commerce sporting goods
business, including:
. Web site developers, such as Sapient, Scient and Viant; and
. third-party fulfillment and customer service providers, such as
Fingerhut, Keystone Internet Services and ClientLogic.
Finally, we compete with traditional channels of distribution for sporting
goods, including full-line sporting goods retailers, specialty sporting goods
retailers, general merchandise retailers, catalogs and manufacturers' direct
stores.
We believe that we compete primarily on the basis of the following:
. recognition of and trust in our partners' brands;
. the broad selection of merchandise that we offer on our partners' Web
sites;
. convenience of the shopping experience;
. ability to return products to our partners' respective retail stores;
. price; and
. the amount of product information provided to customers.
Intellectual Property
We utilize our partners' names, URL's, logos and other marks in connection
with the operation and promotion of our partners' Web sites. The agreements
with our partners generally provide us with limited, non-exclusive licenses to
use this intellectual property in connection with the operation of our
partners' e-commerce sporting goods businesses. These licenses are co-
terminous with the agreements and range from five to 15 years.
We also rely on technologies that we license from third parties. These
licenses may not continue to be available to us on commercially reasonable
terms in the future. As a result, we may be required to obtain substitute
technology of lower quality or at greater cost, which could materially
adversely affect our business, results of operations and financial condition.
In order to protect our proprietary rights in services and technology, we
rely on various intellectual property laws and contractual restrictions. These
include confidentiality, invention assignment and nondisclosure agreements
with our partners, employees, contractors and suppliers. Despite these
precautions, it may be possible for a third-party to copy or otherwise obtain
and use our intellectual property without our authorization.
Government Regulation
We are not currently subject to direct federal, state or local regulation
other than regulations applicable to businesses generally or directly
applicable to retailing or e-commerce. However, as the Internet becomes
increasingly popular, it is possible that a number of laws and regulations may
be adopted with respect to the Internet. These laws may cover issues such as
user privacy, freedom of expression, pricing, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. Furthermore, the growth of e-commerce may prompt calls
for more stringent consumer protection laws. Several states have
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proposed legislation to limit the uses of personal user information gathered
online or require online services to establish privacy policies. The Federal
Trade Commission has also initiated action against at least one online service
regarding the manner in which personal information is collected from users and
provided to third parties and has adopted regulations restricting the
collection and use of information from minors online. We do not currently
provide individual personal information regarding our users to third parties
other than our partners and we currently do not identify registered users by
age. However, the adoption of additional privacy or consumer protection laws
could create uncertainty in Web usage and reduce the demand for our products
and services or require us to redesign our partners' Web sites.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity,
qualification to do business and export or import matters. The vast majority
of these laws were adopted prior to the advent of the Internet. As a result,
they do not contemplate or address the unique issues of the Internet and
related technologies. Changes in laws intended to address these issues could
create uncertainty in the Internet marketplace. This uncertainty could reduce
demand for our services or increase the cost of doing business as a result of
litigation costs or increased service delivery costs.
In addition, because our services are available over the Internet in
multiple states and foreign countries, other jurisdictions may claim that we
are required to qualify to do business in each state or foreign country. Our
failure to qualify in a jurisdiction where we are required to do so could
subject us to taxes and penalties. It could also hamper our ability to enforce
contracts in these jurisdictions. The application of laws or regulations from
jurisdictions whose laws do not currently apply to our business could have a
material adverse effect on our business, results of operations and financial
condition.
Employees
As of April 28, 2000, we employed 215 full-time employees in our e-commerce
business. Our employees are based primarily at our headquarters in King of
Prussia, Pennsylvania.
Discontinued Operations
Prior to our decision to focus exclusively on our e-commerce business, we
operated two sporting goods businesses, our Branded Division and our Off-Price
and Action Sports Division. We sold our Branded Division on December 29, 1999
and recognized a loss of $12.1 million on the sale. We have an agreement to
sell our Off-Price and Action Sports Division, which we expect will be
completed in the second quarter of fiscal 2000. We estimate that we will
recognize a loss of approximately $5.2 million on the sale of our Off-Price
and Action Sports Division and have reflected that loss in the statement of
operations for fiscal 1999. For a more complete discussion, see Note 18 to our
consolidated financial statements beginning on page F-1.
Off-Price and Action Sports Division
Through our Off-Price and Action Sports Division, we purchased
manufacturers' closeout merchandise, overstocks and canceled orders, as well
as excess inventories from manufacturers and retailers, for resale to
retailers principally in the United States and Canada. We resold this
merchandise to sporting goods stores, off-price specialty stores, department
stores, footwear stores and independent retailers. The merchandise that we
purchased and distributed included a wide variety of athletic, outdoor, casual
and specialty footwear, athletic apparel, ski and snowboard equipment, in-line
skates, skateboards and sunglasses. We also designed and distributed
snowboards, skateboards and related merchandise for selected retailers.
The sales force for our Off-Price and Action Sports Division consisted of
sales executives who dealt exclusively with off-price and special make-up
merchandise and who were compensated on a commission basis. We sold our off-
price and action sports merchandise to approximately 2,300 retail accounts.
Our Off-
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Price and Action Sports Division competed with large retailers that purchased
off-price and action sports merchandise on a direct basis, footwear
manufacturers that disposed of excess merchandise through their own retail
outlet operations and several independent resellers of footwear, athletic
apparel and sporting goods.
In May 1998, we acquired Gen-X Holdings Inc. and Gen-X Equipment Inc., two
privately-held companies based in Toronto, Ontario specializing in selling
off-price sporting goods.
Branded Division
Through our Branded Division, we designed, marketed and distributed athletic
and outdoor footwear products under the RYKA brand and the Yukon brand. RYKA
is a high performance athletic footwear brand designed exclusively for women.
RYKA products included the following categories: aerobic fitness, cross-
training, running, walking and aqua aerobics.
Yukon is a performance outdoor and rugged casual footwear brand designed for
men, women and children. Yukon products included the following categories:
hiking boots, cross-terrain boots, trail walking shoes, rugged casual shoes
and work boots.
Prior to selling the Branded Division, we developed a variety of promotional
programs for our RYKA and Yukon brands. Because of our limited resources,
however, we historically concentrated our marketing efforts on less costly,
grass-roots approaches, such as point-of-purchase and other retailer
promotions. We relied principally on independent sales organizations to sell
RYKA and Yukon footwear to their customer accounts. These independent sales
organizations covered all 50 states and Canada and were compensated on a
commission basis. The primary customers of our branded products were athletic
footwear stores, sporting goods stores, department stores and independent
retailers.
The products of our Branded Division competed with other branded products,
as well as with private label products sold by retailers, including some of
our customers. RYKA competed with many brands of athletic footwear, including
Nike, Reebok, adidas, Avia, Asics, New Balance and Saucony. Yukon competed
with a number of other brands of rugged outdoor and casual footwear, including
Timberland, Rockport (a division of Reebok), Nike ACG, Columbia, Hi-Tec,
Merrell, Vasque and Wolverine. In varying degrees, depending on the product
category involved, we competed on the basis of style, price, quality, comfort
and brand name prestige and recognition.
Our products were designed and developed in-house, although we periodically
used outside design firms to supplement our design efforts. Products of our
Branded Division were produced by independent contract manufacturers located
in Asia. We did not own or operate any manufacturing facilities. We oversaw
the key phases of production from initial prototype manufacture through
initial production runs to final manufacture. We sought to use, whenever
possible, manufacturers that had previously produced our footwear, which we
believed enhanced continuity and quality while controlling production costs.
Facilities and Employees
We operated our historical business from a 75,000 square-foot office and
warehouse facility in King of Prussia, Pennsylvania that we leased from
Michael G. Rubin, our Chairman and Chief Executive Officer. In addition, we
own a 12,000 square-foot facility in North York, Ontario that we used
primarily for our Off-Price and Action Sports Division. This facility is being
sold as part of the sale of our Off-Price and Action Sports Division. We also
used third-party public warehouses in California and Ontario, Canada for our
Branded Division.
As of April 28, 2000, we employed 55 full-time employees in our Off-Price
and Action Sports Division.
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Properties
Our principal executive offices are located in a newly-renovated 56,000
square foot facility purchased by us on August 20, 1999 and located in King of
Prussia, Pennsylvania. In addition, we utilize a third-party warehousing
facility in Memphis, Tennessee in connection with the operation of our e-
commerce business.
We believe that our owned and third-party properties are adequate for our
present needs and that suitable additional or replacement space will be
available as required.
Legal Proceedings
We are involved in various routine litigation incidental to our current and
discontinued businesses. We believe that the disposition of these matters will
not have a material adverse effect on our financial position or results of
operations.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Price of and Dividends on Common Stock
From September 18, 1995 through June 15, 1998, the Company's common stock
was traded on the NASD Over-the-Counter Bulletin Board. Effective June 16,
1998, the Company was approved for inclusion on the Nasdaq SmallCap Market,
and effective May 3, 1999 on the Nasdaq National Market where it is currently
included for quotation. As of the Record Date, the Company had approximately
1900 shareholders of record.
The following table sets forth the high and low bid prices per share of the
Company's common stock as reported on the Nasdaq Over-the-Counter Bulletin
Board for the periods presented prior to and including June 15, 1998. For the
periods presented from June 16, 1998 to April 30, 1999, the following table
sets forth the high and low sales prices per share of the Company's common
stock as reported on the Nasdaq SmallCap Market. For the periods presented
from and after May 3, 1999, the table below sets forth the high and low sales
prices as reported on the Nasdaq National Market. The prices shown do not
include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
Prices
--------------
High Low
------- ------
<S> <C> <C>
Year Ended December 31, 1998
First Quarter................................................. $ 5.69 $ 2.56
Second Quarter (April 1-June 15).............................. $ 7.75 $ 5.19
Second Quarter (June 16-June 30).............................. $ 7.25 $ 5.63
Third Quarter................................................. $ 8.00 $ 4.63
Fourth Quarter................................................ $ 8.06 $ 4.25
Year Ended January 1, 2000
First Quarter................................................. $17.375 $ 7.00
Second Quarter................................................ $36.875 $12.00
Third Quarter................................................. $25.125 $14.50
Fourth Quarter................................................ $ 25.25 $12.00
Year Ended December 30, 2000
First Quarter................................................. $23.875 $12.25
Second Quarter (through April 27, 2000)....................... $ 18.25 $ 5.00
</TABLE>
On September 24, 1999, the trading day immediately prior to the public
announcement of the transactions contemplated by the Acquisition Agreement,
the closing sale price of the Company's common stock was $21.625 per share.
The closing sale price of the Company's common stock on April 27, 2000, the
latest practical date before the printing of this Proxy Statement, was $7.75
per share. The Company has never declared or paid a cash dividend on its
common stock. The Company currently intends to retain any future earnings for
funding
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growth and, therefore, does not anticipate declaring or paying any cash
dividends on its common stock for the foreseeable future.
Recent Sales of Unregistered Securities
On July 23, 1999, SOFTBANK America Inc., through certain of its affiliates
(collectively, "SOFTBANK"), acquired an aggregate of 6,153,850 shares of the
Company's common stock at a price of $13.00 per share (the closing price on
May 26, 1999, the day prior to the day the Company and SOFTBANK agreed in
principle to the transaction) for an aggregate purchase price of approximately
$80.0 million.
On May 1, 2000, SOFTBANK acquired an additional 2,500,000 shares of Common
Stock and TMCT Ventures, L.P. ("TMCT") acquired 625,000 shares of Common Stock
at a price of $8.00 per share for an aggregate purchase price of $25.0
million. ln addition, we issued to the funds affiliated with SOFTBANK warrants
to purchase 1,250,000 shares of common stock, and to TMCT warrants to purchase
312,500 shares of common stock, at an exercise price of $10.00 per share.
These transactions were not public offerings, nor were any underwriters or
underwriting discounts or commissions involved. Based upon information
available to the Company as of the date of the above transaction, were
including certain representations and warranties of SOFTBANK and TMCT, the
Company believes that the transactions were exempt from the registration
requirements of the Securities Act of 1933, as amended, by reason of Section
4(2) thereof.
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PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 28, 2000, the beneficial
ownership of Global's Common Stock: (i) by each person known by Global to be
the beneficial owner of five percent or more of Global's outstanding Common
Stock, (ii) by each director and nominee for director of Global, (iii) by each
executive officer whose compensation exceeded $100,000 during fiscal 1999 (the
"Named Officers"), and (iv) by the directors and executive officers of Global
as a group. Unless otherwise specified, all persons listed below have sole
voting and investment power with respect to their shares. The business address
of the officers and directors of Global is that of Global.
<TABLE>
<CAPTION>
Number of
Shares
Name, Position and Address Beneficially Percentage
of Beneficial Owner Owned(1) of Class
-------------------------- ------------ ----------
<S> <C> <C>
Michael G. Rubin .................................. 8,025,046 43.2%
Chairman of the Board and Chief Executive
Officer of Global
Michael Golden(2).................................. 67,500(3) *
Executive Vice President, E-Commerce
Michael R. Conn.................................... 26,500(4) *
Senior Vice President, Strategic Development
Steven A. Wolf .................................... 22,750(5) *
Vice President
Kenneth J. Adelberg ............................... 129,500(6) *
Director
Harvey Lamm ....................................... 80,000(7) *
Director
Charles Lax ....................................... 6,168,850(8) 33.2%
Director
Ronald D. Fisher .................................. 6,168,850(9) 33.2%
Director
Jeffrey Rayport ................................... 15,000(10) *
Director
Mark S. Menell..................................... 15,000(11) *
Director
SOFTBANK Affiliates (12)........................... 6,153,850(13) 33.1%
All executive officers and directors as a group (14
persons).......................................... 14,686,146(14) 77.6%
</TABLE>
- --------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the SEC. Accordingly, they may include securities owned by
or for, among others, the wife and/or minor children of the individual and
any other relative who has the same home as such individual, as well as
other securities as to which the individual has or shares voting or
investment power or has the right to acquire under outstanding stock
options within 60 days of the date of this table. Beneficial ownership may
be disclaimed as to certain of the securities.
(2) In February, 2000, Mr. Golden's employment with Global terminated and Mr.
Golden was appointed to Global's Advisory Board.
(3) Consists of 67,500 shares of Common Stock issuable pursuant to options
awarded to Mr. Golden under Global's 1996 Equity Incentive Plan, which
options are exercisable as of the date of the table.
(4) Includes of 25,000 shares of Common Stock issuable pursuant to options
awarded to Mr. Conn under Global's 1996 Equity Incentive Plan, which
options are exercisable within 60 days of the date of the table. Does not
include 55,000 shares of Common Stock issuable pursuant to options awarded
to Mr. Conn which are not exercisable within 60 days of the date of this
table.
(5) Consists of 22,750 shares of Common Stock issuable pursuant to options
awarded to Mr. Wolf under Global's 1996 Equity Incentive Plan, which
options are exercisable within 60 days of the date of the table. Does not
include 16,250 shares of Common Stock issuable pursuant to options awarded
to Mr. Wolf which are not exercisable within 60 days of the date of this
table.
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<PAGE>
(6) Includes 56,250 shares of Common Stock issuable pursuant to options
awarded to Mr. Adelberg under Global's 1996 Equity Incentive Plan, which
options are exercisable within 60 days of the date of this table.
(7) Includes 80,000 shares of Common Stock issuable pursuant to options
awarded to Mr. Lamm under Global's 1996 Equity Incentive Plan, which
options are exercisable within 60 days of the date of this table. Does not
include 70,000 shares of Common Stock issuable pursuant to options awarded
to Mr. Lamm which are not exercisable within 60 days of the date of this
table.
(8) Includes 15,000 shares of Common Stock issuable pursuant to options
awarded to Mr. Lax under Global's 1996 Equity Incentive Plan, which
options are exercisable within 60 days of the date of this table,
6,069,542 shares of Common Stock held by SOFTBANK Capital Partners LP and
84,308 shares of Common Stock held by SOFTBANK Capital Advisors Fund LP.
Mr. Lax is a Managing Director of the general partner of each of these
SOFTBANK entities. Mr. Lax disclaims beneficial ownership of these shares,
except to the extent of his pecuniary interest. Does not include 15,000
shares of Common Stock issuable pursuant to options awarded to Mr. Lax
which are not exercisable within 60 days of the date of this table.
(9) Includes 15,000 shares of Common Stock issuable pursuant to options
awarded to Mr. Fisher under Global's 1996 Equity Incentive Plan, which
options are exercisable within 60 days of the date of this table,
6,069,542 shares of Common Stock held by SOFTBANK Capital Partners LP, and
84,308 shares of Common Stock held by SOFTBANK Capital Advisors Fund LP.
Mr. Fisher is a Managing Director of the general partner of each of these
SOFTBANK entities. Mr. Fisher disclaims beneficial ownership of these
shares, except to the extent of his pecuniary interest. Does not include
15,000 shares of Common Stock issuable pursuant to options awarded to Mr.
Fisher which are not exercisable within 60 days of the date of this table.
(10) Includes 15,000 shares of Common Stock issuable pursuant to options
awarded to Mr. Rayport under Global's 1996 Equity Incentive Plan, which
options are exercisable within 60 days of the date of this table. Does
not include 15,000 shares of Common Stock issuable pursuant to options
awarded to Mr. Rayport which are not exercisable within 60 days of the
date of this table.
(11) Includes 15,000 shares of Common Stock issuable pursuant to options
awarded to Mr. Menell under Global's 1996 Equity Incentive Plan, which
options are exercisable within 60 days of the date of this table. Does
not include 15,000 shares of Common Stock issuable pursuant to options
awarded to Mr. Menell which are not exercisable within 60 days of the
date of this table.
(12) The business address of SOFTBANK is 10 Langley Road, Suite 403, Newtown
Center, MA 02159.
(13) Consists of 6,069,542 shares of Common Stock held by SOFTBANK Capital
Partners LP and 84,308 shares of Common Stock held by SOFTBANK Capital
Advisors Fund LP.
(14) Includes an aggregate of 362,000 shares of Common Stock issuable pursuant
to options awarded to Global's executive officers and directors, which
options are exercisable within 60 days of the date of this table. Does
not include an aggregate of 236,250 shares of Common Stock issuable
pursuant to options awarded to Global's executive officers and directors
which are not exercisable within 60 days of the date of this table.
* Less than one percent.
PROPOSAL 3--APPROVAL OF INDEMNIFICATION AGREEMENTS
Director Liability and Indemnification
The potential liability of directors and officers of public companies has
been the subject of substantial publicity and concern. Court decisions, the
vagaries of public policy and conflicting interpretations of ambiguous
statutes have contributed to the publicity and concern about director and
officer liability. Directors and officers may be subject to potential claims
and lawsuits, even when they act in good faith and in the best interests of
the public companies which they serve. These claims and lawsuits can involve
substantial personal expenses, including legal fees, settlements and even
judgments. The amount of damages often bears no reasonable relationship to the
compensation received by directors and officers, and the costs of defending
these suits, whether or not meritorious, are beyond the resources of many
directors and officers. Although the liability and expense of defending claims
and lawsuits may be covered by insurance, there often are significant coverage
exclusions and large deductibles.
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<PAGE>
Global believes that as a result of these factors, it often is difficult to
attract and retain qualified individuals to serve on corporate boards of
directors. In order to attract and retain qualified directors and officers,
the Company believes that it is in the best interests of Global and its
shareholders that the Company provide to its directors and officers the
maximum protection against the risks and expenses of claims and lawsuits
outlined above.
Global's directors and officers currently are protected by a directors' and
officers' liability insurance policy and certain indemnification rights under
Delaware law and Global's Bylaws. The insurance policy provides for a $75,000
deductible and certain significant exclusions, including, among others,
violations of federal and state securities laws, violations of certain duties
imposed by the Employee Retirement Income Security Act (ERISA), libel and
slander, and claims that a director received a personal profit or advantage to
which he was not legally entitled. Furthermore, the policy limits the
insurer's liability to $5.0 million for all losses incurred during the policy
year. This policy will expire on October 28, 2000, and Global has no assurance
that similar coverage will then be available at a reasonable cost or without
substantial new exclusions.
Claims which exceed the coverage provided under Global's insurance policy or
which are excluded from the policy's coverage would have to be personally paid
by the directors and officers involved. In certain instances, the directors
and officers may be entitled to indemnification from Global under Delaware law
and Global's Bylaws, but Global's existing indemnification obligation will not
necessarily absorb all liabilities and expenses to which directors and
officers may be exposed.
Accordingly, the Board believes that certain measures are appropriate. While
no current director or officer has indicated that he will resign if the
proposal described below is not approved by the shareholders, Global believes
that the adoption of this proposal could be a significant factor in
encouraging existing directors and officers to continue to serve in these
capacities and attracting new directors and officers in the future.
Proposed Indemnification Agreements
The Board of Directors is seeking approval of Indemnification Agreements for
the benefit of members of the Board of Directors and certain officers of
Global, as more fully discussed below. Although the Board believes that
shareholder approval is not required under Delaware law, the Board considers
it appropriate that the Indemnification Agreements be submitted to the
shareholders of Global for their consideration. Because each member of the
Board of Directors will be a party to and, as such, a beneficiary of the
rights contained in the Indemnification Agreements, there is an inherent
conflict of interest in the Board's recommending the Indemnification
Agreements. In addition, because the Indemnification Agreements will result in
greater indemnification protection for directors and officers against the
risks and expenses of litigation, they may result in greater potential
monetary exposure to Global for indemnification claims.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock represented and entitled to vote at the Annual Meeting will be
required to approve the Indemnification Agreements. Although Global intends to
continue to indemnify its directors pursuant to its Bylaws and the Delaware
General Corporation Law to the fullest extent permitted, no determination has
been made as to what other action the Board would take if shareholders do not
approve the proposed Indemnification Agreements. If approved, it is presently
anticipated that Global will enter into Indemnification Agreements with all
current and future directors and with certain current and future officers of
Global, without further submission of these agreements to the shareholders for
approval. If the Indemnification Agreements are approved by the shareholders,
a shareholder may be estopped from asserting at a later date that these
agreements are invalid, whether or not the shareholder voted for or against
this approval or abstained from voting.
Section 145 of the Delaware General Corporation Law contains detailed
provisions governing the indemnification of directors, officers and key
employees, which, among other things, permit the adoption of indemnification
agreements generally to effect the policy of that indemnification. Pursuant to
Section 145 of the
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<PAGE>
Delaware General Corporation Law, Global has adopted Bylaw provisions which
indemnify its directors and officers to the fullest extent permitted by
Delaware law. However, the Board believes that the existing indemnification
protection is inadequate in certain respects, and the Indemnification
Agreements are intended to supplement that protection.
The proposed Indemnification Agreements are intended to provide greater
protection than that currently provided under the Delaware General Corporation
Law and Global's Bylaws. Accordingly, Global's potential monetary exposure to
claims for indemnification will be greater if the Indemnification Agreements
are approved. However, since Michael G. Rubin acquired a controlling interest
in the Company in 1995, there have been no claims for indemnification by
directors against Global, and Global is not aware of any pending or threatened
litigation in which directors may be named as defendants or of any claims by
directors for indemnification which are likely to result from any past,
pending or threatened litigation.
Set forth below is a summary of all the material terms of the
Indemnification Agreements, the proposed form of which is attached as Appendix
C to this Proxy Statement. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY THE DETAILED PROVISIONS OF THE FORM OF
INDEMNIFICATION AGREEMENT WHICH IS INCORPORATED BY REFERENCE HEREIN. PLEASE
READ THE ATTACHED AGREEMENT WHICH IS INCORPORATED BY REFERENCE HEREIN
CAREFULLY BEFORE COMPLETING AND RETURNING YOUR PROXY CARD.
The proposed Indemnification Agreements will (i) confirm the present
indemnity provided by Global's Bylaws and provide that this indemnity will
continue despite future changes in the Company's Bylaws as they will be
contractual obligations of Global, unlike Global's Bylaws which may be amended
by Global's shareholders or its Board, and (ii) provide further
indemnification to the fullest possible extent permitted by law against all
expenses (including attorneys' fees), judgments, fines and settlement amounts
paid or incurred by a director or officer in any action or proceeding,
including any action by or in the right of Global, on account of service as a
director, officer, employee, attorney or agent of Global, or any subsidiary of
Global or any other company or enterprise at the request of Global. The
Indemnification Agreements will cover all such actions and proceedings,
including actions or proceedings resulting from the sale of the Off-Price and
Action Sports Division and the Branded Division, even if they arise from acts
or omissions by a director or officer occurring before the execution of the
agreement. The contractual arrangements will continue in force so long as the
individual continues to serve in such capacity on behalf of Global and will
cover liabilities related to his activities in any such capacity regardless of
future changes to Global's corporate documents. However, the Indemnification
Agreements will not indemnify any director or officer unless such director or
officer acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of Global. In addition, no indemnification
will be provided in respect of any suit in which judgment is rendered against
a director or officer for an accounting of profits from a purchase or sale of
securities of Global in violation of Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or of any successor statute or
for expenses or liabilities which have been paid directly to a director or
officer by an insurance carrier under a policy of directors' and officers'
liability insurance.
The Indemnification Agreements provide for payment of expenses in advance of
a final disposition of the action or suit, regardless of the recipient's
ability to make repayments, and all such advances will be unsecured and
interest-free. Management believes that Global should be obligated to advance
expenses because indemnification after the conclusion of an action is
virtually meaningless if a person cannot pay the expenses as they become due,
especially in view of the fact that the expenses of providing a defense and
the length of legal proceedings may be significant.
The Indemnification Agreements also provide directors and officers who are
parties thereto with protection during the determination process in the event
there is a change of control of Global or its Board and grant such directors
and officers certain rights to appeal a denial of indemnification to a court
of competent jurisdiction. Except as discussed above with respect to
violations of Section 16(b) of the Exchange Act and expenses or liabilities
which are covered by insurance, the Indemnification Agreements provide that
directors or officers who rely on the records of Global or upon information
supplied by the officers of Global, legal counsel, outside accountants or
appraisers are deemed to have acted in a manner which would entitle such
directors or officers to indemnification under the Indemnification Agreements.
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<PAGE>
In addition to the matters described above, the Indemnification Agreements
provide a scheme of indemnification that is broader than that specifically
provided by the Delaware General Corporation Law.
First, the Indemnification Agreements do not require a finding by the Board
of Directors, a committee of the Board of Directors, independent legal counsel
or the shareholders that the indemnified party has met the applicable standard
of conduct required for indemnification. The Delaware General Corporation Law
requires a finding by the Board of Directors, a committee of the Board of
Directors, independent legal counsel or the shareholders that the applicable
standard of conduct has been met.
Second, the Indemnification Agreements explicitly provide that the
indemnification provisions applicable to a third party suit cover amounts paid
in settlement where the indemnified party meets the applicable standard of
conduct. The Delaware General Corporation Law does not provide for such
indemnification.
Third, in the event Global does not pay a requested indemnification amount,
the Indemnification Agreements allow an indemnified party, among other things,
to contest this determination by petitioning a court to make an independent
determination as to whether such indemnified party is entitled to
indemnification under the Indemnification Agreements. In the event of such
contest, the burden of proving that the indemnified party did not meet the
applicable standard of conduct will be on Global. If Global fails to establish
that the applicable standard of conduct has not been met in such case, the
indemnified party will be entitled to indemnification which will include
reimbursement for the expenses incurred by the indemnified party in such
contest. The Delaware General Corporation Law does not set forth the procedure
for contesting a corporation's determination of an indemnified party's right
to indemnification.
Fourth, the Indemnification Agreements explicitly provide for partial
indemnification of costs and expenses in the event an indemnified party is not
entitled to full indemnification under the terms of the Indemnification
Agreement. The Delaware General Corporation Law does not specifically address
this issue. It does, however, provide that to the extent an indemnified party
has been successful on the merits, he shall be entitled to such
indemnification.
Conflict of Interests of Certain Persons
Each of the directors and executive officers of Global will be a party to
and, as such, a beneficiary of the rights contained in the Indemnification
Agreements. Approval of the Indemnification Agreements will result in greater
indemnification protection for such directors and executive officers against
the risks and expenses of litigation and may result in greater potential
monetary exposure to Global for indemnification claims. Because each member of
the Board of Directors will be a party to and, as such, a beneficiary of the
rights contained in the Indemnification Agreements, there is an inherent
conflict of interest in the Board's recommending the Indemnification
Agreements.
Recommendation of Board of Directors
The Board of Directors has concluded that it is in the best interests of the
Company and its shareholders to enter into Indemnification Agreements with its
directors and certain officers to provide the maximum protection permitted by
law. Accordingly, the Board unanimously approved the Indemnification
Agreements at a meeting held on November 16, 1999. There is an inherent
conflict of interest in the Board's recommending the Indemnification
Agreements. See "B Conflict of Interests of Certain Persons."
THE BOARD OF DIRECTORS OF GLOBAL UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE INDEMNIFICATION AGREEMENTS.
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PROPOSAL 4--APPROVAL OF 2000 EMPLOYEE STOCK PURCHASE PLAN
Description of the Proposal
On March 12, 2000, the Board adopted the Company's 2000 Employee Stock
Purchase Plan (the "2000 Purchase Plan"). The Company's shareholders are being
asked to approve the 2000 Purchase Plan. If approved, the 2000 Purchase Plan
will take effect March 12, 2000. The total number of shares authorized for
issuance under the 2000 Purchase Plan is 400,000 shares, plus an annual
increase on the date of the annual meeting of shareholders equal to the lesser
of (i) 50,000 shares, or (ii) such smaller number of shares as determined by
the Board; provided, however, the total aggregate number of shares issuable
under the 2000 Purchase Plan will not exceed 900,000 shares. A copy of the
2000 Employee Stock Purchase Plan is attached as Appendix D to this Proxy
Statement. The 2000 Employee Stock Purchase Plan is incorporated into this
Proxy Statement by reference and should be read carefully.
Description of the 2000 Employee Stock Purchase Plan
Purpose
The purpose of the 2000 Purchase Plan is to provide a means by which
employees of the Company (and any parent or subsidiary of the Company
designated by the Board to participate in the 2000 Purchase Plan) may be given
an opportunity to purchase Common Stock of the Company through payroll
deductions, to assist the Company in retaining the services of its employees,
to secure and retain the services of new employees, and to provide incentives
for such persons to exert maximum efforts for the success of the Company. All
of the Company's approximately 215 employees are eligible to participate in
the 2000 Purchase Plan, other than employees who own (or hold stock options to
purchase) or who, as a result of participation in the 2000 Purchase Plan,
would own (or hold stock options to purchase), stock of the Company possessing
5% or more of the total combined voting power or value of all classes of stock
of the Company.
The rights to purchase Common Stock granted under the 2000 Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan"
as that term is defined in Section 423(b) of the Internal Revenue Code of
1986, as amended (the "Code").
Administration
The Board administers the 2000 Purchase Plan and has the final power to
construe and interpret both the 2000 Purchase Plan and the rights granted
under it. The Board has the power, subject to the provisions of the 2000
Purchase Plan, to determine when and how rights to purchase Common Stock of
the Company will be granted, the provisions of each offering of such rights
(which need not be identical), and whether employees of any parent or
subsidiary of the Company will be eligible to participate in the 2000 Purchase
Plan. The Board also may impose vesting restrictions, restrictions on
transferability or other similar conditions on shares purchased under the
Plan, as it determines to be appropriate.
The Board has the power to delegate administration of the 2000 Purchase Plan
to a committee composed of not fewer than two members of the Board. The Board
has delegated administration of the 2000 Purchase Plan to the Compensation
Committee of the Board. As used herein with respect to the 2000 Purchase Plan,
the "Board" refers to any committee the Board appoints, as well as to the
Board itself.
Offerings
The 2000 Purchase Plan is implemented by periodic offerings of rights to all
eligible employees from time to time, as determined by the Board. The maximum
period of time for an offering is 27 months. The Board, when establishing an
offering, will determine the specific terms for such offering within the
criteria permitted by the 2000 Purchase Plan, including the length of the
offering and the date or dates on which purchases will occur during the
offering.
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<PAGE>
The Board also may provide for additional benefits to be extended to
participants outside the scope of Section 423 of the Code, in addition to or
in conjunction with an offering under the 2000 Purchase Plan, in the form of
vested or unvested shares of Common Stock awarded outside of the 2000 Purchase
Plan, cash or other property. The receipt of any such additional benefits, if
provided, may be conditioned on continued employment, the holding of shares
purchased under the 2000 Plan for a specified period or other events
determined by the Board to be appropriate. Any such additional benefits will
be fully taxable to participants under the Code and shall not be eligible for
the favorable treatment available to rights granted under an employee stock
purchase plan provided by Section 423 of the Code (see "Federal Income Tax
Information" below).
Eligibility
The Board has the discretion, from time to time, and within the parameters
specified in the 2000 Purchase Plan, to establish the eligibility requirements
for employees to participate in any offering under the 2000 Purchase Plan,
including whether employees of any of the Company's subsidiaries are eligible
and the length of time (if any) an employee must have been employed by the
Company or a participating subsidiary in order to become eligible. However,
the period of employment for eligibility may not exceed two years. In
addition, the Board may exclude employees who customarily work 20 or fewer
hours per week or five or fewer months per year.
No employee is eligible to participate in the 2000 Purchase Plan if,
immediately after the grant of purchase rights, the employee would own,
directly or indirectly, stock possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company or of any parent
or subsidiary of the Company (including any stock which such employee may
purchase under all outstanding rights and options). In addition, no employee
may accrue rights to purchase Common Stock under the 2000 Purchase Plan at an
annual rate that would exceed $25,000 worth of shares of Common Stock
(determined at the fair market value of the shares at the time such rights are
granted) under all employee stock purchase plans of the Company and its
affiliates.
Participation in the Plan
Eligible employees will enroll in the 2000 Purchase Plan by delivering to
the Company, prior to the date selected by the Board as the offering date for
the offering, an agreement authorizing payroll deductions from such employees'
compensation during the offering. The Board for each offering shall define
"'compensation" that will be taken into account for such purpose (for example,
as base salary only or as total compensation, including bonuses and
commissions, etc.). The Board also shall designate the maximum amount of such
compensation, not exceeding 20 percent thereof, that a participant may have
withheld and contributed during the offering.
Purchase Price
The purchase price per share at which shares of Common Stock are sold in an
offering under the 2000 Purchase Plan will be established by the Board prior
to the commencement of the offering, but such price shall in no event be less
than the lower of (i) 85 percent of the fair market value of a share of Common
Stock on the date the right to purchase such shares was granted (generally the
first day of the offering) or (ii) 85 percent of the fair market value of a
share of Common Stock on the applicable purchase date. The closing sale price
of the Company's Common Stock on April 27, 2000, the latest practicable date
before the printing of this Proxy Statement, was $7.75 per share.
Payment of Purchase Price; Payroll Deductions
The purchase price of the shares is accumulated by payroll deductions over
the course of an offering. A participant may increase, reduce, or terminate
his or her payroll deductions during an offering to the extent provided by the
Board in the terms of the offering. The Board also may provide the extent to
which eligible employees, including employees who were not yet eligible at the
start of the offering, may commence participating in an offering after the
offering already has begun.
58
<PAGE>
All payroll deductions made for a participant will be credited to his or her
account under the 2000 Purchase Plan and deposited with the general funds of
the Company. A participant may not make additional payments into such account,
unless specifically provided for in the offering terms and only if the maximum
permitted amount has not already been withheld.
Purchase of Stock
On each purchase date under the 2000 Purchase Plan, the balance of payroll
deductions then held by the Company for the account of each participant will
be applied to the purchase of shares of Common Stock for the participant. In
connection with each offering under the 2000 Purchase Plan, the Board may
specify a maximum number of shares of Common Stock an employee may be granted
the right to purchase on each purchase date or during an offering and a
maximum aggregate number of shares of Common Stock that may be purchased by
all participants. If the aggregate number of shares to be purchased upon
exercise of rights granted in the offering would exceed the maximum aggregate
number of shares of Common Stock available, then the Board will make a pro
rata allocation of available shares in a uniform and equitable manner. Unless
the employee's participation is discontinued (see "Withdrawal" below), his or
her right to purchase shares is exercised automatically on each purchase date
at the applicable price.
Withdrawal
A participant may withdraw from a given offering under the 2000 Purchase
Plan by terminating his or her payroll deductions and by delivering to the
Company a notice of such withdrawal. The terms of an offering established by
the Board may limit withdrawals to specified periods prior to a purchase date.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, less any accumulated deductions previously applied to the purchase
of shares of Common Stock on the employee's behalf during such offering, and
such employee's interest in the offering will be automatically terminated. The
employee is not entitled to again participate in that offering. However, an
employee's withdrawal from an offering will not have any effect upon such
employee's eligibility to participate in subsequent offerings under the 2000
Purchase Plan.
Termination of Employment
Rights granted pursuant to any offering under the 2000 Purchase Plan
terminate immediately upon cessation of an employee's employment for any
reason, and the Company will distribute to such employee all of his or her
accumulated payroll deductions, without interest.
Restrictions on Transfer
Rights granted under the 2000 Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
Duration, Amendment and Termination
The Board may suspend or terminate the 2000 Purchase Plan at any time.
The Board may amend the 2000 Purchase Plan at any time. Any amendment of the
2000 Purchase Plan must be approved by the Company's shareholders within 12
months of its adoption by the Board if the amendment would require shareholder
approval in order for the 2000 Purchase Plan to comply with Section 423 of the
Code or Rule 16b-3 under the Exchange Act.
Rights granted before amendment or termination of the 2000 Purchase Plan may
not be impaired by any amendment or termination of the 2000 Purchase Plan
without consent of the employee to whom such rights were granted, except as
may be necessary to comply with any applicable law or Section 423 of the Code.
59
<PAGE>
Effect of Certain Corporate Events
In the event of a dissolution, liquidation or specified type of merger of
the Company, the surviving corporation either will assume the rights under the
2000 Purchase Plan or substitute similar rights, or the purchase date under
any ongoing offering will be accelerated such that the outstanding rights may
be exercised immediately prior to, or concurrent with, any such event.
Stock Subject to 2000 Purchase Plan
Subject to approval of this proposal by the Company's shareholders, an
aggregate of 200,000 shares of Common Stock is reserved for issuance under the
2000 Purchase Plan. If rights granted under the 2000 Purchase Plan expire,
lapse or otherwise terminate without being exercised, the shares of Common
Stock not purchased under such rights again becomes available for issuance
under the 2000 Purchase Plan.
Federal Income Tax Information
Rights granted under the 2000 Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under provisions of Section 423
of the Code.
A participant will be taxed on amounts withheld for the purchase of shares
of Common Stock as if such amounts were actually received. Otherwise, no
income will be taxable to a participant until the sale or disposition of the
acquired shares, and the method of taxation will depend upon the holding
period of the acquired shares.
If the stock is sold or otherwise disposed of more than two years after the
granting of the right to purchase the stock (typically, the beginning of the
offering period) and more than one year after the purchase date on which the
stock is sold to the participant, then the lesser of (i) the excess of the
fair market value of the stock at the time of such disposition over the
purchase price or (ii) the excess of the fair market value of the stock as of
the time the right was granted over the purchase price (determined as of the
time the right was granted) will be treated as ordinary income. Any further
gain or any loss will be taxed as a long-term capital gain or loss. Such
capital gains currently are generally subject to lower tax rates than ordinary
income.
If the stock is sold or otherwise disposed of before the expiration of
either of the holding periods described above, then the excess of the fair
market value of the stock on the purchase date over the purchase price will be
treated as ordinary income at the time of such disposition. The balance of any
gain will be treated as capital gain. Even if the stock is later disposed of
for less than its fair market value on the purchase date, the same amount of
ordinary income is recognized by the participant, and a capital loss is
realized equal to the difference between the sales price and the fair market
value of the stock on such purchase date. Any capital gain or loss will be
short-term or long-term, depending on how long the stock has been held. There
are no federal income tax consequences to the Company by reason of the grant
or exercise of rights under the 2000 Purchase Plan. The Company is entitled to
a deduction to the extent amounts are taxed as ordinary income to a
participant (subject to the requirement of reasonableness and the satisfaction
of tax reporting obligations).
New Plan Benefits
The purchase of Common Stock pursuant to the 2000 Purchase Plan is within
the discretion of the participants therein. The Company cannot forecast the
extent to which shares of Common Stock will be purchased under the 2000
Purchase Plan. Because of the discretionary nature of purchases of Common
Stock
60
<PAGE>
pursuant to the plan, the Company has omitted the tabular disclosure of the
benefits or amounts to be allocated under the plan.
THE BOARD OF DIRECTORS OF GLOBAL UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE 2000 EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL 5 -- APPROVAL OF AMENDMENT TO 1996 EQUITY INCENTIVE PLAN
Description of the Proposal
In March 1996, the Board of Directors adopted and in July 1996 the Company's
shareholders approved the Company's 1996 Equity Incentive Plan (the "Incentive
Plan"). The Incentive Plan originally permitted Awards to be granted for a
total of 100,000 shares of Common Stock. On September 24, 1996, the Board of
Directors approved an amendment to the Incentive Plan that increased the
maximum number of shares issuable under the Incentive Plan to 1,000,000
shares. This amendment was approved by the shareholders at the Company's
annual shareholders meeting on December 4, 1997. On January 5, 1999, the Board
of Directors approved an amendment to the Incentive Plan that increased the
maximum number of shares issuable under the Incentive Plan to 3,000,000
shares. This amendment was approved by the shareholders at the Company's
annual shareholders meeting on July 13, 1999.
Subject to approval by the Company's shareholders, the Board of Directors
amended the Incentive Plan as of April 18, 2000 to increase the authorized
number of shares of Common Stock issuable thereunder by 1,500,000 shares and
to reserve the additional shares for issuance under the Incentive Plan,
bringing the total number of shares of Common Stock issuable under the
Incentive Plan to 4,500,000.
Approval of the amendment to the Incentive Plan will require the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock
present or represented at the Annual Meeting. Proxies for which no specific
direction is included will be voted for the amendment to the Incentive Plan.
Description of the 1996 Equity Incentive Plan
The following summary of the Incentive Plan is qualified in its entirety by
the specific language of the Incentive Plan, a copy of which is available to
any shareholder upon request.
General
The purposes of the Incentive Plan are to attract and retain key employees
and certain other persons who are in a position to make significant
contributions to the success of the Company, to reward these employees and
other persons for their contributions, to provide additional incentive to
these employees and other persons to continue making similar contributions and
to further align the interests of these employees and other persons with those
of the Company's shareholders. To achieve these purposes, the Incentive Plan
permits grants of incentive stock options ("ISO's"), options not intended to
qualify as incentive stock options ("Non-ISO's"), stock appreciation rights
("SAR's"), restricted and unrestricted stock awards, performance awards,
loans, and supplemental cash awards and combinations of the foregoing (all
referred to as "Awards"). Shares issuable under Awards that terminate
unexercised, shares issuable under Awards that are payable in stock or cash
but are paid in cash and shares issued but later forfeited will be available
for future Awards under the Incentive Plan.
Eligibility
All of the Company's approximately 215 current employees, future employees
of the Company and other persons who, in the opinion of the Board of
Directors, are in a position to make significant contributions to the success
of the Company, such as consultants and non-employee directors, are eligible
to receive Awards under the Incentive Plan.
61
<PAGE>
Administration
The Incentive Plan is administered by the Board of Directors, which
determines, among other things and subject to certain conditions, the persons
eligible to receive Awards, the persons who actually receive Awards, the type
of each Award, the number of shares of Common Stock subject to each Award, the
date of grant, exercise schedule, vesting schedule and other terms and
conditions of each Award, whether to accelerate the exercise or vesting
schedule or waive any other terms or conditions of each Award, whether to
amend or cancel an Award and the form of any instrument used under the
Incentive Plan. The Board of Directors has the right to adopt rules for the
administration of the Incentive Plan, settle all controversies regarding the
Incentive Plan or any Award, and construe and correct defects and omissions in
the Incentive Plan or any Award. The Incentive Plan may be amended, suspended
or terminated by the Board of Directors, subject to certain conditions,
provided that shareholder approval will be required whenever necessary for the
Incentive Plan to continue to satisfy the requirements of certain securities
and tax laws, rules and regulations. The Board of Directors may delegate its
authority under the Incentive Plan to a Committee of the Board.
Options
Recipients of stock options under the Incentive Plan will have the right to
purchase shares of Common Stock at an exercise price, during a period of time
and on such other terms and conditions as are determined by the Board of
Directors. For ISO's, the recipient must be an employee, the exercise price
must be at least 100% (110% if issued to a 10% or greater shareholder of the
Company) of the fair market value of the Company's Common Stock on the date of
grant and the term cannot exceed ten years (five years if issued to a 10% or
greater shareholder of the Company) from date of grant. If permitted by the
Board of Directors and subject to certain conditions, an option exercise price
may be paid by delivery of shares of the Company's Common Stock that have been
outstanding, a promissory note, a broker's undertaking to promptly deliver the
necessary funds or by a combination of those methods. If permitted by the
Board of Directors, options (other than those granted in tandem with SAR's)
may be settled by the Company paying to the recipient, in cash or shares of
Common Stock (valued at the then fair market value of the Company's Common
Stock), an amount equal to such fair market value minus the exercise price of
the option shares. No employee will be eligible to receive options covering
more than 250,000 shares of Common Stock during any calendar year.
Stock Appreciation Rights
SARs may be granted under the Incentive Plan either alone or in tandem with
stock options. Generally, recipients of SARs are entitled to receive upon
exercise, cash or shares of Common Stock (valued at the then fair market value
of the Company's Common Stock) equal to such fair market value on the date of
exercise minus such fair market value on the date of grant of the shares
subject to the SAR, although certain other measurements also may be used. A
SAR granted in tandem with a stock option is exercisable only if and to the
extent that the option is exercised.
Stock Awards
The Incentive Plan provides for restricted and unrestricted stock awards.
Stock awards allow the recipient to acquire shares of the Company's Common
Stock for their par value or any higher price determined by the Board of
Directors. In the case of restricted stock awards, the shares acquired are
subject to a vesting schedule and other possible conditions determined by the
Board of Directors.
Performance Awards
The Incentive Plan provides for performance awards entitling the recipient
to receive stock options, stock awards or other types of Awards conditional
upon achieving performance goals determined by the Board of Directors.
Performance goals may involve overall corporate performance, operating group
or business unit performance, personal performance or any other category of
performance determined by the Board of Directors. Financial performance may be
measured by revenue, operating income, net income, earnings per share, Common
Stock price, price-earnings multiple or other financial factors determined by
the Board of Directors.
62
<PAGE>
Loans and Cash Awards
Under the Incentive Plan, loans or supplemental cash awards may be granted
to recipients of Awards to help defray taxes due as a result of the Awards.
The terms and conditions of loans and supplemental cash awards, including the
interest rate, which may be zero, and whether any loan will be forgiven, are
determined by the Board of Directors.
Termination of Awards
Except as otherwise determined by the Company, upon termination of a
recipient's employment or other relationship with the Company, (i) stock
options and SARs remain exercisable for a period of three months (one year if
termination is due to death or disability) to the extent that they were
exercisable at the time of termination and (ii) unvested shares under
outstanding restricted stock awards vest immediately, except in the case of a
voluntary resignation or termination for cause (as defined in the Incentive
Plan). Stock options, SAR's and other Awards that are not exercisable at the
time of termination automatically terminate, and payments or benefits under
deferred stock awards, performance awards and supplemental cash awards that
are not irrevocably due at the time of termination are forfeited.
Summary of Federal Income Tax Consequences
This discussion, which is based upon federal income tax law as in effect on
the date of this Proxy Statement generally summarizes certain federal income
tax consequences associated with the Incentive Plan. The tax consequences to
executive officers may be different from those summarized below. No taxable
income is realized upon the grant of a stock option, nor upon the exercise of
an ISO except to the extent that the exercise may result in alternative
minimum tax liability. Upon the exercise of a non-qualified option, the
recipient realizes ordinary income equal to the fair market value on the date
of exercise minus the exercise price of the option shares. If restricted
shares of the Company's Common Stock are used to settle a stock option,
however, then the realization of income may be deferred. Upon a disposition of
shares acquired by exercise of a stock option, the gain or loss generally
constitutes a capital gain or loss. In the case of a disposition of ISO shares
within one year after the date of exercise or within two years after the date
of grant, the difference between the fair market value on the date of exercise
and the exercise price constitutes ordinary income, and any additional gain or
loss above or below the fair market value on the date of exercise constitutes
a capital gain or loss.
Upon the grant of an unrestricted stock award, the recipient realizes
ordinary income equal to the fair market value on the date of grant minus the
price paid for the shares awarded. A recipient of a restricted stock award
realizes ordinary income only as of and when the shares vest. The ordinary
income realized on each vesting or transfer date equals the fair market value
on that date less the price paid for the shares. A recipient of a restricted
stock award may, however, choose or be required by the terms of the award to
elect under Section 83(b) of the Code to have the ordinary income associated
with all of the restricted shares realized and measured on the date of grant.
A recipient who makes such an election and later forfeits restricted shares
may not claim a loss for tax purposes. The tax consequences of a performance
award depend upon the nature of the underlying Award earned if and when the
performance goals are achieved. Generally, loans made under the Incentive Plan
do not result in taxable income to the recipient. If the interest rate is
lower than certain rates specified under the Code, however, then ordinary
income may be imputed to the recipient. Forgiveness of all or part of a loan
also results in ordinary income to the recipient. The recipient of a
supplemental cash award realizes ordinary income equal to the amount received.
Generally, whenever a recipient realizes ordinary income, a corresponding
deduction is available to the Company. Under Section 162(m) of the Code,
however, the Company will be denied a deduction for certain compensation
exceeding $1,000,000 paid to its chief executive officer and four other
highest paid executive officers, excluding (among other things) certain
performance-based compensation (see Report of the Compensation Committee).
63
<PAGE>
New Plan Benefits
The following table sets forth the number of shares issuable upon the
exercise of options and stock awards granted under the Incentive Plan during
fiscal 1999.
<TABLE>
<CAPTION>
Number
of
Name and Position Units
----------------- -------
<S> <C>
Michael G. Rubin................................. --
Michael Golden................................... 105,000
Michael R. Conn.................................. 81,500
Steven A. Wolf................................... --
Executive Group.................................. 431,500
Non-Executive Director Group..................... 110,000
Non-Executive Officer Employee Group............. 574,900
</TABLE>
THE BOARD OF DIRECTORS OF GLOBAL UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1996 EQUITY
INCENTIVE PLAN.
EXECUTIVE COMPENSATION
Compensation Committee Report
The Company's Compensation Committee of the Board of Directors is comprised
of Messrs. Adelberg, Lax and Rayport. For fiscal 1999, the Board of Directors
reviewed the compensation of executive officers, made decisions regarding
executive compensation and administered the Company's employee equity
incentive plans.
The Company's compensation policies for executive officers are to (i)
provide compensation packages to attract, motivate and retain executives, (ii)
link a significant portion of compensation to financial results to reward
successful performance, and (iii) provide long-term equity based compensation
to further align the interests of executives with those of the shareholders
and further reward success and performance. The principal components of the
Company's executive compensation are base salary, incentive compensation and
periodic grants of stock options or awards. The award of bonuses and stock
options serve as incentives for superior performance and are based upon both
the performance of the executives and the Company.
In determining compensation levels, the Company considers compensation
packages offered by similar sized companies within the e-commerce industry.
Compensation levels for individual executive officers may be more or less than
those offered by such other companies, depending on a subjective assessment of
individual factors, such as the executive's position, skills, achievements,
tenure with the Company and historical compensation levels.
The Company has employment agreements with the following Named Officers:
Michael G. Rubin, the Company's Chief Executive Officer, Michael Conn and
Steven A. Wolf. The Company had an employment agreement with Mr. Golden which
was terminated in connection with the termination of Mr. Golden's employment
with the Company. Compensation of the Named Officers for fiscal 1999 was
determined in accordance with these employment agreements as described herein.
Mr. Rubin's compensation in fiscal 1999 consisted solely of the base salary
provided for in his employment agreement. Mr. Rubin's compensation was not
based on the Company's performance.
Under the stock option plans established by the Company, stock options are
periodically granted to employees at the discretion of the Board of Directors
or Compensation Committee. It is contemplated that executives of the Company
will be eligible to receive stock option grants, subject to individual
performance and the performance of the Company as a whole.
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<PAGE>
During 1999, the Company's Named Officers were granted a total of 185,000
options to purchase Common Stock at exercise prices ranging from $11.25 to
$15.00 per share.
Section 162(m) of the Code generally denies a deduction to any publicly held
company, such as the Company, for certain compensation exceeding $1,000,000
paid in any taxable year to the chief executive officer and the four other
highest paid executive officers, excluding, among other things, certain
performance-based compensation. The Board of Directors has not yet recommended
any change to the Company's executive compensation policies and plans as a
result of Section 162(m), but the Compensation Committee will continue to
evaluate the impact of recently finalized tax regulations to ensure that the
Company's executive compensation plans most effectively serve the interests of
the Company and its shareholders.
Kenneth J. Adelberg
Charles R. Lax
Jeffrey Rayport
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<PAGE>
Compensation Committee Interlocks and Insider Participation
None of the members of the Board's Compensation Committee is or has been an
officer or employee of the Company. Mr. Lax is a Managing Director of the
general partner of SOFTBANK Capital Partners LP and SOFTBANK Capital Advisors
Fund LP, the SOFTBANK affiliates through which SOFTBANK acquired an aggregate
of 6,153,850 shares of the Company's Common Stock. These shares were acquired
by SOFTBANK on July 23, 1999 at a price of $13.00 per share (the closing price
on May 26, 1999, the day prior to the day the Company and SOFTBANK agreed in
principle to the transaction) for an aggregate purchase price of approximately
$80.0 million.
Summary Compensation Table
The following table sets forth information regarding compensation paid by
the Company and its subsidiaries to each Named Officer.
<TABLE>
<CAPTION>
Annual Compensation(1) Long Term Compensation
------------------------------------------ ---------------------------------------
Awards
-----------------------
Securities
Restricted Underlying
Name and Fiscal Other Annual Stock Options / All Other
Principal Position Year Salary Bonus Compensation(1) Award(s) SARS (#) Compensation
- ------------------------ ------ -------- -------- -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael G. Rubin ....... 1999 $450,000(2) -- -- -- -- --
Chairman of the Board
and 1998 398,269 -- -- -- -- --
Chief Executive Officer 1997 297,115 -- -- -- -- --
Michael Golden(3)....... 1999 124,038 $120,000 -- -- 105,000(4) $2,034(5)
Executive Vice
President, 1998 -- -- -- -- -- --
E-Commerce 1997 -- -- -- -- -- --
Michael R. Conn(6)...... 1999 133,269 45,000 -- $18,563(7) 80,000(8) 2,260(5)
Senior Vice President, 1998 -- -- -- -- -- --
Strategic Development 1997 -- -- -- -- -- --
Steven A. Wolf ......... 1999 138,020 20,625 -- -- -- 9,492(9)
Vice President 1998 124,481 37,500 -- -- -- 7,422(5)
1997 112,178 20,000 -- -- 50,000(10) 7,422(5)
</TABLE>
- --------
(1) Excludes perquisites and other personal benefits that do not, in the
aggregate, exceed $50,000 or 10% of each officer's total salary and bonus.
(2) Includes amounts paid by the KPR Companies until December 15, 1997, the
date of the Company's reorganization, and paid by the Company thereafter.
(3) Mr. Golden's employment with Global commenced in March 1999 and terminated
in February 2000.
(4) Represents options to purchase 32,000, 43,000 and 30,000 shares of Common
Stock granted to Mr. Golden in fiscal 1999 at exercise prices of $11.25,
$11.25 and $15.00 per share, respectively. As of the date of termination
of Mr. Golden's employment with Global, such options were vested with
respect to the following amounts: 19,200 shares, 25,800 shares and 22,500
shares, respectively.
(5) Represents the value of insurance premiums paid by Global with respect to
term life insurance.
(6) Mr. Conn's employment with Global commenced on February 24, 1999.
(7) Amount consists of market value of award on date of grant. As of the end
of fiscal 1999, Mr. Conn held 1,500 restricted shares with a value of
$18,844. On February 24, 1999, restricted stock was awarded in the amount
of 1,500 shares to Mr. Conn which vests on February 24, 2001.
(8) Represents (i) an option to purchase 50,000 shares of Common Stock granted
to Mr. Conn in fiscal 1999 at an exercise price of $12.375 per share,
vesting at a rate of 20% per year over a five year period with the first
portion vesting on February 5, 2000, and (ii) an option to purchase 30,000
shares of Common Stock granted to Mr. Conn in fiscal 1999 at exercise
price of $15.00 per share, vesting at the following rate: 15,000 shares on
August 9, 1999 and 3,750 shares on each of the first four anniversaries of
August 9, 1999.
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<PAGE>
(9) Consists of (i) Global's matching contribution under its 401(k) Profit
Sharing Plan in the amount of $2,070, and (ii) insurance premiums paid by
Global with respect to term life insurance in the amount of $7,422.
(10) Represents an option to purchase 32,500 shares of Common Stock granted to
Mr. Wolf in fiscal 1997 at an exercise price of $3.20 per share and
options to purchase 7,500 shares and 10,000 shares of Common Stock
granted to Mr. Wolf in prior periods which were repriced from $4.00 and
$9.375, respectively, to $3.20 in fiscal 1997. Such options vest at a
rate of 20%, 20% and 33 1/3%, respectively, over five, five and three
year periods.
Option/SAR Grants in Last Fiscal Year
The following table sets forth information regarding options to purchase
shares of Common Stock granted to the Named Officers during fiscal 1999. No
SAR's were granted during fiscal 1999.
<TABLE>
<CAPTION>
Potential Realized
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
- ---------------------------------------------------------------------- -------------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ------------------------ ------------ ------------ -------- ---------- -------- ---------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael G. Rubin........ -- -- -- -- -- --
Chairman of the Board
and Chief
Executive Officer of
Global
Michael Golden.......... 75,000(1) 9.1% $ 11.25 3/18/09 $530,630 $1,344,720
Executive Vice
President, 30,000(2) 3.7% $ 15.00 8/9/09 $283,003 $ 717,184
E-Commerce
Michael R. Conn......... 50,000(3) 6.1% $12.375 2/24/09 $389,129 $ 986,128
Senior Vice President, 30,000(4) 3.7% $ 15.00 8/9/09 $283,003 $ 717,184
Strategic Development
Steven A. Wolf ......... -- -- -- -- -- --
Vice President
</TABLE>
- --------
(1) Represents options which originally vested in the aggregate as follows:
15,000 shares on December 31, 1999 and 15,000 shares on each of the first
four anniversaries of December 31, 1999. Upon termination of Mr. Golden's
employment with Global, such options were vested with respect to 45,000
shares.
(2) Such option originally vested as follows: 15,000 shares on August 9, 1999
and 3,750 shares on each of the first four anniversaries of August 9,
1999. Upon termination of Mr. Golden's employment with Global, such option
was vested with respect to 22,500 shares.
(3) Such option vests as follows: 10,000 shares on February 5, 2000 and 10,000
shares on each of the first four anniversaries of February 5, 2000.
(4) Such option vests as follows: 15,000 shares on August 9, 1999 and 3,750
shares on each of the first four anniversaries of August 9, 1999.
67
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End
Option/SAR Values
The following table sets forth information regarding options to purchase
shares of Common Stock exercised by the Named Officers during fiscal 1999
under the Company's stock option plans and the values of options held by such
individuals at fiscal year end.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options/SARs at
Options/ SARs at Fiscal Year End
Shares Acquired on Value Fiscal Year End Exercisable/
Name Exercise(#) Realized($) Exercisable/Unexercisable Unexercisable (1)
---- ------------------ ---------- ------------------------- --------------------
<S> <C> <C> <C> <C>
Michael G. Rubin........ -- -- -- --
Chairman of the Board
and
Chief Executive Officer
of Global
Michael Golden.......... -- -- 30,000 / 75,000 $19,695 / $78,780(2)
Executive Vice
President,
E-Commerce
Michael R. Conn......... -- -- 15,000 / 65,000 -- / $9,400(3)
Senior Vice President,
Strategic Development
Steven A. Wolf ......... 11,000 $176,204 22,750 / 16,250 $213,008 / $152,149(4)
Vice President
</TABLE>
- --------
(1) Represents the aggregate market value (market price of the Common Stock
less the exercise price) of the options granted based upon the closing
sales price per share of $12.563 at the end of fiscal 1999.
(2) The exercise prices of options to purchase 75,000 and 30,000 shares held
by Mr. Golden are $11.25 per share and $15.00 per share, respectively.
Such options originally vested as follows: 15,000 shares on December 31,
1999 and 15,000 shares on each of the first four anniversaries of December
31, 1999; and 15,000 shares on August 9, 1999 and 3,750 shares on each of
the first four anniversaries of August 9, 1999. Upon termination of Mr.
Golden's employment with Global, such options were vested with respect to
67,500 shares.
(3) The exercise prices of options to purchase 50,000 and 30,000 shares held
by Mr. Conn are $12.375 per share and $15.00 per share, respectively. Such
options vest as follows: 20% per year over a five year period with the
first portion vesting on February 5, 2000; and 15,000 shares on August 9,
1999 and 3,750 shares on each of the first four anniversaries of August 9,
1999.
(4) The exercise price of options to purchase 32,500 shares, 7,500 shares and
10,000 shares held by Mr. Wolf are $3.20 per share. Such options vest at
rates of 20%, 20% and 33 1/3%, respectively, of the initial awards per
year over five, five and three year periods commencing on December 15,
1998.
Employment Agreements
Michael G. Rubin. On September 25, 1996, the Company entered into an
agreement with Mr. Rubin for an initial term of five years commencing on
December 15, 1997, subject to automatic annual extensions, to serve as the
Company's Chairman and Chief Executive Officer. Pursuant to the terms of the
employment agreement, Mr. Rubin is entitled to receive (i) an annual base
salary of $450,000 during the fiscal 1999, increasing by $50,800 effective
January 1, 2000 and $49,280 effective January 1, 2001, (ii) an annual bonus
based upon the achievements of Mr. Rubin and the results of operations of the
Company, (iii) other benefits similar to those provided to Global's other
officers. The agreement was entered into in anticipation of the Company
completing a reorganization on or about January 1, 1997, which reorganization
did not occur until December 15, 1997. The terms of the agreement specified
that in the event that the reorganization did not occur prior to June 30,
1997, the agreement would become null and void. On the date of the
reorganization, the employment agreement was amended such that the terms of
the original agreement were adopted.
68
<PAGE>
Mr. Rubin's employment agreement may be terminated by Global with cause,
which is defined to include, among other things, the willful failure or
refusal by Mr. Rubin to comply with explicit directions of the Board of
Directors or Executive Committee or to render the services required by the
employment agreement, willful breach or habitual neglect in the performance of
his duties, conviction of a felony or fraud or embezzlement involving assets
of Global. In the event of termination by Global for any other reason, Mr.
Rubin will be entitled to receive any unpaid salary and benefits through the
date of termination. Under the employment agreement, for a period of one year
following his termination, Mr. Rubin is prohibited from engaging in the
planning, research, development, production, manufacturing, marketing, sales
or distribution of athletic footwear, rugged outdoor footwear, sportswear,
licensed products, related products, equipment or services or any other line
of business engaged in or under demonstrable development by the Company. In
addition, Mr. Rubin is prohibited from enticing, inducing or encouraging other
employees of the Company to engage in any other activity which done by them
would violate any provision of the contract.
Steven A. Wolf. On August 1, 1995, the Company entered into an employment
agreement with Steven A. Wolf, Vice President of Global, for an initial term
of three years, subject to automatic annual extensions after the initial term.
Mr. Wolf's compensation is comprised of the following: (i) an annual base
salary of $137,500 during fiscal 1999 increasing by $12,500 effective January
1, 2000 and $5,000 effective January 1, 2001 and January 1, 2002, (ii) stock
option grants, (iii) incentive compensation up to 30% of Mr. Wolf's base
salary based upon the achievements of Mr. Wolf and the results of operations
of the Company, and (iv) other benefits similar to those provided to Global's
other officers.
Michael R. Conn. On February 24, 1999, the Company entered into an
employment agreement with Michael R. Conn, Senior Vice President, Strategic
Development of Global, for an initial term of five years, subject to automatic
annual extensions after the initial term. Mr. Conn's compensation is comprised
of the following: (i) an annual base salary of $150,000 during fiscal 1999
increasing by $12,500 effective January 1, 2000 and January 1, 2001, (ii)
stock option grants, (iii) a restricted stock award, (iv) incentive
compensation up to 30% of Mr. Conn's base salary based upon the achievements
of Mr. Conn and the results of operations of the Company, and (v) other
benefits similar to those provided to Global's other officers.
Each of Mr. Wolf's and Mr. Conn's employment agreements may be terminated by
Global with cause, which is defined the same as in Mr. Rubin's agreement. In
the event of termination by Global for any other reason, they would also be
entitled to receive any unpaid salary and benefits through their respective
dates of termination. Mr. Wolf's employment agreement contains a three year
restrictive covenant similar to the one in Mr. Rubin's agreement while Mr.
Conn's employment agreement contains a one year restrictive covenant similar
to the one in Mr. Rubin's agreement.
69
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph shows a comparison of the cumulative total return for
the Company's Common Stock, the ISDEX Internet Stock Index, the NASDAQ Stock
Market and the Peer Group Index (/1/), assuming an investment of $100 in each
on December 30, 1994, and the reinvestment of all dividends. The data points
used for the performance graph are listed below.
[PERFORMANCE CHART OF TOTAL RETURN TO STOCKHOLDERS]
<TABLE>
<CAPTION>
Performance Graph Data
Points 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
---------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Global.................. $100.00 $ 38.89 $ 44.44 $ 24.44 $ 70.00 $111.67
ISDEX Internet Stock
Index.................. $100.00 $100.00 $199.50 $199.87 $437.00 $960.35
NASDAQ.................. $100.00 $140.98 $173.45 $211.86 $297.02 $552.81
Peer Group Index........ $100.00 $129.71 $161.19 $197.16 $278.08 $510.20
</TABLE>
Note: Stock price performance shown in the Stock Performance Graph for
Global's Common Stock is historical and not necessarily indicative of future
price performance.
- --------
(1) The Company has elected to discontinue presenting the Peer Group Index
after this year due to the change in the nature of the Company's business.
A comparison of the cumulative total return for the Company's Common Stock
to that of the companies in the Peer Group Index (which consists of K-
Swiss Inc., Rocky Shoes & Boots, Inc., Saucony, Inc., The Timberland
Company and Wolverine World Wide, Inc.) is no longer meaningful.
70
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Global does not have any formal policy concerning the direct or indirect
pecuniary interest of any of its officers, directors, security holders or
affiliates in any investment to be acquired or disposed of by the Company or
in any transaction to which the Company is a party or has an interest. Global
will not enter into any such transactions unless approved by a majority of the
entire Board of Directors, not including any interested director.
Prior to moving to its current location, Global's main executive offices and
warehouse were located in a 75,000 square foot facility leased from Mr. Rubin,
Global's Chief Executive Officer. Pursuant to its terms, the lease expires on
September 30, 2009; however, Mr. Rubin is in the process of selling the
facility, at which time the lease would be terminated. Global pays
approximately $29,000 per month, plus maintenance and utilities, for the
facility. Payments by Global to Mr. Rubin under the lease totalled $349,008 in
fiscal 1999.
In July, 1999, Global repaid the entire balance of a note in connection with
a loan by Mr. Rubin to the Company. The outstanding principal balance of the
note at the time of repayment was $1,805,841 and accrued interest (at prime
rate plus 3%) for fiscal 1999 was $82,661.
On July 23, 1999, SOFTBANK acquired an aggregate of 6,153,850 shares of
Global's Common Stock at a price of $13.00 per share (the closing price on May
26, 1999, the day prior to the day Global and SOFTBANK agreed in principle to
the transaction) for an aggregate purchase price of approximately $80.0
million. On May 1, 2000, SOFTBANK acquired an additional 2,500,000 shares of
Common Stock at a price of $8.00 per share for an aggregate purchase price of
$20.0 million. Messrs. Lax and Fisher are Managing Directors of the general
partner of SOFTBANK Capital Partners LP and SOFTBANK Capital Advisors Fund LP,
the SOFTBANK affiliates through which SOFTBANK acquired such shares. On May 1,
2000, TMCT acquired 625,000 shares of Common Stock at a price of $8.00 per
share for an aggregate purchase price of $5.0 million. Mr. Menell is a Partner
of TMCT.
On January 5, 1999, Harvey Lamm was granted a non-incentive stock option to
purchase 50,000 shares of Global's Common Stock at an exercise price of $7.625
per share, the closing price on the date of grant. The option was granted to
Mr. Lamm in connection with his services to Global above and beyond his duties
as a member of the Board of Directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
directors, executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company. Officers, directors and
greater than 10% shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during fiscal 1999, all Section 16(a) filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with, except that Messrs. Conn, Rayport,
Adelberg and Lax and SOFTBANK failed to file their Form 3's on a timely basis
and Messrs Conn, Adelberg, Lamm and Lax failed to file Form 4's on a timely
basis. In the third quarter of fiscal 1999, the Company hired a general
counsel who has implemented internal procedures to assist the Company's
directors, executive officers and 10% shareholders in the timely compliance
with Section 16(a).
OTHER MATTERS
As of the date of this Proxy Statement, Global knows of no other business
that will be presented for consideration at the Annual Meeting (other than
procedural matters). However, the enclosed proxy confers discretionary
authority to vote with respect to any and all of the following matters that
may come before the Annual Meeting: (i) matters that Global's Board of
Directors does not know, a reasonable time before proxy
71
<PAGE>
solicitation, are to be presented for approval at the Annual Meeting; (ii)
approval of the minutes of a prior meeting of shareholders, if such approval
does not constitute ratification of the action at the meeting; (iii) the
election of any person to any office for which a bona fide nominee is unable
to serve or for good cause will not serve; (iv) any proposal omitted from this
Proxy Statement and the form of proxy pursuant to Rules 14a-8 or 14a-9 under
the Exchange Act; and (v) matters incident to the conduct of the Annual
Meeting. If any such matters come before the Annual Meeting, the proxy agents
named in the accompanying proxy card will vote in accordance with their
judgment.
INDEPENDENT PUBLIC ACCOUNTANTS
The appointment of an independent public accountant is approved annually by
the Board of Directors based upon the recommendation of the Audit Committee.
The accounting firm of Deloitte & Touche LLP acted as Global's independent
public accountants for fiscal 1999. No independent public accountant has been
selected for fiscal 2000 as the Audit Committee has not yet made its
recommendation. A representative of Deloitte & Touche LLP is expected to be
present at the Annual Meeting and to have the opportunity to make a statement,
if he or she desires to do so, and is expected to be available to respond to
appropriate questions.
ADDITIONAL INFORMATION
Global is subject to the reporting requirements of the Exchange Act, and in
accordance therewith files periodic reports and other information with the
SEC. Such reports, proxy statements and other information concerning Global
may be inspected and copies may be obtained (at prescribed rates) at Public
Reference Room maintained by the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the SEC located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Northwest Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. In addition, electronically
filed documents, including reports, proxy and information statements and other
information regarding Global, can be obtained from the SEC's website at
http://www.sec.gov.
SHAREHOLDER PROPOSALS
A shareholder proposal for Global's 2001 Annual Meeting must be submitted to
Global at its office located at 1075 First Avenue, King of Prussia,
Pennsylvania, 19406, by December 13, 2000 to receive consideration for
inclusion in Global's 2001 proxy materials. Any such proposal must also comply
with the proxy rules under the Exchange Act, including Rule 14a-8.
ANNUAL REPORT
This Proxy Statement is accompanied by the Company's Annual Report to
Shareholders for fiscal 1999 (the "Annual Report").
72
<PAGE>
THE COMPANY SHALL FURNISH WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROXY
STATEMENT IS DELIVERED, A COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED BY
REFERENCE, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE TO THE INFORMATION THAT IS
INCORPORATED), UPON THE WRITTEN REQUEST OF SUCH PERSON. REQUESTS SHOULD BE
SENT TO:
Paul D. Cataldo
Assistant Secretary
1075 First Avenue
King of Prussia, PA 19406
(610) 491-7006
By Order of the Board of Directors,
Arthur H. Miller
Secretary
73
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Independent Auditors' Report--Deloitte & Touche LLP................. F-1
Consolidated Balance Sheets as of December 31, 1998 and January 1,
2000............................................................... F-2
Consolidated Statements of Operations for the Fiscal Years Ended
December 31, 1997, December 31, 1998 and January 1, 2000........... F-3
Consolidated Statements of Stockholders' Equity (Deficiency) for the
Fiscal Years Ended December 31, 1997, December 31, 1998 and January
1, 2000............................................................ F-4
Consolidated Statements of Cash Flows for the Fiscal Years Ended
December 31, 1997, December 31, 1998 and January 1, 2000........... F-5
Notes to Consolidated Financial Statements.......................... F-6--F-27
</TABLE>
74
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Global Sports, Inc.
We have audited the accompanying consolidated balance sheets of Global
Sports, Inc. and Subsidiaries (the "Company") as of December 31, 1998 and
January 1, 2000 and the related consolidated statements of operations,
stockholders' equity (deficiency), and cash flows for each of the three years
in the period ended January 1, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998 and
January 1, 2000 and the results of their operations and their cash flows for
each of the three years in the period ended January 1, 2000 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
_____________________________________
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 22, 2000
F-1
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, January 1,
1998 2000
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 83,169 $ 27,345,263
Accounts receivable, net.......................... -- 2,738,201
Inventory......................................... -- 10,697,438
Prepaid expenses and other current assets......... 599,224 1,444,634
Refundable income taxes........................... -- 1,337,584
Net assets of discontinued operations............. 41,127,839 18,380,806
----------- ------------
Total current assets............................ 41,810,232 61,943,926
Property and equipment, net of accumulated deprecia-
tion and amortization.............................. 2,988,714 20,681,724
Other assets, net................................... 253,626 109,887
----------- ------------
Total assets.................................... $45,052,572 $ 82,735,537
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 3,595,996 $ 15,761,340
Accrued advertising, promotion and other ex-
penses........................................... 56,028 5,483,300
Income taxes payable.............................. 1,378,820 --
Current portion--capital lease obligation, related
party............................................ 127,966 141,016
Subordinated notes payable, related party......... 1,805,841 --
----------- ------------
Total current liabilities....................... 6,964,651 21,385,656
Notes payable, bank................................. 18,812,156 --
Capital lease obligation, related party............. 2,181,265 2,040,249
Mandatorily redeemable preferred stock.............. 100 80
Commitments and contingencies.......................
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized in 1998 and 1999; 10,000 and 8,000
shares issued as mandatorily redeemable preferred
stock in 1998 and 1999, respectively............. -- --
Common stock, $0.01 par value, 20,000,000 and
60,000,000 shares authorized in 1998 and 1999;
12,994,464 and 19,544,249 shares issued in 1998
and 1999, respectively; 11,925,378 and 18,475,163
shares outstanding in 1998 and 1999,
respectively..................................... 129,947 195,442
Additional paid in capital........................ 17,111,166 102,460,622
Accumulated other comprehensive loss.............. (47,431) --
Retained earnings (accumulated deficit)........... 114,535 (43,132,695)
----------- ------------
17,308,217 59,523,369
Less: Treasury stock, at cost..................... 213,817 213,817
----------- ------------
Total stockholders' equity...................... 17,094,400 59,309,552
----------- ------------
Total liabilities and stockholders' equity...... $45,052,572 $ 82,735,537
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
Fiscal Year Ended
1997 1998 January 1, 2000
----------- ----------- -----------------
<S> <C> <C> <C>
Net revenues....................... $ -- $ -- $ 5,510,576
Cost of revenues................... -- -- 3,816,767
----------- ----------- ------------
Gross profit..................... -- -- 1,693,809
Operating expenses:
Sales and marketing.............. -- -- 11,608,556
Product development.............. -- -- 7,264,425
General and administrative....... 2,389,223 3,452,914 9,310,744
Stock-based compensation,
primarily related to sales and
marketing....................... -- -- 2,654,834
----------- ----------- ------------
Total operating expenses....... 2,389,223 3,452,914 30,838,559
----------- ----------- ------------
Other (income) expenses:
Interest expense................. 2,013,028 2,366,935 312,655
Interest income.................. -- -- (774,139)
Other, net....................... -- -- (1,999)
----------- ----------- ------------
Total other (income) expenses.. 2,013,028 2,366,935 (463,483)
----------- ----------- ------------
Loss from continuing operations
before income taxes............... (4,402,251) (5,819,849) (28,681,267)
Benefit from income taxes.......... -- 1,978,749 2,220,878
----------- ----------- ------------
Loss from continuing operations.... (4,402,251) (3,841,100) (26,460,389)
Discontinued operations:
Income from discontinued
operations (net of income tax
provisions (benefits) of $--,
$3,879,567, and $(582,804) in
1997, 1998 and 1999,
respectively)................... 246,956 9,664,956 549,838
Loss on disposition of
discontinued operations (net of
income tax provision of
$2,159,916)..................... -- -- (17,336,679)
----------- ----------- ------------
Net income (loss).................. $(4,155,295) $ 5,823,856 $(43,247,230)
=========== =========== ============
Earnings (losses) per share:
Basic and diluted--
Loss from continuing opera-
tions......................... $ (1.47) $ (.34) $ (1.78)
Income from discontinued opera-
tions......................... .08 .85 .04
Loss on disposition of discon-
tinued operations............. -- -- (1.17)
----------- ----------- ------------
Net income (loss).............. $ (1.39) $ .51 $ (2.91)
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------- --------------------
Retained Accumulated
Additional Earnings Other
Paid in (Accumulated Comprehensive Comprehensive
Shares Dollars Capital Deficit) Income (Loss) Income (Loss) Shares Dollars Total
---------- -------- ------------ ------------ ------------- ------------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Combined balance
at December 31,
1996........... 2,000 $ 2,000 $ 1,066,758 $ (1,554,026) $(41,865) 100 $ 25,000 $ (502,133)
Net loss........ (4,155,295) $ (4,155,295) (4,155,295)
Translation
adjustments.... 6,345 6,345 6,345
------------
Comprehensive
loss........... $ (4,148,950)
============
Warrant
compensation
related to
former
officer........ 152,333 152,333
Equity in stock
issuances of
RYKA Inc....... 356,534 356,534
Adjustments
arising from
reorganization,
1,608.06-for-1
stock split and
change from no
par value to
$.01 per
share.......... 3,316,111 31,184 (6,184) (100) (25,000) --
Common stock
issued in
acquisition of
RYKA Inc. and
acquisition of
treasury
stock.......... 8,169,086 81,691 6,431,691 1,069,086 (213,817) 6,299,565
---------- -------- ------------ ------------ -------- --------- --------- ------------
Consolidated
balance at
December 31,
1997........... 11,487,197 114,875 8,001,132 (5,709,321) (35,520) 1,069,086 (213,817) 2,157,349
Net income...... 5,823,856 $ 5,823,856 5,823,856
Translation
adjustments.... (11,911) (11,911) (11,911)
------------
Comprehensive
income......... $ 5,811,945
============
Acquisition of
the Gen-X
Companies...... 1,500,000 15,000 8,936,850 8,951,850
Issuance of
warrants to
purchase common
stock in
exchange for
services....... 150,000 150,000
Issuance of
common stock
upon exercise
of options..... 7,267 72 23,184 23,256
---------- -------- ------------ ------------ -------- --------- --------- ------------
Consolidated
balance at
December 31,
1998........... 12,994,464 129,947 17,111,166 114,535 (47,431) 1,069,086 (213,817) 17,094,400
Net loss........ (43,247,230) $(43,247,230) (43,247,230)
Translation
adjustments.... 47,431 47,431 47,431
------------
Comprehensive
loss........... $(43,199,799)
============
Issuance of
common stock to
SOFTBANK, net
of costs....... 6,153,850 61,538 79,755,065 79,816,603
Issuance of
options and
warrants to
purchase common
stock in
exchange for
services....... 3,770,778 3,770,778
Issuance of
common stock
upon exercise
of options and
warrants....... 395,935 3,957 1,823,613 1,827,570
---------- -------- ------------ ------------ -------- --------- --------- ------------
Consolidated
balance at
January 1,
2000........... 19,544,249 $195,442 $102,460,622 $(43,132,695) $ -- 1,069,086 $(213,817) $ 59,309,552
========== ======== ============ ============ ======== ========= ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
Fiscal Year
Ended
January 1,
1997 1998 2000
----------- ----------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss).................... $(4,155,295) $ 5,823,856 $(43,247,230)
Deduct:
Income from discontinued
operations........................ 246,956 9,664,956 549,838
Loss on disposal of discontinued
operations........................ -- -- (17,336,679)
----------- ----------- ------------
Loss from continuing operations...... (4,402,251) (3,841,100) (26,460,389)
Adjustments to reconcile loss from
continuing operations to net cash
provided by (used in) operating
activities:
Depreciation and amortization...... 368,227 567,310 728,000
Loss on disposition of equipment... -- 19,819 --
Stock-based compensation expense... 152,333 150,000 2,654,834
Changes in operating assets and
liabilities, net of acquisitions and
discontinued operations:
Accounts receivable................ -- -- (2,738,201)
Inventory.......................... -- -- (10,697,438)
Prepaid expenses and other current
assets............................ (3,551,074) (168,945) (845,410)
Refundable income taxes............ -- -- (1,337,584)
Other assets....................... (576,542) 33,571 173,739
Accounts payable and accrued
expenses.......................... 491,169 4,292,548 17,727,273
Income taxes payable............... -- -- (1,378,820)
----------- ----------- ------------
Net cash provided by (used in)
continuing operations............. (7,518,138) 1,053,203 (22,173,996)
Net cash provided by (used in)
discontinued operations........... (1,629,605) 1,617,846 (3,241,206)
----------- ----------- ------------
Net cash provided by (used in)
operating activities.............. (9,147,743) 2,671,049 (25,415,202)
----------- ----------- ------------
Cash Flows from Investing Activities:
Proceeds from sale of discontinued
operations.......................... -- -- 10,317,322
Acquisition of property and
equipment........................... (231,987) (397,990) (18,421,010)
----------- ----------- ------------
Net cash used in investing
activities........................ (231,987) (397,990) (8,103,688)
----------- ----------- ------------
Cash Flows from Financing Activities:
Net borrowings (repayments) under
line of credit...................... 9,984,077 (1,853,992) (18,812,156)
Costs of debt issuance............... (266,304) (80,000) (30,000)
Repayments of capital lease
obligation.......................... (105,378) (116,124) (127,966)
Proceeds from subordinated note from
SOFTBANK............................ -- -- 15,000,000
Proceeds from issuance of common
stock to SOFTBANK................... -- -- 64,727,378
Proceeds from exercises of common
stock options and warrants.......... -- 23,256 1,827,570
Proceeds from sale of minority
interest in subsidiary.............. -- -- 1,999
Repayment of subordinated notes
payable, related party.............. (416,000) (250,000) (1,805,841)
----------- ----------- ------------
Net cash provided by (used in)
financing activities.............. 9,196,395 (2,276,860) 60,780,984
----------- ----------- ------------
Effect of exchange rate changes on cash
and cash equivalents.................. 6,345 (11,911) --
----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents...................... (176,990) (15,712) 27,262,094
Cash and cash equivalents, beginning of
year.................................. 275,871 98,881 83,169
----------- ----------- ------------
Cash and cash equivalents, end of
year.................................. $ 98,881 $ 83,169 $ 27,345,263
=========== =========== ============
Supplemental disclosure of cash flow
information:
Cash paid during the year for
interest............................ $ 1,882,198 $ 3,056,160 $ 1,993,647
=========== =========== ============
Supplemental disclosure of non-cash
investing and financing activities:
Notes payable issued in
acquisitions........................ $ -- $ 6,000,000 $ --
=========== =========== ============
Issuance of common stock of affiliate
at a price per share in excess of
the Company's carrying amount....... $ 356,534 $ -- $ --
=========== =========== ============
Refinancing of revolving credit
agreement........................... $16,718,420 $ -- $ --
=========== =========== ============
Issuance of common stock for
acquisition of the Gen-X Companies.. $ -- $ 8,951,850 $ --
=========== =========== ============
Issuance of mandatorily redeemable
preferred stock..................... $ -- $ 100 $ --
=========== =========== ============
Issuance of common stock in
satisfaction of accrued interest on
subordinated note from SOFTBANK..... $ -- $ -- $ 89,225
=========== =========== ============
Issuance of common stock upon
conversion of the SOFTBANK
subordinated note................... $ -- $ -- $ 15,000,000
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF BUSINESS
Global Sports, Inc. ("Global" or the "Company"), a Delaware corporation,
develops and operates the electronic commerce ("e-commerce") sporting goods
businesses of several traditional sporting goods retailers, general
merchandisers, internet companies and media companies under exclusive long-
term agreements. The Company currently derives virtually all of its revenues
from the sale of merchandise through or to its partners' e-commerce sporting
goods businesses. The Company currently does not derive revenues from the
provision of services to its partners' e-commerce sporting goods businesses.
Each of the Company's partners owns the URL address of its Web site. Based
upon the terms of the agreements with its partners, the Company owns certain
components of the Web sites and the partners own other components. The
Company's partners include BlueLight.com, Dunham's Sports, Healtheon/WebMD, MC
Sports, Oshman's Sporting Goods, Sport Chalet, The Athlete's Foot and The
Sports Authority.
See Note 18 for a description of discontinued operations.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following summarize the Company's significant accounting policies, some
of which apply only to discontinued operations (see Note 18):
Fiscal Year: During 1999, the Company changed its fiscal year end date from
a calendar year end to a year end date representing the Saturday closest to
December 31, beginning with the fiscal year ended January 1, 2000. The fiscal
year is named for the calendar year ending on that December 31. The effect on
results of operations of the extra day in the fiscal year ended January 1,
2000 is not significant.
Principles of Consolidation: The financial statements presented include the
accounts of Global Sports, Inc., a Delaware corporation, and the following
wholly-owned or controlled subsidiaries:
Global Sports Interactive, Inc. (PA)
TheSportsAuthority.com, Inc. (PA)
APEX Sports International, Inc. (PA)
KPR Sports International, Inc. (PA)
MR Management, Inc. (PA)
1075 First Global Associates, LLC (PA)
RYKA Inc. (PA)
G.S.I., Inc. (DE)
Gen-X Holdings, Inc. (WA)
Gen-X Equipment Inc. (Ontario)
Lamar Snowboards, Inc. (MO)
All intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates: The presentation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates and assumptions.
Cash and Cash Equivalents: The Company considers all highly liquid
investments with maturities at date of purchase of three months or less to be
cash equivalents. As of January 1, 2000, the Company had $26,749,053 of excess
cash invested in a money market fund with a major financial institution, which
is included in cash and cash equivalents. Interest income related to this
investment for the fiscal year ended January 1, 2000 was $774,139.
Inventory: Inventory, primarily consisting of sporting goods, athletic
equipment, footwear and apparel, is valued at the lower of cost (determined
using the first-in, first-out method) or market.
F-6
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment: Property and equipment are stated at cost, net of
accumulated depreciation or amortization. Costs incurred to develop internal-
use computer software during the application development stage generally are
capitalized. Certain costs incurred to develop our partners' websites are
expensed as incurred due to their short and unpredictable useful lives. There
was no material difference between expensing these costs as incurred and
capitalizing and amortizing these costs. In addition, costs of enhancements to
internal-use computer software are capitalized, provided that these
enhancements result in additional functionality. Depreciation or amortization
is provided using the straight-line method over the estimated useful lives of
the assets, which are generally:
. Two years for computer hardware and software;
. Three to seven years for furniture and office equipment;
. The lesser of fifteen years or lease term for leasehold improvements;
. Fifteen years for building improvements; and
. Thirty years for buildings.
Upon retirement or other disposition of these assets, the cost and related
accumulated depreciation are removed from the accounts and the resulting gain
or loss, if any, is reflected in results of operations. Expenditures for
maintenance and repairs are expensed as incurred.
Goodwill, Intangibles and Other Assets: The cost of goodwill and intangibles
is amortized on a straight-line basis over ten to twenty years. Goodwill is
reported net of accumulated amortization of $777,376 as of December 31, 1998.
Intangibles, which principally represent the cost of acquiring licenses,
patents and trademarks, are reported net of accumulated amortization of
$270,124 as of December 31, 1998. Amortization of goodwill and intangibles is
included in discontinued operations. As a result of the disposition of the
Branded division on December 29, 1999 (see Note 18), goodwill and intangibles
were fully amortized and the related charge is included in the loss on
disposition of discontinued operations.
Closing and other fees incurred at the inception of loan facilities are
deferred and are amortized over the term of the loan agreement (see Note 15).
As a result of the disposition of the Branded division on December 29, 1999
(see Note 18), the Company accelerated the amortization of the balance of all
such loan fees and the related charge is included in the loss on disposition
of discontinued operations. As of December 31, 1998, the unamortized balance
of all such loan fees was $247,772.
The realizability of goodwill, intangibles and other assets is evaluated
periodically as events or circumstances indicate a possible inability to
recover the carrying amount. Such evaluation is based on various analyses,
including undiscounted cash flow and profitability projections that
incorporate, as applicable, the impact on existing company businesses. The
analyses necessarily involve significant management judgment. Any impairment
loss, if indicated, is measured as the amount by which the carrying amount of
the goodwill or intangible assets exceeds its estimated fair value.
Long-Lived Assets: The realizability of long-lived assets is evaluated
periodically as events or circumstances indicate a possible inability to
recover their carrying amount. Such evaluation is based on various analyses,
including undiscounted cash flow and profitability projections that
incorporate, as applicable, the impact on existing company businesses. The
analyses necessarily involve significant management judgment. Any impairment
loss, if indicated, is measured as the amount by which the carrying amount of
the asset exceeds the estimated fair value of the asset.
Sale of Stock by an Equity Method Investee: Prior to the 1997 reorganization
(see Note 16), changes in the KPR Companies' proportionate share of the
underlying equity of RYKA, an equity method investee, which result from the
issuance of additional securities by such investee, were credited directly to
additional paid-in capital. In 1997, $356,534 of such gains were credited to
additional paid-in capital (see Note 17).
Foreign Currency Translation: In accordance with the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 52, Foreign Currency
Translation, exchange adjustments resulting from foreign
F-7
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
currency transactions generally are recognized currently in income, whereas
adjustments resulting from translations of financial statements are reflected
in accumulated other comprehensive income (loss). The cumulative currency
translation loss as of December 31, 1998 was $47,431. Gains and losses on
foreign currency transactions for the fiscal years ended December 31, 1998 and
January 1, 2000 resulted in net foreign currency losses of $194,064 and
$103,955, respectively, and are included in discontinued operations. There
were no foreign currency transactions in the fiscal year ended December 31,
1997.
Financial Instruments: Gains and losses on foreign currency hedges of
existing assets or liabilities are included in the carrying amounts of those
assets or liabilities and recognized in income as part of the related
transaction. Unrealized gains and losses related to qualifying hedges of firm
commitments are deferred and are recognized in income or as adjustments of
carrying amounts when the hedged transaction occurs.
Fair Value of Financial Instruments: The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable and notes payable are a
reasonable estimate of their fair values as of December 31, 1998 and
January 1, 2000, based on the short maturity of these instruments.
Net Revenues: The Company provides various services to its partners,
including the design, development, maintenance and promotion of customized Web
sites. The Company has not derived revenues from the provision of these
services. The Company currently derives virtually all of its revenues from the
sale of product through or to its partners' e-Commerce sporting goods
businesses. Revenues from product sales, net of discounts and allowances for
returns, are recognized upon the shipment of product to customers. Other
sources of revenues, including the sale of gift certificates to the Company's
retail partners' land-based stores, the sale of advertising on the partners'
Web sites and outbound shipping charges, were not significant for the fiscal
year ended January 1, 2000.
Sales and Marketing: Sales and marketing expenses include advertising,
promotional expenses including temporary free shipping, distribution facility
expenses, order processing fees and payroll and related expenses. Also
included in this amount are partner revenue shares which are payments made to
our partners in exchange for the use of their brand assets, the promotion of
their URL's in marketing and communications materials, the implementation of
programs to provide incentives to the in-store customers to shop online and
other programs and services provided to the customers of our partners' Web
sites. Partner revenue shares were not significant in fiscal 1999.
Promotional Shipping Costs: During the fiscal year ended January 1, 2000, as
part of a promotion in connection with the launch of the Company's partners'
Web sites, the Company offered free shipping on certain orders. The expense
related to this temporary promotion for the fiscal year ended January 1, 2000
was $566,091 and has been included in selling and marketing expense.
Advertising: The Company expenses the cost of advertising, which includes
media, agency and production expenses, in accordance with the AICPA Accounting
Standards Executive Committee's Statement of Position ("SOP") 93-7, Reporting
on Advertising Costs. Advertising production costs are expensed the first time
the advertisement is run. Media (television, radio and print) placement costs
are expensed in the month the advertising appears. Agency fees are expensed as
incurred. Advertising expense was $2,471,731 for the fiscal year ended January
1, 2000. Advertising expense of discontinued operations was $431,753 and
$1,774,753 for the fiscal years ended December 31, 1997 and December 31, 1998,
respectively.
Product Development: Product development expenses consist primarily of
expenses associated with content development; developing and operating the
partners' Web sites; payroll and related expenses for the engineering,
production, creative and management information systems departments; and
depreciation expense related to capitalized hardware and software.
F-8
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation: SFAS No. 123, Accounting for Stock-Based
Compensation, encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for stock-based compensation
using the intrinsic method prescribed in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, compensation cost for stock options issued to employees is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an
employee must pay to acquire the stock. The Company accounts for stock-based
compensation issued to non-employees in accordance with SFAS No. 123 and
Emerging Issues Task Force ("EITF") No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services.
Income Taxes: Prior to December 15, 1997, the KPR Companies (see Note 16)
had elected to be taxed as S Corporations under provisions of the Internal
Revenue Code and various state income tax regulations. As such, current
taxable income had been included on the income tax returns of the then sole
shareholder for federal and state income tax purposes and no provision had
been made for federal income taxes. On December 15, 1997, the KPR Companies
effected a reorganization with RYKA Inc. As a result of the reorganization,
the KPR Companies' S election was terminated. The Company, now renamed Global
Sports, Inc., is considered a C corporation and is subject to federal and
state income taxes. As such, taxes on income are provided based upon SFAS No.
109, Accounting for Income Taxes, which requires an asset and liability
approach to financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed for differences between the
financial statements and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future. Such deferred income tax asset
and liability computations are based on enacted tax laws and rates applicable
to periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
New Accounting Pronouncements
Computer Costs: In March 1998, the AICPA Accounting Standards Executive
Committee issued SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This statement provides guidance on
accounting for the costs of computer software developed or obtained for
internal use and identifies the characteristics of internal-use software. This
statement was adopted on January 1, 1999 and did not have a material effect on
the Company's results of operations, cash flows or financial position.
The Company will be required to adopt EITF Issue No. 00-2, "Accounting for
Web Site Development Costs," no later than July 1, 2000. This EITF consensus
sets forth capitalization and expense requirements for web site development
costs. Management has not yet assessed what impact, if any, the EITF consensus
will have on the Company's future earnings or financial position.
Start-Up Costs: In April 1998, the AICPA Accounting Standards Executive
Committee issued SOP 98-5, Reporting on the Costs of Start-Up Activities. The
statement requires that costs of start-up activities, including organization
costs, be expensed as incurred. This statement was adopted on January 1, 1999
and did not have a material effect on the Company's results of operations,
cash flows or financial position.
Derivative Instruments: SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (as amended by SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133) establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for fiscal years
beginning after June 15, 2000, although early adoption is encouraged. The
Company has not yet assessed what the impact of this statement will be on the
Company's future earnings or financial position.
F-9
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 3--PROPERTY AND EQUIPMENT
The major classes of property and equipment, at cost, as of December 31,
1998 and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
December 31, January 1,
1998 2000
------------ -----------
<S> <C> <C>
Computer hardware and software.................... $ 957,654 $10,178,971
Building.......................................... -- 6,437,916
Building--under capital lease (see Note 4)........ 2,666,958 2,666,958
Furniture and office equipment.................... 232,414 1,793,037
Land.............................................. -- 1,240,000
Leasehold improvements............................ 336,926 328,042
Construction in progress.......................... 17,392 33,725
---------- -----------
4,211,344 22,678,649
Less: Accumulated depreciation and amortization... (1,222,630) (1,996,925)
---------- -----------
Property and equipment, net....................... $2,988,714 $20,681,724
========== ===========
</TABLE>
NOTE 4--CAPITAL LEASE
In September 1994, the Company entered into a fifteen-year capital lease
with its Chairman and Chief Executive Officer for its former corporate
headquarters and warehouse space. The rental amount is subject to annual
increases based on the Consumer Price Index and is currently $351,396 per
annum. The Company pays all insurance and maintenance relating to the leased
property. The mortgages on the leased property are collateralized by
guarantees of a subsidiary of the Company and have an aggregate outstanding
principal balance of $1,525,169 and $1,456,101 as of December 31, 1998 and
January 1, 2000, respectively. As of December 31, 1998 and January 1, 2000,
the Company's net investment in this capital lease was $2,007,035, and
$1,801,884, respectively, which were included in property and equipment.
Interest recorded on this capital lease for the fiscal years ended December
31, 1997, December 31, 1998 and January 1, 2000 was $242,120, $234,345,
$223,430, respectively.
Future minimum lease payments under this capital lease as of January 1,
2000, together with the present value of those future minimum lease payments,
are as follows:
<TABLE>
<S> <C>
2000........................................................... $ 351,396
2001........................................................... 351,396
2002........................................................... 351,396
2003........................................................... 351,396
2004........................................................... 351,396
Thereafter..................................................... 1,669,136
----------
Total future minimum lease payments............................ 3,426,116
Less: Interest discount amount................................. 1,244,851
----------
Total present value of future minimum lease payments........... 2,181,265
Less: Current portion.......................................... 141,016
----------
Long-term portion.............................................. $2,040,249
==========
</TABLE>
In November 1999, the Company relocated its corporate headquarters to a
Company-owned facility and is currently negotiating the termination of the
lease for its former corporate headquarters. Management expects that this
lease termination will not have a material effect on future results of
operations, cash flows or financial position.
F-10
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 5--STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of preferred
stock, $.01 par value. The preferred stock may be issued in one or more
series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
shares.
In connection with the acquisition of the Gen-X Companies on May 12, 1998,
the Company issued 10,000 shares of mandatorily redeemable preferred stock.
The redemption price of these preferred shares is contingent on certain sales
and gross profit targets, ranging from a minimum of $.01 per share to a
maximum of $50.00 per share, and are redeemable over a five year period.
During the fiscal year ended January 1, 2000, 2,000 shares were redeemed for
$100,000 (see Note 18).
Common Stock
On July 13, 1999, the shareholders approved an amendment to the Company's
Certificate of Incorporation that increased the maximum number of authorized
shares of common stock by 40,000,000 to 60,000,000.
On June 10, 1999, the Company and SOFTBANK America Inc. ("SOFTBANK") entered
into a stock purchase agreement and related agreements for the sale of
6,153,850 shares of the Company's common stock to certain affiliates of
SOFTBANK at a price of $13.00 per share (the closing price on May 26, 1999,
the day prior to the day the Company and SOFTBANK agreed in principle to the
transaction) for an aggregate purchase price of $80,000,050, reduced by
transaction costs of $183,447 and accrued interest of $89,225 and principal
related to an interim loan from SOFTBANK. In order to provide capital to the
Company until closing, which occurred on July 23, 1999, the Company and
SOFTBANK entered into an interim subordinated loan agreement on June 10, 1999
pursuant to which SOFTBANK loaned the Company $15,000,000 at an interest rate
of 4.98% per annum until closing. At the July 23, 1999 closing, this loan
amount was converted into shares of the Company's common stock.
On April 21, 1997, RYKA sold 125,000 shares of its common stock for $750,000
to certain private investors. The proceeds from this sale were used to repay
$385,000 of a subordinated note payable to the KPR Companies from RYKA and to
enable the Company to open $810,000 in letter of credit agreements for the
benefit of KPR.
In connection with the investment in RYKA Inc. in 1995, MR Acquisitions,
L.L.C. ("MR Acquisitions"), a company wholly-owned by the Company's Chairman
and Chief Executive Officer, was granted contingent warrants to purchase
455,000 shares of common stock. As of December 31, 1997, MR Acquisitions had
exercised warrants to purchase 361,587 of the 455,000 shares of RYKA common
stock for which it paid an aggregate exercise price of $72,317. These 361,587
shares represent the full number of warrants that MR Acquisitions was entitled
to exercise under the terms of the warrants. MR Acquisitions was not entitled
to exercise the remaining warrants for 93,413 shares because certain
contingencies were not fully satisfied.
NOTE 6--STOCK OPTIONS AND WARRANTS
As part of the 1997 reorganization (see Note 16), on December 15, 1997 the
Company assumed eight separate stock option plans (the "Plans"). Under the
terms of the 1987 Stock Option Plan, the 1988 Stock Option Plan, the 1990
Stock Option Plan, the 1992 Stock Option Plan, the 1993 Stock Option Plan, the
1995 Stock Option Plan, the 1995 Non-Employee Directors' Stock Option Plan and
the 1996 Equity Incentive Plan (as amended), the Company may grant qualified
and nonqualified options and warrants to purchase up to 31,321;
F-11
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17,500; 37,500; 43,750; 45,000; 75,000; 12,500 and 3,000,000 shares of common
stock, respectively, to employees, directors and consultants of the Company.
The options and warrants vest at various times over periods ranging up to five
years. The options and warrants, if not exercised, expire up to ten years
after the date of grant. Stock appreciation rights ("SAR's") may be granted
under the Plans either alone or in tandem with stock options. Generally,
recipients of SAR's are entitled to receive, upon exercise, cash or shares of
common stock (valued at the then fair market value of the Company's common
stock) equal to such fair market value on the date of exercise minus such fair
market value on the date of grant of the shares subject to the SAR, although
certain other measurements also may be used. A SAR granted in tandem with a
stock option is exercisable only if and to the extent that the option is
exercised. No SAR's have been granted to date under the Plans.
Pursuant to option grant letters issued by RYKA prior to the 1997
reorganization (see Note 16), but not pursuant to any formal plan ("Non-Plan
Grants"), the Company assumed options issued to certain individuals to
purchase shares of the Company's common stock at prices which approximated
fair market value at the date of grant. The options vest at various times over
periods ranging up to five years and, if not exercised, expire up to ten years
after the date of grant.
The following table summarizes the stock option activity for the fiscal
years ended December 31, 1997, December 31, 1998 and January 1, 2000:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
Assumed as of December 15, 1997.......................... 219,547 $10.90
Granted................................................ 441,850 3.69
Exercised ............................................. -- --
Canceled............................................... (118,716) 8.95
---------
Outstanding as of December 31, 1997...................... 542,681 5.45
Granted................................................ 695,750 5.79
Exercised.............................................. (7,267) 3.20
Canceled............................................... (42,583) 6.24
---------
Outstanding as of December 31, 1998...................... 1,188,581 5.71
Granted................................................ 1,307,907 14.82
Exercised.............................................. (345,937) 4.84
Canceled............................................... (226,934) 8.03
---------
Outstanding as of January 1, 2000........................ 1,923,617 11.71
=========
</TABLE>
F-12
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the stock warrant activity for the fiscal
years ended December 31, 1997, December 31, 1998 and January 1, 2000:
<TABLE>
<CAPTION>
Weighted
Number Average
of Exercise
Shares Price
------- --------
<S> <C> <C>
Assumed as of December 15, 1997.......................... 236,486 $5.37
Granted................................................ -- --
Exercised.............................................. -- --
Canceled............................................... -- --
-------
Outstanding as of December 31, 1997...................... 236,486 5.37
Granted................................................ 67,000 6.71
Exercised.............................................. -- --
Canceled............................................... (96,552) 4.27
-------
Outstanding as of December 31, 1998...................... 206,934 6.35
Granted................................................ 333,320 14.42
Exercised.............................................. (49,998) 7.63
Canceled............................................... (923) 16.25
-------
Outstanding as of January 1, 2000........................ 489,333 11.90
=======
</TABLE>
During the fiscal year ended January 1, 2000, the Company granted to
retailers, consultants and employees options, warrants and restricted stock
awards to purchase an aggregate of 1,641,227 shares (1,105,741 shares relating
to employees and 535,486 shares relating to retailers and consultants) of the
Company's common stock at prices ranging from $0.01 to $24.69 per share. The
value of options, warrants and restricted stock granted during 1999 amounted
to $5,341,195 ($406,069 relating to employees and $4,935,126 relating to
retailers and consultants) of which the Company reflected $3,770,778 as
expense in the fiscal year ended January 1, 2000. The balance will be
recognized as services are provided over terms ranging from four to five
years. Of the amount recognized as expense during the fiscal year ended
January 1, 2000, $2,654,834 is included in continuing operations ($217,476
relating to employees and $2,437,358 relating to retailers and consultants)
and $1,115,945 is included in discontinued operations.
During the latter part of the fiscal year ended January 1, 2000, the Company
issued options to purchase 123,500 shares of the Company's common stock with a
fair market value at the dates of grant amounting to $1,579,495 to non-
employees which are included in the options and warrants described above.
Because these warrants require certain counterparty performance conditions,
they are subject to variable plan accounting. The Company is recording
compensation expense over the five-year term of the warrants as required by
EITF No. 98-16 and recognized $66,170 as compensation expense for the fiscal
year ended January 1, 2000. The amount of compensation expense recognized in
future years is subject to adjustment based upon changes in the price of the
Company's common stock.
In connection with the disposition of its historical businesses during the
fiscal year ended January 1, 2000, the Company accelerated the vesting of
415,441 options previously granted to employees of the discontinued operations
as an inducement to remain with the businesses for a period of ninety days
following their sale. For accounting purposes, the Company considers this
action a cancellation of a previous award and the grant of a new award. Since
the grantees will not be employees of the Company when the options are vested,
the Company valued the awards in accordance with the provisions of SFAS No.
123 and charged the related expense to discontinued operations for the fiscal
year ended January 1, 2000. As these awards require counterparty performance
conditions, they are subject to variable plan accounting and the ultimate cost
to be recognized for these awards is subject to adjustment based upon changes
in both the number of employees and the price of the Company's common stock
through the ninetieth day after the businesses are sold.
F-13
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the year ended December 31, 1998, the Company issued options and
warrants to purchase 695,750 shares of common stock to various employees at a
range of prices from $2.86 to $7.81 and with terms of five to ten years. The
Company also issued warrants to purchase 67,000 shares of common stock to
various consultants and sales agents at a range of prices from $5.11 to $7.94
and with terms of five to ten years. The Company recorded a charge of $150,000
for the fiscal year ended December 31, 1998 related to these warrants which is
included in stock-based compensation.
The following table summarizes information about options and warrants
outstanding and exercisable as of January 1, 2000:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------------------------- ----------------------------
Range of Weighted Average
Exercise Number Remaining Weighted Average Number Weighted Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- -------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ .01 -
$ 6.13 525,333 7.32 years $3.95 414,168 $ 3.89
$ 6.25 -
$11.00 493,033 6.00 7.38 171,700 8.18
$11.20 -
$13.00 204,511 7.97 12.14 56,011 12.45
$13.13 -
$15.00 514,120 4.23 14.89 339,620 14.97
$15.13 -
$30.00 675,953 9.39 18.49 75,553 17.89
--------- ---------
$ .01 -
$30.00 2,412,950 7.02 11.75 1,057,052 9.60
========= =========
</TABLE>
As of January 1, 2000, 927,918 shares of common stock were available for
future grants under the Plans.
The Company accounts for the Plans in accordance with Accounting Principles
Board Opinion No. 25, under which no compensation cost has been recognized for
those incentive stock option awards granted to employees. Had compensation
cost for such awards been determined consistent with SFAS No. 123, Accounting
for Stock Based Compensation, the Company's pro forma net income (loss) and
earnings (losses) per share for the fiscal years ended January 1, 2000,
December 31, 1998 and December 31, 1997 would have been as follows:
<TABLE>
<CAPTION>
As Reported Pro Forma
------------ ------------
<S> <C> <C>
Fiscal Year Ended December 31, 1997
Net loss...................................... $ (4,155,295) $ (4,805,295)
============ ============
Losses per share--basic and diluted........... $ (1.39) $ (1.60)
============ ============
Fiscal Year Ended December 31, 1998
Net income.................................... $ 5,823,856 $ 4,711,383
============ ============
Earnings per share--basic and diluted......... $ .51 $ .41
============ ============
Fiscal Year Ended January 1, 2000
Net loss...................................... $(43,247,230) $(46,850,325)
============ ============
Losses per share--basic and diluted........... $ (2.91) $ (3.15)
============ ============
</TABLE>
The weighted average fair value of the stock options granted during the
fiscal years ended December 31, 1997, December 31, 1998 and January 1, 2000
were $1.49, $3.79 and $14.82 per share, respectively.
F-14
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of options granted under the Plans during the fiscal years
ended December 31, 1997, December 31, 1998 and January 1, 2000 were estimated
on the date of grant using the Black-Scholes multiple option pricing model,
with the following assumptions:
<TABLE>
<CAPTION>
Fiscal Year
Fiscal Year Ended Fiscal Year Ended Ended
Assumption December 31, 1997 December 31, 1998 January 1, 2000
---------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Dividend yield.......... None None None
Expected volatility..... 50.00% 77.17% 50.00%
Average risk free
interest rate.......... 6.10% 5.16% 5.57%
Average expected lives.. 5.00 years 5.76 years 6.28 years
</TABLE>
NOTE 7--INCOME TAXES
The loss from continuing operations before income taxes and the related
benefit from income taxes were as follows:
<TABLE>
<CAPTION>
For the Fiscal Years Ended
---------------------------------
December 31, 1998 January 1, 2000
----------------- ---------------
<S> <C> <C>
Loss from continuing operations before
income taxes:
Domestic............................... $5,819,849 $28,681,267
Foreign................................ -- --
---------- -----------
Total................................. $5,819,849 $28,681,267
========== ===========
Benefit from income taxes:
Current:
Federal................................ $1,978,749 $ 2,114,352
State.................................. -- --
Foreign................................ -- --
---------- -----------
Total Current......................... $1,978,749 $ 2,114,352
========== ===========
Deferred:
Federal................................ $ -- $ 106,526
State.................................. -- --
Foreign................................ -- --
---------- -----------
Total Deferred........................ $ -- $ 106,526
========== ===========
Total:
Federal................................ $1,978,749 $ 2,220,878
State.................................. -- --
Foreign................................ -- --
---------- -----------
Total................................. $1,978,749 $ 2,220,878
========== ===========
</TABLE>
For the fiscal year ended December 31, 1997, the Company had no provision
for federal and state income taxes.
As of January 1, 2000, the Company has recorded $1,337,584 in refundable
income taxes resulting from the carryback of operating losses incurred during
the fiscal year ended January 1, 2000. This balance is included in current
assets.
F-15
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The significant components of net deferred tax assets and liabilities as of
December 31, 1998 and January 1, 2000 consisted of the following:
<TABLE>
<CAPTION>
December 31, 1998 January 1, 2000
----------------- ---------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..... $ 8,035,764 $ 21,508,643
Deferred revenue..................... -- 205,549
Employee benefits.................... -- 416,473
Inventory............................ -- 241,308
Depreciation......................... -- 154,408
Provision for doubtful accounts...... 308,600 111,925
----------- ------------
Gross deferred tax assets.......... 8,344,364 22,638,306
Deferred tax liabilities............... -- --
----------- ------------
Net deferred tax assets and
liabilities........................... 8,344,364 22,638,306
Valuation allowance.................. (8,344,364) (22,638,306)
----------- ------------
Net deferred tax asset................. $ -- $ --
=========== ============
</TABLE>
Due to the uncertainty surrounding the realization of the Company's tax
attributes in future income tax returns, the Company has placed a valuation
allowance against its otherwise recognizable deferred tax assets. As of
January 1, 2000, the Company had available net operating loss carryforwards of
approximately $54,759,299 which expire in the years 2002 through 2018. The use
of certain net operating loss carryforwards may be subject to annual
limitations based on ownership changes of the Company's stock, as defined by
Section 382 of the Internal Revenue Code.
The differences between the statutory federal income tax rate and the
effective income tax rate are provided in the following reconciliation:
<TABLE>
<CAPTION>
December 31, January 1,
1998 2000
------------ ----------
<S> <C> <C>
Statutory federal income tax rate.................. 34.0% (34.0)%
Increase (decrease) in taxes resulting from:
Valuation allowance.............................. -- 30.8
Carryback claim refund........................... -- (4.6)
Other............................................ -- .1
---- -----
Effective income tax rate.......................... 34.0% (7.7)%
==== =====
</TABLE>
NOTE 8--EARNINGS (LOSSES) PER SHARE
Earnings (losses) per share have been computed in accordance with SFAS No.
128, Earnings Per Share. Basic and diluted earnings (losses) per share is
computed by dividing net income (loss) by the weighted average number of
shares of common stock outstanding during the year. Outstanding common stock
options and warrants have been excluded from the calculation of diluted
earnings (losses) per share because their effect would be antidilutive.
F-16
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The amounts used in calculating earnings (losses) per share data are as
follows:
<TABLE>
<CAPTION>
Fiscal Year
Fiscal Year Ended Fiscal Year Ended Ended
December 31, 1997 December 31, 1998 January 1, 2000
----------------- ----------------- ---------------
<S> <C> <C> <C>
Loss from continuing
operations............... $(4,402,251) $(3,841,100) $(26,460,389)
Income from discontinued
operations............... 246,956 9,664,956 549,838
Loss on disposition of
discontinued operations.. -- -- (17,336,679)
----------- ----------- ------------
Net income (loss)......... $(4,155,295) $ 5,823,856 $(43,247,230)
=========== =========== ============
Weighted average shares
outstanding--
basic and diluted........ 2,996,027 11,378,918 14,874,018
=========== =========== ============
Outstanding common stock
options having no
dilutive effect.......... 542,681 533,132 1,923,617
=========== =========== ============
Outstanding common stock
warrants having no
dilutive effect.......... 236,486 384,117 489,333
=========== =========== ============
</TABLE>
NOTE 9--SIGNIFICANT CUSTOMER/CONCENTRATIONS OF CREDIT RISK
For the fiscal year ended January 1, 2000, net revenues included revenues
from Healtheon/WebMD of $2,792,350 through the sale of product to support the
launch of the WebMD Sports & Fitness Store. As of January 1, 2000,
Healtheon/WebMD represented substantially all of the balance in accounts
receivable. During the fiscal year ended January 1, 2000, the Company also
agreed to purchase advertising from Healtheon/WebMD in the aggregate amount of
$3,000,000 to occur in 1999 through the second quarter of 2000.
NOTE 10--MAJOR SUPPLIERS/ECONOMIC DEPENDENCY
The Company purchased inventory from two suppliers during the fiscal year
ended January 1, 2000 amounting to $2,206,882 and $1,764,021 or 15% and 12% of
total inventory purchased, respectively. As of January 1, 2000, the Company
had $1,624,321 and $1,737,666, respectively, in amounts owed to these
suppliers included in accounts payable. No other supplier amounted to more
than of 10% of total inventory purchased for any period presented.
NOTE 11--COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is involved in various routine litigation, including litigation
in which the Company is a plaintiff, incidental to its business. The Company
believes that the disposition of such routine litigation will not have a
material adverse effect on the financial position or results of operations of
the Company.
Employment Agreements
As of January 1, 2000, the Company had employment agreements with several of
its officers for an aggregate annual base salary of $1,543,300 plus bonus and
increases in accordance with the terms of the agreements. Terms of such
contracts range from three to five years and are subject to automatic annual
extensions.
Advertising and Media Agreements
As of January 1, 2000, the Company was contractually committed for the
purchase of future advertising totaling approximately $6,447,000 (including
the remaining commitment referred to in Note 9 with a significant
F-17
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
customer) for the fiscal year ending December 30, 2000. One such agreement
requires the Company to pay an additional fee based upon revenues generated
from the advertising. The expense related to these commitments will be
recognized in accordance with the Company's accounting policy related to
advertising (see Note 2).
In addition, as of January 1, 2000, the Company was contractually committed
to provide barter media with a contract value of no less than $5.0 million for
fiscal 2000. The barter media consists of participation by a third party in
joint advertising which the Company is entitled to receive in one of its
partner's retail stores and newspaper promotions. The Company has no history
of similar advertising arrangements for cash. Accordingly, no revenue or
expense will be recorded for this arrangement. Minimum required joint
advertising with the third party includes specified quantities for combined
traffic in the partner's retail stores and copies of joint newspaper
promotions.
Partner Relationships
During the fiscal year ended January 1, 2000, the Company had two different
structures for its alliances. The Company's arrangement with The Athlete's
Foot, Oshman's Sporting Goods, MC Sports, Dunham's Sports, Sport Chalet and
Healtheon/WebMD are exclusive licensing arrangements ranging in term from five
to ten years, whereby the Company records 100% of the revenues generated
through the Company's partners' e-commerce sporting goods businesses and pays
a percentage of those revenues to the partner in exchange for the right to
operate their e-commerce sporting goods businesses under their brand names,
the promotion of their URL's and other programs and services provided to their
customers. Healtheon/WebMD, The Sports Authority, Inc. and the Company are
presently operating in accordance with a binding letter of intent, which
expired on October 29, 1999, and the parties are in the process of negotiating
a formal contract. The Company entered into a fifteen-year exclusive agreement
with The Sports Authority, Inc. (the "TSA Agreement"), through the Company's
80.1%-owned subsidiary TheSportsAuthority.com ("TSA.com"). TSA.com pays a
royalty to The Sports Authority, Inc. based on a percentage of sales generated
by the TSA.com's electronic storefront. On or after February 1, 2002, The
Sports Authority, Inc. has the right to receive (for no consideration) up to
an additional 30% interest in TSA.com if certain performance targets are met.
The Sports Authority, Inc. has an option to purchase, on the earlier to occur
of May 9, 2002 or an initial public offering of shares of TSA.com common
stock, up to a total ownership interest of 49.9% in TSA.com at a price
determined by a formula defined in the TSA Agreement.
NOTE 12--SAVINGS PLAN
The Company sponsors a voluntary defined contribution savings plan covering
all U.S. employees. Company contributions to the plan for each employee may
not exceed 1.5% of the employee's annual salary. Total Company contributions
were $18,594, $21,431 and $28,147 for the fiscal years ended December 31,
1997, December 31, 1998 and January 1, 2000, respectively.
NOTE 13--BUSINESS SEGMENTS
The Company operates in one principal business segment which develops and
operates the e-commerce sporting goods businesses of traditional sporting
goods retailers, general merchandisers, internet and media companies in
domestic markets. All of the domestic net sales, operating results and
identifiable assets are in the United States. See Note 18 for a discussion of
the Company's discontinued operations.
NOTE 14--RELATED PARTY TRANSACTIONS
The Company leases an office and warehouse facility from the Company's
Chairman and Chief Executive Officer (see Note 4).
A summary of the KPR Companies' related party transactions with RYKA Inc.
(prior to the 1997 reorganization--see Note 16) for the year ended December
31, 1997 is as follows:
<TABLE>
<CAPTION>
Financial Statement
Nature of Transaction Classification 1997
--------------------- ---------------------------- -------
<S> <C> <C>
Rent................................... Other (income) expenses $45,521
Interest on subordinated debt.......... Interest expense $56,854
</TABLE>
F-18
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 15--NOTES PAYABLE
Notes Payable, Bank
The components of the notes payable, bank balances as of December 31, 1998
and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
December 31, 1998 January 1, 2000
----------------- ---------------
<S> <C> <C>
Revolving credit facility, secured by
substantially all assets of KPR and
RYKA (weighted average interest rate
at December 31, 1998--8.15%).......... $18,812,156 $ --
=========== =====
</TABLE>
On November 20, 1997, the KPR Companies and RYKA entered into a Loan and
Security Agreement (the "Loan Agreement"). Under the Loan Agreement, as
amended, the Company had access to a combined credit facility of $40,000,000
which was comprised of the KPR Companies' credit facility of $35,000,000 and
RYKA's credit facility of $5,000,000. The term of the Loan Agreement was five
years expiring on November 19, 2002. The KPR Companies and RYKA had an
interest rate choice of prime plus 1/4% or LIBOR (Adjusted Eurodollar Rate)
plus two hundred seventy-five basis points. Under the Loan Agreement, both the
KPR Companies and RYKA may have borrowed up to the amount of their revolving
line based upon 85% of their eligible accounts receivable and 65% of their
eligible inventory, as those terms are defined in the Loan Agreement. The Loan
Agreement also included 50% of outstanding letters of credit as collateral for
borrowing.
All borrowings under this line were repaid in full as of January 1, 2000 and
the credit facility is in the process of being terminated. The total interest
incurred in connection with this facility was $1,088,554 for the fiscal year
ending January 1, 2000. The maximum amount outstanding on this line during the
fiscal year ended January 1, 2000 was $25,459,189.
Subordinated Notes Payable, Related Party
The components of the subordinated notes payable balances as of December 31,
1998 and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
December 31, 1998 January 1, 2000
----------------- ---------------
<S> <C> <C>
Subordinated notes payable to
shareholder (interest rate at
December 31, 1998--8.25%)............. $1,805,841 $ --
========== =====
</TABLE>
As of December 31, 1998, the Company had $1,805,841 in outstanding
subordinated notes payable held by its Chairman and Chief Executive Officer,
plus accrued interest on such notes of $24,094 which was recorded in accrued
expenses. This debt consists primarily of a note representing undistributed
Subchapter S corporation retained earnings previously taxed to him as the sole
shareholder of the KPR Companies prior to the 1997 reorganization (see Note
16). Interest accrues on such notes at the Company's choice of prime plus 1/4%
or LIBOR (Adjusted Eurodollar Rate) plus two hundred seventy-five basis
points. Based on its Loan Agreement, the Company is permitted to make regular
payments of interest on the subordinated notes and to further reduce principal
on a quarterly basis, commencing subsequent to the first quarter of 1998, in
an amount up to 50% of the cumulative consolidated net income of the Company.
During 1998, aggregate principal payments of $250,000 were made. On July 27,
1999, the principal balance of $1,805,841 plus interest accrued to date of
$58,987 was repaid in full, for which a waiver was obtained from the Company's
primary lender.
F-19
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 16--REORGANIZATION
On December 15, 1997, the Company consummated a reorganization (the
"Reorganization"), among RYKA Inc. ("RYKA"), KPR Sports International, Inc.
("KPR"), Apex Sports International, Inc., MR Management, Inc. (the last three
companies collectively referred to as the "KPR Companies"), and Michael G.
Rubin, the former sole shareholder of the KPR Companies and now the Chairman
and Chief Executive Officer of the Company. As part of the Reorganization, (i)
RYKA was renamed Global Sports, Inc., (ii) the Company transferred all of its
assets and liabilities to RYKA in exchange for all of the issued and
outstanding shares of capital stock of RYKA, (iii) a subsidiary of the Company
merged with and into KPR, with KPR surviving the merger as a wholly-owned
subsidiary of the Company, (iv) the Company acquired all of the issued and
outstanding shares of capital stock of Apex and MR Management, and (v) the
Company issued to Mr. Rubin an aggregate of 8,169,086 of its common stock in
exchange for all of the issued and outstanding shares of capital stock of the
KPR Companies.
Immediately after the Reorganization, Mr. Rubin, the former sole shareholder
of the KPR Companies, then owned approximately 78% of the outstanding voting
power of the Company. Accordingly, the Reorganization was accounted for as a
reverse purchase under generally accepted accounting principles pursuant to
which the KPR Companies were considered to be the acquiring entity and the
Company was the acquired entity for accounting purposes, even though the
Company was the surviving legal entity. Accordingly, references to the
Company's financial statements refer to the financial statements of the KPR
Companies prior to the Reorganization and to the financial statements of the
KPR Companies, including RYKA, Inc., after the Reorganization.
NOTE 17--INVESTMENT IN RYKA INC.
A summary of activity relating to the Company's investment in RYKA Inc. for
the year ended December 31, 1997 follows:
<TABLE>
<S> <C>
Investment in RYKA, December 31, 1996.......................... $1,167,986
Equity in net loss of RYKA..................................... (592,093)
Equity in stock issuances of RYKA.............................. 356,534
Additional advances............................................ 12,311
Amortization of negative goodwill.............................. 12,446
RYKA partial repayment of initial advance...................... (385,000)
----------
Investment in RYKA, December 14, 1997.......................... $ 572,184
==========
</TABLE>
During the fiscal year ended December 31, 1997, RYKA issued for cash 125,000
shares of common stock for $6.00 per share, which was in excess of the
Company's per share carrying amount. Also during the fiscal year ended
December 31, 1997, MR Acquisitions exercised its warrants to purchase an
additional 361,587 RYKA shares. The Company accounted for these transactions
as an increase in both its investment and additional paid-in capital. As of
December 14, 1997, just prior to the Reorganization (See Note 16), the Company
had a 33% equity interest in the net assets of RYKA.
NOTE 18--DISCONTINUED OPERATIONS
On April 20, 1999, the Company formalized a plan to sell two of its
businesses, the Branded division and the Off-Price and Action Sports division,
in order to focus exclusively on its e-commerce business. The Branded division
designs and markets the RYKA and Yukon footwear brands. The Off-Price and
Action Sports division is a third-party distributor and make-to-order marketer
of off-price footwear, apparel and sporting goods. Accordingly, for financial
statement purposes, the assets, liabilities, results of operations and cash
flows of these divisions have been segregated from those of continuing
operations and are presented in the Company's financial
F-20
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
statements as discontinued operations. The accompanying financial statements
have been reclassified to reflect this presentation.
On September 24, 1999, the Company and a management group led by James J.
Salter and Kenneth J. Finkelstein entered into an acquisition agreement
providing for the sale of the Company's Off-Price and Action Sports division,
including the sale of all of the issued and outstanding capital stock of the
Company's wholly-owned subsidiaries Gen-X Holdings Inc. and Gen-X Equipment
Inc. (collectively, the "Gen-X Companies"). On March 13, 2000, the acquisition
agreement was amended to, inter alia, (i) extend the date after which either
party could terminate the acquisition agreement, (ii) provide for a larger
portion of the purchase price to be paid in cash instead of a combination of
cash and promissory notes, (iii) reduce the purchase price as a result of more
of the purchase price being paid in cash, (iv) provide the purchaser with a
breakup fee of $1,500,000, if the Company terminated the agreement under
certain circumstances, and (v) to accelerate the vesting of options to
purchase an aggregate of 281,930 shares of Global Common Stock held by certain
employees of Global. Pursuant to the terms of the acquisition agreement, as
amended, the aggregate purchase price for the Off-Price and Action Sports
division is approximately $17,200,000, consisting of a cash payment of
$6,000,000 deposited in an escrow account by the purchaser on March 13, 2000,
a cash payment at closing of $7,200,000 and assumption of certain notes
payable by Global in the aggregate principal amount of approximately
$4,000,000. For fiscal 1999, the Company recognized a loss of $5.2 million
related to the disposition of this division.
On December 29, 1999, Global sold substantially all of the assets of its
Branded division (other than the accounts receivable which totaled
approximately $6,600,000 as of December 29, 1999) to American Sporting Goods
Corporation in exchange for a cash payment of $10,447,409. The Company
recognized a loss of $12,102,841 on the sale of the Branded division,
including operating losses of $5,289,344 subsequent to the measurement date of
April 20, 1999.
Upon initial adoption of the plan to sell these businesses, management
expected to recognize a gain upon the disposal of its historical businesses.
During the quarter ended June 30, 1999, management revised its estimates and
recorded a loss on disposal of $5,632,158. During the quarter ended January 1,
2000, when the Company consummated the sale of its Branded division, the
proceeds from the sale were substantially lower than formerly anticipated. As
a result of this transaction and the renegotiation of the sales price for the
Off-Price and Action Sports division, management made further revisions to its
estimates and recognized additional losses on disposal of $11,704,521 during
the quarter ended January 1, 2000.
Net sales of discontinued operations for the fiscal years ended December 31,
1997, December 31, 1998 and January 1, 2000 were $60,671,407, $131,434,971 and
$112,823,357, respectively. For the period subsequent to April 20, 1999, the
measurement date, discontinued operations incurred net operating losses of
$7,575,861, of which $5,289,344 was attributable to the Branded division and
$2,286,517 was attributable to the Off-Price and Action Sports division. The
income tax provision for discontinued operations arose as a result of the
taxable income of a foreign subsidiary as well as a tax provision related to
gains on the disposal of certain intangibles owned by a U.S. subsidiary.
F-21
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The discontinued operations components of amounts reflected in the balance
sheets are as follows:
<TABLE>
<CAPTION>
December 31, January 1,
1998 2000
------------ ------------
<S> <C> <C>
Balance Sheet Data:
Cash........................................ $ 772,916 $ 590,952
Accounts receivable......................... 36,782,732 29,692,418
Inventory................................... 20,954,168 3,518,312
Property and equipment...................... 1,397,189 1,242,526
Goodwill and intangibles.................... 16,507,073 11,148,024
Other assets................................ 936,293 499,650
Accounts payable and accrued expenses....... (16,192,954) (10,360,404)
Subordinated notes payable.................. (1,999,065) --
Note payable, banks......................... (14,823,955) (15,520,167)
Notes payable, other........................ (3,206,558) (2,430,505)
------------ ------------
Net assets of discontinued
operations(/1/).......................... $ 41,127,839 $ 18,380,806
============ ============
</TABLE>
--------
(/1/) Included in current assets.
Acquisition of Discontinued Operations
Prior to its decision to focus exclusively on its e-commerce business, the
Company acquired Gen-X Holdings Inc. and Gen-X Equipment Inc. on May 12, 1998.
The Gen-X Companies were privately-held companies based in Toronto, Ontario
specializing in selling off-price sporting goods and winter sports equipment
(including ski and snowboard equipment), in-line skates, sunglasses,
skateboards and specialty footwear. In consideration for the stock of the Gen-
X Companies, the Company issued 1,500,000 shares of its common stock and
contingent consideration in the form of non-interest bearing notes and 10,000
shares of mandatorily redeemable preferred stock in the aggregate amount of
$5,000,000. The notes are payable and shares are redeemable at an aggregate of
$1,000,000 per year over a five-year period upon achieving certain sales and
gross profit targets. The total purchase price, including acquisition expenses
of approximately $330,000 but excluding the contingent consideration described
above ($1,000,000 of which was paid in May of 1999), was $9,279,645. This
purchase price was based on the 5-day average market price of the 1,500,000
shares discounted by 10% to reflect restrictions on the transferability of
these shares.
The following table details the allocation of the total consideration:
<TABLE>
<S> <C>
Fair value of assets acquired................................. $13,913,937
Fair value of liabilities assumed............................. (13,765,000)
Goodwill...................................................... 9,130,708
-----------
$ 9,279,645
===========
</TABLE>
During the one-year period ended April 30, 1999, the Gen-X Companies
achieved the first of their sales and gross profit targets, and accordingly,
in May 1999, the Company redeemed 2,000 shares of the mandatorily redeemable
preferred stock for $100,000 and paid $900,000 against the contingent notes
payable, resulting in a corresponding increase to goodwill of $1,000,000.
Effective July 27, 1998, the Company acquired Lamar Snowboards, Inc.
("Lamar"), a privately-held manufacturer of snowboards, bindings and related
products based in San Diego, California. In consideration for
F-22
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the stock of Lamar, the Company paid $250,000 in cash and issued notes in the
aggregate principal amount of $1,000,000, payable over five years. The fair
value of the assets acquired was $927,124 and the fair value of the
liabilities assumed was $1,881,116, resulting in goodwill of $2,203,992.
Notes Payable of Discontinued Operations
The components of the notes payable, banks balances as of December 31, 1998
and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
December
31, January 1,
1998 2000
----------- -----------
<S> <C> <C>
Revolving credit facility, secured by substantially
all assets of the Gen-X Companies (weighted average
interest rate at January 1, 2000--7.71%)........... $14,500,000 $15,240,000
Mortgage payable, secured by building due 8/15/09
(interest rate at January 1, 2000--7.91%).......... 323,955 280,167
----------- -----------
Total............................................. $14,823,955 $15,520,167
=========== ===========
</TABLE>
The Company has a line of credit of approximately $20,000,000 for use by the
Gen-X Companies, which is available for either direct borrowing or for import
letters of credit. The loan bears interest at prime plus one half percent and
is secured by a general security agreement covering substantially all of the
Gen-X Companies' assets. As of January 1, 2000, draws of $15,240,000 were
committed under this line. Based on available collateral and outstanding
import letters of credit commitments an additional $9,184,000 was available
for borrowing as of January 1, 2000. The maximum amount outstanding on this
line during the fiscal year ended January 1, 2000 was $15,240,000.
Notes payable, banks includes a mortgage payable secured by land and
building in Ontario, Canada of $280,167 bearing interest at the bank's cost of
funds plus 2.5% and maturing on August 15, 2009.
The components of the notes payable, other balances as of December 31, 1998
and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
December
31, January 1,
1998 2000
---------- ----------
<S> <C> <C>
Note payable to Ride, Inc., due 12/31/02 (interest
rate as of January 1, 2000--8%)...................... $1,600,000 $1,200,000
Notes payable to former shareholders of Lamar, due
7/27/03 (interest rate as of January 1, 2000--6%).... 1,606,558 1,230,505
---------- ----------
Total.............................................. $3,206,558 $2,430,505
========== ==========
</TABLE>
Other debt related to the Gen-X Companies includes an outstanding loan
payable to Ride Inc. of $1,200,000. The original loan of $2,000,000 is
repayable in equal quarterly installments of $100,000 which commenced on March
31, 1998 and bears interest at the prime lending rate.
Notes payable, other also includes $1,230,505 of promissory notes payable to
the former shareholders of Lamar. The notes are payable in five equal annual
installments and bear interest at 6% per annum.
F-23
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the subordinated notes payable balances as of December 31,
1998 and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
December 31, January 1,
1998 2000
------------ ----------
<S> <C> <C>
Subordinated notes payable to former shareholders
of the Gen-X Companies, due January 1, 2000...... $1,999,065 $--
========== ====
</TABLE>
Upon closing the Gen-X transaction on May 12, 1998, several subordinated
notes payable were executed with the former shareholders of the Gen-X
Companies for an aggregate of $1,999,065 which is payable upon the earlier of
the Company raising certain additional capital or in four equal consecutive
quarterly payments beginning March 31, 1999. This note bears interest at 7%
per annum until December 31, 1998 and the prime lending rate thereafter.
Net interest expense incurred related to notes payable of discontinued
operations amounting to $-- , $905,197 and $2,430,151 for the fiscal years
ended December 31, 1997, December 31, 1998 and January 1, 2000, respectively,
has been allocated to discontinued operations.
Property and Equipment of Discontinued Operations
The major classes of property and equipment, at cost, as of December 31,
1998 and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
December 31, January 1,
1998 2000
------------ ----------
<S> <C> <C>
Computers and equipment........................ $ 574,040 $ 693,100
Building....................................... 686,365 678,375
Leasehold improvement.......................... 21,846 14,247
Land........................................... 268,800 268,800
---------- ----------
1,551,051 1,654,522
Less: Accumulated depreciation and
amortization.................................. (153,862) (411,996)
---------- ----------
Property and equipment, net................. $1,397,189 $1,242,526
========== ==========
</TABLE>
Purchase Commitments of Discontinued Operations
As of January 1, 2000, outstanding purchase commitments exist totaling
$2,412,167.
Related Party Transactions of Discontinued Operations
For the year ended December 31, 1997, the KPR Companies' purchased $196,274
of inventory from RYKA Inc. (prior to the Reorganization).
Financial Instruments of Discontinued Operations
The Company uses derivative financial instruments to manage the impact of
foreign exchange rate changes on earnings and cash flows. The Company does not
enter into financial instruments for trading or speculative purposes. The
counterparties to these contracts are major financial institutions with high
credit ratings and the Company does not have significant exposure to any one
counterparty. Management believes the risk of loss is remote and in any event
would be immaterial.
F-24
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As part of its foreign exchange risk management strategy, the Company uses
forward exchange contracts to minimize currency risk on anticipated inventory
purchases and cash flows from collections of accounts receivable. The terms of
these contracts are typically from one to three months. From time to time
during 1998 and 1999, the Company entered into several forward currency
exchange contracts with one of its main lending banks, accounted for as direct
hedges on certain of its accounts payable exposures in Swiss Francs, German
Marks and British Pounds. All gains and losses from such contracts are
recognized in cost of sales as the related inventories are sold. The Company
had no amounts outstanding related to these contracts as of January 1, 2000.
Significant Customers/Concentrations of Credit Risk of Discontinued
Operations
The Company's sales and accounts receivable of discontinued operations were
primarily with major national retail stores. If the financial condition or
operations of these customers deteriorate substantially, the Company's
operating results could be adversely affected. Credit risk with respect to
other trade accounts receivable is generally diversified due to the large
number of entities comprising the Company's customer base and mitigated in
part by credit insurance. The Company performs ongoing credit evaluations of
its customers' financial condition and generally the Company does not require
collateral.
For the fiscal years ended December 31, 1997, December 31, 1998 and January
1, 2000, net sales to key customers each amounting to in excess of 10% of net
sales are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
December 31, December 31 January 1,
1997 1998 2000
------------ ----------- ----------
<S> <C> <C> <C>
Customer A............................ N/A 27% N/A
Customer B............................ 22% 13% 13%
Customer C............................ 13% N/A N/A
</TABLE>
As of December 31, 1998, accounts receivable for Customer A and Customer B
amounted to $8,881,106 and $4,080,369, respectively, or 24% and 11%,
respectively, of total accounts receivable outstanding. As of January 1, 2000,
accounts receivable for Customer B amounted to $1,957,882, or 5% of total
accounts receivable outstanding in discontinued operations.
Major Suppliers/Economic Dependency of Discontinued Operations
Inventory purchased for the fiscal years ended December 31, 1997 and
December 31 1998 from a supplier amounted to 26% and 11%, respectively, of
total inventory purchased. As of December 31, 1997, the amount owed to this
supplier was $11,261,105, or 70% of total accounts payable outstanding. As of
December 31, 1998 and January 1, 2000, the Company had no amounts owed to this
supplier. No other supplier amounted to in excess of 10% of total inventory
purchased for each of the years then ended.
F-25
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 19--QUARTERLY RESULTS (UNAUDITED)
The following tables contain selected unaudited Statement of Operations
information for each quarter of the fiscal years ended December 31, 1998 and
January 1, 2000. The Company believes that the following information reflects
all normal recurring adjustments necessary for a fair presentation of the
information for the periods presented. The operating results for any quarter
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
For the Fiscal Year Ended December 31, 1998
-----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net revenues................. $ -- $ -- $ -- $ --
========== ========== ========== ===========
Gross profit................. -- -- -- --
========== ========== ========== ===========
Loss from continuing
operations.................. $ (439,448) $ (452,616) $ (875,998) $(2,073,038)
Income from discontinued
operations.................. 1,971,021 1,258,993 3,314,628 3,120,314
---------- ---------- ---------- -----------
Net income................... $1,531,573 $ 806,377 $2,438,630 $ 1,047,276
========== ========== ========== ===========
Losses per share--basic and
diluted(/1/):
Loss from continuing
operations................ $ (.04) $ (.04) $ (.07) $ (.17)
Income from discontinued
operations................ .19 .11 .27 .26
---------- ---------- ---------- -----------
Net income................. $ .15 $ .07 $ .20 $ .09
========== ========== ========== ===========
Weighted average shares
outstanding--basic and
diluted..................... 10,418,198 11,226,403 11,922,515 11,925,378
========== ========== ========== ===========
</TABLE>
- --------
(/1/) The sum of the quarterly per share amounts may not equal per share
amounts reported for year-to-date periods. This is due to changes in the
number of weighted average shares outstanding and the effects of
rounding for each period.
<TABLE>
<CAPTION>
For the Fiscal Year Ended January 1, 2000
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues............... $ -- $ -- $ -- $ 5,510,576
========== =========== =========== ============
Gross profit............... -- -- -- 1,693,809
========== =========== =========== ============
Loss from continuing
operations................ $ (763,287) $(3,221,021) $(7,116,645) $(15,359,436)
Income (loss) from
discontinued operations... 1,157,175 (607,335) -- --
Gain (loss) on disposition
of discontinued
operations................ -- (5,632,158) 97,951 (11,802,472)
---------- ----------- ----------- ------------
Net income (loss).......... $ 393,888 $(9,460,514) $(7,018,694) $(27,161,908)
========== =========== =========== ============
Losses per share--basic and
diluted(/1/):
Loss from continuing
operations.............. $ (.06) $ (.27) $ (.42) $ (.83)
Income (loss) from
discontinued
operations.............. .09 (.05) -- --
Gain (loss) on
disposition of
discontinued
operations.............. -- (.46) -- (.64)
---------- ----------- ----------- ------------
Net income (loss)........ $ .03 $ (.78) $ (.42) $ (1.47)
========== =========== =========== ============
Weighted average shares
outstanding--basic and
diluted................... 12,018,517 12,120,085 16,824,139 18,424,942
========== =========== =========== ============
</TABLE>
- --------
(/1/) The sum of the quarterly per share amounts may not equal per share
amounts reported for year-to-date periods. This is due to changes in the
number of weighted average shares outstanding and the effects of
rounding for each period.
F-26
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
NOTE 20--SUBSEQUENT EVENT
On February 29, 2000, the Company entered into a long-term distribution
agreement with BlueLight.com, an independent company formed to operate the e-
commerce businesses of Kmart Corporation. The Company will provide a product
information database to BlueLight.com that it will use to merchandise the
sporting goods department of its flagship Web site. BlueLight.com will process
orders for sporting goods on its Web site and deliver the orders to the
Company electronically. The Company will then sell the product from its
inventory and transfer title to BlueLight.com at a predetermined discount to
the selling price of the product and pick, pack and ship the products to
consumers on behalf of BlueLight.com. The Company will generate revenues from
the sale of product to BlueLight.com and will recognize such revenues upon
delivery of the merchandise to a common carrier.
F-27
<PAGE>
ACQUISITION AGREEMENT
Parties: GLOBAL SPORTS, INC.,
a Delaware corporation ("Global")
1075 First Avenue
King of Prussia, PA 19406
GEN-X ACQUISITION (U.S.), INC.,
a Washington corporation ("U.S. Co.")
701 5th Avenue
Suite 3300
Seattle, Washington
98104-7082
GEN-X ACQUISITION (CANADA) INC.,
an Ontario corporation ("Canadian Co.")
25 Vanley Crescent
North York, Ontario
M3J 2B7
DMJ FINANCIAL, INC.,
a Barbados limited company ("DMJ")
Royal Bank of Canada (Caribbean) Corporation
2nd Floor, Building #2
Chelston Park, Collymore
St. Michael, Barbados
JAMES J. SALTER,
an individual ("Salter")
277 Glencairn Avenue
Toronto, Ontario M5N1T8
KENNETH J. FINKELSTEIN,
an individual ("Finkelstein")
25 Brandy Court
Toronto, Ontario M3B3L3
Date: September 24, 1999, as amended March 13, 2000
Background: Global owns beneficially and of record all of the issued and
outstanding shares of capital stock of Gen-X Equipment Inc., an Ontario
corporation ("Gen-X Equipment") and Gen-X Holdings Inc., a Washington
corporation ("Gen-X Holdings"). Gen-X Holdings is a Washington corporation
also in the business of distributing excess inventories of sports equipment
and accessories. Gen-X Equipment and Gen-X Holdings (along with each of their
direct or indirect Subsidiaries (as defined herein)) are collectively referred
to herein as the "Gen-X Companies". Salter and Finkelstein own beneficially
and of record all of the issued and outstanding shares of capital stock of
DMJ. DMJ and the individuals set forth on Schedule A own beneficially and of
record all of the issued and outstanding shares of capital stock of U.S. Co.
U.S. Co. owns beneficially and of record all of the issued and outstanding
shares of Canadian Co. (U.S. Co. and Canadian Co. shall be referred to
individually as "Buyer" and collectively as "Buyers"). The parties desire that
Global sell and Buyers purchase all of the issued and outstanding shares of
capital stock of the Gen-X Holdings and Gen-X Equipment, all on and subject to
the terms and conditions of this Agreement.
A-1
<PAGE>
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. DEFINED TERMS
Certain defined terms used in this Agreement and not specifically defined in
context are defined in this Section 1, as follows:
1.1. "Acquisition Agreements" means this Agreement and the Ancillary
Agreements (as defined in Section 1.3).
1.2. "Affiliate" means any Person (as defined in Section 1.17) which
controls, is controlled by or is under common control with, the designated
party, either directly or indirectly through one or more intermediaries.
1.3. "Ancillary Agreements" means: (a) the Purchase Price Escrow Agreement,
(b) the Termination Agreements, (c) the Right of First Offer Agreement, (d)
the Non-Competition Agreement, (e) the Termination of Non-Competition
Agreement, (f) the Assignment and Assumption Agreement and (g) the Escrow
Agreement, each as hereinafter defined.
1.4. "Asset" means any real, personal, mixed, tangible or intangible
property of any nature.
1.5. "Consent" means any consent, approval, order or authorization of, or
any declaration, filing or registration with, or any application or report to,
or any waiver by, or any other action (whether similar or dissimilar to any of
the foregoing) of, by or with, any Person, which is legally necessary in order
to take a specified action or actions in a specified manner and/or to achieve
a specified result.
1.6. "Contract" means any written or oral contract, agreement, instrument,
order, arrangement, commitment or understanding of a legally binding nature,
including, but not limited to, sales orders, purchase orders, leases,
subleases, data processing agreements, maintenance agreements, license
agreements, sublicense agreements, loan agreements, promissory notes, security
agreements, pledge agreements, deeds, mortgages, guaranties, indemnities,
warranties, employment agreements, consulting agreements, sales representative
agreements, joint venture agreements, buy-sell agreements, options or
warrants.
1.7. "Encumbrance" means any lien, security interest, pledge, mortgage,
easement, covenant, restriction, reservation, conditional sale, prior
assignment, or other encumbrance, claim, burden or charge of any nature.
1.8. "GAAP" means, in respect of a United States entity, generally accepted
accounting principles under United States accounting rules and regulations, as
in effect from time to time, consistently applied and, in respect of a
Canadian entity, accounting principles generally accepted in Canada, including
those set out in the Handbook of the Canadian Institute of Chartered
Accountants, at the relevant time, applied on a consistent basis.
1.9. "Gen-X Material Adverse Effect" means a material adverse effect on the
business, results of operations or financial condition of the Gen-X Companies
taken as a whole; provided, however, that the term "Gen-X Material Adverse
Effect" shall not include any effect attributable to changes in the economy
(of the United States or any other country) generally, changes in the
industries in which the Gen-X Companies operate, or seasonality of the
businesses of the Gen-X Companies.
1.10. "Global Management" means the officers and directors of Global other
than Salter, Finkelstein or any employee reporting to Salter or Finkelstein.
1.11. "Inventory" means, with respect to a Person, all inventory,
merchandise, goods, packaging, supplies, boxes and other personal property
held for sale or rental in the business conducted by the Person and its
Subsidiaries, wherever such property is located, and any prepaid deposits for
any of the same.
A-2
<PAGE>
1.12. "Judgment" means any order, writ, injunction, citation, award, decree
or other judgment of any nature of any foreign, federal, state, provincial or
local court, governmental body, administrative agency, regulatory authority or
arbitration tribunal.
1.13. "Law" means any provision of any foreign, federal, state, provincial
or local law, statute, ordinance, charter, constitution, treaty, rule or
regulation.
1.14. "Obligation" means any debt, liability or obligation of any nature,
whether secured, unsecured, recourse, nonrecourse, liquidated, unliquidated,
accrued, absolute, fixed, contingent, ascertained, unascertained, known,
unknown or otherwise.
1.15. "Original Investor Group" means DMJ and the individuals set forth on
Schedule A.
1.16. "Permitted Encumbrance" means (a) any lien for Taxes which are not yet
due or which are being contested in good faith by appropriate proceedings
diligently prosecuted, in either case provided that adequate reserves therefor
have been established in accordance with GAAP; (b) any carrier's,
warehouseman's, mechanic's, materialman's, repairman's, landlord's or similar
statutory or inchoate lien incidental to the ordinary conduct of business
which involves an obligation that is not more than sixty (60) days past due or
which is being contested in good faith by appropriate proceedings diligently
prosecuted, in either case provided that adequate reserves therefor have been
established in accordance with GAAP; or (c) any interest of a governmental
agency in any lawfully made pledge or deposit under workers' compensation,
unemployment insurance or other social security statutes. Notwithstanding the
foregoing, Permitted Encumbrances shall not include any Encumbrance that was
incurred or arose in connection with any Obligation to pay or guarantee the
payment of borrowed funds including, but not limited to, funds obtained as a
result of bank debt, capitalized lease, installment purchase or other
financing activity.
1.17. "Person" means any individual, sole proprietorship, joint venture,
partnership, corporation, association, cooperative, trust, estate,
governmental body, administrative agency, regulatory authority or other entity
of any nature.
1.18. "Prime Rate" means the prime rate of general application as set forth
in the "Money Rates" section (or such future section as shall replace it) of
The Wall Street Journal (Eastern Edition), as published on a specified date or
dates, or, if no date(s) are specified, as the same shall be published from
time to time.
1.19. "Proceeding" means any suit, action, litigation, governmental
investigation, arbitration, administrative hearing or other legal proceeding
of any nature.
1.20. "Restructuring Plan" means the restructuring plan set forth on
Schedule 1.20.
1.21. "Subsidiary" means, with respect to any Person, any other Person as to
which such person directly or indirectly owns or has the power to vote, or to
exercise a controlling influence with respect to, 50% or more of the
securities or interests of any class of such other person which are entitled
to vote for the election of directors or others performing similar functions.
1.22. "Tax" means (a) any foreign, federal, provincial, state or local
income, earnings, profits, gross receipts, franchise, capital stock, net
worth, sales, use, occupancy, general property, real property, personal
property, intangible property, transfer, fuel, excise, payroll, withholding,
unemployment compensation, social security or other tax of any nature, (b) any
foreign, federal, state, provincial or local organization fee, qualification
fee, annual report fee, filing fee, occupation fee, assessment, sewer rent or
other fee or charge of any nature, or (c) any deficiency, interest or penalty
imposed with respect to any of the foregoing.
1.23 "Amendment Date" means the date on which Amendment No. 1 to this
Agreement is made and entered into.
A-3
<PAGE>
2. THE TRANSACTION
2.1. Sale of Gen-X Equipment and Gen-X Holdings. On the Closing Date (as
defined in Section 10.1), (i) Global shall sell, transfer, assign and convey
to U.S. Co., and U.S. Co. shall purchase, all right, title and interest in and
to all of the issued and outstanding shares of capital stock of Gen-X
Holdings, and (ii) Global shall sell, transfer, assign and convey to Canadian
Co, and Canadian Co. shall purchase, all right, title and interest in and to
all of the issued and outstanding shares of capital stock of Gen-X Equipment
(the issued and outstanding shares of capital stock of Gen-X Holdings and Gen-
X Equipment are collectively referred to herein as the "Gen-X Stock").
3. PURCHASE PRICE AND CLOSING FINANCIAL STATEMENTS
3.1. Purchase Price. Subject to the adjustments and provisions of Sections
3.2 and 3.3, the total purchase price (the "Purchase Price") for the Gen-X
Stock shall consist of the following:
(a) Gen-X Holdings Stock. On the Amendment Date, U.S. Co. shall, and DMJ,
Salter and Finkelstein shall cause U.S. Co. to, deliver to Borden Ladner
Gervais LLP as escrow agent, to be held by such escrow agent pursuant to
the escrow agreement (the "Purchase Price Escrow Agreement") attached
hereto as Exhibit "T", a cash payment in the amount of Six Million Dollars
($6,000,000) and on the Closing Date, U.S. Co. shall, and DMJ, Salter and
Finkelstein shall cause U.S. Co. to (i) deliver to Global a cash payment in
the amount of Three Million Six Hundred Thousand Dollars ($3,600,000) (the
"Gen-X Holdings Closing Payment"), and (ii) assume Global's non-negotiable
subordinated notes in the original aggregate principal amount of Three
Million Nine Hundred Sixty Thousand Dollars ($3,960,000) payable to Gen-X
Holdings, dated as of the Closing Date (the "Replacement Notes"), together
with all accrued and unpaid interest thereon; and
(b) Gen-X Equipment Stock. On the Closing Date, Canadian Co. shall, and
U.S. Co., DMJ, Salter and Finkelstein shall cause Canadian Co. to, deliver
to Global a cash payment (together with the Gen-X Holdings Closing Payment,
the "Closing Payment") in the amount of Three Million Six Hundred Thousand
Dollars ($3,600,000).
3.2 Purchase Price Adjustment.
(a) If, during the two hundred seventy-three (273) day period following
the Closing Date, either Buyer or any of the Gen-X Companies enter into an
agreement, option or understanding or executes a letter of intent,
agreement in principle or definitive agreement with any of the parties set
forth on Schedule 3.2(a) (a "Sale Transaction Agreement") with respect to
or that is likely to result in a Sale Transaction (as defined below), then
the Purchase Price shall be increased by an amount (the "Purchase Price
Adjustment") determined as follows:
(1) If the Company enters into or executes a Sale Transaction
Agreement within ninety-one (91) days following the Closing Date, the
Purchase Price Adjustment shall be equal to seventy-five percent (75%)
of the amount, if any, by which (i) the Sale Transaction Consideration
(as defined below) exceeds (ii) Thirteen Million Two Hundred Thousand
Dollars ($13,200,000);
(2) If the Company enters into or executes a Sale Transaction
Agreement on or after ninety-two (92) days and prior to one hundred
eighty-two (182) days following the Closing Date, the Purchase Price
Adjustment shall be equal to fifty percent (50%) of the amount, if any,
by which (i) the Sale Transaction Consideration exceeds (ii) Thirteen
Million Two Hundred Thousand Dollars ($13,200,000); and
(3) If the Company enters into or executes a Sale Transaction
Agreement on or after one hundred eighty three (183) days and prior to
two hundred seventy-three (273) days following the Closing Date, the
Purchase Price Adjustment shall be equal to fifteen percent (15%) of
the amount, if any, by which (i) the Sale Transaction Consideration
exceeds (ii) Thirteen Million Two Hundred Thousand Dollars
($13,200,000).
A-4
<PAGE>
(b) For the purposes of this Agreement, a Sale Transaction shall mean (i)
any transaction or series of related transactions in which either Buyer or
any of the Gen-X Companies sells, assigns, transfers, leases or licenses
all or a substantial portion of its Assets, (ii) any transaction or series
of related transactions (including any reorganization, merger,
consolidation or other business combination) in which either Buyer or any
of its Subsidiaries sells, assigns or transfers 50% or more of the
outstanding capital stock (or other outstanding ownership interests) of any
of the Gen-X Companies, (iii) any transaction or series of related
transactions (including any reorganization, merger, consolidation or other
business combination, but not including public offerings of equity
securities) in which DMJ, Salter and/or Finkelstein sells, assigns or
transfers 50% or more of the outstanding capital stock (or other
outstanding ownership interests) of either Buyer, (iv) any transaction or
series of related transactions (other than public offerings of equity
securities) in which any Person or group of Persons acquires "beneficial
ownership" within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), of 50% or more of the capital
stock of either Buyer or any of the Gen-X Companies, (v) any liquidation,
dissolution or winding up of either Buyer or any of the Gen-X Companies, or
(vi) any other transaction or series of related transactions the purpose or
effect of which is to sell, assign or transfer control or a majority of the
ownership of either Buyer or any of the Gen-X Companies or to sell, assign
or transfer the business or goodwill of either Buyer or any of the Gen-X
Companies; provided, however, that the implementation of the Restructuring
Plan shall not in and of itself constitute a Sale Transaction.
(c) For purposes of this Agreement, Sale Transaction Consideration shall
mean the total amount of cash and the fair market value (on the date of the
closing of the Sale Transaction) of all other securities and/or property
paid or payable directly or indirectly to either Buyer and/or any of the
Gen-X Companies or any of its securityholders (or holders of ownership
interests) in connection with the Sale Transaction (including (i) amounts
paid to holders of any warrants or convertible securities of either Buyer
and/or any of the Gen-X Companies or to holders of any options or stock
appreciation rights issued by either Buyer and/or any of the Gen-X
Companies, whether or not vested; (ii) the fair market value of any assets
of either Buyer and/or any of the Gen-X Companies which are retained by or
otherwise distributed to their securityholders (or holders of ownership
interests) or Affiliates in anticipation of or in connection with the Sale
Transaction; (iii) amounts characterized as deferred compensation,
consulting fees, non-competition payments and private pension benefits
unless the payments are for actual bona fide services and are commercially
reasonable in amount for such services); and (iv) assumption of the
outstanding amounts due under the U.S. Co. Promissory Note and/or the
Canadian Co. Promissory Note.
(d) No adjustment under this Section 3.2 shall result in a decrease to
the Purchase Price. Any amount paid under this Section 3.2 is intended by
all parties to be, and shall be treated by the parties as, an adjustment to
the Purchase Price.
(e) The Purchase Price Adjustment shall be paid in full in cash by Buyers
to Global contemporaneously with the closing of the Sale Transaction;
provided, however, that if the Sale Transaction Consideration is payable in
installments and/or consists of non-cash consideration Global shall have
the right, but not the obligation, to receive the Purchase Price Adjustment
as and when each installment of the Sale Transaction Consideration is
payable and/or in the form of such non-cash consideration.
(f) Buyers, DMJ, Salter and Finkelstein shall notify Global in writing
within three (3) business days after either Buyer, DMJ, Salter, Finkelstein
or any of the Gen-X Companies enter into or execute a Sale Transaction
Agreement. Notwithstanding the immediately preceding sentence, Buyers, DMJ,
Salter and Finkelstein shall notify Global in writing at least thirty (30)
days prior to the consummation of a Sale Transaction.
(g) If the Sale Transaction Consideration shall consist in whole or in
part of non-cash consideration, the fair market value of such consideration
shall be determined by agreement between Global and Buyers. If Global and
Buyers cannot agree upon the fair market value of such consideration within
ten (10) days after the consummation of the Sale Transaction, Global and
Buyers shall each select an appraiser who shall determine within thirty
(30) days after the closing date of the sale the fair market value of such
consideration as of the closing date of the Sale Transaction. If the two
appraisers agree upon the fair market value of such
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consideration, the agreed upon value shall be the fair market value of such
consideration. If the appraisers do not agree upon the fair market value of
such consideration, the higher of the two appraisals is not more than 110%
of the lower of the appraisals, the fair market value of such consideration
shall be the mean of the two appraisals. If the higher of the two
appraisals is greater than 110% of the lower appraisal, the two appraisers
shall jointly select a third appraiser who independently shall determine
within sixty (60) days after the closing date of the Sale Transaction the
fair market value of such consideration as of the closing date of the Sale
Transaction. The fair market value of such consideration as determined by
the third appraiser will be arithmetically averaged with the two appraisals
determined by the prior two appraisers, and the appraisal farthest from the
average of the three appraisals will be disregarded. The fair market value
of such consideration shall be the average of the two remaining appraisals.
3.3. Currency and Method of Payment. All dollar amounts stated in this
Agreement are stated in United States currency, and all payments required
under this Agreement shall be paid in United States currency. All payments
required under this Agreement shall be made as follows unless otherwise agreed
by both the payor and the payee: (a) any payment may be made by wire transfer
of immediately available United States federal funds; (b) any payment
exceeding $100,000 shall be made by wire transfer of immediately available
United States federal funds; (c) any payment not exceeding $100,000 may be
made by ordinary check.
4. REPRESENTATIONS OF GLOBAL
Knowing that Buyers are relying thereon, Global, represents and warrants to
Buyer as follows:
4.1. Organization and Authority. Gen-X Equipment is a corporation duly
organized and validly existing under the Laws of Ontario. Gen-X Holdings is a
corporation duly organized, validly existing and in good standing under the
Laws of the state of Washington. Gen-X Equipment and Gen-X Holdings each
possess the full corporate power and authority to own their Assets, conduct
their business as presently conducted and enter into and perform this
Agreement and the transactions contemplated hereby and the Ancillary
Agreements to which they are a party or by which they are bound and the
transactions contemplated thereby.
4.2. The Gen-X Equipment Stock. The authorized capital stock of Gen-X
Equipment consists of an unlimited number of common shares and an unlimited
number of preference shares, of which 10,000 common shares are issued and
outstanding (the "Gen-X Equipment Stock") and owned beneficially and of record
by Global, free and clear of all Encumbrances, except as set forth on Schedule
4.2. Subject to obtaining the required consents set forth on Schedule 4.4,
Global has the full right to sell and transfer all right, title and interest
in and to the Gen-X Equipment Stock, and upon delivery and payment for the
Gen-X Equipment Stock as provided herein, Buyers will acquire good title
thereto, free and clear of all Encumbrances. Except for this Agreement, none
of the Global Management has entered into any outstanding Contract relating to
the issuance, sale, redemption, ownership or disposition of any of the Gen-X
Equipment Stock or other securities of Gen-X Equipment. None of the Global
Management has entered into any contract relating to any stock appreciation
rights, phantom shares, cash performance units or other similar rights issued
by Gen-X Equipment.
4.3. The Gen-X Holdings Stock. The authorized capital stock of Gen-X
Holdings consists of (i) 1,000,000 shares of Class A common shares, no par
value, and 1,000,000 shares of Class V common shares, no par value, of which
9,650 shares and 350 shares, respectively, are issued and outstanding (the
"Gen-X Holdings Common Stock") and owned beneficially and of record by Global,
free and clear of all Encumbrances, except as set forth on Schedule 4.3, and
(ii) 1,000,000 preferred shares, of which 49,975 shares are issued and
outstanding (the "Gen-X Holdings Preferred Stock") and owned beneficially and
of record by Global, free and clear of all Encumbrances (the Gen-X Holdings
Common Stock and the Gen-X Holdings Preferred Stock being collectively
referred to as the "Gen-X Holdings Stock"). Global has the full right to sell
and transfer all right, title and interest in and to the Gen-X Holdings Stock,
and upon delivery and payment for the Gen-X Holdings Stock as provided herein,
Buyers will acquire good title thereto, free and clear of all Encumbrances.
Except for this Agreement, none of the Global Management has entered into any
outstanding Contract relating to the issuance, sale, redemption, ownership or
disposition of any of the Gen-X Holdings Stock or other securities of
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Gen-X Holdings. None of the Global Management has entered into any contract
relating to any stock appreciation rights, phantom shares, cash performance
units or other similar rights issued by Gen-X Holdings.
4.4. Effect of Agreement. The execution, delivery and performance of the
Acquisition Agreements by Global (to the extent it is a party thereto or bound
thereby), and the consummation by it of the transactions contemplated hereby
and thereby, (a) have been duly authorized by all necessary corporate actions
by its board of directors and shareholders, except that Global is required to
obtain the approval of this Agreement and the transactions contemplated hereto
by its shareholders (the "Global Shareholder Approval"), (b) do not constitute
a breach or violation of, or a default under, the certificate of
incorporation, bylaws or other organizational document of Global, (c) do not
constitute a breach or violation of, or a default under, any Contract to which
Global is a party or by which Global is bound or its assets or business, (d)
do not constitute a violation of any Law or Judgment applicable to Global or
its assets or business, (e) do not result in the creation of any Encumbrance
upon, or give to any other Person any interest in, the Gen-X Equipment Stock
or the Gen-X Holdings Stock, and (f) except as may be required under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Bylaws of the National Association of Securities Dealers, Inc. (the "NASD")
and for the Global Shareholder Approval and the Consents set forth on Schedule
4.4 (the "Global Required Consents"), do not require the Consent of any
Person; except in the case of clauses (c), (d), and (f) for breaches,
violations, defaults, interests or Consents which would not have a material
adverse effect on the ability of Global to consummate the transactions
contemplated by this Agreement. This Agreement constitutes, and the Ancillary
Agreements when executed and delivered will constitute, the valid and legally
binding agreements of Global enforceable against it (to the extent it is a
party thereto or bound thereby) in accordance with their respective terms.
4.5. Proceedings and Judgments. Except as described on Schedule 4.5, to the
knowledge of Global, (a) no Proceeding is currently pending or threatened, to
which any of the Gen-X Companies are a party, except any such Proceeding that
would not have a Gen-X Material Adverse Effect, or by which the Gen-X Holdings
Stock or the Gen-X Equipment Stock is affected, and (b) no Judgment is
currently outstanding against any of the Gen-X Companies, except any such
Judgment that would not have a Gen-X Material Adverse Effect, or by which the
Gen-X Holdings Stock or the Gen-X Equipment Common Shares is affected.
4.6. Brokerage Fees. Except for Deutsche Bank Alex. Brown, the fees of which
will be paid by Global, no Person acting on behalf of Global is entitled to
any brokerage, finder=s or other similar fee or commission in connection with
the transactions contemplated by this Agreement.
4.7. Full Disclosure. No representation or warranty made by Global in this
Agreement or the Ancillary Agreements or pursuant hereto or thereto contains
any untrue statement of any material fact or omits to state any material fact
that is necessary to make the statements made, in the context in which made,
not false or misleading.
5. REPRESENTATIONS OF BUYERS, DMJ, SALTER AND FINKELSTEIN
Knowing that Global is relying thereon, Buyers, DMJ, Salter and Finkelstein,
jointly and severally, represent and warrant to Global as follows:
5.1. Organization and Authority. Each Buyer is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. DMJ is a limited liability company duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Buyers and DMJ each possess the full corporate power and
authority to own their respective Assets, conduct their respective businesses
as presently conducted, and enter into and perform this Agreement and the
transactions contemplated hereby and the Ancillary Agreements to which they
are a party or by which they are bound and the transactions contemplated
thereby. Salter and Finkelstein each have the full capacity, power and
authority to enter into and perform this Agreement and the transactions
contemplated hereby and the Ancillary Agreements to which they are a party and
by which they are bound and the transactions contemplated thereby.
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5.2. Effect of Agreement. The execution, delivery and performance of the
Acquisition Agreements by Buyers, DMJ, Salter and Finkelstein (to the extent
they are parties thereto or bound thereby), and the consummation by them of
the transactions contemplated hereby and thereby, (a) in the case of Buyers
and DMJ, have been duly authorized by all necessary corporate actions by their
boards of directors and shareholders, (b) in the case of Buyers and DMJ, do
not constitute a breach or violation of, or a default under, the certificate
of incorporation or bylaws (or other organization documents) of Buyers, (c) do
not constitute a breach or violation of, or a default under, any Contract to
which Buyers, DMJ, Salter or Finkelstein are parties or by which Buyers are
bound, (d) do not constitute a violation of any Law or Judgment applicable to
Buyers, DMJ, Salter or Finkelstein (e) do not result in the creation of any
Encumbrance upon, or give to any other Person any interest in, Buyers' capital
stock or in the business or Assets of Buyers, and (f) except as may be
required under the HSR Act, the Exchange Act, and the Bylaws of the NASD and
for the Consents set forth on Schedule 5.2 (the "Buyer Required Consents"), do
not require the Consent of any Person; except in the case of clauses (c), (d)
and (f) for breaches, violations, defaults, Encumbrances, interests or
Consents which would not have a material adverse effect on the ability of
Buyers, DMJ, Salter or Finkelstein to consummate the transactions contemplated
by this Agreement. This Agreement constitutes, and the Ancillary Agreements
when executed and delivered will constitute, the valid and legally binding
agreements of Buyers, DMJ, Salter and Finkelstein enforceable against them (to
the extent they are parties thereto or bound thereby) in accordance with their
respective terms.
5.3. Global Preferred Stock and Contingent Notes. DMJ owns, free and clear
of all Encumbrances and has the full right to sell and transfer all right,
title and interest in and to Seven Thousand Two Hundred (7,200) shares of
Global preferred stock, par value $.01 per share (the "Global Preferred
Stock") Global's non-negotiable subordinated contingent notes in the aggregate
original principal amount of Four Million Five Hundred Thousand Dollars
($4,500,000), dated May 12, 1998 (the "Contingent Notes"), and upon delivery
of the Global Preferred Stock and the Contingent Notes as provided in the
Restructuring Plan, Global will acquire good title thereto, free and clear of
all Encumbrances.
5.4. Operations and Obligations of Buyer. Except as set forth on Schedule
5.4, Buyers were formed solely for the purpose of engaging in the transactions
contemplated by this Agreement and the Ancillary Agreements, and neither Buyer
has other than the transactions, engaged in any business activities, conducted
any operations or incurred or agreed to incur any obligation.
5.5. Proceedings and Judgments. Except as described on Schedule 5.5, (a) no
Proceeding is currently pending, or to the knowledge of DMJ, Salter and
Finkelstein, threatened, to which Buyers DMJ, Salter or Finkelstein are
parties, or by which Buyers' capital stock or the business or Assets of Buyers
are affected, and (b) no Judgment is currently outstanding against Buyers,
DMJ, Salter or Finkelstein or by which Buyers' capital stock or the business
or Assets of Buyers are affected other than the transactions.
5.6. Brokerage Fees.No Person acting on behalf of Buyers DMJ, Salter or
Finkelstein is entitled to any brokerage or finder's fee in connection with
the transactions contemplated by this Agreement.
5.7. Investment Matters. The Gen-X Stock to be received by Buyers hereunder
is being acquired for investment purposes only and not with a view to, or for
sale in connection with, any resale or distribution in violation of the
Securities Act of 1933, as amended (the "1933 Act"). Buyers have had access to
or been furnished with all information about the Gen-X Companies which they
believe is necessary to evaluate the purchase of the Gen-X Stock. Buyers
believe that they are fully knowledgeable or have been fully apprised of all
facts and circumstances necessary to permit them to make an informed decision
about the Gen-X Stock to be received by Buyers hereunder, that they has
sufficient knowledge and experience in business and financial matters, that
they are capable of evaluating the merits and risks of an investment in such
securities, and that they have the capacity to protect their own interests in
connection with the transactions contemplated hereby. Buyers are "accredited
investors" as defined in Regulation D under the 1933 Act. Buyers have been
advised by Global and understand that (a) the Gen-X Stock to be received by
Buyers hereunder will not be registered under the 1933 Act or any securities
Law of any Governmental Authority, and (b) such securities must be held
indefinitely
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unless and until they are subsequently registered under the 1933 Act and all
other applicable securities Laws or an exemption from registration becomes
available.
5.8. Obligations. Neither of DMJ, Salter or Finkelstein has incurred any
Obligation on behalf of Global or any of its Subsidiaries other than the Gen-X
Companies.
5.9. Negotiations. Neither Salter, Finkelstein nor any of their Affiliates
or representatives have engaged in the past six (6) months in any discussion
with any Person or any Subsidiary, Affiliate, representative or advisor of any
Person listed on Schedule 5.9 regarding (i) the sale, conveyance or
disposition of all or substantially all of the assets of the Gen-X Companies
or any transaction in which more than fifty percent (50%) of the voting power
of the Gen-X Companies is disposed of, or (iii) regarding any other form of
acquisition, liquidation, dissolution or winding up of the Gen-X Companies.
5.10. Global Representations. To the knowledge of DMJ, Salter and
Finkelstein, no representation or warranty made by Global in any of the
Acquisition Agreements or pursuant thereto contains any untrue statement of
any material fact or omits to state any material fact that is necessary to
make the statements made, in the context in which made, not false or
misleading.
5.11. Competition Act. There is no requirement to make any filing, give any
notice, or obtain any authorization, in connection with the Competition Act
(Canada) as a condition to the lawful completion of the transactions
contemplated by this Agreement.
5.12. Full Disclosure. No representation or warranty made by Buyers, DMJ,
Salter or Finkelstein in this Agreement or the Ancillary Agreements or
pursuant hereto or thereto contains any untrue statement of any material fact
or omits to state any material fact that is necessary to make the statements
made, in the context in which made, not false or misleading.
5.13. Hart-Scott-Rodino. Buyers are their own "ultimate parent entity" as
such term is defined pursuant to the HSR Act. Except for Buyers, no other
person or entity is an ultimate parent entity of Buyers. Buyers and all
entities controlled by them, on a consolidated basis, do not (i) hold
$10,000,000 in total assets (as shown on Buyers' most recent regularly
prepared balance sheet) or (ii) have $10,000,000 in annual net sales (as shown
on Buyers' most recent regularly prepared annual statement of income and
expense), as such amounts are determined under HSR. For purposes of this
Section 5.7, the terms "controlled", "annual net sales", "regularly prepared
annual statement of income and expense", "total assets" and "regularly
prepared balance sheet" shall have the meanings ascribed to them pursuant to
the HSR Act.
6. CERTAIN OBLIGATIONS OF GLOBAL PENDING CLOSING
6.1. Global Shareholders' Meeting. Promptly after the date of this
Agreement, Global shall prepare and cause to be filed with the SEC a proxy
statement (the "Proxy Statement") to be sent to the shareholders of Global in
connection with the Global Shareholders' Meeting (as defined below). Subject
to the exercise by the board of directors of Global of its fiduciary duties
under applicable Law, Global shall take all action reasonably necessary under
all applicable Law to call, give notice of, convene and hold a meeting of
Global's shareholders (the "Global Shareholders' Meeting") to consider, act
upon and vote upon the approval of this Agreement and the transactions
contemplated hereby.
6.2. Conduct Pending Closing. During the period from the date of this
Agreement to the Closing Date, except with the express prior written consent
of Buyers, Global shall cause the Gen-X Companies to conduct their respective
businesses in the ordinary course and shall cause the Gen-X Companies not make
any changes in the business of the Gen-X Companies that would have a Gen-X
Material Adverse Effect or to pay any dividend or distribution to Global.
6.3. Consents. Between the date of this Agreement and the Closing Date,
Global shall, and Global shall cause the Gen-X Companies to, in good faith,
use all reasonable efforts to obtain as promptly as practicable the
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Global Required Consents, including all required filings under the HSR Act,
and cooperate with Buyers in obtaining the Buyer Required Consents.
6.4. Advice of Changes. Between the date of this Agreement and the Closing
Date, Global shall promptly advise Buyers in writing of any fact of which any
of them obtains knowledge and which, if existing or known as of the date of
this Agreement, would have been required to be set forth or disclosed in or
pursuant to any of the Acquisition Agreements (it being understood that any
such advice shall not be deemed to modify the representations, warranties or
covenants of Global contained in the Acquisition Agreements or any written
statement, document or certificate delivered by Global under or in connection
with the Acquisition Agreements).
6.5. Reasonable Efforts. Global shall, and Global shall cause the Gen-X
Companies to, use all reasonable efforts to consummate the transactions
contemplated by the Acquisition Agreements as promptly as practicable.
6.6. Investment Canada Notice. Global, within thirty (30) days after the
Closing Date, will make, or cause to be made, together with Buyers, DMJ,
Salter and Finkelstein, the filing of any requisite notice under the
Investment Canada Act.
7. CERTAIN OBLIGATIONS OF BUYERS, DMJ, SALTER AND FINKELSTEIN PENDING CLOSING
7.1. Consents. Between the date of this Agreement and the Closing Date,
Buyers, DMJ, Salter and Finkelstein shall, in good faith, use all reasonable
efforts to obtain as promptly as practicable, the Buyer Required Consents,
including all required filings under the HSR Act, and shall cooperate with
Global in obtaining the Global Required Consents.
7.2. Advice of Changes. Between the date of this Agreement and the Closing
Date, Buyers, DMJ, Salter and Finkelstein shall promptly advise Global in
writing of any fact of which it obtains knowledge and which, if existing or
known as of the date of this Agreement, would have been required to be set
forth or disclosed in or pursuant to any of the Acquisition Agreements (it
being understood that any such advice shall not be deemed to modify the
representations, warranties or covenants of Buyers contained in any of the
Acquisition Agreements or any written statement, document or certificate
delivered by Buyers under or in connection with any of the Acquisition
Agreements).
7.3. Reasonable Efforts. Buyers, DMJ, Salter and Finkelstein shall use all
reasonable efforts to consummate the transactions contemplated by the
Acquisition Agreements.
7.4. Conduct Pending Closing. During the period from the date of this
Agreement to the Closing Date, except with the express prior written consent
of Global, Salter and Finkelstein shall cause the Gen-X Companies to conduct
their respective businesses in the ordinary course and shall not make any
changes in the business of the Gen-X Companies that would have a Gen-X
Material Adverse Effect.
7.5. Investment Canada Notice. Each of Buyers, DMJ, Salter and Finkelstein,
within thirty (30) days after the Closing Date, will make, or cause to be
made, together with Global, the filing of any requisite notice under the
Investment Canada Act.
7.6. This Section Intentionally Left Blank.
7.7. Certain Obligations. Buyers, DMJ, Salter and Finkelstein shall cause
Global and all of its subsidiaries other than the Gen-X Companies to be
released from any and all obligations that Global has to Ride, Inc., RoyNat
and their Affiliates.
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8. CONDITIONS PRECEDENT TO CLOSING BY GLOBAL
Each obligation of Global to be performed on the Closing Date shall be
subject to the satisfaction of each of the following conditions, except to the
extent that such satisfaction is waived by Global in writing:
8.1. Representations of Buyers, DMJ, Salter and Finkelstein.
8.1.1 Subject to Section 8.1.2, the representations and warranties of
Buyers, DMJ, Salter and Finkelstein contained in this Agreement shall have
been true in all material respects on and as of the date made and shall be
true in all material respects on and as of the Closing Date, with the same
force and effect as though made on and as of the Closing Date, except that
any representation or warranty made as of a specified date shall be true in
all material respects on and as of such date, in each case without giving
effect to any advice given by Buyers under Section 7.2.
8.1.2 The representations and warranties of Buyers, DMJ, Salter and
Finkelstein contained in this Agreement that are qualified by materiality
shall have been true in all respects on the date of this Agreement and
shall be true in all respects on and as of the Closing Date, except that
any such representation or warranty made as of a specified date shall be
true in all respects on and as of such date, in each case without giving
effect to any advice given by Buyers under Section 7.2.
8.2. Performance by Buyers, DMJ, Salter and Finkelstein. All of the
covenants, terms, obligations and conditions of this Agreement to be satisfied
or performed by Buyers, DMJ, Salter and Finkelstein on or before the Closing
Date shall have been substantially satisfied or performed.
8.3. This Section Intentionally Left Blank.
8.4. Global Shareholder Approval. The Global Shareholder Approval shall have
been obtained.
8.5. Restructuring. The Restructuring shall be in form and substance
reasonably satisfactory to Global.
8.6. Removal from Obligations. Global and all of its Subsidiaries other than
the Gen-X Companies shall have been released from any and all obligations to
Ride, Inc., RoyNat and their Affiliates.
8.7. Absence of Proceedings. No Proceeding shall have been instituted on or
before the Closing Date by any Person (other than Global and/or any of the
Gen-X Companies), no Judgment shall have been issued, and no new Law shall
have been enacted, that seeks to or does prohibit or restrain, or that seeks
material damages as a result of, the consummation of the transactions
contemplated by the Acquisition Agreements.
8.8. Fairness Opinion. Global shall have received the written opinion of its
financial advisor to the effect that, as of the date of approval by the board
of directors of Global of the Acquisition Agreements, the consideration to be
received by Global for the Gen-X Stock in connection with the transactions
contemplated by the Acquisition Agreements is fair, from a financial point of
view, to Global, which written opinion shall not have been withdrawn, modified
or changed.
9. CONDITIONS PRECEDENT TO CLOSING BY BUYERS
Each obligation of Buyers to be performed on the Closing Date shall be
subject to the satisfaction of each of the following conditions, except to the
extent that such satisfaction is waived by Buyers in writing:
9.1. Representations of Global.
9.1.1 Subject to Section 9.1.2, the representations and warranties of
Global contained in this Agreement shall have been true in all material
respects on and as of the date made and shall be true in all material
respects on and as of the Closing Date, with the same force and effect as
though made on and as of the Closing Date, except that any representation
or warranty made as of a specified date shall be true in all material
respects on and as of such date, in each case without giving effect to any
advice given by Global under Section 6.4.
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9.1.2 The representations and warranties of Global contained in this
Agreement that are qualified by materiality shall have been true in all
respects on the date of this Agreement and shall be true in all respects on
and as of the Closing Date, except that any such representation or warranty
made as of a specified date shall be true in all respects on and as of such
date, in each case without giving effect to any advice given by Global
under Section 6.4.
9.2. Performance by Global. All of the covenants, terms, obligations and
conditions of this Agreement to be satisfied or performed by Global on or
before the Closing Date shall have been substantially satisfied or performed.
9.3. Absence of Proceedings. No Proceeding shall have been instituted on or
before the Closing Date by any Person (other than Buyers, DMJ, Salter or
Finkelstein), no Judgment shall have been issued, and no new Law shall have
been enacted, that seeks to or does prohibit or restrain, or that seeks
material damages as a result of, the consummation of the transactions
contemplated by the Acquisition Agreements.
9.4. Acceleration of Vesting of Options. Global shall have accelerated (a)
the vesting of all of the options to purchase shares of Global common stock,
par value $.01 per share ("Global Common Stock"), held as of the date hereof
by Salter and Finkelstein, so that such options shall become exercisable as of
the Amendment Date; and (b) the vesting of the options granted to the
employees set forth on Schedule 9.4 in the aggregate amount of 281,930 shares
of Global Common Stock, so that such options shall become exercisable as of
the Amendment Date.
10. CLOSING
10.1. Closing. Unless this Agreement is terminated in accordance with
Section 13, the closing of the transactions contemplated by this Agreement
("Closing") shall be held at 10:00 A.M. Philadelphia, Pennsylvania time on
such date and at such time as is agreed upon by Global and Buyers which shall
be no later than the second business day after the satisfaction or waiver of
all conditions set forth in Sections 8 and 9 hereof, unless another date and
time is agreed upon by Global and Buyers ("Closing Date"). The Closing shall
be held at the offices of Blank Rome Comisky & McCauley LLP, One Logan Square,
Philadelphia, PA 19103 or such other location as is agreed upon by Global and
Buyers.
10.2. Obligations of Global. At the Closing, Global shall deliver or cause
to be delivered the following to Buyers:
10.2.1 Gen-X Equipment Stock. Stock certificates representing all of the
Gen-X Equipment Stock, together with assignments separate from certificate
in blank, dated the Closing Date and duly executed by Global, and stamps or
other proper evidence of the payment of any stock transfer or similar Taxes
due as a result of the transfer of such stock, to transfer all of the Gen-X
Equipment Stock.
10.2.2 Gen-X Holdings Stock. Stock certificates representing all of the
Gen-X Holdings Stock, together with assignments separate from certificate
in blank, dated the Closing Date and duly executed by Global, and stamps or
other proper evidence of the payment of any stock transfer or similar Taxes
due as a result of the transfer of such stock, to transfer all of the Gen-X
Holdings Stock.
10.2.3 This Section Intentionally Left Blank.
10.2.4 Corporate Records and Minute Books. All of the original minute
books and stock books of the Gen-X Companies.
10.2.5 Certified Resolutions. Copies of the resolutions duly adopted by
the board of directors, and if necessary the shareholders, of Global,
authorizing Global to execute, deliver and perform this Agreement and to
consummate the transactions contemplated by this Agreement, certified by an
officer of Global as in full force and effect, without modification or
rescission, on and as of the Closing Date.
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10.2.6 Termination of Employment Agreements. Termination Agreements in
the forms attached hereto as Exhibit "C" and Exhibit "D", relating to the
Employment Agreements of Salter and Finkelstein, duly executed by Global as
of the Closing Date.
10.2.7 This Section Intentionally Left Blank.
10.2.8 Right of First Offer Agreement. Right of First Offer Agreement in
the form attached hereto as Exhibit "F", duly executed by Global as of the
Closing Date.
10.2.9 Non-Competition Agreement. Non-Competition Agreement in the form
attached hereto as Exhibit "G", dated the Closing Date, duly executed by
Global and Michael G. Rubin.
10.2.10 Termination of Non-Competition Agreement. Termination of Non-
Competition Agreement in the form attached hereto as Exhibit "H", relating
to the Non-Competition Agreement of DMJ, Salter and Finkelstein duly
executed by Global as of the Closing Date.
10.2.11 Closing Certificate. A certificate dated the Closing Date and
duly executed by Global, in which Global represents and warrants to Buyers
that the conditions set forth in Sections 9.1, 9.2, 9.3 and 9.4 have been
satisfied.
10.2.12 Legal Opinion. Legal Opinion of Blank Rome Comisky & McCauley
LLP, counsel to Global in the form attached hereto as Exhibit AI A.
10.2.13 This Section Intentionally Left Blank.
10.2.14 Consents. The Global Required Consents.
10.2.15 Other Documents. All other agreements, certificates, instruments,
opinions and documents reasonably requested by Buyers in order to fully
consummate the transactions contemplated by the Acquisition Agreements.
10.3. Obligations of Buyers at Closing. At the Closing, Buyers, DMJ, Salter
and Finkelstein shall deliver or cause to be delivered the following to
Global:
10.3.1 Closing Payment. The Closing Payment in the amount set forth in
Section 3.1, paid in the manner set forth in Section 3.3.
10.3.2 This Section Intentionally Left Blank.
10.3.3 Proxy of DMJ. A voting proxy in favor of Global in connection with
the 800 shares of Global Preferred Stock registered in the name of DMJ.
10.3.4 Preferred Stock. Stock certificates representing 7,200 shares of
Global Preferred Stock, together with assignments separate from certificate
duly executed by DMJ to transfer such shares to Global.
10.3.5 Assignment and Assumption of Replacement Notes. Assignment and
Assumption Agreement in the form attached hereto as Exhibit "K", relating
to the Replacement Notes, duly executed by DMJ as of the Closing Date.
10.3.6 Termination of Employment Agreements. Termination Agreements in
the forms attached hereto as Exhibit "C" and Exhibit "D", relating to the
Employment Agreements of Salter and Finkelstein, duly executed by Salter
and Finkelstein, respectively, as of the Closing Date.
10.3.7 This Section Intentionally Left Blank.
10.3.8 This Section Intentionally Left Blank.
10.3.9 This Section Intentionally Left Blank.
10.3.10 This Section Intentionally Left Blank.
10.3.11 This Section Intentionally Left Blank.
10.3.12 This Section Intentionally Left Blank.
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10.3.13 Preferred Stock Purchase Agreement. Preferred Stock Purchase
Agreement in the form attached hereto as Exhibit "Q", duly executed by DMJ,
Gen-X Holdings and Gen-X Equipment as of the Closing Date.
10.3.14 Gen-X Holdings Stock. Stock certificates representing all of the
Gen-X Holdings Stock, together with assignments separate from certificate
in blank, dated the Closing Date and duly executed by U.S. Co., to be held
by the pledgeholder under the Pledge and Security Agreement to be executed
by U.S. Co.
10.3.15 This Section Intentionally Left Blank.
10.3.16 This Section Intentionally Left Blank.
10.3.17 This Section Intentionally Left Blank.
10.3.18 Certified Resolutions. Copies of the resolutions duly adopted by
the boards of directors of Buyers, authorizing such companies to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated by this Agreement, certified by an officer of such company as
in full force and effect, without modification or rescission, on and as of
the Closing Date.
10.3.19 Closing Certificate. A certificate dated the Closing Date and
duly executed by Buyers, DMJ, Salter and Finkelstein, in which they
represent and warrant to Global that the conditions set forth in Sections
8.1, 8.2, 8.3, 8.4, 8.5, 8.6 and 8.7 have been satisfied.
10.3.20 Legal Opinion. Legal Opinion of Borden & Elliot, counsel to
Buyers, DMJ, Salter and Finkelstein, in the form attached hereto as Exhibit
"R".
10.3.21 Consents. The Buyers Required Consents.
10.3.22 Other Documents. All other agreements, certificates, instruments,
opinions and documents reasonably requested by Global in order to fully
consummate the transactions contemplated by the Acquisition Agreements.
11. CERTAIN POST-CLOSING OBLIGATIONS
11.1. Further Assurances. At any time and from time to time after the
Closing Date, at Buyers' request, and without further consideration, Global
shall promptly execute and deliver all such further agreements, certificates,
instruments and documents, and perform such further actions, as Buyers may
reasonably request in order to fully consummate the transactions contemplated
by the Acquisition Agreements and carry out the purposes and intent of the
Acquisition Agreements. At any time and from time to time after the Closing
Date, at Global's request, and without further consideration, Buyers, DMJ,
Salter and/or Finkelstein shall promptly execute and deliver all such further
agreements, certificates, instruments and documents, and perform such further
actions, as Global may reasonably request in order to fully consummate the
transactions contemplated by the Acquisition Agreements and carry out the
purposes and intent of the Acquisition Agreements.
11.2. Nondisclosure
11.2.1 At all times after the Closing Date, except with Buyers' express
prior written consent, Global shall not, directly or indirectly, in any
capacity, communicate, disclose or divulge to any Person, or use for the
benefit of any Person, any confidential or proprietary knowledge or
information of the Gen-X Companies. For purposes of this Section 11.2.1,
confidential information shall not include any information that (i) is now
available to the public or which becomes available to the public other than
as a result of disclosure by Global, (ii) is or becomes available to Global
on a non-confidential basis from a source other than the Gen-X Companies,
or (iii) has been independently acquired or developed by Global without
violating any of its obligations under this Agreement.
11.2.2 At all times after the Closing Date, except with Global=s express
prior written consent, neither Buyers, DMJ, Salter nor Finkelstein shall,
directly or indirectly, in any capacity, communicate, disclose or divulge
to any Person, or use for the benefit of any Person, any confidential or
proprietary knowledge or information of Global. For purposes of this
Section 11.2.2, confidential information shall not include any
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information that (i) is now available to the public or which becomes
available to the public other than as a result of disclosure by Buyers,
DMJ, Salter or Finkelstein, (ii) is or becomes available to Buyers, DMJ,
Salter or Finkelstein on a non-confidential basis from a source other than
the Global, or (iii) has been independently acquired or developed by
Buyers, DMJ, Salter or Finkelstein without violating any of its obligations
under this Agreement.
11.2.3 Global, on the one hand, and Buyers, DMJ, Salter nor Finkelstein
on the other, expressly acknowledge that any breach by it of the covenant
contained in Section 11.2.1 or 11.2.2, as the case may be (the "Covenant"),
may result in irreparable injury to the other party for which money damages
could not adequately compensate. If there is such a breach, the aggrieved
party shall be entitled, in addition to all other rights and remedies it
may have at law or in equity, to have an injunction issued by any competent
court enjoining and restraining the breaching party and all other Persons
involved therein, from continuing such breach.
11.2.4 If any portion of the Covenant or its application is construed to
be invalid, illegal or unenforceable, then the other portions and their
application shall not be affected thereby and shall be enforceable without
regard thereto. If any portion of the Covenant is determined to be
unenforceable due to its scope, duration, geographical area or similar
factor, then the court making such determination shall have the power to
reduce or limit such scope, duration, area or other factor, and such
Covenant shall then be enforceable in its reduced or limited form.
11.3. Noncompetition
11.3.1 During the period beginning on the date hereof and ending on the
date when Buyers' obligations under the U.S. Co. Promissory Note and the
Canadian Co. Promissory Note have been completely and indefeasibly
satisfied (the "Restrictive Period"), except with Global's prior written
consent, none of Buyers, DMJ, Salter or Finkelstein shall, directly or
indirectly, in any capacity, at any location where any of the Gen-X
Companies currently conducts or proposes to conduct business as of the date
hereof (the "Territory"):
(A) Communicate with or solicit any Person who is or during the one-
year period prior to the Closing Date was, or during the Restrictive
Period becomes, a customer, supplier, employee, salesman, agent or
representative of, or a consultant to, any of the Gen-X Companies, in
any manner which interferes or might interfere with such Person's
relationship with any of the Gen-X Companies, or in an effort to obtain
any such Person as a customer, employee, salesman, agent or
representative of, or a consultant to, any other Person that conducts a
business competitive with or similar to all or any part of the business
of any of the Gen-X Companies as currently conducted, or
(B) Establish, own, manage, operate, finance or control, or
participate in the establishment, ownership, management, operation,
financing or control of, or be a director, officer, employee, salesman,
agent or representative of, or be a consultant to, any Person that
conducts a business competitive with or similar to all or any part of
the business of any of the Gen-X Companies as currently conducted.
11.3.2 Buyers, DMJ, Salter and Finkelstein expressly acknowledge that (a)
the restrictive covenants of this Section 11.3 (the "Covenants") are a
material part of the consideration bargained for by Global, and (b) without
the agreement of Buyers, DMJ, Salter and Finkelstein to be bound by the
Covenants, Global would not have agreed to enter into this Agreement and
consummate the transactions contemplated hereby.
11.3.3 Buyers, DMJ, Salter and Finkelstein expressly acknowledge that any
breach by any of them of any of the Covenants will result in irreparable
injury to Global for which money damages could not adequately compensate.
If there is such a breach, Global shall be entitled, in addition to all
other rights and remedies it may have at law or equity, to have an
injunction issued by any competent court enjoining and restraining Buyers,
DMJ, Salter, Finkelstein and all other Persons involved therein from
continuing such breach. The existence of any claim or cause of action which
any of Buyers, DMJ, Salter, Finkelstein or any such other Person may have
against Global shall not constitute a defense or bar to the enforcement of
any
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of the Covenants. If Global must resort to litigation to enforce any of the
Covenants that has a fixed term, then such term shall be extended for a
period of time equal to the period during which a breach of such Covenant
was occurring, beginning on the date of a final court order (without
further right of appeal) holding that such a breach occurred or, if later,
the last day of the original fixed term of such Covenant.
11.3.4 If any portion of any Covenant or its application is construed to
be invalid, illegal or unenforceable, then the other portions and their
application shall not be affected thereby and shall be enforceable without
regard thereto. If any of the Covenants is determined to be unenforceable
due to its scope, duration, geographical area or similar factor, then the
court making such determination shall have the power to reduce or limit
such scope, duration, are or other factor, and such Covenant shall then be
enforceable in its reduced or limited form.
11.3.5 Buyers, DMJ, Salter and Finkelstein expressly acknowledge that the
provisions of this Section 11.3 of the Agreement are reasonable and valid
in all respects and irrevocably waive (and irrevocably agree not to raise)
as a defense any issue of reasonableness (including the reasonableness of
the noncompetition covenant insofar as it relates to the business of the
Gen-X Companies, the Territory or the duration or scope of the Covenants)
in any proceeding to enforce any provision of this Section 11.3 of the
Agreement, the intention of the parties being to provide for the legitimate
and reasonable protection of the interests of Global and by providing,
without limitation, for the broadest scope, the longest duration and the
widest territory allowable by law.
11.4. Removal of Assets. Buyers shall, at their expense, within ninety (90)
days after the Closing Date, remove all of the Assets owned by Gen-X Holdings
and Gen-X Equipment (including any Inventory and warehouse and racking
equipment sold by KPR Sports International, Inc. to Gen-X Holdings, or its
Affiliates, prior to the date hereof) from Global's premises, FOB King of
Prussia, without any disruption of Global's operation, and at such times as
shall be reasonably satisfactory to Global. If not so removed during such time
period, Global may, at its option, have such items shipped to Buyers at
Buyers' expense, or agree to store such items for Buyers, in which case Buyers
shall pay to Global a reasonable storage charge for such period of time that
Global stores such items. In the event Global stores such items for Buyers,
Buyers agree that Global shall have no liability with respect to such items
and hereby releases and holds harmless Global from any such liability.
11.5. Investigation
11.5.1 During the period beginning on the date hereof and ending on the
date when Buyers= obligations under the U.S. Co. Promissory Note and the
Canadian Co. Promissory Note shall have been completely and indefeasibly
satisfied:
(A) Buyers shall permit Global and its authorized representatives to
have full access to the Gen-X Companies' facilities during normal
business hours, to observe the Gen-X Companies' business operations, to
meet with the Gen-X Companies' officers and employees engaged in the
Gen-X Companies' business, and to audit, examine and copy all of the
Gen-X Companies' files, books and records, and other documents and
papers relating to the Gen-X Companies' business, and
(B) Buyers shall provide to Global and its authorized representatives
all information concerning the Gen-X Companies and the Gen-X Companies'
business and Assets, and all information concerning the financial
condition of the Gen-X Companies and the Gen-X Companies' business,
that is reasonably requested by Global.
11.5.2 The expense of any investigation by Global pursuant to this
Section 11.5 shall be borne solely by Global; provided, however, that if
there has been: (a) a misrepresentation, breach or failure of any
representation or warranty made by Buyers, DMJ, Salter or Finkelstein in
any of the Acquisition Agreements or (b) a failure or refusal by Buyers,
DMJ, Salter or Finkelstein to satisfy or perform any covenant, term,
obligation or condition of any of the Acquisition Agreements required to be
satisfied or
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performed by Buyers, DMJ, Salter or Finkelstein, then Buyers shall
reimburse Global for all reasonable fees and expenses incurred by or on
behalf of Global in connection with such investigation.
11.6. Accounting Matters, Books and Records. Commencing on the Closing Date
and continuing for a period of one year thereafter, the Gen-X Companies shall,
and DMJ, Salter, Finkelstein and U.S. Co shall cause the Gen-X Companies to,
(a) give Global, its counsel, accountants and other representatives access to
the accounting books, records and accounts of the Gen-X Companies during
regular business hours.
12. INDEMNIFICATION, SETOFF AND PAYMENT OF ADJUSTMENTS
12.1. Indemnification Obligations of Global. From and after the Closing,
Global shall indemnify and hold harmless Buyers and their directors, officers,
employees, Affiliates, successors and assigns, from and against any and all
Proceedings, Judgments, Obligations, losses, damages, deficiencies,
settlements, assessments, charges, costs and expenses (including, but not
limited to, reasonable attorneys' fees, investigation expenses, court costs,
interest and penalties) arising out of or in connection with, or caused by,
directly or indirectly, any or all of the following:
12.1.1 Any misrepresentation, breach or failure of any representation or
warranty made by Global in any of the Acquisition Agreements or any written
statement, document or certificate delivered to Buyers by Global under or
in connection with the Acquisition Agreements.
12.1.2 Any failure or refusal by Global to satisfy or perform any
covenant, term, obligation or condition of this Agreement required to be
satisfied or performed by any of them.
12.1.3 Amounts due to Just for Feet, Inc. resulting from purchases by
Global from Just for Feet, Inc. prior to August 1, 1999.
12.2.Indemnification Obligations of Buyers, DMJ, Salter and
Finkelstein. From and after the Closing, Buyers, DMJ, Salter and Finkelstein,
jointly and severally, shall indemnify and hold harmless Global and its
respective directors, officers, employees, Affiliates, successors and assigns,
from and against any and all Proceedings, Judgments, Obligations, losses,
damages, deficiencies, settlements, assessments, charges, costs and expenses
(including, but not limited to, reasonable attorneys' fees, investigation
expenses, court costs, interest and penalties) arising out of or in connection
with, or caused by, directly or indirectly, any or all of the following:
12.2.1 Any misrepresentation, breach or failure of any representation or
warranty made by Buyers, DMJ, Salter or Finkelstein in any of the
Acquisition Agreements or any written statement, document or certificate
delivered to Global by Buyers, DMJ, Salter or Finkelstein under or in
connection with any of the Acquisition Agreements.
12.2.2 Any failure or refusal by Buyers, DMJ, Salter or Finkelstein to
satisfy or perform any covenant, term, obligation or condition of any of
the Acquisition Agreements required to be satisfied or performed by Buyers,
DMJ, Salter or Finkelstein.
12.2.3 Any action, suit or claim arising out of, caused by or based in
whole or in part upon any act or omission of Gen-X Holdings or Gen-X
Equipment, or any of their respective shareholders, partners, directors,
executives, officers, employees, agents or representatives at any time
after the Closing or any event which occurs after the Closing.
12.2.4 Any liability of or claim against Global in connection with any
Customs Canada detailed adjustment statement issued against any of the Gen-
X Companies, including, but not limited to the Customs Canada detailed
adjustment statements issued against Gen-X Equipment: (a) dated January 27,
1999, assessing duties in the amount of Cdn$303,548, GST in the amount of
Cdn$233,650 together with interest in the amount of Cdn$72,416; and (b)
dated March 1, 1999, assessing duties in the amount of Cdn$625,985, GST in
the amount of Cdn$526,240 together with interest in the amount of
Cdn$60,232.
12.2.5 Any action, suit or claim by any of the Minority Shareholders (as
defined in the Stock Purchase Agreement, dated May 12, 1998, by and among
Global, DMJ, Salter, Finkelstein and certain other individuals and
entities) or any of their respective shareholders, partners, directors,
executives, officers,
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employees, agents, representatives, heirs, executors, administrators,
personal representatives or assigns arising out of, caused by or based in
whole or in part upon any act or omission of DMJ, Salter, Finkelstein, Gen-
X Holdings or Gen-X Equipment, or any of their respective shareholders,
partners, directors, executives, officers, employees, agents,
representatives, heirs, executors, administrators, personal representatives
or assigns.
12.2.6 Amounts due to Just for Feet, Inc. resulting from purchases by any
of the Gen-X Companies from Just for Feet, Inc. on or after August 1, 1999.
12.2.7 Any action, suit or claim related to, arising out of or resulting
from Gen-X Holdings' indebtedness to Ride, Inc. and its successors or
assigns, pursuant to promissory notes in the original principal amounts of
$977,624 and $1,022,376.
12.2.8 Any action, suit or claim related to, arising out of or resulting
from Gen-Holdings' indebtedness to Bert LaMar, Jerome F. Sheldon, Eric J.
Sheldon and Jeffrey M. Sheldon and their respective heirs or assigns,
pursuant to promissory notes in the original principal amounts of $113,889,
$381,705, 293,094 and $211,302, respectively.
12.2.9 Any action, suit or claim related to, arising out of or resulting
from Gen-X Equipment's alleged infringement of HYI's EVEREST trademark.
12.3. Indemnification Notice. With respect to each event, occurrence or
matter ("Indemnification Matter") and with respect as to which Buyers, DMJ,
Salter or Finkelstein on the one hand, or Global on the other hand (referred
to as the "Indemnitee"), is entitled to indemnification from another party
(referred to as the "Indemnitor") under this Section 12, within ten days after
the Indemnitee receives any written documents underlying the Indemnification
Matter, or, if the Indemnification Matter does not involve a third party
action, suit, claim or demand, promptly after the Indemnitee first has actual
knowledge of the Indemnification Matter, the Indemnitee shall give notice to
the Indemnitor of the nature of the Indemnification Matter and the amount
demanded or claimed in connection therewith ("Indemnification Notice").
12.4. Defense of Indemnification Matters. If an Indemnification Matter
involves a third party action, suit, claim or demand, then, upon receipt of
the Indemnification Notice, the Indemnitor shall, at its expense and through
counsel of its choice, promptly assume and have sole control of the
litigation, defense or settlement of the Indemnification Matter (referred to
as the "Defense"), except that:
12.4.1 The Indemnitee may, at its option and expense and through counsel
of its choice, participate in (but not control) the Defense.
12.4.2 If the Indemnitee reasonably believes that the handling of the
Defense by the Indemnitor may have a material adverse effect on the
Indemnitee's business or its relationship with any customer, supplier,
employee, contractor, salesman, agent or representative, then the
Indemnitee may, at its option and expense and through counsel of its
choice, assume control of the Defense; provided that the Indemnitor shall
continue to be obligated to indemnify the Indemnitee with respect thereto
and shall be entitled to participate in the Defense at its expense and
through counsel of its choice, provided further that Indemnitee shall not
consent to any Judgment or agree to any settlement without Indemnitor's
prior written consent.
12.4.3 The Indemnitor shall not consent to any Judgment or agree to any
settlement without the Indemnitee's prior written consent; provided that if
the Indemnitee withholds its consent to any monetary Judgment or settlement
that is acceptable to the Indemnitor, then (a) the Indemnitor's liability
with respect to such Indemnification Matter shall be limited to such
monetary amount, and (b) the Indemnitee shall be responsible for any
additional costs reasonably incurred by the Indemnitor in connection
therewith.
12.4.4 If the Indemnitor does not promptly assume control over the
Defense diligently and in good faith or, after doing so, does not continue
to prosecute the Defense in good faith, the Indemnitee may, at its option
and through counsel of its choice, but at the Indemnitor's expense, assume
control over the Defense; provided that the Indemnitor shall continue to be
obligated to indemnify the Indemnitee with respect thereto, provided
further that Indemnitee shall not consent to any Judgment or agree to any
settlement without Indemnitor's prior written consent.
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12.4.5 In any event, the Indemnitor and the Indemnitee shall fully
cooperate with each other in connection with the Defense, including, but
not limited to, furnishing all available documentary or other evidence as
is reasonably requested by the other.
12.5. Limits on Indemnification Matters and Global's Payment.
12.5.1 Limits on Global's Payment. The amounts, if any, owed by Global to
Buyers as Indemnitor pursuant to Section 12.1 ("Global's Payment"), shall
be subject to the following:
(A) Deductible. No amount shall be payable by Global to Buyers for
Global's Payment, unless and until the aggregate amount of Global's
Payment exceeds Fifty Thousand Dollars ($50,000), in which event Global
shall pay such aggregate amount and all future amounts payable by
Global under this Section 12.
(B) Exceptions. The limitation in Sections 12.5.1(A) shall not apply
in case of any Indemnification Matter or other adjustment involving
fraud, willful misconduct or criminal matters.
(C) Duration. With respect to any Indemnification Matter, Global
shall have no liability unless Buyers give an Indemnification Notice in
accordance with Section 12.3 within 12 months after the Closing Date,
provided, however, that the limitation contained in this Section
12.5.1(C) shall not apply to any Indemnification Matter that arises
from any failure or refusal by Global to satisfy or perform any
covenant, term, obligation or condition of any of the Acquisition
Agreements required to be satisfied or performed by Global after the
Closing Date.
12.5.2 Limits on Buyers' Indemnification. The amount, if any, owed by
Buyers, DMJ, Salter and Finkelstein to Global as Indemnitor pursuant to
Section 12.2 shall be subject to the following:
(A) Deductible. No amount shall be payable by Buyers, DMJ, Salter and
Finkelstein to Global under this Section 12, unless and until the
aggregate amount otherwise payable by Buyers, DMJ, Salter and
Finkelstein under this Section 12 exceeds Fifty Thousand Dollars
($50,000), in which event Buyers, DMJ, Salter and Finkelstein shall pay
such aggregate amount and all future amounts payable by Buyers, DMJ,
Salter and Finkelstein under this Section 12.
(B) Exceptions. The limitation in Sections 12.5.2(A) shall not apply
in case of any Indemnification Matter involving fraud, willful
misconduct or criminal matters.
(C) Duration. With respect to any Indemnification Matter, Buyers
shall have no liability unless Global gives an Indemnification Notice
in accordance with Section 12.3 within 12 months after the Closing
Date, provided, however, that the limitation contained in this Section
12.5.2(C) shall not apply to any Indemnification Matter that arises
from any failure or refusal by Buyers, DMJ, Salter or Finkelstein to
satisfy or perform any covenant, term, obligation or condition of any
of the Acquisition Agreements that is required to be satisfied or
performed after the Closing Date or that arises under Section 12.2.3.
12.5.3 If Global is obligated to pay Buyers any amounts under Section
12.1 after taking into account the application of the limitations contained
in Section 12.5.1(A), then any such amount payable by Global to Buyers
shall be reduced by any amounts Buyers would have been required to pay to
Global under Section 12.5.2 but for the application of the limitations
contained in Section 12.5.2(A). If Buyers, DMJ, Salter or Finkelstein is
obligated to pay Global any amounts under Section 12.2 after taking into
account the limitations contained in Section 12.5.2(A), then any such
amounts payable by Buyers to Global shall be reduced by any amounts Global
would have been required to pay to Buyers under Sections 12.1 but for the
application of the limitations contained in Section 12.5.1(A).
12.6. Indemnification Payment and Buyers' Payment. All amounts owed by the
Indemnitor to the Indemnitee (if any) shall be paid in full within twenty (20)
days after a final settlement or agreement as to the amount owed is reached,
or after a final Judgment (without further right of appeal) determining the
amount owed is rendered. Any amount paid under this Section 12 is intended by
all parties and shall be considered to be and treated as an adjustment to the
Purchase Price.
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12.7. Setoff and Holdback. In addition to all other rights and remedies that
the Indemnitee may have, the Indemnitee shall have the right to setoff,
against any monies due to the Indemnitor (whether under this Agreement or
otherwise), any sums for which the Indemnitee is entitled to indemnification
under this Section 12 or any other sums which the Indemnitor may owe to the
Indemnitee (whether under this Agreement or otherwise). The Indemnitee's
rights to indemnification under this Section 12 shall under no circumstances
be in any manner limited by this right of setoff. If any Indemnification
Matters are pending at the time the Indemnitee is required to make any payment
to the Indemnitor (whether under this Agreement or otherwise), then the
Indemnitee shall pay the total amount for which the Indemnitor may become
liable as a result thereof, determined by the Indemnitee reasonably and in
good faith, to Borden & Elliot, as escrow agent, to be held by such escrow
agent pursuant to the escrow agreement (the "Escrow Agreement") attached
hereto as Exhibit "S", until final determination of such Indemnification
Matter, and shall pay the balance, if any, of such payment to the Indemnitor.
13. TERMINATION
13.1. Termination. This Agreement, and the transactions contemplated hereby,
may be terminated at any time before Closing in accordance with any of the
following methods:
13.1.1 By the mutual written consent of Global and Buyers.
13.1.2 By written notice from Global to Buyers, or from Buyers to Global,
if the Closing does not occur on or before May 31, 2000 for any reason
other than a breach of this Agreement by the party giving such notice.
13.1.3 By written notice from Buyers to Global, if it becomes certain,
for all practical purposes, that any of the conditions to the Closing
Obligations of Buyers, DMJ, Salter or Finkelstein cannot be satisfied for a
reason other than Buyers', Salter's or Finkelstein's breach of this
Agreement, and Buyers are not willing to waive the satisfaction of such
condition.
13.1.4 By written notice from Global to Buyers if it becomes certain, for
all practical purposes, that any of the conditions to the Closing
Obligations of Global cannot be satisfied for a reason other than Global=s
breach of this Agreement, and Global is not willing to waive the
satisfaction of such condition.
13.1.5 By written notice from Buyers to Global if Global breaches any of
its representations, warranties, covenants or agreements contained in this
Agreement.
13.1.6 By written notice from Global to Buyers if Buyers, DMJ, Salter or
Finkelstein breaches any of its representations, warranties, covenants or
agreements contained in this Agreement.
13.1.7 By written notice from Global to Buyers if Global receives an
offer from a third party to acquire Gen-X Holdings and Gen-X Equipment and
the board of directors of Global determines, in good faith, that its
fiduciary duties under applicable Law require Global to accept such offer.
13.2. Effect of Termination. Upon termination of this Agreement pursuant to
Section 13.1, this Agreement shall forthwith have no further force or effect,
and there shall be no liability on the part of any party hereto; provided,
however, that (i) this Section 13.2 and Section 14 (other than Section 14.7),
shall survive the termination of this Agreement and shall remain in full force
and effect, and (ii) the termination of this Agreement shall not relieve any
party from any breach of this Agreement prior to such termination; further
provided, however, that if Global terminates this Agreement pursuant to
Section 13.1.7, and neither Buyers, DMJ, Salter nor Finkelstein is in breach
of the Agreement, then Global shall pay to DMJ, within five business days
after the termination of this Agreement, a nonrefundable fee in the amount of
$1.5 million.
14. OTHER PROVISIONS
14.1. Confidentiality. During the period from the date of this Agreement to
the Closing Date, (a) each of the parties shall maintain the confidentiality
of all confidential information which is disclosed to them in connection with
this Agreement, and (b) none of the parties will discuss the existence or
nature of this Agreement
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or the transaction contemplated hereby with any of the other parties=
customers, prospects, suppliers, employees, contractors, salesmen, agents or
representatives. If this Agreement is terminated in accordance with Section
13, then each party shall promptly return all confidential information and
materials of the other parties, and the provisions of the foregoing sentence
shall survive such termination indefinitely.
14.2. Publicity. All voluntary public announcements concerning the
transactions contemplated by this Agreement shall be mutually acceptable to
both Global and Buyers. Unless required by Law, neither Global, on the one
hand, nor Buyers, DMJ, Salter or Finkelstein, on the other hand, shall make
any public announcement or issue any press release concerning the transactions
contemplated by this Agreement without the prior written consent of Global or
Buyers, respectively. With respect to any announcement that any of the parties
is required by Law to issue, such party shall, to the extent possible under
the circumstances, review the necessity for and the contents of the
announcement with the other parties before issuing the announcement.
14.3. Expenses. Global shall pay all of the fees and expenses incurred by it
in negotiating and preparing the Acquisition Agreements and in consummating
the transactions contemplated by the Acquisition Agreements. The Gen-X
Companies shall pay all of the fees and expenses incurred by Buyers, DMJ,
Salter and Finkelstein in negotiating and preparing the Acquisition Agreements
and in consummating the transactions contemplated by the Acquisition
Agreements. Notwithstanding the foregoing, Buyers, DMJ, Salter and Finkelstein
(and not the Gen-X Companies) shall pay all of the fees and expenses incurred
by Buyers, DMJ, Salter and Finkelstein in negotiating and preparing the
Acquisition Agreements and in consummating the transactions contemplated by
the Acquisition Agreements if this Agreement, and the transactions
contemplated hereby, are terminated pursuant to Section 13.1.6 of this
Agreement.
14.4. Notices. All notices, consents or other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered personally, (b) three
business days after being mailed by first class certified mail, return receipt
requested, postage prepaid, or (c) one business day after being sent by a
reputable overnight delivery service, postage or delivery charges prepaid, to
the parties at their respective addresses stated on the first page or the
signature pages of this Agreement. Notices may also be given by prepaid
telegram or facsimile and shall be effective on the date transmitted if
confirmed within 24 hours thereafter by a signed original sent in the manner
provided in the preceding sentence. A copy of each notice to Buyers, DMJ,
Salter or Finkelstein shall be simultaneously sent to Borden & Elliot, Scotia
Plaza, 40 King Street West, Toronto, Ontario M5H 3Y4, Canada, Attn: Daniel F.
Hirsh. A copy of each notice to Global shall be simultaneously sent to: Blank
Rome Comisky & McCauley LLP, One Logan Square, Philadelphia, Pennsylvania
19103, Attn: Francis E. Dehel, Esquire. Any party may change its address for
notice and the address to which copies must be sent by giving notice of the
new addresses to the other parties in accordance with this Section 14.4,
except that any such change of address notice shall not be effective unless
and until received.
14.5. Amendment. This Agreement may be amended, modified or supplemented by
the parties hereto, provided that any such amendment, modification or
supplement shall be in writing and signed by Global, and Buyers, DMJ, Salter
and Finkelstein.
14.6. Waivers. No waiver with respect to this Agreement shall be enforceable
against Global unless in writing and signed by Global. No waiver with respect
to this Agreement shall be enforceable against Buyers, DMJ, Salter and/or
Finkelstein unless in writing and signed by Buyers, DMJ, Salter and/or
Finkelstein, as the case will be. Except as otherwise expressly provided
herein, no failure to exercise, delay in exercising, or single or partial
exercise of any right, power or remedy by any party, and no course of dealing
between or among any of the parties, shall constitute a waiver of, or shall
preclude any other or further exercise of the same or any other right, power
or remedy.
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14.7. Survival of Representations. Survival of Representations. All
representations, warranties and covenants made in or pursuant to this
Agreement shall survive the date hereof, the Closing Date and the consummation
of the transactions contemplated hereby and thereby.
14.8. Entire Understanding. Entire Understanding. The Acquisition
Agreements, together with the Exhibits and Schedules hereto and thereto, state
the entire understanding among the parties with respect to the subject matter
hereof and thereof, and supersede all prior oral and written communications
and agreements, and all contemporaneous oral communications and agreements,
with respect to the subject matter hereof and thereof.
14.9. Parties in Interest. Parties in Interest. This Agreement shall bind,
benefit, and be enforceable by and against each party hereto and its
successors and assigns. Global shall not in any manner assign any of its
rights or obligations under this Agreement without the express prior written
consent of Buyers, and neither Buyers, DMJ, Salter nor Finkelstein shall in
any manner assign any of its rights or obligations under this Agreement
without the express prior written consent of Global.
14.10. Severability. I Severability. If any provision of this Agreement is
construed to be invalid, illegal or unenforceable, then the remaining
provisions hereof shall not be affected thereby and shall be enforceable
without regard thereto.
14.11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one original counterpart hereof;
provided, however, that if acceptable to Global, Buyers, DMJ, Salter and
Finkelstein, the Closing may be effected by facsimile transmission of executed
copies of the signature pages to this Agreement delivered at the Closing and
by sending original copies of signature pages to this Agreement delivered at
the Closing by reputable overnight delivery service, postage or delivery
charges prepaid, for delivery to the parties at their addresses stated on the
first page or signature pages of this Agreement by the third business day
following the Closing Date.
14.12. Section Headings. The section and subsection headings in this
Agreement are for convenience of reference only, do not constitute a part of
this Agreement, and shall not affect its interpretation.
14.13. References. All words used in this Agreement shall be construed to be
of such number and gender as the context requires or permits. Unless a
particular context clearly provides otherwise, (i) the words "hereof" and
"hereunder" and similar references refer to this Agreement in its entirety and
not to any specific section or subsection hereof, and (ii) the word
"including" shall mean including but not limited to.
14.14. CONTROLLING LAW. THIS AGREEMENT IS MADE UNDER, AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
14.15. Jurisdiction and Process. Each of the parties (a) irrevocably
consents to the exclusive jurisdiction of the Courts of Common Pleas of
Montgomery County, Pennsylvania, or the United States District Court for the
Eastern District of Pennsylvania, in any and all actions between or among any
of the parties, whether arising hereunder or otherwise, (b) irrevocably waives
its right to trial by jury in any such action, and (c) irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address at which such party is to receive notice in
accordance with Section 14.4. In any and all actions between or among any of
the parties, whether arising hereunder or otherwise, the prevailing party or
parties shall be entitled to recover their reasonable attorneys= fees and
legal expenses from the other party or parties.
14.16. No Third Party Beneficiaries. No provision of this Agreement is
intended to or shall be construed to grant or confer any right to enforce this
Agreement, or any remedy for breach of this Agreement, to or upon any Person
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other than the parties hereto, including, but not limited to, any customer,
prospect, supplier, employee, contractor, salesman, agent or representative of
any of the parties hereto.
14.17. Construction. The parties agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of the Acquisition
Agreements or any other agreements or documents delivered in connection with
the transactions contemplated by the Acquisition Agreements.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed, or have caused this Agreement
to be executed on their behalf by their duly authorized officers, as of the
date first stated above.
<TABLE>
<S> <C>
GLOBAL SPORTS, INC. DMJ FINANCIAL, INC.
By: /s/ Michael G. Rubin By: /s/ Kenneth J. Finkelstein
-------------------------------------------------------
-------------------------------
Name: Michael G. Rubin Name:
Title: Chairman and CEO Title:
GEN-X ACQUISITION (U.S.), INC. GEN-X ACQUISITION (CANADA) INC.
By: /s/ James J. Salter By: /s/ James J. Salter
-------------------------------------------------------
-------------------------------
Name: Name:
Title: Title:
/s/ Kenneth J. Finkelstein /s/ James J. Salter
- ------------------------------------------------------------
----------------------------------
KENNETH J. FINKELSTEIN JAMES J. SALTER
</TABLE>
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<PAGE>
March 12, 2000
Board of Directors
Global Sports, Inc.
1075 First Avenue
King of Prussia, PA 19406
Gentlemen:
Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial
advisor to Global Sports, Inc. ("Global Sports") in connection with the
proposed sale of Gen-X Holdings Inc., Gen-X Equipment Inc. and the off-price
division of KPR Sports International, Inc. (collectively, the "Company")
pursuant to an acquisition agreement dated September 24, 1999, as amended (the
"Acquisition Agreement") between (i) Global Sports and (ii) Gen-X Acquisition
(US), Inc., Gen-X Acquisition (Canada) Inc., and DMJ Financial Inc., entities
controlled by James Salter and Kenneth Finkelstein, (collectively, the
"Buyer"), which provides, among other things, for the acquisition of the
Company by the Buyer (the "Transaction"). As set forth more fully in the
Acquisition Agreement, as a result of the Transaction, the Buyer will purchase
the Company for aggregate consideration (the "Consideration") of $17.2 million
payable in the form of (i) $13.2 million in cash, and (ii) $4.0 million
through the assumption of certain liabilities owing from Global Sports to DMJ
Financial, Inc. The terms and conditions of the Transaction are more fully set
forth in the Acquisition Agreement.
You have requested Deutsche Bank's opinion, as investment bankers, as to the
fairness, from a financial point of view, to Global Sports of the
Consideration to be received by Global Sports for the Company in connection
with the Transaction.
In connection with Deutsche Bank's role as financial advisor to Global
Sports, and in arriving at its opinion, Deutsche Bank has reviewed certain
publicly available financial and other information concerning the Company and
certain internal analyses and other information furnished to it by the Company
and Global Sports. Deutsche Bank has also held discussions with members of the
senior managements of the Company and Global Sports regarding the business and
prospects of the Company. In addition, Deutsche Bank has (i) reviewed the
financial performance of the Company, (ii) reviewed the financial terms of
certain recent acquisitions which it deemed comparable in whole or in part,
(iii) reviewed the terms of the Acquisition Agreement and certain related
documents, and (iv) performed such other studies and analyses and considered
such other factors as it deemed appropriate. We found no publicly-traded
companies that are comparable to the Company. Accordingly, we were unable to
value the Company based upon comparable market valuations. In addition, based
upon the nature of the Company's business, management of the Company and
Global Sports believes it is impractical to produce financial projections;
consequently, we were unable to perform a discounted cash flow valuation
analysis or leveraged buyout valuation analysis.
Deutsche Bank has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning the Company, including, without
limitation, any financial information or forecasts considered in connection
with the rendering of its opinion. Accordingly, for purposes of its opinion,
Deutsche Bank has assumed and relied upon the accuracy and completeness of all
such information and Deutsche Bank has not conducted a physical inspection of
any of the properties or assets, and has not prepared or obtained any
independent evaluation or appraisal of any of the assets or liabilities, of
the Company. Deutsche Bank's opinion is necessarily based upon economic,
market and other conditions as in effect on, and the information made
available to it as of, the date hereof.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in
all respects material to its analysis, the representations and warranties of
Global Sports, the Company and the Buyer contained in the Acquisition
Agreement are true and correct and that Global Sports, the Company and the
Buyer will each
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perform all of the covenants and agreements to be performed by it under the
Acquisition Agreement and all conditions to the obligations of each of Global
Sports and the Buyer to consummate the Transaction will be satisfied without
any waiver thereof. Deutsche Bank has also assumed that all material
governmental, regulatory or other approvals and consents required in
connection with the consummation of the Transaction will be obtained and that
in connection with obtaining any necessary governmental, regulatory or other
approvals and consents, or any amendments, modifications or waivers to any
agreements, instruments or orders to which Global Sports is a party or is
subject or by which it is bound, no limitations, restrictions or conditions
will be imposed or amendments, modifications or waivers made that would have a
material adverse effect on Global Sports.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Global Sports and is not a recommendation to the stockholders of
Global Sports to approve the Transaction. This opinion is limited to the
fairness, from a financial point of view, to Global Sports of the
Consideration to be received by Global Sports for the Company in connection
with the Transaction, and Deutsche Bank expresses no opinion as to the merits
of the underlying decision by Global Sports to engage in the Transaction.
Deutsche Bank will be paid a fee for its services as financial advisor to
Global Sports in connection with the Transaction, a substantial portion of
which is contingent upon consummation of the Transaction. We are an affiliate
of Deutsche Bank AG (together with its affiliates, the "DB Group"). One or
more members of the DB Group have, from time to time, provided investment
banking and other financial services to Global Sports or its affiliates for
which it has received compensation, including representing Global Sports as
exclusive sale agent in its divestiture of its branded footwear business. In
the ordinary course of business, members of the DB Group may actively trade in
the securities and other instruments and obligations of Global Sports for
their own accounts and for the accounts of their customers. Accordingly, the
DB Group may at any time hold a long or short position in such securities,
instruments and obligations.
Based upon and subject to the foregoing, it is Deutsche Bank's opinion as
investment bankers that the Consideration to be received by Global Sports for
the Company in connection with the Transaction is fair, from a financial point
of view, to Global Sports.
Very truly yours,
DEUTSCHE BANK SECURITIES INC.
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<PAGE>
INDEMNIFICATION AGREEMENT
APPENDIX C
Parties:
GLOBAL SPORTS, INC.,
a Delaware corporation (the "Company")
555 South Henderson Road
King of Prussia, PA 19406
________________ ("Indemnitee")
___________________
___________________
Date:
Background: The Company and Indemnitee recognize that in the present business
environment, officers and directors of public companies are subject to the
risk of expensive corporate and other litigation. Indemnitee does not regard
the current protection provided by the Company as adequate given the present
circumstances and Indemnitee and other officers and directors of the Company
may not be willing to serve as officers and directors without adequate
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee to serve as officers and/or
directors of the Company and to indemnify its officers and/or directors so as
to provide them with the maximum protection permitted by law.
INTENDING T0 BE LEGALLY BOUND, and in consideration of the mutual agreements
stated below and other good and valuable consideration, the Company and
Indemnitee agree as follows:
1. Indemnification.
(a) Third Party Proceedings. The Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) (i) by reason of the fact that Indemnitee is or was a
director, officer, employee, attorney, or agent of the Company, or any
subsidiary of the Company, (ii) by reason of any action or inaction on the
part of Indemnitee while an officer, director, employee, attorney or agent, or
(iii) by reason of the fact that Indemnitee is or was serving at the request
of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, in each
case against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement (if such settlement is approved pursuant to Section
2(f) hereof) actually and reasonably incurred by Indemnitee in connection with
such action, suit or proceeding if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe Indemnitee's conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that Indemnitee did not
act in good faith and in a manner which Indemnitee reasonably believed to be
in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that
Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in
the right of the Company or any subsidiary of the Company to procure a
judgment in its favor (i) by reason of the fact that Indemnitee is or was a
director, officer, employee, attorney or agent of the Company, or any
subsidiary of the Company, (ii) by reason of any action or inaction on the
part of Indemnitee while an officer, director, employee, attorney or agent, or
(iii) by reason of the fact that Indemnitee is or was serving at the request
of the Company as a director, officer, employee, attorney or agent of another
corporation, partnership, joint venture, trust or other enterprise in each
case against expenses (including attorneys' fees) and amounts paid
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in settlement (if such settlement is approved pursuant to Section 2(f) hereof)
actually and reasonably incurred by Indemnitee in connection with the defense
or settlement of such action or suit if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, except that no indemnification shall be made in
respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company, unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that despite the
adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery of the State of Delaware or such other court shall
deem proper.
(c) Mandatory Indemnification. To the extent that Indemnitee has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1(a) and 1(b) or the defense of any claim,
issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith. For purposes of this Section 1(c), the term "successful
on the merits or otherwise" shall include, but not be limited to, (i) any
termination, withdrawal or dismissal (with or without prejudice) of any claim,
action, suit or proceeding against Indemnitee without any express finding of
liability or guilt against him, or (ii) the expiration of a reasonable period
of time after the making of any claim or threat of an action, suit or
proceeding without the institution of the same and without any promise or
payment made to induce a settlement.
2. Expenses and Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all expenses incurred
by Indemnitee in connection with the investigation, defense, settlement or
appeal of any civil or criminal action, suit or proceeding referenced in
Section 1(a) or (b) hereof. For purposes of any advancement hereunder, the
Indemnitee shall be deemed to have acted (i) in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and (ii) with respect to any criminal action or procedure, to have
had no reasonable cause to believe his conduct was unlawful, if under either
(i) or (ii), his action is based on the records or books of account of the
Company, or the records or books of account of another corporation,
partnership, joint venture, trust or another enterprise (collectively, the
"other enterprises"), including financial statements, or on information
supplied to him by the officers of the Company or other enterprises in the
course of their duties, or on the advice of legal counsel for the Company or
other enterprises or on information or records given or reports made to the
Company or other enterprises by an independent certified public accountant or
by an appraiser or other expert selected with reasonable care by the Company
or other enterprises. Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined
that Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to
Indemnitee no later than forty-five (45) days following delivery of a written
request therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to his right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any claim against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed as provided in Section 14.
In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) Procedure. Any indemnification and advances provided for in Section 1
hereof and this Section 2 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws providing for indemnification is not
paid in full by the Company within forty-five (45) days after written request
for payment thereof has first been received by the Company, Indemnitee may,
but need not, at any time thereafter bring an action against the Company to
recover the unpaid amount of the claim and, subject to Section 13 hereof,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in
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connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make
it permissible under applicable law for the Company to indemnify Indemnitee
for the amount claimed, but the burden of proving such defense shall be on the
Company, and Indemnitee shall be entitled to receive interim payments of
expenses pursuant to Section 2(a) hereof unless and until such defense may be
finally adjudicated by court order or judgment from which no further right of
appeal exists. It is the parties' intention that if the Company contests
Indemnitee's right to indemnification, the question of Indemnitee's right to
indemnification shall be for the court to decide, and neither the failure of
the Company (including its Board of Directors, any committee or subgroup of
the Board of Directors, independent legal counsel, or its stockholders) to
have made a determination that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of conduct
required by applicable law, nor an actual determination by the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) that Indemnitee has
not met such applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of a
claim pursuant to Section 2(b) hereof, the Company has directors' and
officers' liability insurance in effect, the Company shall give prompt notice
of the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on
behalf of Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. If the Company shall be obligated under Section
2(a) hereof to pay the expenses of any proceeding against Indemnitee, the
Company, if appropriate, shall be entitled to assume the defense of such
proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election to do so. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under
this Agreement for any fees of counsel subsequently incurred by Indemnitee
with respect to the same proceeding; provided that (i) Indemnitee shall have
the right to employ separate counsel in any such proceeding at Indemnitee's
expense; and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not,
in fact, have employed counsel to assume the defense of such proceeding, then
the reasonable fees and expenses of Indemnitee's counsel shall be at the
expense of the Company.
(f) Settlements. The Company shall not be liable to Indemnitee under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. The Company shall not settle any action or claim
in any manner which would impose any penalty or limitation on Indemnitee
without Indemnitee's written consent. Neither the Company nor Indemnitee will
unreasonably withhold consent to any proposed settlement.
(g) Change In Control. If, at any time subsequent to the date of this
Agreement, continuing directors do not constitute a majority of the members of
the Board of Directors, or there is otherwise a change in control of the
Company (as contemplated by Item 403(c) of Regulation S-K under the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended),
then upon the request of Indemnitee, the Company shall cause the determination
of indemnification and advances required by Section 2 hereof to be made by a
third- party (mutually agreed upon by the parties). The fees and expenses
incurred by the third party in making the determination of indemnification and
advances shall be borne solely by the Company. If such third party is
unwilling and/or unable to make the determination of indemnification and
advances, then the Company shall cause the indemnification and advances to be
made by a majority vote or consent of a Board committee consisting solely of
continuing directors. For purposes of this Agreement, a "continuing director"
means either a member of the Board at the date of this Agreement or a person
nominated to serve as a member of the Board by a majority of the then-
continuing directors.
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3. Additional Indemnification Rights.
(a) Scope. Notwithstanding any other provision of this Agreement, the
Company shall indemnify Indemnitee to the fullest extent permitted by law,
whether or not such indemnification is specifically authorized by the other
provisions of this Agreement, the Company's Certificate of Incorporation, the
Company's Bylaws or by statute. In the event of any change, after the date of
this Agreement, in any applicable law, statute, or rule which expands the
right of a Delaware corporation to indemnify a member of its board of
directors or an officer, such changes shall be, ipso facto, within the purview
of Indemnitee's rights and Company's obligations under this Agreement. In the
event of any change in any applicable law, statute or rule which narrows the
right of a Delaware corporation to indemnify a member of its board of
directors or an officer, such changes (to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement) shall have no
effect on this Agreement or the parties' rights and obligations hereunder.
(b) Non-exclusivity. The indemnification provided by this Agreement shall
not be deemed exclusive of any rights to which an Indemnitee may be entitled
under the Company's Certificate of Incorporation or Bylaws, any agreement, any
vote of stockholders or disinterested directors, the Delaware General
Corporation Law, or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office.
4. Continuation of Indemnity. All agreements and obligations of the Company
contained herein shall continue during the period Indemnitee is a director,
officer, employee or agent of the Company (or is or was serving at the request
of the Company as a director, officer, employee or agent of other enterprises)
and shall continue thereafter so long as Indemnitee shall be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal or investigative, by reason of the fact that
Indemnitee was a director, officer, employee or agent of the Company, or
serving in any other capacity referred to herein.
5. Partial Indemnification. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred by him
in the investigation, defense, appeal or settlement of any civil or criminal
action, suit or proceeding, but not for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that,
in certain instances, federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and
officers under this Agreement or otherwise. For example, the Company and
Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC")
has taken the position that indemnification is not permissible for liabilities
arising under certain federal securities laws, and federal legislation
prohibits indemnification for certain ERISA violations. Indemnitee understands
and acknowledges that the Company has undertaken with the SEC to submit the
question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
7. Officer and Director Liability Insurance. The Company shall, from time to
time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the
Company's performance of its indemnification obligations under this Agreement.
Among other considerations, the Company will weigh the costs of obtaining such
insurance coverage against the protection afforded by such coverage. In all
policies of directors' and officers' liability insurance, Indemnitee shall be
named as an insured in such a manner as to provide Indemnitee the same rights
and benefits as are accorded to the most favorably insured of the Company's
directors, if Indemnitee is a director, or of the Company's officers, if
Indemnitee is not a director of the Company but is an officer, or one of the
Company's key employees, if Indemnitee is not an officer or director but is a
key employee. Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain such insurance if the Company
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determines in good faith that such insurance is not reasonably available, if
the premium costs for such insurance are disproportionate to the amount of
coverage provided, if the coverage provided by such insurance is limited by
exclusions so as to provide an insufficient benefit, or Indemnitee is covered
by similar insurance maintained by a parent of subsidiary of the Company.
8. Severability. Nothing in this Agreement is intended to require or shall
be construed as requiring the Company to do or fail to do any act in violation
of applicable law. The Company's inability, pursuant to court order, to
perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as
provided in this Section 8. If this Agreement or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.
9. Exceptions. Notwithstanding any other provision herein to the contrary,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses to
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement, the Company's Certificate of Incorporation or Bylaws, any
agreement, any vote of stockholders or disinterested directors, the Delaware
General Corporation Law or any other statute or law, but such indemnification
or advancement of expenses may be provided by the Company in specified cases
if the Board of Directors finds it to be appropriate;
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by
Indemnitee with respect to any proceeding instituted by Indemnitee to enforce
or interpret this Agreement, if a court of competent jurisdiction determines
that each of the material assertions made by Indemnitee in such proceeding was
not made in good faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses or liabilities of
any type whatsoever (including, but not limited to, judgments, fines, ERISA
excise taxes or penalties, and amounts paid in settlement) which have been
paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company or
other enterprises; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses or the
payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of
1934, as amended, or any similar successor statute.
10. Construction of Certain Phrases.
(a) Company. For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers and
employees or agents, so that if Indemnitee is or was a director, officer,
employee, attorney or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director, officer,
employee, attorney or agent of other enterprises, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to
such constituent corporation if its separate existence had continued.
(b) Other Definitions. For purposes of this Agreement, references to "other
enterprises"shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to any employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, attorney or agent of the
Company which imposes duties on, or involves
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services by, Indemnitee with respect to an employee benefit plan, its
participants, or beneficiaries; and, if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall
be deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Entire Understanding. This Agreement sets forth the entire understanding
of the parties hereto with respect to the subject matter hereof and supersedes
all prior and contemporaneous, oral or written, express or implied, agreements
and understandings.
13. Attorneys' Fees. If any action is instituted by Indemnitee under this
Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be
entitled to be paid all court costs and expenses, including reasonable
attorneys' fees, incurred by Indemnitee with respect to such action, unless as
a part of such action, the court of competent jurisdiction determines that
each of the material assertions made by Indemnitee as a basis for such action
was not made in good faith or was frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled
to be paid all court costs and expenses, including attorneys' fees, incurred
by Indemnitee in defense of such action (including with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action the court determines that each of Indemnitee's material
defenses to such action was made in bad faith or was frivolous.
14. Notice. All notices, consents or other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (i) when delivered personally, (ii) three
business days after being mailed by first class certified mail, return receipt
requested, postage prepaid, or (iii) one business day after being sent by a
nationally recognized express courier service, postage or delivery charges
prepaid, to the parties at their respective addresses stated on the first page
of this Agreement. Notices may also be given by prepaid telegram or facsimile
and shall be effective on the date transmitted if confirmed within 24 hours
thereafter by a signed original sent in the manner provided in the preceding
sentence. Either party may change its address for notice and the address to
which copies must be sent by giving notice of the new addresses to the other
party in accordance with this Section 14, provided that any such change of
address notice shall not be effective unless and until received.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the substantive laws (and not the choice of laws rules) of the
State of Delaware applicable to contracts made and to be performed entirely
therein. Each of the parties irrevocably consents to service of process by
certified mail, return receipt requested, postage prepaid, to the address at
which such party is to receive notice in accordance herewith. Each of the
parties irrevocably consents to the jurisdiction of the state courts in
Delaware and the federal courts in Delaware in any and all actions between the
parties arising hereunder.
16. Amendment and Waiver. This Agreement shall not be amended, modified or
terminated unless in writing and signed by Indemnitee and a duly authorized
representative of Company other than Indemnitee. No waiver with respect to
this Agreement shall be enforceable unless in writing and signed by the
parties against which enforcement is sought (which, in the case of the
Company, must be a duly authorized representative of the Company other than
Indemnitee). Neither the failure nor any delay on the part of either party to
exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege preclude any other or further exercise of
the same or of any other right, remedy, power or privilege, nor shall any
waiver of any right, remedy, power or privilege with respect to any occurrence
by construed as a waiver of such right, remedy, power or privilege with
respect to any other occurrence.
17. Section Headings. Any headings preceding the text of any of the Sections
or Subsections of this Agreement are inserted for convenience of reference
only, and shall neither constitute a part of this Agreement nor affect its
construction, meaning, or effect.
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18. Definitions. As used herein, the term "Person" means any individual,
sole proprietorship, joint venture, partnership, corporation, association,
cooperative, trust, estate, government body, administrative agency, regulatory
authority or other entity of any nature.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
GLOBAL SPORTS, INC.
By: ___________________________ ____________________________
Name: INDEMNITEE
Title:
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GLOBAL SPORTS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
Adopted March 12, 2000
Approved by the Stockholders on , 2000
Effective Date: March 12, 2000
1. Purpose.
(a) The purpose of this 2000 Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of Global Sports, Inc., a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation or
subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. Administration.
(a) The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
committee as provided in subparagraph 2(c). Whether or not the Board has
delegated administration the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the Company
shall be granted and the provisions of each offering of such rights (which
need not be identical).
(ii) To designate from time to time which Affiliates of the Company shall
be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under it, and
to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully
effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as the
Board or the Committee deems necessary or expedient to promote the best
interests of the Company and its Affiliates and to carry out the intent
that the Plan be treated as an "employee stock purchase plan" within the
meaning of Section 423 of the Code.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the Board, subject,
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however, to such resolutions, not inconsistent with the provisions of the
Plan, as may be adopted from time to time by the Board. The Board may abolish
the Committee at any time and revest in the Board the administration of the
Plan.
3. Shares Subject to the Plan.
(a) Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the shares of the Company's common stock (the "Common
Stock") that may be sold pursuant to rights granted under the Plan shall not
exceed four hundred thousand (400,000) shares Common Stock. If any right
granted under the Plan shall for any reason terminate without having been
exercised, the shares of Common Stock not purchased under such right shall
again become available for the Plan.
(b) Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, on the date of each annual meeting of the stockholders of
the Company, commencing in 2001, the aggregate number of shares of Common
Stock specified in subparagraph 3(a) above shall be increased by the lesser of
(1) fifty thousand (50,000) shares or (2) such fewer number of shares
determined by the Board. Notwithstanding the foregoing, the automatic share
reserve increases, provided in this subparagraph 3(b), in the aggregate shall
not exceed five hundred thousand (500,000) shares.
(c) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. Grant of Rights; Offering.
(a) The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form
and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all employees granted rights to purchase stock
under the Plan shall have the same rights and privileges. The terms and
conditions of an Offering shall be incorporated by reference into the Plan and
treated as part of the Plan. The provisions of separate Offerings need not be
identical, but each Offering shall include (through incorporation of the
provisions of this Plan by reference in the document comprising the Offering
or otherwise) the period during which the Offering shall be effective, which
period shall not exceed twenty-seven (27) months beginning with the Offering
Date, and the substance of the provisions contained in paragraphs 5 through 8,
inclusive.
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right
with a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.
5. Eligibility.
(a) Rights may be granted only to employees of the Company or, as the Board or
the Committee may designate as provided in subparagraph 2(b), to employees of
any Affiliate of the Company. Except as provided in subparagraph 5(b), an
employee of the Company or any Affiliate shall not be eligible to be granted
rights under the Plan unless, on the Offering Date, such employee has been in
the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no
event shall the required period of continuous employment be greater than two
(2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee
of the Company or any Affiliate shall be eligible to be granted rights under
the Plan unless, on the Offering Date,
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such employee's customary employment with the Company or such Affiliate is for
more than twenty (20) hours per week and more than five (5) months per
calendar year.
(b) The Board or the Committee may provide that each person who, during the
course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering Date"
of such right for all purposes, including determination of the exercise
price of such right;
(ii) the period of the Offering with respect to such right shall begin on
its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person first
becomes an eligible employee within a specified period of time before the
end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights under the Plan
if, immediately after any such rights are granted, such employee would own
stock possessing five percent (5%) or more of the total combined voting power
or value of all classes of stock of the Company or of any Affiliate. For
purposes of this subparagraph 5(c), the rules of Section 424(d) of the Code
shall apply in determining the stock ownership of any employee, and stock
which such employee may purchase under all outstanding rights and options
shall be treated as stock owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's rights to purchase stock of the
Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at
the time such rights are granted) for each calendar year in which such rights
are outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan, provided, however, that the Board
or the Committee may provide in an Offering that certain employees who are
highly compensated employees within the meaning of Section 423(b)(4)(D) of the
Code shall not be eligible to participate.
6. Rights; Purchase Price.
(a) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, shall be granted the right to purchase up to the number
of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding twenty percent (20%) of
such employee's Earnings (as defined by the Board for each Offering) during
the period which begins on the Offering Date (or such later date as the Board
or the Committee determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering. The Board or the Committee shall establish one or more dates during
an Offering (each of which is hereinafter referred to as a "Purchase Date") on
which rights granted under the Plan shall be exercised and purchases of Common
Stock carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant to such Offering. In addition, in
connection with each Offering that contains more than one Purchase Date, the
Board or the Committee may specify a
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maximum aggregate number of shares which may be purchased by all eligible
employees on any given Purchase Date under the Offering. If the aggregate
purchase of shares upon exercise of rights granted under the Offering would
exceed any such maximum aggregate number, the Board or the Committee shall
make a pro rata allocation of the shares available in as nearly a uniform
manner as shall be practicable and as it shall deem to be equitable.
(c) The purchase price of stock acquired pursuant to rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market value
of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
7. Participation; Withdrawal; Termination.
(a) An eligible employee may become a participant in the Plan pursuant to an
Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each
such agreement shall authorize payroll deductions of up to the maximum
percentage specified by the Board or the Committee of such employee's Earnings
(as defined by the Board for each Offering) during the Offering. The payroll
deductions made for each participant shall be credited to an account for such
participant under the Plan and shall be deposited with the general funds of
the Company. A participant may reduce (including to zero) or increase such
payroll deductions, and an eligible employee may begin such payroll
deductions, after the beginning of any Offering only as provided for in the
Offering. A participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the participant
has not had the maximum amount withheld during the Offering.
(b) At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides.
Such withdrawal may be elected at any time prior to the end of the Offering
except as provided by the Board or the Committee in the Offering. Upon such
withdrawal from the Offering by a participant, the Company shall distribute to
such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
right to acquire Common Stock under that Offering shall be automatically
terminated. A participant's withdrawal from an Offering will have no effect
upon such participant's eligibility to participate in any other Offerings
under the Plan but such participant will be required to deliver a new
participation agreement in order to participate in subsequent Offerings under
the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of a participant's employment with the Company and
any designated Affiliate, for any reason, and the Company shall distribute to
such terminated employee all of his or her accumulated payroll deductions
(reduced to the extent, if any, such deductions have been used to acquire
stock for the terminated employee), under the Offering, without interest.
(d) Rights granted under the Plan shall not be transferable by a participant
other than by will or the laws of descent and distribution, or by a
beneficiary designation as provided in paragraph 14, and during a
participant's lifetime, shall be exercisable only by such participant.
8. Exercise.
(a) On each Purchase Date specified in the relevant Offering, each
participant's accumulated payroll deductions and any other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and
the applicable Offering, at the purchase price specified in the Offering.
Unless otherwise provided for in the applicable Offering, no fractional shares
shall be issued
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upon the exercise of rights granted under the Plan. The amount, if any, of
accumulated payroll deductions remaining in each participant's account after
the purchase of shares which is less than the amount required to purchase one
share of stock on the final Purchase Date of an Offering shall be held in each
such participant's account for the purchase of shares under the next Offering
under the Plan, unless such participant withdraws from such next Offering, as
provided in subparagraph 7(b), or is no longer eligible to be granted rights
under the Plan, as provided in paragraph 5, in which case such amount shall be
distributed to the participant after such final Purchase Date, without
interest. The amount, if any, of accumulated payroll deductions remaining in
any participant's account after the purchase of shares which is equal to the
amount required to purchase whole shares of Common Stock on the final Purchase
Date of an Offering shall be distributed in full to the participant after such
Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act of 1933, as amended (the "Securities Act") and
the Plan is in material compliance with all applicable state, foreign and
other securities and other laws applicable to the Plan. If on a Purchase Date
in any Offering hereunder the Plan is not so registered or in such compliance,
no rights granted under the Plan or any Offering shall be exercised on such
Purchase Date, and the Purchase Date shall be delayed until the Plan is
subject to such an effective registration statement and such compliance,
except that the Purchase Date shall not be delayed more than twelve (12)
months and the Purchase Date shall in no event be more than twenty-seven (27)
months from the Offering Date. If on the Purchase Date of any Offering
hereunder, as delayed to the maximum extent permissible, the Plan is not
registered and in such compliance, no rights granted under the Plan or any
Offering shall be exercised then all payroll deductions accumulated during the
Offering (reduced to the extent, if any, such deductions have been used to
acquire stock) shall be distributed to the participants, without interest.
9. Covenants of the Company.
(a) During the terms of the rights granted under the Plan, the Company shall
at all times make reasonable efforts to keep available the number of shares of
stock required to satisfy such rights, provided that this section shall not
require the Company to take any action that would result in adverse tax,
accounting or financial consequences to the Company.
(b) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise
of the rights granted under the Plan. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock upon exercise of such rights
unless and until such authority is obtained.
10. Use of Proceeds from Stock.
Proceeds from the sale of stock to participants pursuant to rights granted
under the Plan shall constitute general funds of the Company.
11. Rights as a Stockholder.
A participant shall not be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to rights granted under
the Plan unless and until the participant's shares acquired upon exercise of
rights hereunder are recorded in the books of the Company (or its transfer
agent).
12. Adjustments upon Changes in Stock.
(a) If any change is made in the stock subject to the Plan, or subject to
any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than
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cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares
subject to the Plan and the class(es) and number of shares and price per share
of stock subject to outstanding rights. Such adjustments shall be made by the
Board or the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company; (2) a
merger or consolidation in which the Company is not the surviving corporation;
or (3) a reverse merger in which the Company is the surviving corporation but
the shares of Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then, as determined by the Board in its sole
discretion, (i) any surviving or acquiring corporation may assume outstanding
rights or substitute similar rights for those under the Plan, (ii) such rights
may continue in full force and effect, or (iii) participants' accumulated
payroll deductions may be used to purchase Common Stock immediately prior to
the transaction described above and the participants' rights under the ongoing
Offering terminated.
13. Amendment of the Plan.
(a) The Board or the Committee at any time, and from time to time, may amend
the Plan. However, except as provided in paragraph 12 relating to adjustments
upon changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment if such amendment requires stockholder approval in
order for the Plan to obtain employee stock purchase plan treatment under
Section 423 of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act.
(b) The Board or the Committee may amend the Plan in any respect the Board
or the Committee deems necessary or advisable to provide eligible employees
with the maximum benefits provided or to be provided under the provisions of
the Code and the regulations promulgated thereunder relating to employee stock
purchase plans and/or to bring the Plan and/or rights granted under it into
compliance therewith.
(c) Rights and obligations under any rights granted before amendment of the
Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Section 423 of the Code.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant at any
time by written notice in the form prescribed by the Company. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's
death, the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the
Company, in its sole discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
D-6
<PAGE>
15. Termination or Suspension of the Plan.
(a) The Board or the Committee in its discretion, may suspend or terminate
the Plan at any time. No rights may be granted under the Plan while the Plan
is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
as expressly provided in the Plan or with the consent of the person to whom
such rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
rights granted under the Plan comply with the requirements of Section 423 of
the Code.
16. Effective Date of Plan.
The Plan shall become effective on March 12, 2000 (the "Effective Date"),
but no rights granted under the Plan shall be exercised unless and until the
Plan has been approved by the stockholders of the Company within twelve (12)
months before or after the date the Plan is adopted by the Board, which date
may be prior to the Effective Date.
D-7
<PAGE>
GLOBAL SPORTS, INC.
Annual Meeting of Shareholders -- May 25, 2000
SOLICITED ON BEHALF OF THE COMPANY AND APPROVED
BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael G. Rubin and Kenneth J. Adelberg to
act as attorneys and proxies for the undersigned, with full powers of
substitution, to appear at the Annual Meeting of Shareholders of Global Sports,
Inc. (the "Company") to be held on the 25th day of May, 2000 at the Downtown
Club, 620 Chestnut Street, Philadelphia Pennsylvania 19106 and at any
postponement or adjournment thereof, and to vote all of the shares of the
Company that the undersigned is entitled to vote, with all the powers and
authority the undersigned would possess if personally present. The undersigned
hereby directs that this proxy be voted as specified on the reverse side of this
card.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED "FOR" ELECTION OF ALL NOMINEES FOR DIRECTOR LISTED IN
THE ACCOMPANYING PROXY STATEMENT, "FOR" APPROVAL OF THE OFF-PRICE AND ACTION
SPORTS SALE, "FOR" APPROVAL OF THE INDEMNIFICATION AGREEMENTS, "FOR" APPROVAL
OF THE COMPANY'S 2000 EMPLOYEE STOCK PURCHASE PLAN AND "FOR" APPROVAL OF THE
AMENDMENT TO THE COMPANY'S 1996 EQUITY INCENTIVE PLAN. A MAJORITY OF THE PROXY
AGENTS PRESENT AND ACTING IN PERSON OR BY THEIR SUBSTITUTES (OR IF ONLY ONE IS
PRESENT AND ACTING, THEN THAT ONE) MAY EXERCISE ALL THE POWERS CONFERRED HEREBY.
DISCRETIONARY AUTHORITY IS CONFERRED HEREBY AS TO CERTAIN MATTERS DESCRIBED IN
THE COMPANY'S PROXY STATEMENT.
Should the undersigned be present and choose to vote at the Meeting or at
any adjournments or postponements thereof, and after notification to the
Secretary of the Company at the Meeting of the shareholder's decision to
terminate this proxy, then the power of such attorneys or proxies shall be
deemed terminated and of no further force and effect. This proxy may also be
revoked by filing a written notice or revocation with the Secretary of the
Company or by duly executing a proxy bearing a later date.
Receipt of the Notice of the Annual Meeting and Proxy Statement relating
thereto is hereby acknowledged.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
(Continued and to be SIGNED on Reverse Side)
<PAGE>
[X] Please mark your
votes as in this DO NOT PRINT IN
example using THIS AREA
dark ink only
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FOR
the nominees WITHHOLD
listed below (except AUTHORITY
as indicated below) to vote for all nominees
1. To elect seven [_] [_] The Board of Directors recommends a vote "FOR"
directors, each to election of all nominees for director, "FOR"
hold office for one- approval of the Off-Price and Action Sports Sale,
year terms and until "FOR" approval of the indemnification
their successors Agreements, "FOR" approval of the
are elected and Company's 2000 Employee Stock Purchase Plan
qualified. and "FOR" approval of the amendment to the
1996 Equity Incentive Plan.
Nominees: Michael G. Rubin, Kenneth J. Adelberg, Harvey Lamm, Jeffrey R. Rayport, Charles R. Lax,
Ronald D. Fisher and Mark S. Menell.
(Instruction: To withhold a authority to vote for any nominee write that nominee's name in this space:
- -----------------------------------------------------------------------------------------------------------------
DO NOT PRINT
IN THIS AREA
- -----------------------------------------------------------------------------------------------------------------
Date: , 2000
- ----------------------------------------------------------------- -------------------------
(Signature(s) of Shareholder(s)) (Please date this proxy)
Please sign exactly as your name(s) appear(s) to the left. When signing as attorney, executor, administrator,
trustee or guardian, please give your full title. If shares are held jointly, each holder should sign.
FOR AGAINST ABSTAIN
2. To approve (1) the Acquisition [_] [_] [_]
Agreement, dated September 24,
1999, as amended, among the
Company, Gen-X Acquisition (U.S.),
Inc., Gen-X Acquisition (Canada) Inc.,
DMJ Financial, Inc., James J. Salter
and Kenneth J. Finkelstein (a copy of
the Acquisition Agreement is attached
as Appendix A to the accompanying
Proxy Statement) relating to the sale
of the Company's Off-Price and Action
Sports Division, including the sale of
all of the issued and outstanding capi-
tal stock of the Company's wholly-
owned subsidiaries Gen-X Holdings
Inc. and Gen-X Equipment Inc., and (8)
the sale of the Company's Off-Price
and Action Sports Division.
3. To approve indemnification [_] [_] [_]
Agreements to be entered into with the
Company's directors and certain of its
officers.
4. To approve the Company's 2000 [_] [_] [_]
Employee Stock Purchase Plan.
5. To approve an amendment to the Company's [_] [_] [_]
1996 Equity Incentive Plan to increase
the number of shares of Common Stock
issuable thereunder from 3,000,000 shares
to 4,500,000 shares.
</TABLE>
