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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 1, 2000 or
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-16611
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GLOBAL SPORTS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 04-2958132
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation of organization)
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1075 FIRST AVENUE, KING OF PRUSSIA, PA 19406 (610) 265-3229
(Address of principal executive offices, including zip code, telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant as of the close of business on March 17, 2000,
was approximately $78,248,960.(/1/) There were 18,550,580 shares of the
registrant's Common Stock outstanding as of the close of business on March 17,
2000.
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DOCUMENTS INCORPORATED BY REFERENCE
(Specific sections incorporated are identified under applicable items herein)
Certain information required for Part III of this Form 10-K is incorporated
herein by reference to the Proxy Statement for the 2000 Annual Meeting of the
Company's shareholders.
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(/1/)This equals the number of outstanding shares of the registrant's Common
Stock reduced by the number of shares that may be deemed beneficially
owned by the registrant's officers, directors and sharheolders owning in
excess of 10% of the regsitrant's Common Stock, multiplied by the last
reported sale price for the registrant's Common Stock on March 17, 2000.
This information is provided solely for record keeping purposes of the
Securities and Exchange Commission and shall not be construed as an
admission that any officer, director or 10% shareholder in the registrant
is an affiliate of the registrant or is the beneficial owner of any such
shares. Any such inference is hereby disclaimed.
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GLOBAL SPORTS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JANUARY 1, 2000
TABLE OF CONTENTS
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PART I
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ITEM 1: BUSINESS..................................................... 3
ITEM 2: PROPERTIES................................................... 25
ITEM 3: LEGAL PROCEEDINGS............................................ 25
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 25
ITEM 4.1: EXECUTIVE OFFICERS OF THE REGISTRANT......................... 25
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS..................................................... 27
ITEM 6: SELECTED FINANCIAL DATA...................................... 27
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 29
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK... 33
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 33
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 33
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........... 34
ITEM 11: EXECUTIVE COMPENSATION....................................... 34
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 34
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............... 34
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K......................................................... 35
SIGNATURES.............................................................. 38
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PART I
ITEM 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' banner;
. 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 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.
During our first two months in business, we had net revenues of
approximately $5.5 million. We launched our initial six e-commerce sporting
goods businesses in November 1999 located at the URLs www.dunhamssports.com,
www.mcsports.com, www.sportchalet.com, www.theathletesfoot.com,
www.thesportsauthority.com and store.webmd.com. Subsequently we announced
agreements with BlueLight.com, the exclusive online partner of Kmart, and
Oshman's Sporting Goods and we expect to launch e-commerce sporting goods
businesses for them 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 11.1% of the estimated United States retail sporting goods
market.
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
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engaged in sports, fitness and outdoor activities grew 19% from 68.5 million
in 1987 to 81.6 million in 1996, 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, retail gross margins in sporting goods typically exceed 30% and
tend to be higher than retail gross margins in many other consumer products
categories, such as books, toys, computers and electronics. Finally, 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 142
million Internet users worldwide at the end of 1998 and expects this number to
grow to approximately 502 million by the end of 2003. Business' and consumers'
acceptance of the Internet as a 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 31 million at the end of 1998 to
approximately 183 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.
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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 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
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
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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.
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 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;
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. 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 Web site enhancements. 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 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 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 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 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.
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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, 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 can offer a wider variety of merchandise on our 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. 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 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.
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
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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 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
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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.
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.
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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
record all revenues generated on our partners' Web sites and pay a
percentage of those 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
pay a nominal royalty to The Sports Authority based on a percentage of
sales generated by the subsidiary.
. 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 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
- ----------------------- -------------------------- -------------------------------- -------------------------
<S> <C> <C> <C>
BlueLight.com www.bluelight.com long-term distribution agreement Expected to launch in the
second quarter of 2000
Dunham's Sports www.dunhamssports.com exclusive licensing agreement November 1999
Healtheon/WebMD store.webmd.com exclusive licensing agreement November 1999
MC Sports www.mcsports.com exclusive licensing agreement November 1999
Oshman's Sporting Goods www.oshmans.com exclusive licensing agreement Expected to launch in the
second quarter of 2000
Sport Chalet www.sportchalet.com exclusive licensing agreement November 1999
The Athlete's Foot www.theathletesfoot.com exclusive licensing agreement November 1999
The Sports Authority www.thesportsauthority.com majority-owned subsidiary and November 1999
exclusive licensing agreement
</TABLE>
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. Our various agreements last for five
to 15 years.
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
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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.
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 have agreed with The Sports Authority and
Healtheon/WebMD to create and operate a sports, medicine and fitness e-
commerce sporting goods business. 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. 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;
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. 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;
. 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.
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 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
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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 March 20, 2000, we employed 184 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.
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.
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.
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.
Yukon is a performance outdoor and rugged casual footwear brand designed for
men, women and children.
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 March 20, 2000, we employed 55 full-time employees in our Off-Price
and Action Sports Division.
Risk Factors
Any investment in shares of our common stock involves a high degree of risk.
You should carefully consider the following information about these risks,
together with the other information contained in this Annual Report on Form
10-K. If any of the following risks occur, our business could be materially
harmed. In these circumstances, the market price of our common stock could
decline, and you may lose all or part of the money you paid to buy our common
stock. This Annual Report on Form 10-K contains forward-looking statements
that involve risks and uncertainties. Many factors, including those described
below, may cause actual results to differ materially from anticipated results.
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Risks Particular to Our Business
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 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
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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;
. 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;
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. 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 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.
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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 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 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 our 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.
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Developing our 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.
We may not be able to compete successfully against current and future
competitors, which could harm our margins and our business.
19
<PAGE>
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 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
20
<PAGE>
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 March 17, 2000, Michael G. Rubin, our Chairman and Chief Executive
Officer, beneficially owned 43.3% and funds affiliated with SOFTBANK America
Inc., referred to as SOFTBANK, beneficially owned 33.2% 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
agreement pursuant to which SOFTBANK acquired its shares of our common stock
provides that SOFTBANK has the right to designate up to two 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.
21
<PAGE>
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 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.
22
<PAGE>
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 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;
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. 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:
. 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
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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
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.
ITEM 2: 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.
ITEM 3: 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.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
fiscal quarter ended January 1, 2000.
ITEM 4.1: EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information regarding each of our executive
officers and key employees:
<TABLE>
<CAPTION>
Name Age(/1/) Title
---- -------- -----
<S> <C> <C>
Jordan M. Copland....... 37 Executive Vice President and Chief Financial Officer
Robert W. Liewald....... 51 Executive Vice President, Merchandising
Arthur H. Miller........ 46 Executive Vice President and General Counsel
Michael R. Conn......... 29 Senior Vice President, Business Development
Steven C. Davis......... 29 Senior Vice President, Marketing
Michael A. Balik........ 39 Vice President, Management and Information Systems
William L. Meisle....... 39 Vice President, Production
Donald R. Murphy........ 56 Vice President, Operations
Joseph P. Romello....... 49 Vice President, Engineering
</TABLE>
- --------
(/1/) As of March 17, 2000
Jordan M. Copland has served as our Executive Vice President and Chief
Financial Officer since February 2000. From March 1999 to February 2000, Mr.
Copland served as Senior Vice President and Chief Financial Officer of Virgin
Entertainment Group, Inc.'s United States-based Megastore and global e-
commerce businesses. While at Virgin, Mr. Copland oversaw financial
administration and technology. From October 1990 to March 1999, Mr. Copland
held a variety of positions with increasing responsibility within The Walt
Disney Company, a worldwide entertainment company. Most recently Mr. Copland
was Vice President of Finance and Planning for the Disney Consumer Products
division. He has also held various leadership and management positions within
several other divisions of Disney, including the Disney Publishing Group,
Disney Consumer Products Europe, the Middle East and Africa and Walt Disney
Records.
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<PAGE>
Robert W. Liewald has served as our Executive Vice President, Merchandising
since July 1999 and worked as a consultant to us from December 1998 to July
1999. From January 1995 to June 1998, Mr. Liewald served as Senior Executive
Vice President of FILA USA, an athletic footwear and apparel manufacturer.
From June 1972 to January 1995, Mr. Liewald held a variety of positions at
Venator Group, an athletic footwear and apparel retailer based in New York,
New York, most recently as Senior Vice President, Corporate Merchandiser with
merchandising responsibility for all of Venator Group's specialty athletic
divisions. Also while at Venator, Mr. Liewald served as Vice President,
General Merchandise Manager for Champs Sports and Vice President, Merchandise
Manager at Foot Locker and Lady Foot Locker.
Arthur H. Miller has served as our Executive Vice President and General
Counsel since September 1999. From January 1988 to September 1999, Mr. Miller
was a partner in the Corporate department of Blank Rome Comisky & McCauley
LLP, a law firm based in Philadelphia, Pennsylvania. Mr. Miller joined Blank
Rome in April 1983.
Michael R. Conn has served as our Senior Vice President, Business
Development since February 1999. From June 1993 to February 1999, Mr. Conn
served as Vice President, Research at Gruntal & Co. L.L.C., an investment bank
based in New York, New York. Mr. Conn worked as a sell-side securities analyst
specializing in footwear, apparel, retail and leisure products. While at
Gruntal, Mr. Conn was named to the 1998 Wall Street Journal All-Star Analyst
Team.
Steven C. Davis has served as our Senior Vice President Marketing since
January 2000. From June 1996 to January 2000, Mr. Davis held a number of
management positions at Just for Feet, Inc., a specialty sporting goods
retailer based in Birmingham, Alabama. Most recently, Mr. Davis was Vice
President of Marketing and previously he served as Director of Marketing and
Director of Special Projects. In the summer of 1995, Mr. Davis served as a
marketing consultant for Dell Computer Corporation. From January 1990 until
September 1994, Mr. Davis was Manager of Park Operations for Anheuser Busch
Theme Parks, Inc.
Michael A. Balik has served as our Vice President, Management Information
Systems since May 1999. From December 1996 to May 1999, Mr. Balik served as
Director of Management Information Systems for Cherrydale Farms, a
manufacturer of confectionery products based in Allentown, Pennsylvania. From
March 1993 to October 1996 Mr. Balik was Director of Information Systems for I
Got It at Gary's, a super-discount drugstore chain based in Eagleville,
Pennsylvania.
William L. Meisle has served as our Vice President, Production since January
2000. From January 1993 to December 1999, Mr. Meisle held a number of
positions of increasing responsibility at Medical Broadcasting Company, a
strategic interactive marketing and communications services company based in
Philadelphia, Pennsylvania. From December 1997 to December 1999, Mr. Meisle
served as Senior Strategic Analyst and Creative Director. Also while at
Medical Broadcasting Company, he served as Director, Interactive Services,
Project Director and Production Manager.
Donald R. Murphy has served as our Vice President, Operations, since April
1999. From October 1997 to April 1999, Mr. Murphy was Vice President/General
Manager for the Home Shopping Network based in Roanoke, Virginia. From October
1995 to October 1997, he was Vice President of Operations at an institutional
food distribution center owned by PYA/Monarch Food Service in Raleigh, North
Carolina. From September 1989 to October 1995 Mr. Murphy served as a Warehouse
Supervisor for Kraft Food Service in Salem, Missouri.
Joseph P. Romello has served as our Vice President, Engineering since May
1999. From May 1997 to May 1999, Mr. Romello served as an independent
engineering consultant to Donaldson, Lufkin and Jenrette, an investment
banking firm based in New York, New York. From June 1996 to May 1997, Mr.
Romello served an independent engineering consultant to a number of consumer
companies, including Netscape, Gap, Inc. and Levi Strauss. From May 1995 to
June 1996, Mr. Romello served as Director of Business Development for
Persistence, an object relational middle-ware software vendor based in San
Mateo, California.
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<PAGE>
PART II
ITEM 5: 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 March 17, 2000, the Company had approximately
1971 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
</TABLE>
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 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.
This transaction was not a public offering, 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, including
certain representations and warranties of SOFTBANK, the Company believes that
the transaction was exempt from the registration requirements of the
Securities Act of 1933, as amended, by reason of Section 4(2) thereof.
ITEM 6: SELECTED FINANCIAL DATA
The following tables present portions of our financial statements and are
not complete. You should read the following selected consolidated financial
data together with our consolidated financial statements and related
27
<PAGE>
notes to our financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected statements of
operations data for the years ended December 31, 1997 and 1998 and January 1,
2000 and the balance sheet data as of December 31, 1998 and January 1, 2000
are derived from our consolidated financial statements that have been audited
by Deloitte & Touche LLP, independent auditors, included elsewhere in this
Annual Report on Form 10-K. The selected statement of operations data for the
years ended December 31, 1995 and 1996 and the balance sheet data as of
December 31, 1995, 1996 and 1997 are derived from our audited consolidated
statements that are not included in this Annual Report on Form 10-K.
On April 20, 1999, we formalized a plan to sell our Branded Division and our
Off-Price and Action Sports Division in order to focus exclusively on 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. The following selected consolidated financial data
and our consolidated financial statements included in this Annual Report on
Form 10-K have been reclassified to reflect this presentation.
<TABLE>
<CAPTION>
Fiscal Year
Year Ended December 31, Ended
---------------------------------- January 1,
1995 1996 1997 1998 2000
------- ------- ------- ------- -----------
(in thousands, except per share data)
<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:
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
Working capital................ 2,839 2,022 19,748 34,846 40,558
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.
28
<PAGE>
ITEM 7: 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
Annual Report on Form 10-K. 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 Annual Report on Form 10-K.
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 launched our initial six 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 Annual Report on Form 10-K
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 our annual
stockholders meeting to be held on May 15, 2000. Michael G. Rubin, our
Chairman and Chief Executive Officer, who beneficially owns approximately
43.3% of our outstanding shares, and SOFTBANK, who beneficially owns
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 our
annual stockholders meeting. For fiscal 1999, we have recognized a loss of
approximately $5.2 million related to the disposition of this division.
29
<PAGE>
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.
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 purchase price 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 partner revenue
shares, advertising and promotional expenses, including temporary free-
shipping, distribution facility expenses, order processing fees, and
payroll and related expenses for personnel engaged in marketing, buying,
merchandising, client services, fulfillment and customer service;
. product development expenses, which consist primarily of expenses
associated with building, 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.theathletesfoot.com,
www.dunhamssports.com, www.mcsports.com, www.sportchalet.com,
www.thesportsauthority.com, and store.webmd.com. We derived $2.7 million of
our net revenues from the sale of product through our partners' Web sites. 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. Other sources of revenue during the year, including sales of
gift certificates to our partners' retail stores, the sale of advertising
space on our partner's Web site, auction.thesportsauthority.com and outbound
shipping charges to consumers, were not significant during the period. 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.
30
<PAGE>
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.
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 a
third-party Web site development company. 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 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.
31
<PAGE>
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 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.
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,
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.
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 its 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
32
<PAGE>
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.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market rate risk for changes in interest rates relates
primarily to our investment portfolio. 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 suffer losses in principal if forced to sell securities which have
declined in market value due to changes in interest rates.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company, supplementary data and related
documents that are included in this Annual Report on Form 10-K are listed in
Item 14(a), Part IV, of this Report.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
33
<PAGE>
PART III
This Part incorporates certain information from the Company's definitive
proxy statement for its 2000 Annual Meeting of Shareholders (the "2000 Proxy
Statement") filed with the Securities and Exchange Commission not later than
120 days after the end of the Company's fiscal year covered by this Annual
Report on Form 10-K. Notwithstanding such incorporation, the sections of the
Company's 2000 Proxy Statement entitled "Report of the Compensation Committee"
and "Performance Graph" shall not be deemed to be "filed" as part of this
Report.
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company is incorporated by
reference to the Company's 2000 Proxy Statement including but necessarily
limited to the sections of the 2000 Proxy Statement entitled "Proposal 1--
Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance."
Information concerning executive officers of the Company who are not also
directors is included in Item 4.1, Part I, of this Annual Report on Form 10-K.
ITEM 11: EXECUTIVE COMPENSATION
This information is incorporated by reference to the Company's 2000 Proxy
Statement including but necessarily limited to the section of the 2000 Proxy
Statement entitled "Executive Compensation."
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to the Company's 2000 Proxy
Statement including but necessarily limited to the section of the 2000 Proxy
Statement entitled "Principal Shareholders."
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to the Company's 2000 Proxy
Statement including but necessarily limited to the section of the 2000 Proxy
Statement entitled "Certain Relationships and Related Transactions."
34
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Report of Independent Auditors--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
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted since the required information is included
in the financial statements or the notes thereto or is not applicable or
required.
3. EXHIBITS
<TABLE>
<C> <S>
2.1(/1/) Securities Purchase Agreement dated June 21, 1995 by and between
the Company and MR Acquisitions, Inc.
2.2(/2/) First Amendment to Securities Purchase Agreement by and between
the Company and MR Acquisitions, Inc. dated July 31, 1995.
2.3(/3/) Second Amended and Restated Agreement and Plan of Reorganization,
as amended, among RYKA Inc., a Delaware corporation, KPR Sports
International, Inc., a Pennsylvania corporation, Apex Sports
International, Inc., a Pennsylvania corporation, MR Management,
Inc., a Pennsylvania corporation, and Michael G. Rubin.
2.4(/4/) Stock Purchase Agreement dated as of May 12, 1998 by and among
Global Sports, Inc., DMJ Financial Inc., James J. Salter, Kenneth
J. Finkelstein and certain other individuals and entities.
2.5(/5/) Asset Purchase Agreement, dated December 29, 1999, among American
Sporting Goods Corporation and RYKA Inc., KPR Sports
International, Inc., G.S.I., Inc., Apex Sports International,
Inc. and Global Sports, Inc.
2.6(/6/) 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
3.1(/3/) Amended and Restated Certificate of Incorporation of the Company
filed with the Secretary of State of the State of Delaware on
December 15, 1997.
3.2(/7/) The Company's Bylaws, as amended.
4.1(/7/) Specimen of Common Stock Certificate.
10.1(/8/)* 1987 Stock Option Plan.
10.2(/9/)* 1988 Stock Option Plan.
10.3(/10/)* 1990 Stock Option Plan.
10.4(/11/)* 1992 Stock Option Plan.
10.5(/12/)* 1993 Stock Option Plan.
10.6(/2/)* 1995 Stock Option Plan.
10.7(/13/)* 1995 Non-Employee Directors' Stock Option Plan.
10.8* 1996 Equity Incentive Plan (amended and restated as of November
16, 1999).
</TABLE>
35
<PAGE>
<TABLE>
<C> <S>
10.9(/14/)* Deferred Profit Sharing Plan and Trust.
10.10(/15/)* 2000 Employee Stock Purchase Plan
10.11(/2/)* Employment Agreement dated July 31, 1995 by and between the
Company and Steven A. Wolf.
10.12(/16/)* Employment Agreement dated September 25, 1996 by and between the
Company and Michael G. Rubin.
10.13(/16/)* First Amendment to the Employment Agreement dated September 25,
1996 by and between the Company and Michael G. Rubin.
10.14(/17/)* Employment Agreement dated May 12, 1998 by and between the
Company and James J. Salter.
10.15(/17/)* Employment Agreement dated January 1, 1999 by and between the
Company and Arthur I. Carver.
10.16(/17/) Employment Agreement dated February 24, 1999 by and between the
Company and Michael R. Conn.
10.17(/18/)* Employment Agreement dated March 28, 1999 by and between the
Company and Michael Golden.
10.18(/19/)* Employment Agreement dated August 9, 1999 by and between the
Company and Arthur H. Miller.
10.19* Employment Agreement dated January 10, 2000 by and between the
Company and Steven Davis.
10.20* Employment Agreement dated February 9, 2000 by and between the
Company and Jordan M. Copland.
10.21(/2/) Registration Rights Agreement by and between the Company and MR
Acquisitions, Inc.
10.22(/19/) Omnibus Services Agreement dated April 1, 1999 by and between the
Company and Organic, Inc.
10.23(/19/) Amendment No. 1 to the Omnibus Services Agreement dated April 1,
1999 by and between the Company and Organic, Inc.
10.24(/19/) Independent Contractor Services Agreement dated June 29, 1999 by
and between the Company and Foundry, Inc.
10.25(/19/) Addendum No. 1 to the Independent Contractor Services Agreement
dated June 29, 1999 by and between the Company and Foundry, Inc.
10.26(/19/) Agreement of Sale dated July 27, 1999 by and between the Company
and IL First Avenue Associates L.P. for acquisition of property
at 1075 First Avenue, King of Prussia, PA.
10.27(/19/) Advertising and Promotion Agreement dated October 3, 1999 by and
between the Company and Yahoo! Inc. ("Yahoo").
10.28+ Amendment No. 1 to Advertising and Promotion Agreement dated
February 15, 2000 by and between the Company and Yahoo.
10.29(/19/) Transaction Management Services Agreement dated June 10, 1999 by
and between the Company and Priority Fulfillment Services, Inc.
10.30(/19/) E-Commerce Agreement dated February 1, 1999 by and between Global
Sports Interactive, Inc. ("GSI") and Michigan Sporting Goods
Distributors, Inc. ("MC Sports")
10.31 First Amendment to E-Commerce Agreement dated June 17, 1999 by
and between GSI and MC Sports.
10.32(/20/) E-Commerce Management Agreement dated March 10, 1999 by and
between GSI and The Athlete's Foot Stores, Inc.
10.33(/20/) E-Commerce Agreement dated March 23, 1999 by and between GSI and
Dunham's Athleisure Corporation ("Dunham's").
10.34 Amendment to E-Commerce Agreement dated May 25, 1999 by and
between GSI and Dunham's.
10.35 Amendment to E-Commerce Agreement dated December 5, 1999 by and
between GSI and Dunham's.
10.36(/20/) E-Commerce Management Agreement dated March 31, 1999 by and
between GSI and Sport Chalet, Inc.
10.37(/20/) E-Commerce Venture Agreement dated May 7, 1999 by and between GSI
and The Sports Authority, Inc. ("TSA").
10.38(/20/) Amendment No. 1 to the E-Commerce Venture Agreement dated May 14,
1999 by and between GSI and TSA.
10.39(/20/) License Agreement dated May 14, 1999 by and among TSA, The Sports
Authority Michigan, Inc. and TheSportsAuthority.com, Inc.
("TSA.com").
10.40(/20/) E-Commerce Services Agreement dated May 14, 1999 by and between
GSI and TSA.com.
</TABLE>
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<TABLE>
<C> <S>
10.41(/20/) E-Commerce Agreement dated May 14, 1999 by and among TSA and
TSA.com.
10.42(/20/) Agreement dated May 14, 1999, by and between TSA and the Company.
10.43+ E-Commerce Management Agreement dated December 30, 1999 by and
between GSI and Oshman's Sporting Goods, Inc.-Services.
10.44+ Strategic Alliance Agreement dated February 28, 2000 by and among
GSI and Bluelight.Com LLC.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule (electronic filing only).
</TABLE>
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*Management contract or compensatory plan or arrangement
+ Confidential treatment has been requested as to certain portions of this
exhibit. The omitted portions have been separately filed with the
Securities and Exchange Commission.
(/1/) Incorporated by reference to the Company's Current Report on Form 8-K
dated June 21, 1995.
(/2/) Incorporated by reference to the Company's Current Report on Form 8-K
dated July 31, 1995.
(/3/) Incorporated by reference to the Company's Definitive Proxy Materials
filed November 12, 1997.
(/4/) Incorporated by reference to the Company's Current Report on Form 8-K
dated May 27, 1998.
(/5/) Incorporated by reference to the Company's Current Report on Form 8-K
dated January 13, 2000.
(/6/) Incorporated by reference to the Company's Quarterly Report on Form 10-
Q/A for the nine-month period ended September 30, 1999, filed March 21,
2000.
(/7/) Incorporated by reference to the Company's Registration Statement No. 33-
33754.
(/8/) Incorporated by reference to the Company's Registration Statement No. 33-
19754-B.
(/9/) Incorporated by reference to the Company's Registration Statement No. 33-
27501.
(/10/) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the nine-month period ended September 30, 1990.
(/11/) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991.
(/12/) Incorporated by reference to the Company's Form S-8 Registration
Statement filed on January 3, 1994.
(/13/) Incorporated by reference to the Company's Proxy Statement filed on
October 13, 1995 in connection with the 1995 Special Meeting in lieu of
Annual Meeting held on November 15, 1995.
(/14/) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the three-month period ended March 31, 1998.
(/15/) Incorporated by reference to the Company's Preliminary Proxy Statement
filed on March 22, 2000 in connection with the 2000 Annual Meeting.
(/16/) Incorporated)by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
(/17/) Incorporated)by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
(/18/) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the three-month period ended March 31, 1999.
(/19/) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the nine-month period ended September 30, 1999.
(/20/) Incorporated by reference to the Company's Current Report on Form 8-K
dated December 28, 1999.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
January 1, 2000.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf on the date indicated by the undersigned thereunto duly
authorized.
Date: March 30, 2000 GLOBAL SPORTS, INC.
/s/ Michael G. Rubin
By: _________________________________
Michael G. Rubin,
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael G. Rubin Chairman and Chief March 30, 2000
______________________________________ Executive Officer
Michael G. Rubin (principal executive
officer)
/s/ Jordan M. Copland Executive Vice President March 30, 2000
______________________________________ and Chief Financial
Jordan M. Copland Officer (principal
financial officer and
principal accounting
officer)
/s/ Kenneth J. Adelberg Director March 30, 2000
______________________________________
Kenneth J. Adelberg
/s/ Harvey Lamm Director March 30, 2000
______________________________________
Harvey Lamm
/s/ Charles R. Lax Director March 30, 2000
______________________________________
Charles R. Lax
/s/ Jeffrey F. Rayport Director March 30, 2000
______________________________________
Dr. Jeffrey F. Rayport
/s/ Ronald D. Fisher Director March 30, 2000
______________________________________
Ronald D. Fisher
</TABLE>
38
<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>
<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
=========== =========== ============
</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 and media companies under exclusive long-term
agreements. The Company's partners include The Sports Authority, Oshman's
Sporting Goods, The Athlete's Foot, Sport Chalet, MC Sports, Dunham's Sports,
BlueLight.com and Healtheon/WebMD.
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. At 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. 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 and capitalized software
development costs;
. 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 in 1998. Intangibles,
which principally represent the cost of acquiring licenses, patents and
trademarks, are reported net of accumulated amortization of $270,124 in 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 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 at December 31, 1998 and January 1,
2000, based on the short maturity of these instruments.
Net Revenues: Net revenues include primarily revenues generated from the
sale of product through the Company's Web sites. 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 Company's Web sites and outbound shipping charges, were not
significant for the fiscal year ended January 1, 2000.
Promotional Shipping Costs: During 1999, as part of a promotion in
connection with the launch of the Company's Web sites, the Company offered
free shipping on certain orders. The expense related to this temporary
promotion for the 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 in accordance with
the AICPA Accounting Standards Executive Committee's Statement of Position
("SOP") 93-7, Reporting on Advertising Costs. 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 building, developing and operating the partners' Web
sites; payroll and related expenses for engineering, production, creative and
management information systems; and depreciation expense related to
capitalized hardware and software.
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,
F-8
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 merger with RYKA Inc. As a result of the merger, 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.
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 at 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 on 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 the Subordinated Note Payable owed 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
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 discounted 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 discounted stock options 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 warrants to purchase 123,500 shares of the Company's common stock with
a fair 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 in fiscal
1999, 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 in fiscal 1999. 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
in 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>
Year Ended December 31, 1997
Net loss...................................... $ (4,155,295) $ (4,805,295)
============ ============
Losses per share--basic and diluted........... $ (1.39) $ (1.60)
============ ============
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
Year Ended 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 year ended December 31, 1997, the Company had no provision for
federal and state income taxes.
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
Year Ended 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 include 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 1999, 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) and to provide barter media of no less than $5,000,000 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.
Retailer Relationships
The Company's retailer alliances are separated into two different
structures. The Company's arrangement with The Athlete's Foot, Oshman's
Sporting Goods, MC Sports, Dunham's Sporting Goods, Sport Chalet and
Healtheon/WebMD are exclusive licensing arrangements ranging in term from five
to ten years, whereby the Company records 100% of all revenues generated on
the electronic storefronts and pays a percentage of those revenues to the
partner in exchange for the electronic rights to their brand name and the
promotion of the electronic storefront in the partner's stores, Web site
and/or marketing and communications materials. 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"), via 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>
At 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 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 in 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) to reduce the purchase price as a result of
more of the purchase price being paid in cash, (iv) to provide the purchaser
with a breakup fee of $1,500,000, 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.
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 second quarter of fiscal 1999, management revised its estimates and
recorded a loss on disposal of $5,632,158. During the fourth quarter of fiscal
1999, 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 fourth quarter of fiscal 1999.
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 is 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 fiscal 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 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)/Thesum 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 agreement with
BlueLight.com, an independent company formed to operate the e-commerce
businesses of Kmart Corporation, to manage the merchandising, warehousing and
fulfillment of BlueLight.com's sporting goods category.
F-27
<PAGE>
Exhibit 10.8
GLOBAL SPORTS, INC.
1996 EQUITY INCENTIVE PLAN
(amended and restated as of November 16, 1999)
- --------------------------------------------------------------------------------
1. PURPOSE
The purpose of the Global Sports, Inc. Equity Incentive Plan (the "Plan")
is to promote the long-term retention of key employees of Global Sports, Inc.,
("Global") and its current and future subsidiaries (collectively, the "Company")
and other persons who are in a position to make significant contributions to the
success of the Company, to further reward these employees and other persons for
their contributions to the Company's growth and expansion, to provide additional
incentive to these employees and other persons to continue to make similar
contributions in the future, and to further align the interests of these
employees and other persons with those of Global's stockholders. These purposes
will be achieved by granting to such employees and other persons, in accordance
with the provisions of this Plan, Options, Stock Appreciation Rights, Restricted
Stock or Unrestricted Stock Awards, Deferred Stock Awards or Performance Awards,
for shares of Global's common stock, $0.01 par value per share ("Common Stock"),
or Loans or Supplemental Grants, or combinations thereof ("Awards").
2. AGGREGATE NUMBER OF SHARES
2.1 The aggregate number of shares of Common Stock for which Awards may
be granted under the Plan will be 3,000,000 shares. Notwithstanding the
foregoing, if there is any change in the capitalization of Global, such as by
stock dividend, stock split, combination of shares, exchange of securities,
recapitalization or other event which the Board of Directors (the "Board") of
Global deems, in its sole discretion, to be similar circumstances, the aggregate
number and/or kind of shares for which Awards may be granted under the Plan
shall be appropriately adjusted in a manner determined by the Board. No
fractional shares of Common Stock will be delivered under the Plan.
2.2 Treasury shares, reacquired shares and unissued shares of Common
Stock may be used for purposes of the Plan, at Global's sole discretion.
2.3 Shares of Common Stock that were issuable pursuant to an Award that
has terminated but with respect to which such Award had not been exercised,
shares of Common Stock that are issued pursuant to an Award but that are
subsequently forfeited and shares of Common Stock that were issuable pursuant to
an Award that was payable in Common Stock or cash but that was satisfied in
cash, shall be available for future Awards under the Plan.
3. ELIGIBLE EMPLOYEES AND PARTICIPANTS
1
<PAGE>
3.1 All current and future key employees of the Company, including
officers and directors who are employed by the Company, ("Employees") and all
other persons, including directors of the Company who are not Employees, who, in
the opinion of the Board, are in a position to make a significant contribution
to the success of the Company, shall be eligible to receive Awards under the
Plan. Members of the Board shall not be eligible to receive Awards. No
eligible Employee or other person (a "Participant") shall have any right to
receive an Award except as expressly provided in the Plan.
3.2 The Participants who shall actually receive Awards under the Plan
shall be determined by the Board in its sole discretion. In making such
determinations, the Board shall consider the positions and responsibilities of
eligible Employees and other persons, their past performance and contributions
to the Company's growth and expansion, the value of their services to the
Company, the difficulty of finding qualified replacements, and such other
factors as the Board deems pertinent in its sole discretion.
4. ADMINISTRATION
4.1 The Plan shall be administered by the Board. The Board may delegate
all or any portion of its authority hereunder to one or more committees, each
consisting of one or more members of the Board. Once appointed, such committees
shall continue to serve until otherwise directed by the Board. Any Awards
granted to officers who are subject to Section 16 of the Securities Exchange Act
of 1934, as amended (the "1934 Act") shall be made by a committee of two or more
members of the Board, each of whom is a Non-Employee Director (as defined or
interpreted for purposes of Rule 16b-3 (including amendments and successor
provisions) as promulgated by the Securities and Exchange Commission pursuant to
its authority under the 1934 Act ("Rule 16b-3")) or as otherwise permitted by
Rule 16b-3 and other applicable regulations. Any Awards granted to officers who
are subject to Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") shall be made by a committee of two or more members of the Board,
each of whom is an Outside Director (as defined or interpreted for purposes of
Section 162(m) of the Code) or as otherwise permitted by Section 162(m) of the
Code and other applicable regulations.
4.2 In addition to its other authority but subject to the provisions of
the Plan, the Board shall have the authority to determine, in its sole
discretion, the Participants who shall be eligible to receive Awards, the
Participants who shall actually receive Awards, the size of each Award,
including the number of shares of Common Stock subject to the Award, the type or
types of each Award, the date on which each Award shall be granted, the terms
and conditions of each Award, whether to waive compliance by a Participant with
any obligations to be performed by the Participant under an Award or waive any
term or condition of an Award, whether to amend or cancel an existing Award in
whole or in part (except that the Board may not, without the consent of the
holder of an Award or unless specifically authorized by the terms of an Award,
take any action under this clause with respect to such Award if such action
would adversely
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affect the rights of such holder), and the form or forms of instruments that are
required or deemed appropriate under the Plan, including any written notices and
elections required of Participants.
4.3 The Board may adopt such rules for the administration of the Plan as
it deems necessary or advisable, in its sole discretion. For all purposes of
the Plan, a majority of the members of the Board shall constitute a quorum, and
the vote or written consent of a majority of the members of the Board on a
particular matter shall constitute the act of the Board on that matter. The
Board shall have the exclusive right to construe the Plan and any Award, to
settle all controversies regarding the Plan or any Award, to correct defects and
omissions in the Plan and in any Award, and to take such further actions as the
Board deems necessary or advisable, in its sole discretion, to carry out the
purpose and intent of the Plan. Such actions shall be final, binding and
conclusive upon all parties concerned.
4.4 No member of the Board shall be liable for any act or omission
(whether or not negligent) taken or omitted in good faith, or for the good faith
exercise of any authority or discretion granted in the Plan to the Board, or for
any act or omission of any other member of the Board.
4.5 All costs incurred in connection with the administration and
operation of the Plan shall be paid by the Company. Except for the express
obligations of the Company under the Plan and under Awards granted in accordance
with the provisions of the Plan, the Company shall have no liability with
respect to any Award, or to any Participant or any transferee of shares of
Common Stock from any Participant, including, but not limited to, any tax
liabilities, capital losses, or other costs or losses incurred by any
Participant or any such transferee.
5. TYPES OF AWARDS
5.1. Options.
(a) An Option is an Award entitling the recipient on exercise thereof to
purchase Common Stock at a specified exercise price. Both "incentive stock
options," as defined in Section 422 of the Code (any Option intended to qualify
as an incentive stock option is hereinafter referred to as an "ISO"), and
Options that are not incentive stock options ("non-ISO"), may be granted under
the Plan. ISOs shall be awarded only to Employees.
(b) The exercise price of an Option will be determined by the Board subject
to the following:
(1) The exercise price of an ISO shall not be less than 100% (110% in
the case of an ISO granted to a ten percent shareholder) of the fair market
value of the Common Stock subject to the ISO, determined as of the time the
Option is granted. A "ten-percent shareholder" is any person who at the time of
grant owns, directly or indirectly, or is deemed to own by reason
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of the attribution rules of Section 424(d) of the Code, stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of any of its subsidiaries.
(2) The exercise price of a non-ISO shall not be less than 100% of the
fair market value of the Common Stock subject to the non-ISO, determined as of
the time the non-ISO is granted, except that:
(A) the exercise price of a non-ISO may be equal to or greater than
85% of the fair market value of the Common Stock subject to the non-ISO, if the
discount is granted in lieu of a reasonable amount of cash compensation; or
(B) the exercise price of a non-ISO granted pursuant to a
Performance Award may be (i) 100% of the fair market value of the Common Stock
subject to the non-ISO, determined either as of the time the Performance Award
is granted or as of the time the non-ISO is granted pursuant to the Performance
Award; or (ii) an amount less than such fair market value if the discount is
granted in lieu of a reasonable amount of cash compensation as consideration for
exceeding the goal(s) set forth in the Performance Award.
(3) In no case may the exercise price paid for Common Stock which is
part of an original issue of authorized Common Stock be less than the par value
per share of the Common Stock.
(4) The Board may reduce the exercise price of an option at any time
after the time of grant, but in the case of an Option originally awarded as an
ISO, only with the consent of the Participant.
(c) The period during which an Option may be exercised will be determined
by the Board, except that the period during which an ISO may be exercised will
not exceed ten years (five years, in the case of an ISO granted to a ten-percent
shareholder) from the day immediately preceding the date the Option was granted.
(d) An Option will become exercisable at such time or times, and on such
terms and conditions, as the Board may determine. The Board may at any time
accelerate the time at which all or any part of the Option may be exercised.
Any exercise of an Option must be in writing, signed by the proper person and
delivered or mailed to the Company, accompanied by (i) any documents required by
the Board and (ii) payment in full in accordance with Section 5.1(e) below for
the number of shares for which the Option is exercised.
(e) Stock purchased on exercise of an Option must be paid for as follows:
(i) in cash or by check (acceptable to Global in accordance with guidelines
established for this purpose), bank draft or money order payable to the order of
Global or (ii) if so permitted by the instrument evidencing the Option (or in
the case of an Option which is not an ISO, by the Board at or after grant of the
Option), (A) through the delivery of shares of Common Stock which have been
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outstanding for at least six months (unless the Board expressly approves a
shorter period) and which have a fair market value on the last business day
preceding the date of exercise at least equal to the exercise price, or (B) by
delivery of a promissory note of the Option holder to Global, payable on such
terms and conditions as the Board may determine, or (C) by delivery of an
unconditional and irrevocable undertaking by a broker to deliver promptly to
Global sufficient funds to pay the exercise price, or (D) by any combination of
the permissible forms of payment; provided, that if the Common Stock delivered
upon exercise of the Option is an original issue of authorized Common Stock, at
least so much of the exercise price as represents the par value of such Common
Stock must be paid other than by the Option holder's promissory note.
(f) If the market price of shares of Common Stock subject to an Option
(other than an Option which is in tandem with a Stock Appreciation Right as
described in Section 6.2 below) exceeds the exercise price of the Option at the
time of its exercise, the Board may cancel the Option and cause Global to pay in
cash or in shares of Common Stock (at a price per share equal to the fair market
value per share) to the person exercising the Option an amount equal to the
difference between the fair market value of the Common Stock which would have
been purchased pursuant to the exercise (determined on the date the Option is
canceled) and the aggregate exercise price which would have been paid. The
Board may exercise its discretion to take such action only if it has received a
written request from the person exercising the Option, but such a request will
not be binding on the Board.
5.2. Stock Appreciation Rights.
(a) A Stock Appreciation Right is an Award entitling the recipient on its
exercise to receive an amount, in cash or Common Stock or a combination thereof
(such form to be determined by the Board), determined in whole or in part by
reference to appreciation in Common Stock value. In general, a Stock
Appreciation Right entitles the Participant to receive, with respect to each
share of Common Stock as to which the Right is exercised, the excess of the
share's fair market value on the date of exercise over its fair market value on
the date the Right was granted. However, the Board may provide at the time of
grant that the amount the recipient is entitled to receive will be adjusted
upward or downward under rules established by the Board to take into account the
performance of the Common Stock in comparison with the performance of other
stocks or an index or indices of other stocks. The Board may also grant Stock
Appreciation Rights that provide that following a Change in Control of the
Company (as defined in Section 6.3(b)) the holder of such Right will be entitled
to receive, with respect to each share of Common Stock subject to the Right, an
amount equal to the excess of a specified value (which may include an average of
values) for a share of Common Stock during a period preceding such Change in
Control over the fair market value of a share of Common Stock on the date the
Right was granted.
(b) Stock Appreciation Rights may be granted in tandem with, or
independently of, Options granted under the Plan. A Stock Appreciation Right
granted in tandem with an Option that is not an ISO may be granted either at or
after the time the Option is granted. A Stock
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Appreciation Right granted in tandem with an ISO may be granted only at the time
the Option is granted.
(c) When Stock Appreciation Rights are granted in tandem with Options, the
following rules will apply:
(1) The Stock Appreciation Right will be exercisable only at such time
or times, and to the extent, that the related Option is exercisable and will be
exercisable in accordance with the procedure required for exercise of the
related Option.
(2) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related Option, except that
a Stock Appreciation Right granted with respect to less than the full number of
shares covered by an Option will not be reduced until the number of shares as to
which the related Option has been exercised or has terminated exceeds the number
of shares not covered by the Stock Appreciation Right.
(3) The Option will terminate and no longer be exercisable upon the
exercise of the related Stock Appreciation Right.
(4) The Stock Appreciation Right will be transferable only with the
related Option.
(5) A Stock Appreciation Right granted in tandem with an ISO may be
exercised only when the market price of the Stock subject to the Option exceeds
the exercise Price of such option.
(d) A Stock Appreciation Right not granted in tandem with an Option will
become exercisable at such time or times, and on such terms and conditions, as
the Board may specify. The Board may at any time accelerate the time at which
all or any part of the Right may be exercised. Any exercise of an independent
Stock Appreciation Right must be in writing, signed by the proper person and
delivered or mailed to Global, accompanied by any other documents required by
the Board.
5.3. Restricted and Unrestricted Stock.
(a) A Restricted Stock Award entitles the recipient to acquire, for a
purchase price not less than the par value, shares of Common Stock subject to
the restrictions described in Section 5.3 (d) ("Restricted Stock").
(b) A Participant who is granted a Restricted Stock Award shall have no
rights with respect to such Award unless the Participant accepts the Award by
written instrument delivered or mailed to Global accompanied by payment in full
of the specified purchase price, if any, of the shares covered by the Award.
Payment may be by certified or bank check or other instrument
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acceptable to the Board.
(c) A Participant who receives Restricted Stock shall have all the rights
of a stockholder with respect to such stock, including voting and dividend
rights, subject to the restrictions described in 5.3(d) and any other conditions
imposed by the Board at the time of grant. Unless the Board otherwise
determines, certificates evidencing shares of Restricted Stock will remain in
the possession of the Company until such shares are free of all restrictions
under the Plan.
(d) Except as otherwise specifically provided by the Plan or the Award,
Restricted Stock may not be sold, assigned, exchanged, pledged, gifted or
otherwise disposed of, or transferred, and if a Participant suffers a Status
Change (as defined in Section 6.1) for any reason, must be offered to Global for
purchase for the amount of cash paid for such stock, or forfeited to the Company
if no cash was paid. These restrictions will lapse at such time or times, and
on such terms and conditions, as the Board may determine. The Board may at any
time accelerate the time at which the restrictions on all or any part of the
shares will lapse.
(e) Any Participant making, or required by an Award to make, an election
under Section 83(b) of the Code with respect to Restricted Stock shall deliver
to Global, within ten days of the filing of such election with the Internal
Revenue Service, a copy of such election.
(f) The Board may, at the time any Award described in this Section 5 is
granted, provide that any or all the Common Stock delivered pursuant to the
Award will be Restricted Stock.
(g) The Board may, in its sole discretion, approve the sale to any
Participant of shares of Common Stock free of restrictions under the Plan for a
price which is not less than the par value of the Common Stock.
5.4. Deferred Stock. A Deferred Stock Award entitles the recipient to
receive shares of Common Stock to be delivered in the future. Delivery of the
Common Stock will take place at such time or times, and on such terms and
conditions, as the Board may determine. The Board may at any time accelerate
the time at which delivery of all or any part of the Common Stock will take
place. At the time any Award described in this Section 5 is granted, the Board
may provide that, at the time Common Stock would otherwise be delivered pursuant
to the Award, the Participant will instead receive an instrument evidencing the
Participant's right to future delivery of Deferred Stock.
5.5. Performance Awards. A Performance Award entitles the recipient to
receive, without payment, an Award or Awards described in this Section 5 (such
form to be determined by the Board) following the attainment of such performance
goals, during such measurement period or periods, and on such other terms and
conditions, all as the Board may determine. Performance goals may be related to
personal performance, corporate performance, group or departmental performance
or any such other category of performance as the Board may
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determine. The Board shall have the authority to determine the performance
goals, the period or period during which performance is to be measured and all
other terms and conditions applicable to the Award.
5.6. Loans and Supplemental Grants.
(a) The Company may make a loan to a Participant ("Loan"), either in
connection with the purchase of Common Stock under the Award or the payment of
any Federal, state and local income tax with respect to income recognized as a
result of the Award. The Board shall have the authority, in its sole
discretion, to determine whether to make a Loan, the amount, terms and
conditions of the Loan, including the interest rate (which may be zero), whether
the Loan is to be secured or unsecured or with or without recourse against the
borrower, the terms on which the Loan is to be repaid and the terms and
conditions, if any, under which the Loan may be forgiven. In no event shall any
Loan have a term (including extensions) in excess of ten years.
(b) In connection with any Award, the Board may, grant a cash award to the
Participant ("Supplemental Grant") not to exceed an amount equal to (i) the
amount of any Federal, state and local income tax on ordinary income for which
the Participant may be liable with respect to the Award, determined by assuming
taxation at the highest marginal rate, plus (ii) an additional amount on a
grossed-up basis intended to make the Participant whole on an after-tax basis
after discharging all the Participant's income tax liabilities arising from all
payments under this Section 5. Any payments under this Section 5(b) shall be
made at the time the Participant incurs Federal income tax liability with
respect to the Award.
6. EVENTS AFFECTING OUTSTANDING AWARDS
6.1. Termination of Service by Death or Disability. If a Participant who
is an Employee ceases to be an Employee, or if there is a termination of the
consulting, service or other relationship in respect of which a non-Employee
Participant was granted an Award under the Plan (such termination of employment
or other relationship referred to as a "Status Change") by reason of death or
permanent disability (as determined by the Board), the following rules shall
apply, unless otherwise determined by the Board:
(a) All Options and Stock Appreciation Rights held by the Participant at
the time of such Status Change, to the extent then exercisable, will continue to
be exercisable by the Participant's heirs, executor, administrator or other
legal representative, for a period of one year after the Participant's Status
Change. After the expiration of such one-year period, all such Options and
Stock Appreciation Rights shall terminate. In no event, however, shall an
Option or Stock Appreciation Right remain exercisable beyond the latest date on
which it could have been exercised without regard to this Section 6. All
Options and Stock Appreciation Rights held by a Participant at the time of such
Status Change that are not then exercisable shall terminate upon such Status
Change.
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(b) All Restricted Stock held by the Participant at the time of such Status
Change shall immediately become free of all restrictions and conditions.
(c) Any payment or benefit under a Deferred Stock Award, Performance Award
or Supplemental Grant to which the Participant was not irrevocably entitled at
the time of such Status Change shall be forfeited and the Award canceled as of
the time of such Status Change.
6.2. Termination of Service Other Than by Death or Disability. If a
Participant suffers a Status Change other than by reason of death or permanent
disability (as determined by the Board), the following rules shall apply, unless
otherwise determined by the Board at the time of grant of an Award:
(a) All Options and Stock Appreciation Rights held by the Participant at
the time of such Status Change, to the extent then exercisable, will continue to
be exercisable by the Participant for a period of three months after the
Participant's Status Change. After the expiration of such three-month period,
all such Options and Stock Appreciation Rights shall terminate. In no event,
however, shall an Option or Stock Appreciation Right remain exercisable beyond
the latest date on which it could have been exercised without regard to this
Section 6. All Options and Stock Appreciation Rights held by a Participant at
the time of such Status Change that are not then exercisable shall terminate
upon such Status Change.
(b) All Restricted Stock held by the Participant at the time of such Status
Change shall immediately become free of all restrictions and conditions, unless
such Status Change results from a voluntary resignation or termination for Cause
(as defined in Section 6.2(d)), in which event all Restricted Stock held by the
Participant at the time of the Status Change shall be transferred to the Company
(and, in the event the certificates representing such Restricted Stock are held
by the Company, such Restricted Stock shall be so transferred without any
further action by the Participant) in accordance with Section 5.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance Award,
or Supplemental Grant to which the Participant was not irrevocably entitled at
the time of such Status Change shall be forfeited and the Award canceled as of
the date of such Status Change.
(d) A termination by the Company of a Participant's employment with or
service to the Company shall be for "Cause" only if: (i) at least 75% of the
members of the Board determined that the Participant (A) was guilty of gross
negligence or willful misconduct in the performance of his or her duties for the
Company, or (B) breached or violated, in a material respect, any agreement
between the Participant and the Company or any of the Company's policy
statements regarding conflicts-of-interest, insider trading or confidentiality,
or (C) committed a material act of dishonesty or breach of trust; and (ii) in
the case of a Participant who is an Employee, (A) such determination was made at
a duly convened meeting of the Board with respect to which the Participant
received at least ten days prior written notice, had a reasonable opportunity to
make a statement and answer the allegations against him or her; and (B) either
(I)
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the Participant was given a reasonable opportunity to take remedial action but
failed or refused to do so, or (II) at least 75% of the members of the Board
also determined, at such meeting, that an opportunity to take remedial action
would not have been meaningful under the circumstances.
(e) For all purposes of this Section 6.2 and Section 6.3, (i) if a
Participant is an Employee of a subsidiary of Global and such subsidiary ceases
to be a subsidiary of Global, then the Participant's employment with the Company
will be deemed to have been terminated by the Company without Cause, unless the
Participant is transferred to Global or another subsidiary of Global; (ii) the
employment with the Company of a Participant who is an Employee will not be
deemed to have been terminated if the Participant is transferred from Global to
a subsidiary of Global, or vice versa, or from one subsidiary of Global to
another; and (iii) if a Participant who is an Employee terminates his or her
employment with the Company following a reduction in his or her rate of
compensation, then the Participant's employment with the Company will be deemed
to have been terminated by the Company without Cause.
6.3. Change in Control
(a) In the event of a Change in Control (as defined in Section 6.3(b)), the
following rules will apply, unless otherwise expressly provided by the Board at
the time of the grant of an Award:
(1) Each outstanding Option and Stock Appreciation Right shall
automatically become exercisable in full six months after the occurrence of such
Change in Control or, if sooner, upon a termination by the Company of the
Participant's employment with or service to the Company for any reason other
than for Cause (as defined in Section 6.2(d)). This provision shall not prevent
an Option or Stock Appreciation Right from becoming exercisable sooner as to
Common Stock or cash that would otherwise have become available under such
Option or Right during such period.
(2) Each outstanding share of Restricted Stock shall automatically
become free of all restrictions and conditions six months after the occurrence
of such Change in Control or, if sooner, upon a termination by the Company of
the Participant's employment with or service to the Company for any reason other
than for Cause (as defined in Section 6.2(d)). This provision shall not prevent
the earlier lapse of any restrictions or conditions on Restricted Stock that
would otherwise have lapsed during such period.
(3) Conditions on Deferred Stock Awards, Performance Awards and
Supplemental Grants which relate only to the passage of time and continued
employment shall automatically terminate six months after the occurrence of such
Change in Control or, if sooner, upon a termination by the Company of the
Participant's employment with or service to the Company for any reason other
than for Cause (as defined in Section 6.2(d)). This provision shall not prevent
the earlier lapse of any conditions relating to the passage of time and
continued employment that would otherwise have lapsed during such period.
Performance or other
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conditions (other than conditions relating only to the passage of time and
continued employment) shall continue to apply unless otherwise provided in the
instrument evidencing the Awards or in any other agreement between the
Participant and the Company or unless otherwise agreed to by the Board.
(b) A "Change in Control" means: (i) the occurrence of an event that
would, if known to the Company's management, be required to be reported by the
Company under Item 1(a) of Form 8-K pursuant to the 1934 Act; or (ii) the
acquisition or receipt, in any manner, by any person (as defined for purposes of
the 1934 Act) or any group of persons acting in concert, of direct or indirect
beneficial ownership (as defined for purposes of the 1934 Act) of 20% or more of
the combined voting securities ordinarily having the right to vote for the
election of directors of the Company; or (iii) a change in the constituency of
the Board with the result that individuals (the "Incumbent Directors") who are
members of the Board on the Effective Date (as specified in Section 9) cease for
any reason to constitute at least a majority of the Board, provided that any
individual who is elected to the Board after the Effective Date and whose
nomination for election was unanimously approved by the Incumbent Directors
shall be considered an Incumbent Director beginning on the date of his or her
election to the Board; or (iv) the sale, exchange or other disposition of all or
a significant portion of the Company's business or assets, or the execution by
the Company of a binding agreement providing for such a transaction; unless in
any such case, at least a majority of the Incumbent Directors determine, prior
to the occurrence of such Change in Control, that no Change in Control has or
will have occurred.
7. GRANT AND ACCEPTANCE OF AWARDS
7.1. The Board's approval of a grant of an Award under the Plan,
including the names of Participants and the size of the Award, including the
number of shares of Common Stock subject to the Award, shall be reflected in
minutes of meetings held by the Board or the Board or in written consents signed
by members of the Board. Once approved by the Board, each Award shall be
evidenced by such written instrument, containing such terms as are required by
the Plan and such other terms, consistent with the provisions of the Plan, as
may be approved from time to time by the Board.
7.2 Each instrument may be in the form of agreements to be executed by
both the Participant and the Company, or certificates, letters or similar
instruments, which need not be executed by the Participant but acceptance of
which shall evidence agreement to the terms thereof. The receipt of an Award
shall not impose any obligation on the Participant to accept the Award.
7.3. Except as specifically provided by the Plan or the instrument
evidencing an Award, a Participant shall not become a stockholder of Global
until (a) the Participant makes any required payments in respect of the Common
Stock issued or issuable pursuant to the Award, (b) the Participant furnishes
Global with any required agreements, certificates, letters or other instruments,
and (c) the Participant actually receives the shares of Common Stock. Subject
to
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any terms and conditions imposed by the Plan or the instrument evidencing an
Award, upon the occurrence of all of the conditions set forth in the immediately
preceding sentence, a Participant shall have all rights of a stockholder with
respect to shares of Common Stock, including, but not limited to, the right to
vote such shares and to receive dividends and other distributions paid with
respect to such shares. The Board may, upon such terms and conditions as it
deems appropriate, provide that a Participant will receive a benefit in lieu of
cash dividends that would have been payable on any and all Common Stock subject
to the Participant's Award, had such Common Stock been outstanding. Without
limitation, the Board may provide for payment to the Participant of amounts
representing such dividends, either currently or in the future, or for the
investment of such amounts on behalf of the Participant.
7.4. Notwithstanding any other provision of the Plan, the Company shall
not be obligated to deliver any shares of Common Stock pursuant to the Plan or
to remove any restriction from shares of Common Stock previously delivered under
the Plan (a) until all conditions to the Award have been satisfied or removed,
(b) until, in the opinion of counsel to the Company, all applicable Federal and
state laws and regulations have been complied with, (c) if the outstanding
Common Stock is at the time listed on any stock exchange or included for
quotation on an inter-dealer system, until the shares to be delivered have been
listed or included or authorized to be listed or included on such exchange or
system upon official notice of notice of issuance, (d) if it might cause the
Company to issue or sell more shares of Common Stock that the Company is then
legally entitled to issue or sell, and (e) until all other legal matters in
connection with the issuance and delivery of such shares have been approved by
counsel to the Company. If the sale of Common Stock has not been registered
under the Securities Act of 1933, as amended, the Company may require, as a
condition to exercise of an Award, such representations or agreements as counsel
to the Company may consider appropriate to avoid violation of such Act and may
require that the certificates evidencing such Common Stock bear an appropriate
legend restricting transfer. If an Award is exercised by the Participant's legal
representative, the Company shall be under no obligation to deliver Common Stock
pursuant to such exercise until the Company is satisfied as to the authority of
such representative.
8. TAX WITHHOLDING
The Company shall withhold from any cash payment made pursuant to an Award
an amount sufficient to satisfy all Federal, state and local withholding tax
requirements (the "withholding requirements"). In the case of an Award pursuant
to which Common Stock may be delivered, the Board shall have the right to
require that the Participant or other appropriate person remit to the Company an
amount sufficient to satisfy the withholding requirements, or make other
arrangements satisfactory to the Board with regard to such requirements, prior
to the delivery of any Common Stock. If and to the extent that such withholding
is required, the Board may permit a Participant or such other person or entity
to elect at such time and in such manner as the Board may determine to have the
Company hold back from the shares of Common Stock to be delivered, or to deliver
to the Company, Common Stock having a value calculated to satisfy the
withholding requirement. If at the time an ISO is exercised, the Board
determines that the
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Company could be liable for withholding requirements with respect to a
disposition of the Common Stock received upon exercise, the Board may require as
a condition of exercise that the person exercising the ISO agree (a) to inform
the Company promptly of any disposition (within the meaning of Section 424(c) of
the Code) of Common Stock received upon exercise, and (b) to give such security
as the Board deems adequate to meet the potential liability of the Company for
the withholding requirements and to augment such security from time to time in
any amount reasonably deemed necessary by the Board to preserve the adequacy of
such security.
9. STOCKHOLDER APPROVAL, EFFECTIVE DATE AND TERM OF PLAN
The Plan was adopted by the Board on March 20, 1996, subject to the
approval of Global's stockholders. The Plan was approved by Global's
stockholders at Global's 1996 annual meeting of stockholders on July 8, 1996.
The effective date of this Plan ("Effective Date") is July 8, 1996, the date on
which the Plan was approved by the affirmative vote of the holders of a majority
of the outstanding shares of Global's Common Stock. No Award shall be granted
more than ten years after the Effective Date. The Plan has been amended as
follows:
<TABLE>
<CAPTION>
Date Amended by Date Approved by
Nature of Amendment Board of Directors Shareholders
- --------------------------------------------------------------------------
<S> <C> <C>
To increase the aggregate September 24, 1996 December 4, 1997
number of shares of Common
Stock issuable under the Plan
from 100,000 to 1,000,000
To increase the aggregate January 5, 1999 July 13, 1999
number of shares of Common
Stock issuable under the Plan
from 1,000,000 to 3,000,000
To provide that the Plan shall November 16, 1999 N/A
be administered by the Board
and that the Board may
delegate all or any portion of
its authority under the Plan to
one or more committees
</TABLE>
10. EFFECT, AMENDMENT, SUSPENSION AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant will
affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Common Stock as a bonus or
otherwise, or to adopt other plans or arrangements under which Common Stock may
be issued to Employees or other persons or entities. The Board reserves the
right, at any time and from time to time, to amend the Plan in any way, or to
suspend or terminate the Plan, effective as of the date specified by the Board
when it takes such action, which date may be before or after the date the Board
takes such action; provided that any such
13
<PAGE>
action shall not affect any Awards granted before the actual date on which such
action is taken by the Board; and further provided that the approval of Global's
stockholders shall be required whenever necessary for the Plan to continue to
satisfy the conditions of Rule 16b-3 under the 1934 Act, Section 422 of the Code
with respect to the award of ISOs (unless the Board determines that ISOs shall
no longer be granted under the Plan), any bylaw, rule or regulation of the
market system or stock exchange on which Global's Common Stock is then listed or
admitted to trading, or any other applicable law, rule or regulation.
11. OTHER PROVISIONS
11.1 Nothing contained in the Plan or any Award shall confer upon any
Employee or other Participant the right to continue in the employ of, or to
continue to provide service to, the Company or any affiliated person, or
interfere in any way with the right of the Company or any affiliated person to
terminate the employment or service of any Employee or other Participant for any
reason.
11.2 Corporate action constituting an offer by Global of Common Stock to
any Participant under the terms of an Award shall be deemed completed as of the
date of grant of the Award, regardless of when the instrument, certificate, or
letter evidencing the Award is actually received or accepted by the Participant.
11.3 None of a Participant's rights under any Award or under the Plan may
be assigned or transferred in any manner other than by will or under the laws of
descent and distribution. The foregoing shall not, however, restrict a
Participant's rights with respect to Unrestricted Stock or the outright transfer
of cash, nor shall it restrict the ability of a Participant's heirs, estate,
beneficiaries, or personal or legal representatives to enforce the terms of the
Plan with respect to Awards granted to the Participant.
11.4 The Plan, and all Awards granted hereunder, shall be governed by and
construed in accordance with the laws of the State of Delaware. The headings of
the Sections of the Plan are for convenience of reference only and shall not
affect the interpretation of the Plan. All pronouns and similar references in
the Plan shall be construed to be of such number and gender as the context
requires or permits. If any provision of the Plan is determined to be
unenforceable for any reason, then that provision shall be deemed to have been
deleted or modified to the extent necessary to make it enforceable, and the
remaining provisions of the Plan shall be unaffected.
11.5 All notices with respect to the Plan shall be in writing and shall
be hand delivered or sent by certified mail or reputable overnight delivery
service, expenses prepaid. Notices to the Company or the Board shall be
delivered or sent to Global's headquarters to the attention of its Chief
Executive Officer. Notices to any Participant or holder of shares of Common
Stock issued pursuant to an Award shall be sufficient if delivered or sent to
such person's address as it appears in the regular records of the Company or its
transfer agent.
14
<PAGE>
11.6. If there is any change in the capitalization of the Company, such as
by stock dividend, stock split, combination of shares, exchange of securities,
recapitalization or other event which the Board deems, in its sole discretion,
to be similar circumstances, the Board may make such adjustments to the number
and/or kind of shares of stock or securities subject to Awards then outstanding
or subsequently granted, any exercise prices relating to such Awards and any
other provision of such Awards affected by such change, as the Board may
determine in its sole discretion. The Board may also make such adjustments to
take into account material changes in law or in accounting practices or
principles, mergers, consolidations, acquisitions, dispositions or similar
corporate transactions, or any other event, as the Board may determine in its
sole discretion.
11.7. The Board may agree at any time, upon request of a Participant, to
defer the date on which any payment under an Award shall be made.
11.8. In any case that a Participant purchases Common Stock under an Award
for a price equal to the par value of the Common Stock, the Board may determine,
in its sole discretion, that such price has been satisfied by past services
rendered by the Participant.
11.9. For the purposes of the Plan and any Award granted hereunder, unless
otherwise determined by the Board, the term "fair market value" of Common Stock
on a specified date shall mean the last sale price for one share of Common Stock
on the last trading day on or before the specified date, as reported on the
Nasdaq Stock Market, or on such other market system or stock exchange on which
Global's Common Stock is then listed or admitted to trading, or, if the
foregoing does not apply, the market value determined by the Board.
11.10 Except as otherwise indicated, the term "person," as used in the
Plan shall include individuals, corporations, partnerships, trusts, estates,
limited liability companies and partnerships and any other type of entity.
THE UNDERSIGNED CERTIFIES THAT THE AMENDMENT AND RESTATEMENT OF THIS PLAN
WAS DULY APPROVED AND ADOPTED BY THE BOARD OF DIRECTORS OF GLOBAL SPORTS, INC.
PURSUANT TO RESOLUTIONS ADOPTED AT A MEETING OF THE BOARD OF DIRECTORS ON THE
16/TH/ DAY OF NOVEMBER, 1999.
By:
------------------------
Arthur H. Miller
Secretary
15
<PAGE>
Exhibit 10.19
EMPLOYMENT AGREEMENT
Parties: Global Sports, Inc.,
- -------
a Delaware corporation ("Employer")
1075 First Avenue
King of Prussia, PA 19406
Steven C. Davis ("Executive")
111 Arabian Road
Schwenksville, PA 19473
Date: January 10, 2000
- ----
Background: Employer and its subsidiaries are in the business of selling
- ----------
sporting goods over the Internet (the "Business"). Employer desires to employ
Executive, and Executive desires to accept such employment, on the terms and
conditions stated below.
intending to be legally bound, and in consideration of the mutual
agreements stated below, Executive and Employer agree as follows:
1. Employment and Term. Employer hereby employs Executive, and
-------------------
Executive accepts such employment, subject to all of the terms and conditions of
this Agreement, for a term of five (5) years beginning on January 10, 1999 and
ending on December 31, 2004, unless sooner terminated in accordance with other
provisions hereof.
2. Position and Duties. Executive shall serve as Senior Vice President
-------------------
Marketing and in such capacity shall have supervision and control over, and
responsibility for, formulating and directing Employer's overall marketing
strategy and overseeing the execution of all marketing programs. Executive
shall report to, and be subject to the direction of, Employer's Executive Vice
President of E-Commerce. Executive shall also have such other responsibilities
and duties consistent with his present duties and current position with
Employer, as may from time to time be prescribed by Employer's Executive Vice
President of E-Commerce, Chief Executive Officer or Board of Directors.
Executive shall devote all of his working time, energy, skill and best efforts
to the performance of his duties hereunder in a manner which will faithfully and
diligently further the business and interests of Employer.
3. Place of Employment. Executive's principal place of employment will
-------------------
be at the Employer's principal executive office located at 1075 First Avenue,
King of Prussia, PA, or at such other location as the Employer shall specify.
4. Compensation, Benefits and Expenses.
-----------------------------------
1
<PAGE>
4.1 Compensation. Employer shall pay to Executive a minimum annual
------------
base salary ("Base Salary") in the amount of One Hundred Fifty Thousand Dollars
($150,000), payable in accordance with Employer's normal payroll practices. The
Base Salary shall be reviewed annually by Employer and shall be subject to
annual increases of at least five (5%) percent and otherwise in accordance with
Employer's annual performance review procedures.
4.2 Bonuses. In addition to his Base Salary, for each year of this
-------
Agreement, Executive shall be eligible to receive an incentive bonus in an
amount not greater than 20% of the Base Salary, as determined by Employer's
Executive Vice President of E-Commerce or Chief Executive Officer.
4.3 Option Award. Executive shall be granted an option award (the
------------
"Option Award") under Employer's 1996 Equity Incentive Plan (the "Plan") to
purchase up to Forty Thousand (40,000) shares of Employer's common stock at an
exercise price equal to the fair market value (determined by the closing sale
price) of the underlying common stock on the later of: (i) the date that
Executive commences employment with Employer, and (ii) the date on which the
grant of the Option Award is approved by Employer's Board of Directors. The
Option Award shall vest as follows: Ten Thousand (10,000) shares on each of
January 10, 2001, January 10, 2002, January 10, 2003 and January 10, 2004. The
complete terms and conditions of the Option Award shall be set forth in an
Option Grant Letter (the "Option Grant Letter").
4.4 Benefits. Executive shall be entitled to participate and shall
--------
be included in all equity incentive, stock option, stock purchase, profit
sharing, savings, bonus, health insurance, life insurance, group insurance,
disability insurance, pension, retirement and other benefit plans or programs of
Employer now existing, or established hereafter, and offered to its senior
management, subject to the terms and provisions thereof. In addition, Employer
shall provide Executive with the following other benefits at Employer's expense:
(i) automobile allowance not the exceed $500 per month, which includes
automobile insurance, and (ii) cell phone and cell phone account.
4.5 Vacation. Executive shall be paid for and be entitled to all
--------
holidays as are generally permitted to employees of Employer and three (3) weeks
paid vacation per annum, commencing the first year of the Agreement; provided,
however, commencing the second year of the Agreement, Executive may not take
more than one week of vacation at a time.
4.6 Expenses. Employer shall reimburse Executive for all actual,
--------
ordinary, necessary and reasonable expenses incurred by Executive in the course
of his performance of services hereunder. Executive shall properly account for
all such expenses.
4.7 Relocation and Interim Housing Allowance. Executive agrees to
----------------------------------------
relocate to the King of Prussia, Pennsylvania area and, provided that Executive
does so, Employer shall, upon presentation of acceptable proof of payment,
reimburse Executive for the following costs
2
<PAGE>
incurred by Executive in connection with Executive's relocation, not to exceed a
total of $45,000.00: (i) interim housing expenses incurred prior to Executive's
relocation; (ii) moving expenses; (iii) interim personal travel for Executive
and Executive's fiancee between Executive's present home in Alabama and King of
Prussia, Pennsylvania prior to Executive's relocation to the King of Prussia,
Pennsylvania area; (iv) real estate commissions and transfer taxes on the sale
of Executive's present home in Alabama and the purchase of a new home; (v)
interim storage; and (vi) mortgage points.
5. Termination.
-----------
5.1 Termination by Death. If Executive dies, then this Agreement
--------------------
shall terminate immediately, and Executive's rights to compensation and benefits
hereunder shall terminate as of the date of death, except that Executive's
heirs, personal representatives or estate shall be entitled to any unpaid
portion of Executive's salary, accrued benefits up to the date of termination
and any benefits which are to be continued or paid after the date of termination
in accordance with the terms of the corresponding benefit plans or programs.
5.2 Termination by Disability. If Executive becomes totally
-------------------------
disabled, Executive shall continue to receive all of his compensation and
benefits in accordance with Section 3 for a period of six (6) months following
the Onset of Disability (as defined in this Section 5.2). Any amounts due to
Executive under this Section 5.2 shall be reduced, dollar-for-dollar, by any
amounts received by Executive under any disability insurance policy or plan
provided to Executive by Employer. "Onset of Disability" means the first day on
which Executive shall be unable to attend to the regular affairs of Employer on
a full time basis by reason of physical or mental incapacity, sickness or
infirmity. If Executive's disability continues for more than six (6)
consecutive months after the Onset of Disability or for periods aggregating more
than six (6) months during any twenty-four (24) month period, then Employer may,
upon thirty (30) days prior written notice, terminate Executive's employment,
and Executive's rights to compensation and benefits hereunder, except that
Executive shall be entitled to any unpaid portion of his salary, accrued
benefits up to the date of termination and any benefits which are to be
continued or paid after the date of termination in accordance with the terms of
the corresponding benefit plans or programs.
5.3 Termination for Cause. Employer may, upon written notice to
---------------------
Executive, terminate Executive's employment, and Executive's rights to
compensation and benefits hereunder, for Cause (as defined in this Section 5.3),
except that Executive shall be entitled to any unpaid portion of his salary,
accrued benefits up to the date of termination and any benefits which are to be
continued or paid after the date of termination in accordance with the terms of
the corresponding benefit plans or programs. "Cause" shall exist if Executive
in any material respect neglects Executive's duties under this Agreement after
written notice by Employer to Employee, commits an act of dishonesty or breach
of trust, acts in a manner which is inimical or injurious to the business or
interest of Employer in any material respect, breaches this Agreement in any
material respect or is convicted of a felony.
3
<PAGE>
5.4 Termination Without Cause. Employer may, upon thirty (30) days
-------------------------
prior written notice to Executive, terminate Executive's employment, and
Executive's rights to compensation and benefits hereunder, for any reason
Employer deems appropriate, in which case Employer shall pay Executive, in
accordance with Employer's normal payroll practices, six (6) months of
Executive's Base Salary for the year in which such termination occurred.
5.5 Termination Upon Relocation: Executive may, upon thirty (30) days
---------------------------
prior written notice to Employer, resign his employment if Executive's principal
place of employment is moved more than fifty (50) miles from King of Prussia,
PA, in which case Employer shall pay Executive, in accordance with Employer's
normal payroll practices, six (6) months of Executive's Base Salary for the year
in which such resignation occurs.
5.6 Procedure Upon Termination. Upon termination of his employment,
--------------------------
Executive shall promptly return to Employer all documents (including copies) and
other materials and property of Employer, or pertaining to its business,
including without limitation customer and prospect lists, contracts, files,
manuals, letters, reports and records in his possession or control, no matter
from whom or in what manner acquired.
6. Discoveries. Executive shall communicate to Employer, in writing
-----------
when requested, and preserve as confidential information of Employer, all
inventions, marketing concepts, software ideas and other ideas or designs
relating to the business of the Employer which are conceived, developed or made
by Executive, whether alone or jointly with others, at any time during the term
of Executive's employment with Employer, which relate to the business or
operations of Employer or which relate to methods, designs, products or systems
sold, leased, licensed or under development by Employer (such concepts, ideas
and designs are referred to as "Executive's Discoveries"). All of Executive's
Discoveries shall be Employer's exclusive property, and Executive shall, at
Employer's expense, sign all documents and take such other actions as Employer
may reasonably request to confirm its ownership thereof.
7. Nondisclosure. At all times after the date of this Agreement, except
-------------
with Employer's express prior written consent or in connection with the proper
performance of services under this Agreement, Executive shall not, directly or
indirectly, communicate, disclose or divulge to any Person, or use for the
benefit of any Person, any confidential or proprietary knowledge or information,
no matter when or how acquired, concerning the conduct or details of the
business of Employer, including, but not limited to, (i) marketing methods and
strategies, pricing policies, product strategies and methods of operation, (ii)
software source code, software design concepts (including visual expressions and
system architecture), technical documentation and technical know-how, (iii)
budget and other non-public financial information, and (iv) expansion plans,
management policies and other business strategies and policies. For purposes of
this Section 7, confidential information shall not include any information which
is now known by the general public, which becomes known by the general public
other than as a result of a breach of this Agreement by Executive or which is
independently acquired by Executive.
4
<PAGE>
8. Non-Competition. Executive acknowledges that Employer's business is
---------------
highly competitive. Accordingly, for a period of one (1) year after the date
of such termination, or, if Executive is terminated without Cause or Executive
terminates his employment because Executive's principal place of employment is
moved more than fifty (50) miles from King of Prussia, PA, for a period of six
(6) months after the date of such termination, except with Employer's express
prior written consent, Executive shall not, directly or indirectly, in any
capacity, for the benefit of any Person:
(a) Communicate with or solicit any Person who is or during such
period becomes an employee, consultant, agent or representative of Employer or
any of its subsidiaries in any manner which interferes or might interfere with
such Person's relationship with Employer or any such subsidiary, or in an effort
to obtain any such employee, consultant, agent or representative as an employee,
consultant, agent or representative of any other Person.
(b) Establish, own, manage, operate or control, or participate in the
establishment, ownership, management, operation or control of, or be a director,
officer, employee, agent or representative of, or be a consultant to, any Person
which conducts a business competitive with all or any material part of the
Business.
9. Consideration and Enforcement of Covenants. Executive expressly
------------------------------------------
acknowledges that the covenants contained in Sections 6, 7 and 8 of this
Agreement ("Covenants") are a material part of the consideration bargained for
by Employer and, without the agreement of Executive to be bound by the
Covenants, Employer would not have agreed to enter into this Agreement.
Executive acknowledges that any breach by Executive of any of the Covenants will
result in irreparable injury to Employer for which money damages could not
adequately compensate. If there is such a breach, Employer shall be entitled,
in addition to all other rights and remedies which Employer may have at law or
in equity, to have an injunction issued by any competent court enjoining and
restraining Executive and all other Persons involved therein from continuing
such breach. The existence of any claim or cause of action which Executive or
any such other Person may have against Employer shall not constitute a defense
or bar to the enforcement of any of the Covenants. If Employer must resort to
litigation to enforce any of the Covenants which 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 material breach
occurred or, if later, the last day of the original fixed term of such Covenant.
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 because of 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. The provisions of Sections 6, 7 and 8 shall survive the
termination of this Agreement.
5
<PAGE>
10. 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
Commonwealth of Pennsylvania 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
Montgomery County, Pennsylvania and the federal courts in the Eastern District
of Pennsylvania in any and all actions between the parties arising hereunder.
11. 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 (i) when delivered personally, (ii) three (3)
business days after being mailed by first class certified mail, return receipt
requested, postage prepaid, or (iii) one (1) 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 twenty-four
(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 11, provided that any such
change of address notice shall not be effective unless and until received.
12. Prior Agreements. Executive represents to Employer (i) that there are
----------------
no restrictions, agreements or understandings whatsoever to which Executive is a
party which would prevent or make unlawful his execution of this Agreement or
his employment hereunder, (ii) that Executive's execution of this Agreement and
Executive's employment hereunder do not constitute a breach of any contract,
agreement or understanding, oral or written, to which Executive is a party or
which Executive is bound, and (iii) that Executive has full legal right and
capacity to execute this Agreement and to enter into employment by Employer.
All prior employment agreements between Executive and Employer are hereby
terminated as of the date hereof as fully performed on both sides.
13. Parties in Interest. This Agreement is for the personal services of
-------------------
Executive and shall not be assignable by either party without the express prior
written consent of the other party; provided, however, Employer shall require
any successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of Employer to
assume and agree to perform this Agreement in the same manner and to the same
extent that Employer would be required to perform if no such succession had
taken place; provided, further, that no such assumption or agreement to such
successor shall relieve Employer of any of its obligations under this Agreement.
Subject to the provisions of Section 5 and this Section 13, this Agreement shall
inure to the benefit of and bind each of the parties hereto and the successors
and assigns of Employer and the personal representatives, estate and heirs of
6
<PAGE>
Executive.
14. 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.
15. Amendment and Waiver. This Agreement shall not be amended, modified
--------------------
or terminated unless in writing and signed by Executive and a duly authorized
representative of Employer other than Executive. 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 Employer, must be
a duly authorized representative of Employer other than Executive). 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 be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence.
16. 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.
17. 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 have duly executed and delivered this
Agreement as of the date first stated above.
GLOBAL SPORTS, INC.
By: /s/ Michael P. Golden /s/ Steven C. Davis
--------------------- -------------------
Name: Michael P. Golden STEVEN C. DAVIS
Title: EVP of E-Commerce
7
<PAGE>
Exhibit 10.20
EMPLOYMENT AGREEMENT
Parties: Global Sports, Inc.,
- -------
a Delaware corporation ("Employer")
1075 First Avenue
King of Prussia, PA 19406
Jordan M. Copland ("Executive")
728 Alta Avenue
Santa Monica, CA 90402
Date: February 9, 2000
- ----
Background: Employer and its subsidiaries are in the business of selling
- ----------
sporting goods over the Internet (the "Business"). Employer desires to employ
Executive, and Executive desires to accept such employment, on the terms and
conditions stated below.
intending to be legally bound, and in consideration of the mutual
agreements stated below, Executive and Employer agree as follows:
1. Employment and Term. Employer hereby employs Executive, and
-------------------
Executive accepts such employment, subject to all of the terms and conditions of
this Agreement, for a term of four (4) years beginning on February 23, 2000 and
ending on February 22, 2004, unless sooner terminated in accordance with other
provisions hereof.
2. Position and Duties. Executive shall serve as Executive Vice
-------------------
President and Chief Financial Officer and in such capacity shall have
supervision and control over, and responsibility for, the financial, accounting
and human resources functions of Employer. Executive shall report to, and be
subject to the direction of, Employer's Chief Executive Officer (the "CEO"), as
well as Employer's Board of Directors (the "Board"). Executive shall be an
executive officer of the Company and shall be a member of all committees of the
Company's executive officer level management. Executive shall also have such
other responsibilities and duties consistent with his present duties and current
position with Employer, as may from time to time be prescribed by the CEO or the
Board. Executive shall devote all of his working time, energy, skill and best
efforts to the performance of his duties hereunder in a manner which will
faithfully and diligently further the business and interests of Employer.
3. Place of Employment. Executive's principal place of employment will
-------------------
be at the Employer's principal executive office located at 1075 First Avenue,
King of Prussia, PA, or at such other location as the Employer shall specify,
provided that Executive's principal place of
1
<PAGE>
employment shall at all times during the term hereof be located within 25 miles
of the border of the City of Philadelphia, PA.
4. Compensation, Benefits and Expenses.
-----------------------------------
4.1 Compensation. Employer shall pay to Executive an annual base
------------
salary ("Base Salary") in the amount of $150,000, payable in accordance with
Employer's normal payroll practices. The Base Salary shall be reviewed annually
by Employer and shall be subject to annual increases in accordance with
Employer's annual performance review procedures.
4.2 Bonuses. In addition to his Base Salary, for each year of this
-------
Agreement, Executive shall be eligible to receive such incentive bonus and/or
option grants as may be determined by the CEO, subject to approval of the Board.
Executive shall receive a cash bonus of $25,000 upon commencement of Executive's
employment.
4.3 Benefits. Executive shall be entitled to participate and shall
--------
be included in all equity incentive, stock option, stock purchase, profit
sharing, savings, bonus, health insurance, life insurance, group insurance,
disability insurance, pension, retirement and other benefit plans or programs of
Employer now existing, or established hereafter, and offered to its executive
officers, subject to the terms and provisions thereof. Employer and Executive
acknowledge that the employee benefit plans and programs provided by Employer at
the commencement date of this Agreement will consist of: (i) fully paid health
and dental insurance benefits for Executive and his family members; (ii) long-
term disability insurance providing for a monthly benefit equal to 60% of
Executive's monthly Base Salary up to a maximum monthly benefit of $10,000 until
the earlier of Executive's death or attainment of age 65; (iii) term life
insurance providing a death benefit equal to 1 1/2 times Base Salary up to a
maximum death benefit of $250,000; and (iv) Employer's 401K Plan providing for a
matching contribution by Employer equal to 25% of the amount of Executive's
contribution up to a maximum contribution by Executive equal to 6% of
Executive's Base Salary.
4.4 Automobile. Employer shall pay to Executive an automobile
----------
allowance of $1,000 per month, which will include the cost of leasing or
purchasing an automobile, insurance, operation and maintenance.
4.5 Vacation. Executive shall be entitled to three (3) weeks of
--------
vacation during each year, in addition to such paid holidays, personal days and
days of paid sick leave as are generally permitted to employees of Employer.
4.6 Expenses. Employer shall reimburse Executive for all actual,
--------
ordinary, necessary and reasonable expenses incurred by Executive in the course
of his performance of services hereunder. Executive shall properly account for
all such expenses.
4.7 Relocation and Interim Housing Allowance. Executive agrees to
----------------------------------------
relocate to the King of Prussia, Pennsylvania area and, provided that Executive
does so, Employer shall
2
<PAGE>
upon presentation of acceptable proof of payment, reimburse Executive for the
following costs incurred by Executive in connection with Executive's relocation,
in a total amount not to exceed $30,000: (i) interim housing and automobile
expenses incurred prior to Executive's relocation; (ii) moving expenses; and
(iii) interim personal travel for Executive between Executive's present home in
Los Angeles, California and King of Prussia, Pennsylvania prior to Executive's
relocation to the King of Prussia, Pennsylvania area.
5. Termination.
-----------
5.1 Termination by Death. If Executive dies, then this Agreement
--------------------
shall terminate immediately, and Executive's rights to compensation and benefits
hereunder shall terminate as of the date of death, except that Executive's
heirs, personal representatives or estate shall be entitled to any unpaid
portion of Executive's Base Salary, accrued benefits up to the date of
termination and any benefits which are to be continued or paid after the date of
termination in accordance with the terms of the corresponding benefit plans or
programs.
5.2 Termination by Disability. If Executive becomes totally
-------------------------
disabled, Executive shall continue to receive all of his compensation and
benefits in accordance with Section 3 for a period of six (6) months following
the Onset of Disability (as defined in this Section 5.2). Any amounts due to
Executive under this Section 5.2 shall be reduced, dollar-for-dollar, by any
amounts received by Executive under any disability insurance policy or plan
provided to Executive by Employer. "Onset of Disability" means the first day on
which Executive shall be unable to attend to the regular affairs of Employer on
a full time basis by reason of physical or mental incapacity, sickness or
infirmity. If Executive's disability continues for more than six (6)
consecutive months after the Onset of Disability or for periods aggregating more
than six (6) months during any twenty-four (24) month period, then Employer may,
upon thirty (30) days prior written notice, terminate Executive's employment,
and Executive's rights to compensation and benefits hereunder, except that
Executive shall be entitled to any unpaid portion of his Base Salary, accrued
benefits up to the date of termination and any benefits which are to be
continued or paid after the date of termination in accordance with the terms of
the corresponding benefit plans or programs.
5.3 Termination for Cause. Employer may, upon thirty (30) days
---------------------
prior written notice to Executive, terminate Executive's employment, and
Executive's rights to compensation and benefits hereunder, for Cause (as defined
in this Section 5.3), except that Executive shall be entitled to any unpaid
portion of his Base Salary, accrued benefits up to the date of termination and
any benefits which are to be continued or paid after the date of termination in
accordance with the terms of the corresponding benefit plans or programs.
"Cause" shall exist if (i) Executive is grossly negligent or engages in willful
misconduct in the performance of his duties under this Agreement, (ii) Executive
is convicted of a crime constituting a felony under the laws of the United
States or any state thereof, or (iii) Executive willfully breaches this
Agreement in a material respect; but only if, in the case of clause (i) or
(iii), Executive is given written notice specifying, in reasonable detail, the
nature of the alleged
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neglect, misconduct, or breach and either (A) Executive had a reasonable
opportunity to take remedial action but failed or refused to do so, or (B) an
opportunity to take remedial action would not have been meaningful or
appropriate under the circumstances.
5.4 Termination Without Cause. Employer may, upon thirty (30) days
-------------------------
prior written notice to Executive, terminate Executive's employment, and
Executive's rights to compensation and benefits hereunder, for any reason
Employer deems appropriate, in which case Employer shall pay Executive upon such
termination a lump sum payment in an amount equal to 75% of Executive's annual
Base Salary for the year in which such termination occurred, and, for nine
months after such termination, Employer shall provide Executive with all
benefits (or substantially equivalent benefits) under any benefit plans or
programs of Employer applicable to Executive immediately prior to the
termination of his employment under this Section 5.4.
5.5 Termination by Executive. Subject to the next sentence of this
------------------------
Section 5.5, Executive may, upon ninety (90) days prior written notice to
Employer, resign his employment for any reason, in which case Executive shall be
entitled to any unpaid portion of his Base Salary, accrued benefits up to the
date of termination, and any benefits which are to be continued or paid after
the date of termination in accordance with the terms of the corresponding
benefit plans or programs. Executive may, upon thirty (30) days prior written
notice to Employer, resign his employment if Executive is demoted, removed or
not re-elected to any of his positions or offices, there is a material
diminishment of Executive's title, position, responsibilities, or authorities,
Executive no longer reports to the CEO, or Michael G. Rubin is no longer CEO of
the Company, in which case Employer shall pay Executive upon such termination a
lump sum payment in an amount equal to 75% of Executive's annual Base Salary for
the year in which such termination occurred, and, for nine months after such
termination, Employer shall provide Executive with all benefits (or
substantially equivalent benefits) under any benefit plans or programs of
Employer applicable to Executive immediately prior to the termination of
Executive's employment under this sentence of Section 5.5; provided, however,
that if Executive determines to terminate his employment because Michael G.
Rubin is no longer CEO of the Company, Executive must do so within ninety (90)
days after Michael G. Rubin ceases to be CEO of the Company.
5.6 Procedure Upon Termination. Upon termination of his employment,
--------------------------
Executive shall promptly return to Employer all documents (including copies) and
other materials and property of Employer, or pertaining to its business,
including without limitation customer and prospect lists, contracts, files,
manuals, letters, reports and records in his possession or control, no matter
from whom or in what manner acquired.
6. Discoveries. Executive shall communicate to Employer, in writing
-----------
when requested, and preserve as confidential information of Employer, all
inventions, marketing concepts, software ideas and other ideas or designs
relating to the business of the Employer which are conceived, developed or made
by Executive, whether alone or jointly with others, at any time during the term
of Executive's employment with Employer, which relate to the business
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or operations of Employer or which relate to methods, designs, products or
systems sold, leased, licensed or under development by Employer (such concepts,
ideas and designs are referred to as "Executive's Discoveries"). All of
Executive's Discoveries shall be Employer's exclusive property, and Executive
shall, at Employer's expense, sign all documents and take such other actions as
Employer may reasonably request to confirm its ownership thereof.
7. Nondisclosure. At all times after the date of this Agreement, except
-------------
with Employer's express prior written consent or in connection with the proper
performance of services under this Agreement, Executive shall not, directly or
indirectly, communicate, disclose or divulge to any Person, or use for the
benefit of any Person, any confidential or proprietary knowledge or information,
no matter when or how acquired, concerning the conduct or details of the
business of Employer, including, but not limited to, (i) marketing methods and
strategies, pricing policies, product strategies and methods of operation, (ii)
software source code, software design concepts (including visual expressions and
system architecture), technical documentation and technical know-how, (iii)
budget and other non-public financial information, and (iv) expansion plans,
management policies and other business strategies and policies. For purposes of
this Section 7, confidential information shall not include any information which
is now known by the general public, which becomes known by the general public
other than as a result of a breach of this Agreement by Executive or which is
independently acquired by Executive.
8. Non-Competition. Executive acknowledges that Employer's business is
---------------
highly competitive. Accordingly, for a period of one (1) year after the date
of such termination, except with Employer's express prior written consent,
Executive shall not, directly or indirectly, in any capacity, for the benefit of
any Person:
(a) Communicate with or solicit any Person who is or during such
period becomes an employee, consultant, agent or representative of Employer or
its subsidiaries in any manner that interferes or might interfere with such
Person's relationship with Employer or any such subsidiary or in an effort to
obtain such Person as an employee, consultant, agent or representative of any
other Person; or
(b) Establish, own, manage, operate or control, or participate in the
establishment, ownership, management, operation or control of, or be a director,
officer, employee, agent or representative of, or be a consultant to, any Person
which derives more than 50% of its revenues from the sale of sporting goods and
recreational products over the internet, provided, however, that this Section
8(b) shall only be applicable if Employer terminates Executive's employment with
Cause or Executive resigns his employment for any reason (other than as set
forth in the second sentence of Section 5.5).
9. Consideration and Enforcement of Covenants. Executive expressly
------------------------------------------
acknowledges that the covenants contained in Sections 6, 7 and 8 of this
Agreement ("Covenants") are a material part of the consideration bargained for
by Employer and, without the agreement of Executive to be bound by the
Covenants, Employer would not have agreed to
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enter into this Agreement. Executive acknowledges that any breach by Executive
of any of the Covenants will result in irreparable injury to Employer for which
money damages could not adequately compensate. If there is such a breach,
Employer shall be entitled, in addition to all other rights and remedies which
Employer may have at law or in equity, to have an injunction issued by any
competent court enjoining and restraining Executive and all other Persons
involved therein from continuing such breach. The existence of any claim or
cause of action which Executive or any such other Person may have against
Employer shall not constitute a defense or bar to the enforcement of any of the
Covenants. If Employer must resort to litigation to enforce any of the Covenants
which 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 material breach occurred or, if later, the last day of the
original fixed term of such Covenant. 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 because of 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. The provisions of Sections
6, 7 and 8 shall survive the termination of this Agreement.
10. Indemnification. Executive shall be indemnified by Employer, to the
---------------
maximum extent permitted under applicable law and the certificate of
incorporation and bylaws of Employer, for all acts of Executive as an officer
and/or director of Employer and/or any other company which Executive serves as
an officer and/or director at the request of Employer.
11. 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
Commonwealth of Pennsylvania 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
Montgomery County, Pennsylvania and the federal courts in the Eastern District
of Pennsylvania in any and all actions between the parties arising hereunder.
12. Legal Fees. Employer shall pay the reasonable legal fees and expenses
----------
of Executive in connection with the negotiation and execution of this Agreement
up to a maximum amount of $5,000. In connection with the enforcement of any
right or remedy, or the obtaining of any benefit, under this Agreement, the non-
prevailing party shall pay all reasonable legal fees and expenses of the
prevailing party.
13. 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 (i) when delivered personally, (ii) three
business days after being mailed by first class certified
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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 13, provided that any such
change of address notice shall not be effective unless and until received.
14. Prior Agreements. Executive represents to Employer (i) that there
----------------
are no restrictions, agreements or understandings whatsoever to which Executive
is a party which would prevent or make unlawful his execution of this Agreement
or his employment hereunder, (ii) that Executive's execution of this Agreement
and Executive's employment hereunder do not constitute a breach of any contract,
agreement or understanding, oral or written, to which Executive is a party or
which Executive is bound, and (iii) that Executive has full legal right and
capacity to execute this Agreement and to enter into employment by Employer.
15. Parties in Interest. This Agreement is for the personal services of
-------------------
Executive and shall not be assignable by either party without the express prior
written consent of the other party; provided, however, Employer shall require
any successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of Employer to
assume and agree to perform this Agreement in the same manner and to the same
extent that Employer would be required to perform if no such succession had
taken place; provided, further, that no such assumption or agreement by such
successor shall relieve Employer of any of its obligations under this Agreement.
Subject to the provisions of Section 5 and this Section 15, this Agreement shall
inure to the benefit of and bind each of the parties hereto and the successors
and assigns of Employer and the personal representatives, estate and heirs of
Executive.
16. 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.
17. Amendment and Waiver. This Agreement shall not be amended, modified
--------------------
or terminated unless in writing and signed by Executive and a duly authorized
representative of Employer other than Executive. 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 Employer, must be
a duly authorized representative of Employer other than Executive). 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
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such right, remedy, power or privilege with respect to any other occurrence.
18. 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.
19. 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 have duly executed and delivered this
Agreement as of the date first stated above.
GLOBAL SPORTS, INC.
By: /s/ Michael G. Rubin /s/ Jordan M. Copland
-------------------- ---------------------
Name: Michael G. Rubin Jordan M. Copland
Title: President
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Exhibit 10.28
EXECUTION COPY
Confidential Treatment has been requested with respect to portions of the
agreement indicated with an asterisk [*]. A complete copy of this agreement,
including the redacted terms, has been separately filed with the Securities and
Exchange Commission.
AMENDMENT #1
ADVERTISING AND PROMOTION AGREEMENT
This Amendment #1 (this "Amendment") is entered into as of February 15,
2000 (the "Amendment Effective Date") by and between Yahoo! Inc., a Delaware
corporation ("Yahoo") and Global Sports Interactive, Inc., a Pennsylvania
Corporation ("Global Sports") and amends the Advertising and Promotion Agreement
entered into between Yahoo and Global Sports as of October 3, 1999 (the
"Agreement"). Unless otherwise expressly defined herein, all capitalized terms
and Section references used herein shall have the meanings set forth in the
Agreement.
WHEREAS, as of the Amendment Effective Date, Yahoo and Global Sports desire
to limit Global Sports' exclusivity rights under Section 11 of the Agreement;
WHEREAS, as of April 1, 2000, Yahoo and Global Sports desire to terminate
Yahoo's obligation to promote the Global Sports Links under Sections 2, 3, 4.2,
5, 6, 7 and 8 of the Agreement;
WHEREAS, as of April 1, 2000, Yahoo and Global Sports desire that Yahoo
promote the Global Sports Sports & Recreation Shopping Links (as defined below);
WHEREAS, as of the Amendment Effective Date, Yahoo and Global Sports desire
that Yahoo display the Global Sports Banner as set forth below and in Yahoo
Insertion Order No. 72687.
WHEREAS, Yahoo and Global Sports desire to alter the compensation terms set
forth in Section 13 of the Agreement;
NOW THEREFORE, in consideration of the mutual promises contained in this
Amendment and the Agreement, Yahoo and Global Sports hereby agree to amend the
Agreement as follows:
1. In Section 1 of the Agreement, the definition of the word "Term" shall be
replaced by the following definition and the word "Amendment Effective Date"
shall have the following meaning:
"Term" shall mean the period beginning on the Effective Date and continuing
----
through December 31, 2000 or until this Agreement is otherwise terminated
pursuant to Section 14.
"Amendment Effective Date" shall mean February 15, 2000.
------------------------
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EXECUTION COPY
2. In Section 1 of the Agreement, the following definition shall be added:
"Global Sports Sports & Recreation Shopping Links" shall mean all of the
------------------------------------------------
Paid Advertising provided in the Sports and Recreation category Pages of
Yahoo Shopping (including the Global Sports Charter Shopping
Sponsorship) with the following exceptions: (i) only [*] of the Paid
Advertising in the Yahoo Shopping Outdoor area; (ii) only [*] of the Paid
Advertising in the Yahoo Shopping Golf area; (iii) only [*] of the Paid
Advertising in the Yahoo Shopping Sports Supplements area; (iv) only
[*] of the Paid Advertising in the Yahoo Shopping Sports Memorabilia area.
3. In Section 1 of the Agreement, the definition of the word "Page View" shall
be replaced in its entirety by the following definition:
"Page View" shall mean a user's request for a Page as measured by Yahoo's
advertising reporting system. Global Sports acknowledges and agrees that
multiple Global Sports Links on the same Page requested by a user (e.g.,
Sports and Recreation category Pages of Yahoo Shopping) could result in
multiple Page Views being generated; provided that, Yahoo agrees that
multiple Page Views will not be counted for multiple Global Sports Links
appearing on Global Sports Banner Pages and Global Sports Button Pages.
4. Section 9 of the Agreement shall be replaced in its entirety with the
following:
Between the Effective Date and March 31, 2000, Yahoo will deliver [*]
Global Sports E-Mails through the Yahoo! Delivers program. In all cases,
Global Sports E-Mails shall be delivered only (x) to those registered users
of Yahoo's U.S. targeted e-mail service that have indicated during the
registration process for such service a willingness to receive promotional
solicitations via Yahoo Mail; and (y) in accordance with Yahoo's privacy
policy. The text of the Global Sports E-Mail shall be provided by Global
Sports, consistent with Yahoo's standard policies and guidelines for such
messages as set forth in Exhibit O, and shall be subject to Yahoo's prior
---------
approval (which shall not be unreasonably withheld). Yahoo will provide
Global Sports with three agreed-upon attributes (e.g., age, gender,
occupation) that may be used to target to registered users who receive the
Global Sports E-Mails.
5. Section 11 of the Agreement shall be replaced in its entirety with the
following:
11.1 Beginning on the Amendment Effective Date and continuing until
December 31, 2000, Yahoo shall not [*]. The parties acknowledge and agree
that, other than expressly set forth in this Section 11.1, Yahoo shall not
be restricted in any manner from promoting any entity (including, but not
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EXECUTION COPY
limited to, Mammoth Golf and professional sports leagues) on the Yahoo
Properties.
11.2 Global Sports acknowledges that Yahoo has existing contractual
obligations with the merchants set forth on Exhibit H ("Existing
---------
Obligations") and that notwithstanding anything to the contrary in this
Agreement, Yahoo shall be permitted to fulfill the Existing Obligations
without being considered to be in breach of its obligations under this
Agreement. Further, under no circumstances shall anything in this Section
11 be deemed to restrict in any manner Yahoo's ability to (i) integrate any
editorial content (other than branded content that may be provided by
Global Sports Competitors) in any Yahoo Property, or (ii) include links to
any entity in any directory, merchant listing or other shopping service or
feature on any Yahoo Property. To the extent that it is not contractually
obligated to do so, Yahoo agrees that it will not, in a manner inconsistent
with Yahoo's obligations under Section 11, (x) extend or renew an Existing
Obligation, or (y) consent to the extension or renewal of an Existing
Obligation if Yahoo may withhold such consent in its sole discretion.
6. Effective April 1, 2000, Section 12 of the Agreement shall be deleted (and
all obligations therein shall be deemed fulfilled) and replaced in its
entirety with the following:
12.1 Beginning on April 1, 2000 and continuing through December 31, 2000,
Yahoo shall provide Global Sports the Global Sports Sports & Recreation
Shopping Links. Yahoo shall guarantee delivery of [*] Page Views of the
Global Sports Sports & Recreation Shopping Links.
12.2 Between April 1, 2000, and December 31, 2000, Yahoo shall provide the
Global Sports Banner on a rotating basis on the Global Sports Banner Pages.
Yahoo shall guarantee delivery of [*] Page Views of such Global Sports
Banner. For purposes of this Section 12.2, Global Sports Banner Pages shall
mean: (i) those Pages displayed upon a user's searching the Yahoo Main Site
for a keyword set forth on Exhibit 1 to Amendment #1 to this Agreement,
dated as of February 15, 2000 ("Amendment #1"); and (ii) those Pages within
the Yahoo Main Site categories set forth on Exhibit 1 to Amendment #1.
12.3 In the event that Yahoo fails to deliver the minimum number of Page
Views as set forth above at the expiration of the Term, Yahoo will "make
good" the shortfall [*] after the end of the Term until such Page View
obligation is satisfied. If Yahoo is unable to fulfill its Page View
obligations through the original promotion during this additional period,
Yahoo will then have an additional [*] to deliver the required number of
Page Views through a comparable promotion acceptable to Global Sports (such
three month period, together with the six month period described in the
preceding sentence, being referred to collectively as the "Make Good
Period"). The provisions set forth in this Section 12.3 set forth the
entire liability of Yahoo, and Global Sports' sole remedy, for Yahoo's
breach of its Page View obligations set forth in Sections 12.1 and 12.2
during the Term. For clarity, the parties acknowledge that the exclusivity
provisions of Section 11 shall not extend beyond the Term and that the sole
remedy set forth above shall not apply to a failure by Yahoo to fulfill its
Page View obligations during the Make Good Period.
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EXECUTION COPY
1.4 During the Term, Yahoo will provide Global Sports access to an
electronic database that tracks the delivery of Page Views under this
Agreement. Such database will be updated in accordance with Yahoo's
standard updating procedures at least once per Quarter.
7. Sections 13.1, 13.2, 13.3, 13.4, and 13.5 of the Agreement shall be deleted
(and all obligations therein shall be deemed fulfilled) and replaced in
their entirety with the following. The parties expressly acknowledge and
agree that Global Sports' obligation to deliver the Barter Media pursuant
to Section 13.9 of the Agreement shall remain in full force and effect.
1.1 Within five (5) business days of the Amendment Effective Date, Yahoo
shall [*] to Global Sports [*] of the Slotting Fee.
1.2 In consideration of Yahoo's performance and obligations as set forth
herein under Section 5 of Amendment #1, Global Sports will compensate Yahoo
in an amount equal to [*]. Such fee shall be due and paid to Yahoo as
follows: (i) [*] on April 1, 2000; (ii) [*] on May 1, 2000; (iii) [*] on
June 1, 2000; (iv) [*] on July 1, 2000; (v) [*] on August 1, 2000; (vi)
[*]on September 1, 2000; (vii) [*] on October 1, 2000; (viii) [*] on
November 1, 2000; (ix) [*] on December 1, 2000.
1.3 Revenue Share. In addition to the fees set forth in Section 13.2
-------------
above, Global Sports shall pay to Yahoo a non-refundable, non-creditable fee
equal to [*] percent ([*]%) of any Global Sports Revenue earned beginning on
April 1, 2000, and continuing through the remainder of the Term (the "Revenue
Share Fee"). Yahoo acknowledges and agrees that all revenue share fees in
connection with Global Sports Revenue earned prior to April 1, 2000 shall be
deemed fulfilled. In accordance with the definition of Global Sports Revenue, it
is understood that Global Sports Revenue does not include revenue from sales
made through the Global Sports Site (as opposed to the Merchant Pages, which are
displayed by Yahoo through a proxy server). The Revenue Share Fee shall be paid
by Global Sports to Yahoo on a quarterly basis within the later of (i) thirty
(30) days following the last day of each calendar quarter of the Term, and (ii)
ten (10) days following Global Sports' receipt of a Yahoo's written invoice
calculating: (i) the total dollar amount of Global Sports Revenue earned during
the applicable period, and (ii) a calculation of the Revenue Share Fee.
8. Effective April 1, 2000, Yahoo's obligations to promote the Global Sports
Links under Sections 2, 3, 4.2, 5, 6, 7 and 8 of the Agreement shall cease
and all obligations therein and relating thereto shall be deemed fulfilled.
9. Section 14.4(a) of the Agreement shall be deleted and Global Sports shall
have no right to terminate the Agreement (as amended by this Amendment)
pursuant to such Section. The references to Section 14.4(a) shall be
deleted from Sections 13.9 and 14.6.
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EXECUTION COPY
10. Section 14.5 of the Agreement shall be deleted and Global Sports shall have
no right of first presentation pursuant to such Section.
11. Exhibit K of the Agreement shall be replaced in its entirety by Exhibit K
--------- ---------
attached hereto
12. Global Sports acknowledges and agrees that during the Term, the Global
Sports Retailers shall continue to participate in Yahoo's Remote Merchant
Integration program in accordance with the terms of the Remote Merchant
Integration Program Agreement.
13. In accordance with Yahoo Insertion Order No. 72687, Yahoo shall deliver a
minimum of [*] Page Views of the Global Sports Banner. Yahoo will deliver
such Page Views as follows: (i) at least [*] Page Views between the
Amendment Effective Date and March 31, 2000; and (ii) any remaining Page
Views by June 30, 2000. No less than [*] of such Page Views shall be
delivered in banner positions rotating throughout the Yahoo Main Site, with
the remainder being delivered in banner positions rotating throughout the
Yahoo Properties.
14. Except as expressly amended as set forth herein, the Agreement shall remain
in full force and effect in accordance with its terms.
[signature page follows]
5
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EXECUTION COPY
This Amendment has been executed by the duly authorized representatives of
the parties, effective as of February 15, 2000.
YAHOO! INC. GLOBAL SPORTS INTERACTIVE, INC.
By: _____________________ By: ________________________
Name: ___________________ Name: ______________________
Title: ___________________ Title: _______________________
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Exhibit 10.31
FIRST AMENDMENT TO E-COMMERCE AGREEMENT
---------------------------------------
This FIRST AMENDMENT TO E-COMMERCE AGREEMENT made the 17th day of June,
1999 by and between GLOBAL SPORTS INTERACTIVE, INC., a Pennsylvania corporation
("GSI") and MICHIGAN SPORTING GOODS DISTRIBUTORS, INC., a Michigan corporation
("Retailer").
W I T N E S S E T H:
WHEREAS, on February 1, 1999, GSI and Retailer entered into an E-Commerce
Agreement ("Agreement") pursuant to which GSI agreed to act as the outsourcing
company providing the Retailer's on-line customers the complete e-commerce
shopping experience; and
WHEREAS, GSI and Retailer desire to amend the Agreement, all as hereinafter
set forth.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. The Agreement is amended to add the following paragraph 32:
Upon execution of this First Amendment by Retailer, and
acceptance thereof by GSI, prior to the announcement of
GSI's e-commerce initiative, GSI will deliver to Retailer
a Warrant to Purchase Shares of Global Sports, Inc., the
parent corporation of GSI, in accordance with the terms
set forth in the Warrant Term Sheet attached hereto as
Exhibit "B".
2. Retailer acknowledges that it is aware that GSI is negotiating with The
Sports Authority, Inc. ("TSA") pursuant to which GSI and TSA will form a
separate joint venture to operate TSA's on-line business. Retailer
acknowledges that the joint venture between GSI and TSA is not the type of
agreement which would entitle Retailer to invoke the "favored nations"
clause contained in the first sentence of Section 3.8 of the Agreement, and
Retailer consents to GSI entering into such joint venture with TSA.
<PAGE>
3. In all other respects, the Agreement shall remain in full force and affect
and unamended.
GLOBAL SPORTS INTERACTIVE, INC.,
a Pennsylvania corporation
By: /s/ Michael G. Rubin
- ----------------------- --------------------------------------
ATTEST
MICHIGAN SPORTING GOODS
INC., a Michigan corporation
DISTRIBUTORS,
/s/ Shelley P. Lewis By: /s/ Bruce A. Ullery
- ----------------------- --------------------------------------
ATTEST
<PAGE>
Exhibit 10.34
FIRST AMENDMENT TO E-COMMERCE AGREEMENT
This FIRST AMENDMENT TO E-COMMERCE AGREEMENT made the 25th day of May, 1999
by and between GLOBAL SPORTS INTERACTIVE, INC., a Pennsylvania corporation
("GSI") and DUNHAM'S ATHLEISURE CORPORATION ("Retailer").
WITNESSETH:
WHEREAS, on April 1, 1999, GSI and Retailer entered into an E-Commerce
Agreement ("Agreement") pursuant to which GSI agreed to act as the outsourcing
company providing the Retailer's on-line customers the complete e-commerce
shopping experience; and
WHEREAS, GSI and Retailer desire to amend the Agreement, all as hereinafter
set forth.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. The Agreement is amended to add the following paragraph 32:
Upon execution of this First Amendment by Retailer, and acceptance
thereof by GSI, prior to the announcement of GSI's e-commerce
initiative, GSI will deliver to Retailer a Warrant to Purchase Shares
of Global Sports, Inc., the parent corporation of GSI, in accordance
with the terms set forth in the Warrant Term Sheet attached hereto as
Exhibit "B".
2. Retailer acknowledges that it is aware that GSI is negotiating with The
Sports Authority, Inc. ("TSA") pursuant to which GSI and TSA will form a
separate joint venture to operate TSA's on-line business. Retailer
acknowledges that the joint venture between GSI and TSA is not the type
of agreement which would entitle Retailer to invoke the "favored
nations" clause contained in the first sentence of Section 3.8 of the
Agreement, and Retailer consents to GSI entering into such joint venture
with TSA.
3. In all other respects, the Agreement shall remain in full force and
affect and unamended.
GLOBAL SPORTS INTERACTIVE, INC.,
a Pennsylvania corporation
/s/ Michael G. Rubin
_____________________________________ BY: _________________________________
ATTEST
DUNHAM'S ATHLEISURE CORPORATION
/s/ Marshall Sosna
_____________________________________ BY: _________________________________
ATTEST
<PAGE>
Exhibit 10.35
FIRST AMENDMENT TO E-COMMERCE AGREEMENT
This First Amendment to E-Commerce Agreement is made as of the 5th day of
December, 1999 by and between Global Sports Interactive, Inc., a Pennsylvania
corporation ("GSI"), and Dunham's Athleisure Corporation, a corporation
("Retailer").
GSI and Retailer are parties to an E-Commerce Agreement, dated as of March
23, 1999 (the "Agreement"), pursuant to which GSI agreed to act as Retailer's
outsourcing company for the on-line sale of sporting goods products through a
web site to be created, developed, operated, managed and maintained by GSI (the
"Retailer Web Site") in accordance with the terms of the Agreement. GSI and
Retailer desire to amend the Agreement as set forth in this Amendment to provide
that the image of Retailer's Web Site will be consistent with the image of
Retailer's Land Based Stores. All capitalized terms used in this Amendment
without definition shall have the meanings given to such terms in the Agreement.
The parties, intending to be legally bound, agree as follows:
1. The Agreement is amended to add the following Sections 3.3(f), 3(g),
3(h) and 3(i):
f. If, at anytime during the Term, Retailer notifies GSI in writing
that the assortment of On Line Merchandise being offered for sale
on the Retailer's Web Site is not consistent with the In Line
Merchandise being offered for sale in Retailer's Land Based
Stores, GSI agrees to offer for sale on the Retailer's Web Site
up to 500 styles of such In Line Merchandise that are not being
offered on the Retailer's Web Site as selected by Retailer (the
"Selected Merchandise"), in accordance with the following terms:
1) Within 14 days after receipt of such notice from Retailer,
GSI shall place a purchase order. GSI shall have the option
to purchase merchandise from the Retailer, manufacturer or
other vendor at its discretion. If GSI elects to purchase
the Selected Merchandise from Retailer, GSI shall purchase
from Retailer, and Retailer shall sell to Global, the
Selected Merchandise in accordance with the terms of the
Letter Agreement, dated October 7, 1999 (the "Letter
Agreement"), as amended in Section 3 of this Amendment,
unless Retailer shall handle the fulfillment for the sale by
GSI of Selected Merchandise on Retailer's Web Site, in which
case the parties will agree upon appropriate procedures.
2) Within 14 days after GSI receives at its fulfillment center
Selected Merchandise purchased by GSI, GSI shall offer for
sale on the Retailer's Web Site such Selected Merchandise.
3) Global shall not be required to purchase more than 300
styles in any month and shall not be required to purchase
more than 500 styles in any calendar quarter.
1
<PAGE>
a. If, at any time during the Term, Retailer notifies GSI
in writing that the value message for On Line
Merchandising being offered for sale on the Retailer's
Web Site is not consistent with the value message that
Retailer advertises for In Line Merchandise being
offered for sale in Retailer's Land Based Stores, then
GSI agrees to place on Retailer's Web Site, within
fifteen (15) days after receipt of such notice, the
appropriate value message.
b. If GSI materially breaches its obligations under
Section 3.3(f) or Section 3.3(g), and provided Retailer
has complied with its obligations under Section 3.3(i),
Retailer shall notify GSI in writing, specifying in
reasonable detail the nature of the breach, and GSI
shall have 30 days after the receipt of such notice to
cure the breach. If GSI shall not cure the breach
within the 30-day period, Retailer shall have the right
to require GSI to take down the Retailer's Web Site
until such time as the breach is cured; provided,
however, that if GSI materially breaches its
obligations under Section 3.3(f) or Section 3.3(g) more
than three times in any six-month period, GSI shall not
have the right to cure any further breach of Section
3.3(f) or Section 3.3(g) within such six-month period.
The cure periods set forth in this Section 3.3(h) shall
be the only cure periods applicable to a breach by GSI
of its obligations under Section 3.3(g) or 3.3(h).
c. Retailer shall cooperate with GSI in the performance by
GSI of its obligations under Section 3.3(f) and Section
3.3(g), including (x) furnishing GSI with copies of
weekly specials at least four (4) weeks prior to the
publication by Retailer of such weekly specials, and
(y) for all Selected Merchandise purchased by GSI,
placing GSI's SKU number on Retailer's shipping list
next to each item of Selected Merchandise purchased by
GSI. To facilitate Retailer's obligations under clause
(y), Retailer shall give GSI in electronic form
Retailer's SKU number for each item of Selected
Merchandise, and GSI shall furnish Retailer purchase
orders in electronic form with a cross reference file
showing the GSI SKU number that corresponds to
Retailer's SKU number for each item of Selected
Merchandise purchased by GSI.
1. Except as amended hereby, the Agreement shall remain in full
force and effect in accordance with its terms.
2. The Letter Agreement is hereby amended as follows:
a. The following clause is hereby added to the end of
Section 2(c) of the Letter Agreement under GSI:
GSI may return any product delivered to its fulfillment
center from Dunham's that arrives damaged and/or
unsaleable. GSI will notify Dunham's of these claims
within 21 days after receiving the shipment of such
product.
2
<PAGE>
b. Section 5(A) of the Letter Agreement is amended in its
entirety to read as follows:
A. Payment of invoice due in 10 days upon receipt of
merchandise. Invoices not paid within 10 days will
be subject to a late fee of 1% per month.
c. Section 5(D) of the Letter Agreement is amended to read
in its entirety as follows:
D. Dunham's is not responsible for concealed
shortages so long as such shortages do not exceed
10% of the invoice amount for such shipment,
inasmuch as GSI will not generally be ordering
case pack quantities. Dunham's will implement
control procedures to ensure shipment accuracy.
Dunham's will allow GSI to audit any order prior
to shipment. Dunham's will supply a packing slip
identifying the carton in which each product is
packed.
d. Section 5(E) of the Letter Agreement (after the first
sentence) is amended to read in its entirety as
follows:
C. GSI and Dunham's will continue to develop a more
efficient method of shipping and receiving product
between the two parties.
Dunham's may, at its sole discretion, choose not
to ship any particular item ordered by GSI.
However, in this case, Dunham's cannot hold GSI
accountable for said unshipped product not
appearing on the Dunham's web site.
Global Sports Interactive, Inc. Dunham's Athleisure Corporation
By: /s/ Michael Golden By: /s/ Marshall Sosna
Name: Michael Golden Name: Marshall Sosna
Title: EVP Title: CFO
3
<PAGE>
Exhibit 10.43
Confidential Treatment has been requested with respect to portions of the
agreement indicated with an asterisk [*]. A complete copy of this agreement,
including the redacted terms, has been separately filed with the Securities and
Exchange Commission.
GLOBAL SPORTS INTERACTIVE, INC.
______________________
E-COMMERCE AGREEMENT
BETWEEN
GLOBAL SPORTS INTERACTIVE, INC.,
AND
OSHMAN'S SPORTING GOODS, INC.-SERVICES
1
<PAGE>
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<C> <S> <C>
1 Definitions 2
2 Term 4
3 Operation of the Web Site 5
3.1 Creation and Maintenance of the Web Site 5
3.1.1 GSI Obligations 5
3.1.2 Scalability, Security, and Redundancy 6
3.1.3 Quality Standard 6
3.1.4 Retailer Approval of Initial Web Site 6
3.1.5 Retailer Approval of Web Site Modifications 6
3.1.6 Web Site Address 6
3.1.7 Retailer Information 6
3.1.8 Retailer Information Updates 7
3.1.9 License of the URL and Retailer's Content 7
3.1.10 Maintenance of the Web Site 7
3.2 [*] 8
3.3 GSI's Supply of Certain Online Merchandise 8
3.3.1 Special Make-Ups 8
3.3.2 Closeout Merchandise and Markdowns 9
3.3.3 Form of Communication 9
3.4 Land Based Stores Gift Certificates 9
3.5 Cooperation 9
3.6 Land Based Store Kiosks 9
3.7 Payment and Accounting of Revenue Share to Retailer 10
3.8 Service of Online Customers 10
3.9 Audit 11
3.10 Return of Online Merchandise 11
3.11 Retailer Personnel Discounts 12
3.12 Promotions 12
3.13 Retailer Project Manager 12
3.14 Government Notices 12
4 Online Data and Databases 12
4.1 [*] 12
4.2 Ownership of Databases 13
4.3 Delivery of Customer Data to Retailer 13
5 Advertising and Marketing 13
6 Advertising Co-op and Discretionary Funds 14
7 Confidentiality 14
8 Press Releases 15
9 Exclusive Web Agreement 16
10 Use of URL, Trademarks, Service Marks, Trade Names, and Logos 17
11 Property Rights and Ownership 17
12 Representations and Warranties 18
13 Disclaimer of Warranties 19
14 Indemnification 19
15 Insurance 20
16 Termination and Other Remedies 20
17 Limitations of Liability 22
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
18 Discontinuance or Regulation of the Internet; Termination of Access to the Web Site 23
19 Force Majeure 23
20 Notices 23
21 Assignment 24
22 Independent Contractors 24
23 Waiver 24
24 Governing Law 24
25 Jurisdiction 24
26 Binding Effect 24
27 Severability 25
28 Headings 25
29 Entire Agreement 25
30 Counterparts 26
</TABLE>
Schedules
---------
Schedule 1: Web Site Development Agreement
Schedule 2: URL Integration
Schedule 3: Marks
Schedule 4: Retailer Facilities
Schedule 5: Customer Data
Schedule 6: Secondary URLs
Schedule 7: GSI Infrastructure and Practices
Schedule 8: Database Tools
Schedule 9: Consignment Terms
4
<PAGE>
E-COMMERCE AGREEMENT
This E-Commerce Agreement dated the 30th day of December, 1999, ("Effective
Date") by and between Global Sports Interactive, Inc., ("GSI") a Pennsylvania
corporation with an address of 1075 First Avenue, King of Prussia, Pennsylvania
19406 and Oshman's Sporting Goods, Inc.-Services (Retailer") a Delaware
corporation with an address of 2302 Maxwell Lane, Texas 77023.
WHEREAS, GSI is in the business of creating and operating e-commerce
enabled Web sites on behalf of retailers, providing for those vendors the
technology, expertise, infrastructure, and operational support necessary to
offer e-commerce to their customers;
WHEREAS, Retailer is in the business of selling sports equipment, apparel,
footwear, and other related items to consumers through land-based retail stores;
WHEREAS, Retailer has made a substantial investment to establish its trade
name among consumers and suppliers so as to create a retail image connoting a
specific manner in which merchandise is presented and sold throughout Retailer's
network of land based retail stores;
WHEREAS, Retailer desires to extend its lines of retail distribution
through an e-commerce enabled Web site bearing its trade name and trademarks;
WHEREAS, both Retailer and GSI recognize that the protection of Retailer's
trade name, trademarks, and goodwill, as well as the overall success of the Web
site, depend on consumers' perceiving the Web Site to be an Internet extension
of Retailer's land-based stores that is as consistent as possible with those
stores with respect to merchandise quality, availability, pricing, terms of
sale, and other aspects of the retail purchasing experience;
WHEREAS, Retailer and GSI expect that the Web Site will complement
Retailer's land-based stores, enhancing Retailer's competitive position relative
to other sellers of the same or similar merchandise by offering to Retailer's
customer's an Internet alternative to in-store shopping;
WHEREAS, Retailer and GSI desire to have GSI provide to Retailer a complete
Web site solution that shall be the exclusive means by which Retailer will
conduct e-commerce through the Web during the term of this Agreement; and
WHEREAS, Retailer desires to obtain e-commerce capability from GSI in a
manner that reserves to Retailer ultimate control over merchandising, sales,
pricing, and customer service practices, policies, and strategies that may be
critical to the protection of Retailer's trade name, trademarks, and goodwill
and that will allow the Internet initiative to compliment, and not hinder,
Retailer's in-store shopping strategies.
NOW, THEREFORE, in reliance upon the recitals above (which are made a part
of the Agreement below) and in consideration of the agreements, representations,
and warranties in this Agreement, Retailer and GSI (each a "Party" and
collectively, the "Parties",) intending to be legally bound, agree as follows.
5
<PAGE>
1 DEFINITIONS
Capitalized terms have the following meanings in this Agreement.
1.1 "Advertising Co-op and Discretionary Funds" means amounts earned by or
-----------------------------------------
allocated to a Party by its vendors, the purpose of which is to
support the Party's advertising and promotional programs.
1.2 "Affiliate" means, as to any Person, any other Person controlled by,
---------
under common control with or controlling such Person, directly or
indirectly (through one or more intermediaries or otherwise). Without
limiting the foregoing, as to any Person that is an entity, a Person
shall be deemed an affiliate of such entity if (a) such Person
beneficially owns or holds, directly or indirectly (through one or
more intermediaries or otherwise), more than 10% of the voting or
equity securities of such entity or such entity beneficially owns or
holds, directly or indirectly (through one or more intermediaries or
otherwise), more than 10% of the voting or equity securities of such
Person or (b) is currently or becomes an executive officer or director
of such Person (provided, however, that a Person shall not be deemed
an affiliate solely by reason of this (b) if the Person has not been
an officer or director of the entity at anytime on or within one year
of the date of determination. The term "beneficial ownership" has the
meaning given to it in Rule 13d-3, and the term "officer" has the
meaning given to it in Rule 16a-1(f), both promulgated by the
Securities and Exchange Commission under the Securities Exchange Act
of 1934, as amended, and both as in effect on the date hereof.
1.3 "Categories" means the various types of product groups offered for
----------
sale in Land Based Stores.
1.4 "Closeout Merchandise" means end-of-season or excess merchandise that
--------------------
is priced at a greater than normal discount.
1.5 "Closeout Site Pages" means the those Web pages incorporated into the
-------------------
Web Site that offer primarily Closeout Merchandise and Markdowns.
1.6 "Content" means all text, images, pictures, sound, graphics, video and
-------
other information or data appearing in or through the pages of the Web
Site.
1.7 "Customer" means a Person who accesses the Web Site in any manner,
--------
whether or not a purchase is made.
1.8 "Customer Information" means all data and information provided by or
--------------------
obtained from Customers through the Web Site and all information
generated or obtained by virtue of the use of the Web Site by
Customers, including without limitation, all Customer Data.
1.9 "Governmental Authority" means any (a) nation, state, county, city,
----------------------
town, village, district, or other jurisdiction of any nature; (b)
federal, state, local, municipal, foreign, or other government; (c)
governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official, or entity and
any court or other tribunal); (d) multi-national organization or body;
or (e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing
6
<PAGE>
authority or power of any nature.
1.10 "GSI Content" is defined in Section 1.6 of Schedule 1 attached to this
-----------
Agreement.
1.11 "GSI Products" is defined in Section 1.7 of Schedule 1 attached to
-------------
this Agreement.
1.12 "In Line Merchandise" means merchandise available to be carried by
-------------------
Retailer in its Land Based Stores.
1.13 "Intellectual Property Rights" means any and all now known or
----------------------------
hereafter known tangible and intangible (a) rights associated with
works of authorship throughout the universe, including but not limited
to copyrights, moral rights, and mask-works, (b) trademark and trade
name rights and similar rights, (c) trade secret rights, (d) patents,
designs, algorithms and other industrial property rights, (e) all
other intellectual and industrial property rights of every kind and
nature throughout the universe and however designated (including
domain names, logos, "rental" rights and rights to remuneration),
whether arising by operation of law, contract, license, or otherwise,
and (f) all registrations, initial applications, renewals, extensions,
continuations, divisions or reissues hereof now or hereafter in force
(including any rights in any of the foregoing).
1.14 "Internet" means the system of computer networks interconnected with
--------
routers, worldwide in scope, that facilitates data communication
services such as remote login, file transfer, electronic mail, and the
Web, and any successor to such system.
1.15 "Land Based Stores" means all sites and all channels other than the
-----------------
Web Site, whether a walk-in store or otherwise, from or through which
Retailer conducts business.
1.16 "Land Based Stores Gift Certificates" means gift certificates, pre-
-----------------------------------
programmed cards, and other forms of credit in fixed denominations
redeemable only in Land Based Stores.
1.17 "Launch Date" means the date on which the Web Site is fully
-----------
functional, and is first available to the public on the Web.
1.18 "Law" means any federal, state, local, municipal, foreign,
---
international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation,
statute, or treaty of any Governmental Authority.
1.19 "Link" means a hypertext link to any Web site from or to the Web Site.
----
1.20 "Markdowns" means merchandise in Retailer's inventory offered for sale
---------
at a price permanently and substantially reduced from its original
price.
1.21 "Marks" is defined in Section 10 of this Agreement.
-----
1.22 "Online Merchandise" means merchandise to be sold through the Web
------------------
Site.
1.23 "Other GSI Retailers" means sporting goods retailers (a) that own,
-------------------
franchise, or operate land based stores through which sporting goods
are sold; and (b) whose Web site is owned and operated by GSI.
7
<PAGE>
1.24 "Person" means, whether or not capitalized, any individual,
------
corporation (including any non-profit corporation), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, labor union, or other entity or
governmental body.
1.25 "Project Manager" means a representative of Retailer whose primary
---------------
duties are to supply Retailer Content to GSI and to coordinate with
GSI regarding Retailer Content.
1.26 "Retailer Content" is defined in Section 1.10 of Schedule 1 attached
----------------
to this Agreement including without limitation, all information
provided by Retailer for the operation of the Web Site.
1.27 "Retailer's Net Cost" means, with respect to Special Make-Ups, the
-------------------
aggregate of (i) amount paid by Retailer to manufacturer for such
merchandise, plus (ii) Retailer's actual costs incurred in connection
with such goods (including without limitation transportation, customs
duties, finance and insurance, agent commissions, and freight
forwarding costs), plus (iii) an amount for overhead and handling
equal to [*] of the sum of the amounts in clauses (i) and (ii), plus
(iv) an amount for advertising co-op equal to [*] of the sum of the
amounts in clauses (i) and (ii).
1.28 "Revenue Share" is defined in Section 37 of this Agreement.
-------------
1.29 "Secondary URL" means uniform resource locators other than the URL
-------------
that include one or more of Retailer's trade names, trademarks, or
service marks or any variant of such trade names, trademarks, or
service marks or other references to Retailer or Retailer's business.
1.30 "Special Make-Ups" means merchandise manufactured exclusively for
----------------
Retailer and includes without limitation, such merchandise sold under
a Retailer's trademark.
1.31 "Specifications" means the prescribed standards, descriptions, and
--------------
characteristics (including look and feel requirements) relating to the
Web Site set forth in Schedule 1 or otherwise described in this
Agreement, as modified from time to time as provided in this
Agreement.
1.32 "Term" is defined in Section 21 of this Agreement.
----
1.33 "URL" means the uniform resource locator of the Web Site.
---
1.34 "Web" means the Internet client-server hypertext distributed
---
information retrieval system known as the World Wide Web.
1.35 "Web Site" is defined in Section 1.12 of Schedule 1 attached to this
--------
Agreement, and includes without limitation, the Closeout Site Pages.
2 TERM
2.1 Term. The Term of this Agreement shall commence upon the execution of
----
this
8
<PAGE>
Agreement and shall expire at 1700 G.M.T. on [*], unless terminated in
accordance with Section 16 of this Agreement. GSI shall advise
Retailer thirty days prior to the expected Launch Date. The Launch
Date shall occur during the period beginning [*], and ending
240 days after the Effective Date ("Commencement Period"). The
Commencement Period shall be extended to the extent directly delayed
by Retailer's failure to comply with the Milestone Delivery Schedule
set forth on Attachment B to Schedule 1 attached to this Agreement and
the Production Schedule to be agreed upon by the Parties; provided,
however, that, without expanding the foregoing, delays associated with
the Retailer's objections (or revisions to the Web Site based on
Retailer's objections) pursuant to Section 314 shall not be deemed to
be a failure to comply with the Milestone Delivery Schedule. Each
Party shall give the other Party prompt notice of any failure to
comply with the Milestone Delivery Schedule that occurs or is
reasonably likely to occur.
3 OPERATION OF THE WEB SITE
3.1 Creation and Maintenance of the Web Site.
----------------------------------------
3.1.1 GSI Obligations. GSI, at its own expense, shall create,
---------------
maintain, host and operate the Web Site in accordance with this
Agreement and Schedule 1 attached to this Agreement. Through
the Term, the Web Site shall use GSI's proprietary engine that
is used for GSI's other retailer sites and will use other
technologies consistent with current e-commerce industry
practice. No more frequently than annually, Retailer may
request that a mutually acceptable, independent third party be
engaged to review retail e-commerce Web sites offering general
merchandise to determine the methods of operation, features,
and functionality of such Web sites. The cost of each such
review shall be shared equally by the Parties. Retailer may
suggest to GSI methods of operating the Web Site or that
features or functionality be included in the Web Site. GSI
shall implement such methods, features, or functionality that
are implemented on [*] or more of the [*] retail e-commerce Web
sites offering general merchandise ranked highest by Media
Metrix or such other mutually acceptable Person during the most
recent monthly reporting period. GSI shall implement such
methods, features, or functionality that are implemented on [*]
or more of the [*] retail e-commerce Web sites offering general
merchandise ranked highest by Media Metrix or such other
mutually acceptable Person during the most recent monthly
reporting period unless such method, feature, or functionality
would be inconsistent with GSI's reasonable business needs.
Such methods, features or functionality, as the case may be,
shall be added no later than six (6) months after GSI's receipt
of such suggestion from Retailer in writing; provided that in
the event that such methods, features or functionality cannot
be implemented reasonably within such six month period, then
within nine months from receipt of such notice so long as GSI
has commenced and proceeded diligently to said implementation
within a reasonable period. Notwithstanding the foregoing, GSI
is not required to implement any methods, features, or
functionality if the actual cost of adding such feature or
functionality would exceed [*]% of the revenues on which the
Revenue Share is based for the immediately preceding 12 months
or if implementing the method, feature, or functionality would
be illegal, would result in the infringement or violation of
any third party's rights, would cause a breach of
9
<PAGE>
any agreement to which GSI is a party, or would require GSI to
enter into a commercially unreasonable license. All upgrades to
GSI's proprietary engine shall be implemented for the Web Site
when the upgrades are made generally available for GSI's other
retailer Web sites. Any upgrade to GSI's proprietary engine
that has been in commercial use for an Other GSI Retailer site
for pre-release testing for more than 6 months shall be made
available for the Web Site.
3.1.2 Scalability, Security, and Redundancy. The Web Site shall be
-------------------------------------
scalable, secure, and GSI shall provide redundancy and Customer
response times all in accordance with the practices employed by
retail e-commerce Web sites offering general merchandise as
such practices may change from time to time. Schedule 7
attached to this Agreement sets forth GSI's infrastructure and
practices as of the Effective Date that will be implemented to
support the Web Site.
3.1.3 Quality Standard. GSI shall operate the Web Site consistent
----------------
with the goodwill, quality, and brand image associated with
Retailer and the Marks.
3.1.4 Retailer Approval of Initial Web Site. GSI shall not launch
-------------------------------------
the Web Site without Retailer's approval of the appearance and
functionality of the proposed Web Site. GSI shall make
available to Retailer complete versions of the Web Site for
Retailer's review and acceptance. Retailer shall use all
commercially reasonable efforts to review and evaluate the Web
Site within 5 business days of its obtaining such access to the
Web Site but in no event more than 15 business days (the
"Acceptance Period"). The design, layout, and look and feel of
the Web Site (including without limitation the placement and
positioning of Marks, advertising and Links) (the "Template")
shall be subject to Retailer's approval in its sole discretion;
in all other cases, Retailer's approval shall not be
unreasonably withheld. The initial Web Site shall be deemed
approved if GSI does not receive Retailer's notice of
disapproval within 15 business days of such Web Site's
availability to Retailer. Retailer shall not disapprove any
aspect of the Web Site if such disapproval would result in the
material degradation of the performance of the Web Site.
3.1.5 Retailer Approval of Web Site Modifications No changes to the
-------------------------------------------
Marks, Retailer Content or Retailer information provided
pursuant to Section 317 and no changes to the approved Template
shall be made (including the placement and positioning thereof)
without Retailer's prior written approval, which may be
withheld in its discretion. Any other material changes to the
appearance and functionality of the Web Site's user interface
initiated after the Launch Date shall be subject to the prior
approval of Retailer, which shall not be unreasonably withheld.
Such changes shall be deemed approved if GSI does not receive
Retailer's notice of disapproval within 7 business days of such
changes' availability to Retailer. Retailer shall not
disapprove any changes to the Web Site if such disapproval
would result in the material degradation of the performance of
the Web Site.
3.1.6 Web Site Address. The URL shall be www.oshmans.com.
----------------
3.1.7 Retailer Information. GSI shall, at its cost and expense,
--------------------
incorporate in the Web
10
<PAGE>
Site any or all of the following information (which shall for
the purposes of Section 11 be deemed Retailer Content ), as
Retailer shall elect: corporate information, store locator,
public financial information, press releases, community
programs, employment opportunities for store or corporate
positions, vendor compliance policy, Women & Sports, grants for
girls program information and registration, gift card
registration, frequently asked questions and a "contact us"
section. Retailer shall provide such information in a format
acceptable to GSI and shall have sole and complete control over
the such information. The Links on the Web Site to such
information shall be on the Template (as defined in Section
314).
3.1.8 Retailer Information Updates. Following the Launch Date,
----------------------------
Retailer shall have the right to update the Content provided
pursuant to Section 317 of this Agreement, and GSI shall
incorporate such updates at GSI's cost, as follows:
(a) Public Financial Information.
----------------------------
(i) Stock Prices. Stock prices will be updated daily
through a Link to another Web site offering such
information.
(ii) SEC Filings and Annual Reports. SEC filings will be
provided through a Link to another Web site
offering such information.
(iii) Stock prices and SEC filings and annual reports
will be provided only if available in a format
acceptable to GSI.
(b) Press Releases and Employment Opportunities. GSI shall
-------------------------------------------
permit Retailer directly to upload to the Web Site any
Retailer-created revisions to press releases and
employment opportunities for store or corporate positions
provided pursuant to Section 317 of this Agreement
(c) Other Information. GSI shall, at no cost to Retailer,
-----------------
upload to the Web Site any Retailer-created revisions to
the corporate information, store locator, community
programs, vendor compliance policy, Women & Sports, grants
for girls program information and registration, gift card
registration, frequently asked questions, or the "contact
us" Content provided pursuant to Section 317 of this
Agreement. Retailer may from time to time provide other
information, and GSI shall, at no cost to Retailer, upload
to the Web Site such other information unless uploading
such information would be inconsistent with GSI's
reasonable business needs.
3.1.9 License of the URL and Retailer's Content. Except as
-----------------------------------------
specifically provided on Schedule 6, Retailer grants to GSI for
the Term a nontransferable (except in connection with the
assignment of this Agreement), irrevocable license to use,
copy, modify, adapt, translate, create derivative works based
upon, sublicense, reproduce, distribute, publicly perform,
publicly display, and digitally perform the URL and any
Secondary URLs registered in Retailer's name to GSI and
designate GSI as the technical and billing contact for the URL
and all such Secondary URLs with the registrar. Retailer's
representatives shall be designated as the administrative and
other contacts with the registrar. GSI shall promptly pay any
fees and take all other steps as may be necessary to maintain
the URL and such Secondary URLs. Retailer grants to GSI a
license to use, copy, modify, adapt, translate, create
derivative works based upon Retailer Content, sublicense,
reproduce, distribute, publicly perform, publicly display, and
digitally perform Retailer
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Content in connection with GSI's performance of its obligations
under and in accordance with this Agreement.
3.1.10 Maintenance of the Web Site. GSI shall maintain the Web Site
---------------------------
to keep it consistent with good practice associated with retail
e-commerce Web sites offering general merchandise as such
practices may change. Retailer shall cooperate with GSI in the
maintenance of the Web Site at GSI's cost and expense.
3.2 [*]
3.3 GSI's Supply of Certain Online Merchandise.
------------------------------------------
3.3.1 Special Make-Ups. Prior to ordering Special Make-Ups, Retailer
----------------
shall provide to GSI a description of such Special Make-Ups and
advise GSI of Retailer's price to GSI, quantity, and color
selection and size range of such Special Make-Ups. GSI may
purchase, and Retailer shall sell to GSI at estimated
Retailer's Net Cost, the Special Make-Ups, in quantities,
colors and sizes determined by GSI. GSI shall have five
business days after GSI's receipt of Retailer's notice of
availability to advise Retailer of the quantity of any of the
Special Make-Ups that it has elected to purchase. Special Make-
Ups purchased by GSI shall not be sold on any Web site other
than the Web Site.
3.3.2 Closeout Merchandise and Markdowns. Retailer may at its sole
----------------------------------
discretion offer Closeout Merchandise or Markdowns for sale on
consignment through the Web Site. Retailer shall ship such
Closeout Merchandise or Markdowns to GSI's fulfillment center.
Notwithstanding the foregoing, GSI shall not be required to
accept a number of styles of Closeout Merchandise and Markdowns
that is greater than [*] in the first two years of the
Agreement, and greater than [*] in the remaining years of this
Agreement. Retailer shall set the selling prices on the
Closeout Merchandise and Markdowns. Retailer shall receive [*]%
of the proceeds from the sale of any Closeout Merchandise and
Markdowns received by GSI excluding amounts received for taxes,
delivery, handling, and net of returns, which shall be
calculated as follows: [*]% of the sale price plus Retailer's
[*]% Revenue Share. By way of example only, if Retailer
consigns an athletic shoe to GSI with an original price of
$75.00 and a Closeout Merchandise or Markdown price of $50.00,
then when the athletic shoe is sold, Retailer shall receive
$[*] ([*]% of $50.00 and [*]% of $50.00). GSI shall hold the
inventory of Closeout Merchandise or Markdowns In accordance
with Schedule 9 attached to this Agreement and shall account to
Retailer and remit to Retailer amounts due under this
Agreement, for the sale of any Closeout Merchandise and
Markdowns when it accounts to Retailer for and remits the
Revenue Share. The proceeds from the sale of Closeout
Merchandise and Markdowns shall not be included in calculating
Revenue Share.
3.3.3 Form of Communication. Any and all information required or
---------------------
permitted to be provided by one Party to the other pursuant to
this Section 33 shall be provided in a mutually acceptable
form.
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3.4 Land Based Stores Gift Certificates. Retailer shall furnish Land
-----------------------------------
Based Stores Gift Certificates to GSI on consignment in accordance
with Schedule 9 attached to this Agreement in quantities and
denominations requested by GSI. Any Land Based Store Gift Certificates
not returned unsold to Retailer within 180 days after GSI receipt of
such Land Based Store Gift Certificates shall be deemed to be sold by
GSI and the face value of such Land Based Store Gift Certificates
shall be deemed proceeds received from the sale of Land Based Store
Gift Certificates. GSI shall remit to Retailer [*]% of all proceeds
received from the sale of Land Based Stores Gift Certificates, the
balance being retained by GSI as its fee and to cover all costs,
including without limitation, credit card fees. GSI shall remit to
Retailer all amounts due from, account to Retailer for, all sales of
Land Based Store Gift Certificates concurrently with its accounting to
Retailer for the Revenue Share. The proceeds from the sale of Land
Based Store Gift Certificates shall not be included in calculating
Revenue Share.
3.5 Cooperation. The Parties acknowledge and agree that their mutual
-----------
cooperation and good faith are important to the success of the Web
Site and the implementation of Retailer's strategies. Accordingly,
each Party agrees reasonably to cooperate with, and to supply
information to, the other Party to facilitate the operation and
evaluation of the Web Site and implement Retailer's strategies.
3.6 Land Based Store Kiosks. By December 31, 2001, GSI shall have
-----------------------
installed terminals with access to the Web Site and from which
purchases can be made through the Web Site in each Land Based Store
with annual revenues for 1999 greater than $[*] million. GSI shall
install such terminals in other Land Based Stores when their annual
revenues exceed $[*] million. GSI shall maintain all such terminals at
its own cost and expense.
3.7 Payment and Accounting of Revenue Share to Retailer. All proceeds and
---------------------------------------------------
other compensation received through the Web Site other than proceeds
from the sales of Closeout Merchandise, Markdowns, and Land Based
Stores Gift Certificates shall be revenues of GSI. Retailer shall
receive a [*]% share of the revenue received by GSI from the sale of
Online Merchandise other than Closeout Merchandise or Markdowns
excluding amounts received for taxes, delivery, handling, and net of
returns ("Revenue Share"). GSI shall properly remit any taxes due on
sales through the Web Site. Within ten (10) days after the end of each
GSI fiscal month during the Term (with the exception of December,
which period shall be thirty days), GSI shall account to Retailer for
the related Revenue Share due under this Agreement and shall remit to
Retailer such Revenue Share and shall account to Retailer for any
related taxes due and remitted by GSI.
Within ninety (90) days after the end of each GSI fiscal year, GSI
shall provide Retailer with a statement, certified by its independent
auditors, setting forth the Revenue Share earned by Retailer during
the prior GSI fiscal year and an accounting of the amounts due under
Sections 332 and 34. For a period of three years after Retailer's
receipt of such certified statement, Retailer may perform a single
audit of the books and records of GSI only with respect to the Revenue
Share earned during the related GSI fiscal years. Such audit shall be
conducted at GSI's principal office located in the continental United
States on two weeks' prior notice to GSI. If the audit reveals that
the Revenue Share or other amounts due Retailer under this Agreement
were understated, GSI shall within thirty days of completion of the
audit, pay to Retailer the unpaid balance for the period audited plus
interest at the prime rate of interest reported in The Wall Street
Journal on the date of the
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audit's certification, which interest shall accrue from the date that
the related understated amounts were due. If the audit reveals that
the accounting by GSI is understated by more than [*] ([*]%) percent
for the related GSI fiscal year, GSI shall pay to Retailer (a) the
unpaid balance of the Revenue Share or other amounts due Retailer
under this Agreement for the period audited plus (b) interest at the
rate of 18%, which interest shall accrue from the date that the
related understated amounts were due plus (c) Retailer's reasonable
costs of the audit.
3.8 Service of Online Customers. GSI shall be responsible for providing
---------------------------
all customer service relating to sales through the Web Site in
accordance with current e-commerce industry standards. GSI shall
provide online order tracking capability and toll-free telephone
ordering assistance to Customers. GSI shall use commercially
reasonable efforts to ship 98% of orders within 48 hours of GSI's
receipt of orders.
3.8.1 Independent Evaluation. No more frequently than annually,
----------------------
Retailer may request that a mutually acceptable, independent
third party be engaged to review retail e-commerce Web sites
offering general merchandise to determine the customer service
provided at such Web sites. The cost of each such review shall
be shared equally by the Parties. Upon Retailer's request, GSI
shall implement such customer service methods that are
implemented on [*] or more of the [*] of such sites that are
ranked highest by Media Metrix or such other mutually
acceptable Person during the most recent monthly reporting
period. Upon Retailer's request, GSI shall implement such
methods that are implemented on [*] or more of the [*] of such
sites that are ranked highest by Media Metrix or such other
mutually acceptable Person during the most recent monthly
reporting period unless such methods would be inconsistent with
GSI's reasonable business needs. Notwithstanding the foregoing,
GSI is not required to implement any method if it would be
illegal, would result in the infringement or violation of any
third party's rights, would cause a breach of any agreement to
which GSI is a party, or would require GSI to enter into a
commercially unreasonable license.
3.8.2 Customer Complaints and Surveys. GSI shall contemporaneously
-------------------------------
transmit to Retailer by email copies of email correspondence
between GSI and Customers that lodge complaints about the
customer service related to the Web Site and on a quarterly
basis, shall provide copies of all other correspondence from
Customers that lodge complaints about the customer service
related to the Web Site. GSI shall provide to Retailer the
compiled results of any of GSI's surveys of Web Site customer
satisfaction with the Web Site.
3.9 Audit. Upon 30 days prior written notice and no more frequently than
-----
once per 12 month period, GSI shall provide to Retailer reasonable
access during normal business hours to GSI's books, records, and data
that document the sales, shipment, and return of merchandise through
the Web Site for the limited purpose of Retailer's review of GSI's
performance under this Agreement. Retailer may inspect such books,
records, and data and all such information (other than Customer
Information) shall be Confidential Information of GSI as defined in
Section 7 of this Agreement, and subject to Section 7 of this
Agreement. Retailer may only make copies of such books, records, and
data as are reasonably related to disputed matters and only with prior
notice to GSI.
3.10 Return of Online Merchandise. GSI's return policy shall be consistent
----------------------------
with Retailer's
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return policy. With each shipment of merchandise to a Customer, GSI
shall instruct the Customer that the merchandise purchased through the
Web Site may be returned to the Land Based Stores or to the Web Site
fulfillment center and that such returned merchandise ("Online
Return") may only be returned in accordance with the instructions
enclosed with the merchandise.
3.10.1 Online Return to GSI. GSI will deduct any Revenue Share
--------------------
related to the sale of an Online Return to and accepted by GSI.
Such deduction will be made from the next Revenue Share payment
and shall be identified in the related accounting.
3.10.2 Online Return to GSI of Markdowns and Closeout Merchandise.
----------------------------------------------------------
GSI will issue a refund to Customers for Online Returns of
Markdowns and Closeout Merchandise accepted by GSI. Proceeds
paid to Retailer for the sale of such Markdowns and Closeout
Merchandise will be credited to GSI in the next payment to
Retailer under this Agreement.
3.10.3 Online Returns to Land Based Store. Retailer shall ship, at
----------------------------------
GSI's cost (which may include, without limitation, reasonable
fees to third party RTV consolidators or processors), Online
Returns to Land Based Stores to GSI's fulfillment center. GSI
shall credit to Retailer the amount refunded to the Customer
less the related Revenue Share. If such merchandise is Closeout
Merchandise or a Markdown, GSI shall credit to Retailer the
portion of the sale proceeds retained by GSI pursuant to this
Agreement and such merchandise shall be returned to the
Closeout Merchandise and Markdown inventory. Any credit for
Online Returns to Land Based Stores will be applied to the
Revenue Share payment for the month following GSI's receipt of
the related merchandise. No credit shall be due for merchandise
that is not accompanied by proof of the purchase of the
merchandise through the Web Site and proof of refund by
Retailer.
3.11 Retailer Personnel Discounts. GSI shall offer to officers, directors,
----------------------------
and employees of Retailer discounts on purchases of services and
merchandise through the Web Site identical to the discounts offered by
Retailer to such personnel for purchases at Land Based Stores. The
discount may not be used in combination with any other discount.
Retailer shall promote the discount for such purchases through the Web
Site to the same extent that it promotes the discount for such
purchases at Land Based Stores.
3.12 Promotions. GSI may use the URL and Retailer's name and logo to
----------
promote the Web Site with other businesses; provided however, GSI
shall not promote the Web Site on any other sporting goods retailer's
Web site or on any Web site that would generally be considered
immoral, pornographic or otherwise offensive.
3.13 Retailer Project Manager. Promptly after the execution of this
------------------------
Agreement, but in no event later than sixty days after such execution,
Retailer, at its expense, shall appoint a Project Manager who shall be
authorized to act on behalf of Retailer for all purposes under this
Agreement and whose primary duties shall be to work with GSI regarding
this Agreement and the Web Site. Commencing with the Project Manager's
appointment and continuing through the Term, the Project Manager shall
be Retailer's contact point with GSI and shall be responsible for
supplying GSI with the Retailer Content, notices permitted or required
under this Agreement, and such other information as may reasonably be
required of Retailer to create, maintain, and operate the Web Site
efficiently.
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3.14 Government Notices. GSI shall comply in all material respects with
------------------
all applicable Laws, including without limitation, all applicable Laws
relating to disclosure, advertisement, unfair competition, tax, and
consumer matters. GSI shall provide immediate notice to Retailer of
all government notices and legal process regarding the Web Site,
including without limitation notices of deceptive trade practices,
infringement, false advertising, defamation, and Federal Trade
Commission notices. All such notices and legal process and the
existence of all such notices and legal process shall be Confidential
Information of GSI as defined in Section 7 of this Agreement, and
subject to Section 7 of this Agreement.
4 ONLINE DATA AND DATABASES
4.1 [*]
4.1.1 Compliance with the Web Site Privacy Policy. During the Term
-------------------------------------------
and thereafter, GSI and Retailer shall hold and use Customer
Data in strict compliance with the Web Site privacy policy as
such policy may be revised by mutual agreement at any time and
from time to time. GSI shall provide prompt notice of changes
to the Web Site privacy policy and each Party will provide
prompt notice to the other Party of changes to the elections
under such policy by the individuals to which the Customer Data
relates.
4.2 Ownership of Databases. All data structures, data schema, database
----------------------
dictionaries, attributes, validation tests for each element, table
sizes and formats, access requirements, data dependencies and other
elements involving GSI's storage of data and all refinements, updates,
releases, improvements and enhancements thereto, all Intellectual
Property Rights therein, and all applications created for use of the
data and Retailer Content (collectively "Databases") shall, as between
GSI and Retailer, be the sole and exclusive property of GSI.
4.3 Delivery of Customer Data to Retailer. Beginning 30 days after the
-------------------------------------
Launch Date and during the Term, GSI shall permit Retailer to access
and use Customer Data in the Databases in accordance with this
Agreement. GSI shall use commercially reasonable efforts to provide to
Retailer for its use solely in accordance with this Agreement, the
tools available to GSI to access Customer Data, which tools available
as of the Effective Date are identified on Schedule 8. Retailer's use
of such tools shall be limited to accessing Customer Data from the
Databases during the Term and shall be subject to such other
restrictions as may be reasonably required by GSI. GSI shall use
commercially reasonable efforts to ensure that the Customer Data
accurately and completely reflects the Customer Data collected by GSI,
but GSI shall have no obligation to check the accuracy, validity or
integrity of such Customer Data and except as set forth in this
Section 4, the Customer Data is provided "AS-IS" and without any
warranty of any kind, either express or implied, including, without
limitation, any implied warranties of title, merchantability, or
fitness for a particular purpose, or any warranty against infringement
of patents, copyrights, trade secrets, or other Intellectual Property
Rights. Customer Data is Confidential Information of GSI and Retailer,
as defined in Section 7 of this Agreement, and subject to Section 7 of
this Agreement.
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5 ADVERTISING AND MARKETING
5.1 Retailer's Obligations. Retailer shall, commencing no later than the
----------------------
Launch Date and continuing during the Term, at no cost to GSI
integrate the URL into its advertising and marketing in accordance
with Schedule 2 attached to this Agreement.
5.2 GSI's Obligations. GSI's marketing and promotion of the Closeout
-----------------
Merchandise and Markdowns will be consistent with the number of
Closeout Merchandise and Markdown stock keeping units offered for sale
through the Web Site relative to the number of other merchandise stock
keeping units offered for sale through the Web Site. GSI shall, at
its own cost and expense, use commercially reasonable efforts to
establish and maintain an affiliate program linking other Web sites to
the Web Site for the purpose of referring Customers to the Web Site.
GSI shall, through December 31, 2000, provide [*] impressions on the
Yahoo! Web site promoting the Web Site and services or merchandise
offered through the Web Site or such other promotion through the Web
mutually acceptable to the Parties. Such promotion shall be subject to
Retailer's prior approval, which approval shall not be unreasonably
withheld. Such promotions shall be deemed approved if GSI does not
receive Retailer's notice of disapproval within 5 days of such
promotions' availability to Retailer. GSI shall use commercially
reasonable efforts to advise Retailer on other Web based marketing and
promotional opportunities for increasing public awareness of the Web
Site, including without limitation, email relationship marketing
programs.
5.3 Search Engine Registration. GSI shall register the Web Site with each
--------------------------
Web search engine or directory site that does not impose a material
charge for such registration with which GSI registers the Web site of
any Other GSI Retailer.
6 ADVERTISING CO-OP AND DISCRETIONARY FUNDS
During the Term, GSI shall use all Advertising Co-op and Discretionary
Funds received by GSI directly from vendors (including without limitation,
Retailer in its capacity as vendor of Special Make-Ups) as a result of the
purchase of merchandise that was sold through the Web Site solely to
promote the Web Site and not to defray any operating or development
expenses. GSI shall provide an accounting of all such funds to Retailer
upon Retailer's reasonable request.
7 CONFIDENTIALITY
7.1 Confidential Information. Each Party acknowledges that, in connection
------------------------
with the performance of this Agreement, it may receive Confidential
Information of the other Party. For the purpose of this Agreement,
"Confidential Information" shall mean information or material that is
clearly marked "confidential" or that the Party receiving the
Confidential Information ("Receiving Party") knows, or has reason to
know, is the confidential or proprietary information of the Party
disclosing such Confidential Information ("Disclosing Party") either
because a) such information is marked or otherwise identified by the
Disclosing Party as confidential or proprietary or b) such information
has commercial value and is not generally known in the Disclosing
Party's trade or industry. Confidential Information shall include,
without limitation: (a) concepts and ideas relating to the
development and distribution of content in any medium; (b) trade
secrets, drawings,
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inventions, know-how, software programs, and software source
documents; (c) information regarding plans for research, development,
new service offerings or products, marketing and selling, business
plans, business forecasts, budgets and unpublished financial
statements, licenses and distribution arrangements, prices and costs,
suppliers and customers; and (d) existence of any business
discussions, negotiations or agreements between the Parties.
7.2 Confidentiality. The Receiving Party shall (a) hold and maintain in
---------------
strict confidence all Confidential Information of the Disclosing Party
and shall not disclose it to any third party and (b) shall not use any
Confidential Information of the Disclosing Party except as permitted
by this Agreement or as may be necessary for the Receiving Party to
perform its obligations under this Agreement. The obligations and
restrictions imposed by this Section 7 shall terminate five (5) years
after the expiration or termination of this Agreement.
Notwithstanding the foregoing, the Receiving Party may disclose
Confidential Information to a director, officer, employee, or agent of
the Receiving Party provided that (a) the responsibilities of such
Person to the Receiving Party reasonably require access to
Confidential Information; (b) the Receiving Party advises each such
Person before he or she receives access to or possession of
Confidential Information of the confidential nature of, and the
Receiving Party's obligations regarding, the Confidential Information;
and (c) for any Person who is not otherwise obligated by written
agreement to comply with this Section 7, as a condition of obtaining
access to any Confidential Information, each such Person is bound by
written agreement the terms of which regarding Confidential
Information are no less restrictive than those of this Agreement. The
Receiving Party shall be liable for any duplication, use, or
disclosure of any Confidential Information by any Person who obtains
access to or possession of Confidential Information through the
Receiving Party.
7.3 Exceptions. Notwithstanding the foregoing, the Parties agree that
----------
Confidential Information other than Customer Information will not
include any information that: (a) was published or becomes available
to the general public other than through a breach of this Agreement;
(b) was possessed by the Receiving Party prior to receipt or access
pursuant to this Agreement, other than through prior disclosure by the
Disclosing Party, as evidenced by the Receiving Party's written
records; (c) was obtained by the Receiving Party from a third party
with a valid right to disclose such Confidential Information, provided
that the Receiving Party did not know and reasonably should not have
known that such third party was under a confidentiality obligation to
the Disclosing Party; or (d) was independently developed by the
Receiving Party without the benefit of disclosure by the Disclosing
Party as evidenced by the Receiving Party's written records; or (e)
was required to be disclosed by governmental agencies, regulatory
authorities, or pursuant to court order to the extent such disclosure
is required by law and provided that the Receiving Party provides
reasonable prior notice to the Disclosing Party of the disclosure.
7.4 Confidentiality of this Agreement. Retailer and GSI acknowledge that
---------------------------------
the terms and conditions of this Agreement constitute Confidential
Information of each Party governed by the terms of this Section 7 and
each Party shall be deemed to be a Receiving Party with respect to
such Confidential Information.
7.5 Remedy. The Receiving Party acknowledges that the Disclosing Party
------
will be irreparably harmed if the Receiving Party's obligations under
this Section 7 are not performed, and
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that the Disclosing Party would not have an adequate remedy at law in
the event of a violation by the Receiving Party of such obligations.
The Receiving Party agrees and consents that the Disclosing Party
shall be entitled, in addition to all other rights and remedies to
which the Disclosing Party may be entitled, to have a decree of
specific performance or an injunction issued requiring any such
violation to be cured and enjoining all Persons involved from
continuing the violation. The existence of any claim or cause of
action that the Receiving Party or any other Person may have against
the Disclosing Party shall not constitute a defense or bar the
enforcement of this Section 7. The Receiving Party acknowledges that
the restrictions in this Section 7 are reasonable and necessary to
protect legitimate business interests of the Disclosing Party.
8 PRESS RELEASES
All voluntary public announcements concerning the transactions contemplated
by this Agreement shall be mutually acceptable to both GSI and Retailer.
Unless required by law, neither GSI nor Retailer shall make any public
announcement or issue any press release concerning the transactions
contemplated by this Agreement without the prior written consent of the
other Party. Each Party may make any public announcement or issue any
press release it is required by law to issue provided such Party gives
reasonable prior notice of such announcement or press release to the other
Party.
9 EXCLUSIVE WEB AGREEMENT
9.1 Exclusive Retailer Web Site. During the Term, other than through the
---------------------------
Web Site or other Web site operated by GSI, and except to promote the
Web Site or Land Based Stores, neither Retailer nor any Affiliate of
Retailer shall, alone or with others, directly or indirectly (a)
promote or offer for sale through the Internet any merchandise in a
Category or distribute or fulfill orders for any merchandise in a
Category sold through the Internet or (b) use or permit any other
Person to use its name, logo, or other trademarks, service marks,
trade names, or trade dress, whether or not registered, on the
Internet; provided, however, that if (a) Retailer develops an
alternative business model involving sales of sporting goods under a
trade name other than Oshman's Sporting Goods or Oshman's SuperSports
USA and having a substantially different product mix than presently
carried in the Land Based Stores, and (b) GSI declines to provide a
Web site to Retailer for such business on substantially the same terms
as this Agreement, the provisions of this Section 91 shall not apply
to such business.
9.2 [*]
9.3 Retailer's Existing Web Site. For the period commencing 30 days after
----------------------------
the execution of this Agreement and ending on the Launch Date, GSI
shall host Retailer's currently existing Web site and shall use
commercially reasonable efforts to make such Web site publicly
accessible to users of the Internet at all times except for reasonable
periods for
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system maintenance. GSI may offer for sale and accept and fulfill
orders for Land Based Stores Gift Certificates through such site in
accordance with this Agreement as if the Land Based Stores Gift
Certificates were offered, sold, and fulfilled through the Web Site.
9.3.1 Ownership of Retailer's Existing Web Site. As between Retailer
-----------------------------------------
and GSI, Retailer's existing Web site shall remain the sole and
exclusive property of Retailer. GSI shall have no rights in
such Web site, other than the limited right to use such Web
site for the performance of its obligations and exercising its
rights under this Agreement.
9.3.2 Retailer Warranty. Retailer represents, warrants, and
-----------------
covenants (a) that Retailer has the full legal right to grant
to GSI any and all ownership rights and licenses granted to GSI
under this Section 93 and (b) that during the term of this
Agreement, Retailer shall not distribute through its existing
Web site any material that (a) infringes on the Intellectual
Property Rights of any Person or any rights of publicity or
privacy of any Person; (b) violates any Law (including without
limitation, the laws and regulations governing export control,
unfair competition, anti-discrimination, or false advertising);
(c) is defamatory, trade libelous, unlawfully threatening, or
unlawfully harassing; (d) is obscene, child pornographic, or
indecent; (e) violates any community or Internet standard; or
(f) contains any viruses, Trojan horses, worms, time bombs,
cancelbots, or other computer programming routines that are
intended to damage, detrimentally interfere with,
surreptitiously intercept, or expropriate any system, data or
personal information.
9.3.3 Remedy. In addition to any remedies that GSI may have at law
------
or in equity, if GSI reasonably determines that Retailer has
breached or is likely to breach its representations,
warranties, or covenants of this Section 93, GSI may take any
action GSI reasonably deems necessary to cure or avoid the
breach, including without limitation, the immediate disabling
of the Web site and the removal from or refusal to upload to
the Web site the related materials.
10 USE OF URL, TRADEMARKS, SERVICE MARKS, TRADE NAMES, AND LOGOS
During the Term, Retailer hereby grants to GSI the exclusive license to
use, copy, modify and display in accordance with this Agreement the URL and
Retailer's trade names, trademarks, trade dress, service marks, and logos
and such other names and logos as are listed on Schedule 3 attached to this
Agreement ("Marks"), on the Web Site, and a nonexclusive license to use,
copy, modify, and display the Marks on invoices and packing slips, in
connection with credit card charges, in connection with a toll free Web
Site customer service telephone line, as otherwise permitted by this
Agreement, and generally in connection with the operation and promotion of
the Web Site; provided however, GSI shall have no right to modify the Marks
without Retailer's prior approval. Schedule 3 shall be modified from time
to time during the Term to add any new trademarks, service marks, trade
names and logos that Retailer uses during the Term, and any such additions
to Schedule 3 shall be Marks under this Agreement.
GSI recognizes the great value of the publicity and goodwill associated
with the Marks and acknowledges that such goodwill belongs exclusively to
and shall inure to the benefit of Retailer, and that the Marks have
acquired a secondary meaning in the minds of the purchasing public.
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GSI will not acquire any rights in the Marks as a result of its use and all
use of the Marks shall inure to Retailer's benefit. Retailer may terminate
the license in this Section 10 to the extent that GSI's use of the Marks
does not conform to Retailer's standards and GSI does not cure such failure
within 10 days of GSI's receipt of Retailer's notice of such failure. GSI
shall use the Marks in the form provided to GSI and as may be modified in
accordance with this Agreement and in conformance with any Retailer
trademark usage policies. GSI shall (a) not take any action inconsistent
with Retailer's ownership of the Marks; (b) not attack or assist any third
party in attacking the Marks; (c) use proper symbols indicating the
registered status of the Marks; (d) not attempt to register the Marks
anywhere; and (e) not adopt or use confusingly similar marks. GSI's
obligation under this Section 10 shall survive the termination of this
Agreement.
GSI shall use the Marks only in a manner that reflects the goodwill and
quality reflected by the Marks. Upon notice from Retailer, GSI shall remove
from the Web Site any Links to Web sites that in Retailer's reasonable
judgment (a) are obscene, child pornographic, or violate any community or
Internet standard or (b) would offer competitive merchandise or services or
merchandise or services that would place Retailer in an adverse light or
tarnish its reputation. The use of the Marks as otherwise permitted by
this Agreement are deemed to comply with this Section 10.
11 PROPERTY RIGHTS AND OWNERSHIP
The Web Site shall consist of, and shall operate in conjunction with,
multiple elements, all of which are subject to certain Intellectual
Property Rights. The Parties' respective rights with respect to such
elements shall be as set forth below and subject to the terms of this
Agreement. For purposes of this Agreement, the term "ownership" shall
refer to ownership of all right, title and interest in and to the
respective elements, including, but not limited to, all patent, copyright,
trade secret, trademark and any other similar Intellectual Property Rights
therein, as applicable.
11.1 The Web Site shall be owned solely by GSI.
11.2 GSI Products shall be owned solely by GSI.
11.3 Retailer Content shall be owned solely by Retailer.
11.4 Marks shall be owned solely by Retailer.
12 REPRESENTATIONS AND WARRANTIES
12.1 Retailer represents and warrants that
12.1.1 it has the full right to transfer to or grant to GSI the right
to use its URL, Secondary URLs, Marks, and Retailer Content as
transferred or granted in this Agreement;
12.1.2 during the Term of this Agreement, as used in accordance with
this Agreement, the Retailer information provided pursuant to
Section 317 and Retailer Content, as provided by Retailer and
as updated, are accurate, complete, and not misleading and (a)
do not violate any Law (including without limitation, the laws
or
21
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regulations governing export control, unfair competition, anti-
discrimination, or false advertising); (b) do not breach any
contract and has not resulted in and will not result in any
consumer fraud, product liability, tort, injury, damage, or
harm of any kind to any third party; or (c) do not violate any
Person's property rights or rights to publicity, privacy,
personality, or other rights, and are not defamatory, libelous,
unlawfully threatening, unlawfully harassing, obscene,
indecent, or pornographic;
12.1.3 Retailer's use and maintenance of Customer Information shall be
in strict compliance with the Web Site privacy policy as such
policy may be revised at any time and from time to time without
notice; and
12.1.4 Schedule 4 attached to this Agreement is, and shall be promptly
revised by Retailer to continue to be, an accurate and complete
list of the addresses of every facility owned or operated by
Retailer.
12.1.5 Schedule 6 attached to this Agreement is, and shall be
maintained by Retailer to continue to be, an accurate and
complete list of the Secondary URLs registered in Retailer's
name, and Retailer shall give 30 days prior notice to GSI of
any and all additions or changes to the Secondary URLs on
Schedule 6.
12.2 GSI represents and warrants that during the term of this Agreement,
the Web Site, GSI Content, all material available on the Web Site, and
all advertising that is not Retailer Information or Retailer Content
will not (a) infringe on the Intellectual Property Rights of any
Person or any rights of publicity or privacy of any Person; (b)
violate any Law (including without limitation, the laws and
regulations governing export control, unfair competition, anti-
discrimination, or false advertising); (c) be defamatory, trade
libelous, unlawfully threatening, or unlawfully harassing; (d) be
obscene, child pornographic, or indecent; (e) violate any community or
Internet standard; or (f) contain any viruses, Trojan horses, worms,
time bombs, cancelbots, or other computer programming routines that
are intended to damage, detrimentally interfere with, surreptitiously
intercept, or expropriate any system, data or personal information.
12.3 Each Party represents and warrants to the other Party that: (a) it is
a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation and that it has the power
and authority to enter into this Agreement and the transactions
contemplated herein; (b) the consummation of the transactions
described by this Agreement shall not conflict with or result in a
breach of any of the terms, provisions or conditions of its Articles
of Incorporation or Bylaws, or any statute or administrative
regulation or of any order, writ, injunction, judgment or decree of
any court, regulatory or Governmental Authority or of any agreement or
instrument to which it is a party or by which it is bound or
constitute a default thereunder; and (c) this Agreement has been duly
authorized, executed and delivered by it and this Agreement is valid,
enforceable and binding upon each Party in accordance with its terms.
12.4 In addition to any remedies that either Party may have at law or in
equity, if either Party reasonably determines that the other Party has
breached or is likely to breach Section 1212 or 122, the non-breaching
Party may take any action it reasonably deems necessary to cure or
avoid the breach, including without limitation, the immediate removal
from or refusal to upload to the Web Site the related materials.
22
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13 DISCLAIMER OF WARRANTIES
EXCEPT FOR THE EXPRESS WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER
RETAILER NOR GSI MAKES ANY, AND BOTH DISCLAIM ALL, REPRESENTATIONS AND
WARRANTIES, EXPRESS OR IMPLIED, ORAL OR WRITTEN, IN FACT OR IN LAW,
INCLUDING WITHOUT LIMITATION ALL WARRANTIES OF TITLE, NON-INFRINGEMENT,
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, OR WARRANTIES THAT
ARISE FROM TRADE USAGE OR CUSTOM. EACH PARTY ACKNOWLEDGES AND AGREES THAT
THE OTHER PARTY HAS NOT MADE, NOR DOES HEREBY MAKE, ANY OTHER
REPRESENTATION, WARRANTY OR COVENANT OF ANY KIND OR CHARACTER, EXPRESSED OR
IMPLIED.
14 INDEMNIFICATION
14.1 Retailer, at its own cost and expense, shall defend, indemnify and
hold harmless GSI and any of its officers, directors, employees or
agents from and against all damages, expenses, liabilities and other
costs (including reasonable attorneys fees and court costs) arising
from or related to (a) claims that GSI's possession or use in
accordance with this Agreement of Retailer Content, the Marks, or
other items provided by Retailer pursuant to this Agreement infringes
a third party patent, copyright, trademark, trade secret, or other
proprietary right; (b) claims by third parties arising from or related
to Retailer's breach of any representation or warranty in this
Agreement; or (c) Retailer's gross negligence, willful or intentional
misconduct.
14.2 GSI, at its own cost and expense, shall defend, indemnify and hold
harmless Retailer and any of its officers, directors, employees or
agents from and against all damages, expenses, liabilities and other
costs (including reasonable attorneys fees and court costs) arising
from or related to (a) claims made by third parties to the extent that
they are based on information (including Content) on, or transactions
through, the Web Site or GSI's services to Retailer provided pursuant
to this Agreement other than claims for which GSI is entitled to
indemnification pursuant to Section 141 of this Agreement or (b) GSI's
gross negligence, willful or intentional misconduct.
14.3 An indemnitor under this Section 14 shall have the right to control
the defense and settlement of any claims or actions for which it is
obligated to defend, but the indemnitee shall have the right to
participate in such claims or actions at its own cost and expense. An
indemnitor under this Section 14 shall have no liability under this
Section 14 to the extent that the indemnitor is actually prejudiced by
the indemnitee's failure to give notice to the indemnitor promptly
after the indemnitee learns of such claim so as to not prejudice the
indemnitor.
15 INSURANCE
15.1 GSI shall maintain in full force and effect products liability
insurance coverage for merchandise sold through the Web Site in an
amount not less than $[*] million. Such policy shall name Retailer as
an additional insured.
23
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15.2 GSI shall deliver to Retailer certificates of insurance that stipulate
that no less than ten days notice will be given to Retailer prior to
the termination of the related policy. Such certificates shall
identify the coverage and state that Retailer is an additional insured
under the policy.
16 TERMINATION AND OTHER REMEDIES
16.1 Termination for Cause by Either Party. Except as otherwise provided
-------------------------------------
in this Agreement, this Agreement may be terminated by either Party
16.1.1 if a material breach of the terms or conditions of this
Agreement by the other Party which breach is not cured within
30 days of the breaching Party's receipt of notice of such
breach or such longer period as may be reasonably necessary
provided that the Party in breach is diligently pursuing a
cure. As used herein, "material breach" shall mean a failure by
a Party to perform any of its obligations the effect of which
would substantially impair the value of this Agreement to the
other Party;
16.1.2 if the other Party fails to pay to the Party within 10 days
after Party makes written demand for any past-due amount
payable under this Agreement;
16.1.3 if a voluntary petition is commenced by the other Party under
the Bankruptcy Code, as amended, 11 U.S.C. (S) 101 et seq; the
other Party has an involuntary petition commenced against it
under the Bankruptcy Code and such petition is not dismissed
within 60 days after filing; the other Party becomes insolvent;
or any substantial part of the other Party's property becomes
subject to any levy, seizure, assignment, application, or sale
for or by any creditor or governmental agency; or liquidates or
otherwise discontinues all or a significant part of its
business operations.
16.1.4 if a Party's non-performance is excused by Section 19 and such
non-performance continues for 30 days.
16.2 Termination for Cause by Retailer.
---------------------------------
16.2.1 Retailer may terminate this Agreement upon 180 days' notice if
(a) Revenue Share-generating sales do not equal or exceed the
following amounts for the related GSI fiscal years and (b) GSI
does not pay twice the shortfall in Revenue Share to Retailer
by March 31 of the following year.
2001 $[*] million
2002 $[*] million
2003 $[*] million
2004 $[*] million
16.2.2 Retailer may terminate this Agreement immediately upon notice
if (a) GSI or any Affiliate of GSI (except for Affiliates of
GSI in a business relationship structure substantially similar
to that between GSI and The Sports Authority (excluding the
24
<PAGE>
economics)) promotes, offers for sale, or distributes any
sports equipment, sports apparel, or athletic footwear through
the Internet under a trade name, trademark, or service mark
owned by GSI or any Affiliate of GSI; (b) GSI does not offer
(and is not prohibited by the manufacturer from offering) to
Retailer the option to offer on the Web Site all merchandise
that is offered on such GSI Web site; and (c) Retailer gives
notice of termination within 30 days of Retailer's receipt of
GSI's notice refusing to so offer such option.
16. Effect of Termination.
---------------------
16.3.1 Upon the expiration or termination by Retailer of this
Agreement, (a) all licenses granted to either Party under this
Agreement shall terminate; (b) GSI shall transfer the
registration of the URL to Retailer and designate Retailer as
the administrative, technical, billing contact, and any other
contact for the URL and all Secondary URLs with the registrar;
(c) GSI shall return to Retailer or at Retailer's option,
destroy Retailer Content in GSI's possession; and (d) upon
Retailer's request, GSI shall continue to operate the Web Site
in accordance with this Agreement for no more than 180 days and
reasonably cooperate with Retailer in closing the Web Site at
the end of such period, including without limitation,
completing the processing of all orders and requests for
customer service.
16.3.2 Upon the expiration or termination by Retailer of this
Agreement, GSI shall release to Retailer Customer
Identification Data (defined below), which shall remain subject
to Section 4 of this Agreement. "Customer Identification Data"
means Customer Data that identifies the names, addresses,
telephone numbers, email addresses, and purchasing history of
Customers who during the Term have placed an order for Online
Merchandise.
16.3.3 Upon the expiration or termination by Retailer of this
Agreement, GSI grants to Retailer a perpetual, transferable,
irrevocable license throughout the universe to use, copy,
modify, adapt, translate, create derivative works based upon,
sublicense, reproduce, distribute, publicly perform, publicly
display, and digitally perform the appearance and operational
patterns of the user interface of the Web Site. The foregoing
license does not include any rights to any computer software or
programming code.
16.3.4 Sections 4, 7, 13, 14, 163, and 17 shall survive any
termination by GSI of this Agreement.
16.4 Other Remedies. In addition to any other payment to be made
--------------
hereunder, any amounts owed to a Party shall bear interest at the
lesser of 18% per annum or the maximum rate allowed by law from the
date such amounts were required to be paid until payment. Nothing
contained herein shall limit a Party's ability to obtain injunctive or
equitable relief with respect to the breach of Sections 9 or 10.
17 LIMITATIONS OF LIABILITY
EXCEPT FOR ANY LIABILITY UNDER SECTIONS 7 AND 14 OF THIS AGREEMENT, UNDER
NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY
25
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INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES
(REGARDLESS OF WHETHER SUCH DAMAGES ARISE OUT OF CONTRACT, NEGLIGENCE OR
OTHER LEGAL THEORIES OR OTHERWISE) ARISING FROM OR RELATED TO THIS
AGREEMENT OR RETAILER'S OR RETAILER'S CUSTOMERS' USE OF OR INABILITY TO
ACCESS ANY PART OF THE INTERNET OR RETAILER'S OR RETAILER'S CUSTOMERS'
RELIANCE ON OR USE OF INFORMATION, SERVICES OR MERCHANDISE PROVIDED ON OR
THROUGH THE WEB SITE OR THE SERVICES, OR THAT RESULT FROM MISTAKES,
OMISSIONS, INTERRUPTIONS, LOSS, THEFT, OR DELETION OF FILES, ERRORS,
DEFECTS, DELAYS IN OPERATION, OR TRANSMISSION, OR ANY FAILURE OF
PERFORMANCE. EXCEPT FOR ANY LIABILITY UNDER SECTIONS 7 AND 14 OF THIS
AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY
UNDER THIS AGREEMENT FOR AN AMOUNT THAT EXCEEDS, IN THE AGGREGATE, THE
AMOUNTS PAID TO RETAILER DURING THE [*] MONTHS PRECEDING THE LAST ACT OR
OMISSION GIVING RISE TO SUCH LIABILITY; PROVIDED, HOWEVER, THAT IF FEWER
THAN [*] MONTHS HAVE ELAPSED FROM THE LAUNCH DATE THROUGH THE DATE OF SUCH
LAST ACT OR OMISSION, THEN THE LIABILITY CAP SHALL BE EQUAL TO TWELVE TIMES
THE AVERAGE MONTHLY PAYMENT TO RETAILER DURING SUCH PERIOD. THE REMEDIES
SET FORTH IN THIS SECTION 17 CONSTITUTE THE SOLE AND EXCLUSIVE REMEDIES
AVAILABLE TO THE PARTIES UNDER THIS AGREEMENT. THE REMEDIES SPECIFICALLY
PROVIDED BY THIS AGREEMENT AND THE PROVISIONS OF THIS SECTION 17 SET FORTH
EACH PARTY'S EXCLUSIVE REMEDIES AND ALLOCATE BETWEEN GSI AND RETAILER THE
RISKS UNDER THIS AGREEMENT, SOME OF WHICH MAY BE UNKNOWN OR UNDETERMINABLE.
SUCH LIMITATIONS WERE A MATERIAL INDUCEMENT FOR GSI AND RETAILER TO ENTER
INTO THIS AGREEMENT, AND THE PARTIES HAVE RELIED UPON SUCH LIMITATIONS IN
DETERMINING WHETHER TO ENTER INTO THIS AGREEMENT, AND THE PARTIES INTEND
THEM TO BE ENFORCEABLE WHETHER OR NOT THE DAMAGES WERE FORESEEABLE OR ,
EITHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OR PROBABILITY OF SUCH
DAMAGES AND EVEN IF THE EXCLUSIVE REMEDIES PROVIDED BY THIS AGREEMENT FAIL
OF THEIR ESSENTIAL PURPOSE. IN NO EVENT SHALL EITHER PARTY BE LIABLE IN
ANY RESPECT FOR CLAIMS BROUGHT MORE THAN [*] MONTHS AFTER THE LAST ACT OR
OMISSION GIVING RISE TO SUCH LIABILITY.
18 DISCONTINUANCE OR REGULATION OF THE INTERNET; TERMINATION OF ACCESS TO THE
WEB SITE
18.1 Discontinuance or Regulation of the Internet. Retailer acknowledges
--------------------------------------------
that the Internet (including without limitation the Web) is a network
of private and public networks and that GSI has no control over the
Internet. GSI shall not be liable for the discontinuance of operation
of any portion of the Internet or possible regulation of the Internet,
which might restrict or prohibit the operation of the Web Site.
18.2 Termination of Access to the Web Site. GSI may terminate access to
-------------------------------------
the Web Site at any time and without notice (a) to prevent damage or
degradation to the Web Site; (b) to comply with any Law; or (c)
otherwise protect GSI from liability to third parties. GSI will use
reasonable commercial efforts to notify Retailer of any such
termination of access as soon as reasonably practicable after such
termination of access and promptly to restore such access upon the
cessation of the condition leading to such termination.
26
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19 FORCE MAJEURE
Neither Party shall be liable to the other Party for non-performance of
this Agreement in whole or in part, if (a) the non-performance is caused by
the other Party or events or conditions beyond that Party's reasonable and
actual control and for which that Party is not responsible under this
Agreement, (b) the Party gives prompt notice under Section 20, and (c) the
Party makes all commercially reasonable efforts to perform.
20 NOTICES
Any notices or writings to be sent hereunder shall be in writing and shall
be by personal delivery, facsimile transmission or by certified or
registered mail, return receipt requested, and shall be deemed given upon
the earlier of actual receipt, five (5) days after deposit in the mail, or
receipt by sender of confirmation of facsimile transmission. Notices shall
be sent to the following addresses (or such other address as either Party
may specify in writing).
If to GSI: Global Sports Interactive, Inc.
1075 First Avenue
King of Prussia, PA 19406
Attention: President
Copy to: Arthur H. Miller, Esquire
Executive Vice President and General Counsel
1075 First Avenue
King of Prussia, PA 19406
If to Retailer: Oshman's Sporting Goods, Inc.-Services
2302 Maxwell Lane
Houston, TX 77023
Attention: Steven U. Rath
Copy to: Legal Department
Oshman's Sporting Goods, Inc.-Services
2302 Maxwell Lane
Houston, TX 77023
21 ASSIGNMENT
Neither GSI nor Retailer may assign this Agreement without the prior
written consent of the other Party, which consent shall not be unreasonably
withheld, except that either Party may assign this Agreement upon written
notice to the other Party to an Affiliate of the assignor or to any Person
that acquires or succeeds to all, or substantially all, of assignor's
business or assets.
22 INDEPENDENT CONTRACTORS
27
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The relationship of the Parties herein shall be that of independent
contractors and nothing herein shall be construed to create a joint venture
or partnership.
23 WAIVER
The waiver or failure of either Party to exercise in any respect any right
provided hereunder shall not be deemed a waiver of such right in the future
or a waiver of any other rights established under this Agreement.
24 GOVERNING LAW
This Agreement, the rights and obligations of the Parties hereto, and any
claims or disputes thereto, shall be governed by and construed in
accordance with the laws of the State of Delaware (excluding the choice of
law rules thereof).
25 JURISDICTION
The Parties agree that the exclusive jurisdiction and venue of any dispute
that arises hereunder shall be in federal or state courts of competent
jurisdiction in the jurisdiction of the defendant's principal place of
business.
26 BINDING EFFECT
This Agreement shall be binding upon the Parties hereto, their successors
and permitted assigns.
27 SEVERABILITY
Should any term or provision of this Agreement be held to any extent
unenforceable, invalid, or prohibited under law, then such provision shall
be deemed restated to reflect the original intention of the Parties as
nearly as possible in accordance with applicable law and the remainder of
this Agreement, or the application of such term or provision to Persons,
property, or circumstances other than those as to which it is invalid,
unenforceable, or prohibited, shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
28 HEADINGS
Section headings contained in this Agreement are inserted for convenience
or reference only and shall not be deemed to be a part of this Agreement
for any other purpose. All references to "Section" or "Sections" refer to
the corresponding Section or Sections of this Agreement. All words used in
this Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word
"including" does not limit the preceding words or terms, but is rather
intended to signify that some of many examples follow. The words "hereof,"
"thereof," "herein" and the like are intended to refer to the Agreement as
a
28
<PAGE>
whole unless the context clearly and unambiguously indicates otherwise.
29 ENTIRE AGREEMENT
This Agreement, including the Schedules attached to this Agreement,
represents the entire agreement of the Parties with respect to the subject
matter hereof and may not be modified, except in writing, executed by the
Parties hereto. This Agreement supersedes all prior writings of the
Parties with respect to this subject matter.
30 COUNTERPARTS
This Agreement may be signed in several counterparts, each of which shall
be deemed an original, and all of which when taken together, shall be
deemed a complete instrument.
The Parties accept this Agreement and have caused this Agreement to be
executed and do each hereby warrant and represent that its respective signatory
whose signature appears below has been and is on the date executed duly
authorized by all necessary and appropriate corporate action to execute this
Agreement on its behalf.
GLOBAL SPORTS INTERACTIVE, INC. OSHMAN'S SPORTING GOODS,
INC.-SERVICES
By: /s/ Michael Rubin
By: /s/ Steven U. Rath
Name: Michael Rubin
Name: Steven U. Rath
Title: CEO
Title: Exec. Vice Pres.
Date: 12/30/99
Date: 12/30/99
29
<PAGE>
Exhibit 10.44
Global Sports InteractiveFinancial Printing Group Confidential Treatment has
been requested with respect to portions of the agreement indicated with an
asterisk [*]. A complete copy of this agreement, including the redacted terms,
has been separately filed with the Securities and Exchange Commission.
GLOBAL SPORTS INTERACTIVE, INC.
______________________
STRATEGIC ALLIANCE AGREEMENT
AMONG
GLOBAL SPORTS INTERACTIVE, INC.
AND
BLUELIGHT.COM LLC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<C> <S> <C>
1 Definitions 1
2 Development and Operation of the Web Site 2
3 Customer Service 3
4 Licensed Materials 3
5 Supply of Merchandise and Warehousing 3
6 Order Processing 4
7 Fulfillment of Accepted Orders and Returns 5
8 Form of Communication 6
9 Payment 6
10 No Merchandise Warranty 7
11 GSI Representations and Warranties 7
12 GSI Indemnification 7
13 Blue Representations and Warranties 8
14 Blue Indemnification 8
15 Customer Data 8
16 Confidentiality 8
17 Limitation of Liability 10
18 Term and Termination 11
19 Force Majeure 12
20 Miscellaneous Provisions 12
</TABLE>
Schedules
- ---------
Schedule A: Designated Web Sites
Schedule B: Fulfillment Requirements Structure
2
<PAGE>
STRATEGIC ALLIANCE AGREEMENT
This Strategic Alliance Agreement is made by and among Global Sports
Interactive, Inc., ("GSI") a Pennsylvania corporation with its principal place
of business located at 1075 First Avenue, King of Prussia, Pennsylvania, 19406,
Bluelight.Com LLC ("Blue") a Delaware limited liability company with its
principal place of business located at 150 Post, Suite 670 San Francisco, CA
94105, this 28th day of February, 2000 (the "Effective Date").
RECITALS
1 GSI is in the business of, inter alia, providing retailers with selection
----------
and acquisition of merchandise, warehousing and fulfillment functions in
connection with such retailers e-commerce business.
2 Blue is in the business of owning and operating an e-commerce enabled Web
site offering a comprehensive selection of goods, including Sporting Goods,
through its on-line stores.
3 Blue desires to outsource the selection and acquisition of merchandise,
warehousing and fulfillment functions for Sporting Goods in connection with
its on-line stores.
4 GSI desires to provide Blue selection and acquisition of merchandise,
warehousing and fulfillment services for sales of Sporting Goods through
the Blue on-line stores for shipment to customers within the United States.
5 GSI and Blue desire to enter into this Agreement in order to set forth
their respective rights and obligations with respect to GSI's selection and
acquisition of merchandise, warehousing and fulfillment functions for
Sporting Goods in connection with Blue's on-line stores.
AGREEMENT
GSI and Blue (each a "Party" and collectively, the "Parties"), in
consideration of the mutual promises contained herein, and intending to be
legally bound, agree as follows.
1 DEFINITIONS. Capitalized terms have the following meanings in this
Agreement.
1.1 Agreement means this Strategic Alliance Agreement.
---------
1.2 Blue Light Specials means Merchandise offered for sale on the Web
-------------------
Site at a price reduced by at least [ * ] percent from (i) the
manufacturers suggested retail price if such price is available, or
(ii) if there is no manufacturers suggested price, the Retail Price;
or (iii) such other mutually agreed upon price.
1.3 Customer means a person who places an Order.
--------
1.4 Designated Web sites means the Web sites identified on Schedule A
--------------------
attached to this
Page 3 of 17
<PAGE>
Agreement as such schedule may be amended by GSI.
1.5 GSI Content means illustrations, graphics, audio, video, text,
-----------
photographs, films, slides, prints, negatives, recordings, drawings,
sketches, artwork, digital images, and other renderings and
information, depicting, describing, identifying, or otherwise
related to Merchandise that (a) is reasonably available to GSI; (b)
GSI is not prohibited from licensing as required by this Agreement;
and (c) is generally available on Web sites operated by GSI.
1.6 GSI Product Database means the database maintained by GSI, in
--------------------
computer-readable format, of information regarding Merchandise which
information includes, without limitation, SKU numbers, Merchandise
availability, product availability, and pricing.
1.7 Launch Date means the date on which Sporting Goods on the Blue Web
-----------
Site are first available to the public and which are supplied by GSI
under this Agreement.
1.8 Licensed Materials means GSI Content and the GSI Product Database as
------------------
provided to Blue and as may be modified, revised, or updated in
accordance with this Agreement.
1.9 Markdowns means Merchandise offered for sale on the Designated Web
---------
sites or to Blue under this Agreement at a price reduced from its
original price and available only in limited quantities.
1.10 Merchandise means Sporting Goods merchandise generally offered for
-----------
sale through the Designated Web sites and other merchandise that GSI
may offer and Blue may, in its sole discretion, accept for sale
under this Agreement. Merchandise includes without limitation, Blue
Light Specials. Merchandise does not include (a) merchandise
acquired by GSI exclusively for, or manufactured exclusively for, or
sold under a trademark of, the retailer related to a Designated Web
site; (b) except for Blue Light Specials and Markdowns, merchandise
offered for sale through such Designated Web sites at a price
reduced from its original price and available only in limited
quantities, including without limitation end-of-season or excess
merchandise; or (c) merchandise that GSI is prohibited from
providing to Blue by the related licensee or licensor of licensed
merchandise or the related manufacturer.
1.11 Order means an order for Merchandise through the Web Site, through
-----
800 numbers or by any other electronic medium.
1.12 Retail Price means the lowest initial selling price that an item is
------------
originally made available to the public on the Designated Web sites.
1.13 SKU means a stock keeping unit of merchandise.
---
1.14 Sporting Goods means sports equipment, recreational equipment,
--------------
sporting apparel, and athletic footwear.
1.15 Web Site means the e-commerce enabled Web site operated by or on
--------
behalf of Blue as its online retail store for Sporting Goods.
Page 4 of 17
<PAGE>
1.16 Web means the Internet client-server hypertext distributed
---
information retrieval system known as the World Wide Web.
2 DEVELOPMENT AND OPERATION OF THE WEB SITE. Blue shall develop the Sporting
Goods portion of the Web Site and beginning on the Launch Date and
throughout the term of this Agreement, shall operate and maintain the Web
Site. Except for the services to be provided by GSI hereunder, Blue shall
be solely responsible for all operating functions of the Web Site,
including, but not limited to, Order processing, second-level customer
service (except as provided in Section 3), development, maintenance and
hosting of the Web Site. Subject to Section 5 hereof, Blue shall not offer
Sporting Goods offered for sale by GSI under this Agreement for sale
through any Web site, any kiosks in any Kmart stores or otherwise except
through the Web Site unless such Sporting Goods is acquired from GSI. At
Blue's discretion, GSI will have the right to operate kiosks in the
Sporting Goods departments of Kmart stores.
3 CUSTOMER SERVICE. GSI shall provide to Blue, Merchandise inventory levels
and availability, Order and shipping confirmations, Order shipping tracking
information as made available to GSI by the common carrier, and such other
Merchandise and Order information that is commercially reasonably available
to GSI and reasonably necessary for Blue's customer service, in compliance
with the standards set forth in Blue's Vendor Packet, a copy of which is
attached hereto as Schedule B. GSI shall provide such customer service to
Blue as shall be mutually agreed upon by the parties. Additionally, GSI
shall use commercially reasonable efforts to satisfy the service level
standards with regard to fulfillment and customer services, as set forth on
Schedule B.
4 LICENSED MATERIALS
4.1 License to GSI Content and the GSI Product Database. GSI shall
---------------------------------------------------
provide to Blue the Licensed Materials subject to, and grants to
Blue, a personal, nontransferable (except in accordance with this
Agreement), nonexclusive, limited license for the term of this
Agreement to use, reproduce, display, transmit, and publicly perform
the Licensed Materials solely in connection with the sale of
Merchandise through the Web Site. Blue shall not (a) copy (except as
reasonably necessary to use the Licensed Materials in accordance
with this Agreement); (b) modify, adapt, translate or create
derivative works based upon the Licensed Materials; (c) remove,
erase, or tamper with any copyright or other proprietary notice
printed or stamped on, affixed to, or encoded or recorded in the
Licensed Materials, or fail to preserve all copyright and other
proprietary notices in any copy of any of the Licensed Materials
made by Blue; or (d) sell, market, license, sublicense, distribute,
or otherwise grant to any person any right to use the Licensed
Materials without the prior consent of GSI. Any and all rights not
explicitly granted under this Agreement are expressly reserved by
and to GSI.
4.2 Updating the GSI Product Database. GSI shall update the information
---------------------------------
in the GSI Product Database no less frequently than once per day.
Such updates shall include the addition of SKU numbers and other
information for added SKUs, the removal of SKU numbers and other
information for unavailable SKUs, revised SKU availability,
information, pricing, shipping, and special handling fees, and
inventory availability provided throughout each day based upon
Blue's reasonable requirements.
Page 5 of 17
<PAGE>
5 PRICING, SUPPLY OF MERCHANDISE AND WAREHOUSING
5.1 Exclusive Source of Sporting Goods. Subject to the exceptions in
----------------------------------
this Section 5.1, GSI shall be the exclusive source of Sporting
Goods for sale through the Web Site. GSI will be responsible for
purchasing, directly from manufactures, all Sporting Goods to be
sold on the Web Site. GSI will use commercially reasonable efforts
to (i) maintain the level of products currently available on the
Designated Web sites, and (ii) ensure that the availability of
Sporting Goods on the Web Site exceeds the current level of Sporting
Goods available at a typical Kmart store.
5.1.1 Unavailable Brand Names. Blue may obtain from third parties
-----------------------
for sale through the Web Site brand name Sporting Goods if
such brand name is not available through GSI provided that,
if such Sporting Goods subsequently become available through
GSI, Blue shall obtain such Sporting Goods from GSI under
this Agreement after the termination of such replacement
third-party vendor contracts, Blue agrees that it shall
terminate, without causing a breach, such replacement third-
party vendor contract as soon as possible after such Sporting
Goods become available through GSI, but, in no event, shall
Blue be required to terminate any such contract prior to180
days after such Sporting Goods become available through GSI.
5.1.2 Unavailable Products. Blue may obtain from third parties for
--------------------
sale through the Web Site specific products of brand name
Sporting Goods if Blue determines that such products are
regularly sold in Kmart stores and are not available through
GSI; provided that, if such products subsequently become
available through GSI Blue shall obtain such products from
GSI under this Agreement after the termination of such
replacement third-party vendor contracts. Blue agrees that it
shall terminate, without causing a breach, such replacement
third-party vendor contract as soon as possible after such
Sporting Goods become available through GSI, but, in no
event, shall Blue be required to terminate any such contract
prior to180 days after such Sporting Goods become available
through GSI.
5.2 Blue Light Specials. GSI and Blue agree that during each twelve
-------------------
(12) month period of this Agreement, GSI and Blue will mutually
agree to provide no less than [ * ] Blue Light Specials for sale on
the Web Site. All procurement and fulfillment functions for products
designated as Blue Light Specials which GSI and Blue have agreed
upon shall be performed, at Blue's option, either by Blue or GSI. In
the event that Blue and GSI do not agree on any particular Blue
Light Special, Blue shall have the right to provide such Blue Light
Special for sale on the Web Site; provided, however, GSI shall not
have any special or extra obligations (beyond its regular
contractual duties hereunder) with respect to such Blue Light
Special and Blue shall pay GSI such amount for such Blue Light
Special as set forth in Section 9.1 hereof. Nothing herein restricts
or otherwise limits Blue's rights and ability to provide Blue Light
Specials involving Sporting Goods in conjunction with Kmart
Corporation without GSI's involvement.
5.3 Inventory and Warehousing. GSI will arrange for all Merchandise
-------------------------
that it procures and makes available to Blue to be delivered,
received and stored by GSI. GSI's inventory of Merchandise to be
provided for sale on Blue's Web Site shall be maintained at
facilities owned, controlled, or under contract to GSI.
Page 6 of 17
<PAGE>
5.4 Pricing. Blue shall determine the pricing and product selection of
--------
Merchandise on the Web Site.
6 ORDER PROCESSING
6.1 Blue Submission of Orders. Blue shall transmit Orders to GSI. Each
-------------------------
Order shall include
6.1.1 the Customer's name,
6.1.2 the recipient's name if different from the Customer's name,
6.1.3 the complete shipping address which address shall be a street
address and shall not be a post office box or similar
address,
6.1.4 the Customer's telephone number,
6.1.5 the Customer's email address,
6.1.6 all shipping instructions, and
6.1.7 the SKU numbers, product descriptions, and prices charged by
Blue to the Customer for each SKU.
6.2 GSI's Acceptance or Rejection of Orders. GSI shall accept Orders
---------------------------------------
for shipment to addresses worldwide that include the information
required by Section 6.1 of this Agreement and for which the related
Merchandise is available; provided that such Orders to be shipped
outside the United States are shipped on Blue's shipping account.
GSI shall reject all other Orders.
6.3 GSI Confirmation. Within 4 hours of GSI's receipt of an Order, GSI
----------------
shall confirm to Blue GSI's receipt of such Orders which
confirmation shall state whether the Order was accepted, rejected
due to incomplete information, or rejected due to unavailable
Merchandise.
7 FULFILLMENT OF ACCEPTED ORDERS AND RETURNS
7.1 Assembly and Packaging. GSI shall assemble and package for shipping
----------------------
all accepted Orders in accordance with Schedule B attached to this
Agreement. Orders will be packaged under the Blue name and with no
reference to GSI and, whenever practicable, GSI will package and
ship SKUs in a single Order together. Blue shall provide initial
packing slip schema to GSI, with GSI to bear subsequent reproduction
costs consistent with GSI's current proportional costs with regard
to the Designated Web sites as such amounts are determined by GSI
and demonstrated to Blue.
7.2 Risk of Loss. As between the Parties, title and risk of loss shall
------------
pass to Blue upon GSI's delivery of the Merchandise to the common
carrier at the point of shipment.
7.3 Order Priority. All accepted orders, including without limitation,
--------------
accepted Orders, shall be processed by GSI in the order that they
were received by GSI.
Page 7 of 17
<PAGE>
7.4 Shipping Methods. GSI shall coordinate the shipping of all accepted
----------------
Orders with United Parcel Service through Blue's account. Blue shall
provide for shipping by United Parcel Service standard, United
Parcel Service second day, or United Parcel Service next day service
or by common carrier. GSI shall comply with the special shipping
instructions included with an Order unless the Merchandise does not
meet the shipper's requirements for the requested methods.
7.5 Returns. For all Merchandise shipped by GSI on behalf of Blue, GSI
-------
shall provide instructions on how to return Merchandise directly to
the fulfillment center or other location designated by Blue. GSI
shall accept the return of Merchandise sold through the Web Site
that is returned by the Customer for any reason. GSI shall accept
the return of Merchandise sold through the Web Site that is returned
to GSI unused and in a condition suitable for resale as new goods.
GSI shall be obligated to accept the return of any Merchandise under
this Section 7.5 only if such Merchandise (a) is returned to GSI
within 30 days of GSI's issuance of its return authorization and (b)
which return authorization was issued by GSI within 30 days of GSI's
shipment of the Merchandise. Blue will make commercially reasonable
efforts to ensure that, to the extent any merchandise sold by Blue
is returnable at Kmart stores, the Merchandise sold hereunder will
also be returnable at Kmart stores, whether or not Kmart carries
such Merchandise in its stores. GSI shall credit Blue for [ * ] of
the amount Blue paid to GSI for such Merchandise returned.
7.6 Reports. GSI shall transmit to Blue the reports identified on and
-------
in accordance with Schedule B.
8 FORM OF COMMUNICATION. All Orders transmitted by Blue and all
confirmations of Orders and shipments and reports transmitted by GSI
pursuant to this Agreement shall be provided in a form reasonably
acceptable to the recipient and shall be communicated electronically.
9 PAYMENT
9.1 Price for Merchandise. Blue shall pay to GSI, for each unit of
---------------------
Merchandise sold on the Web Site, an amount equal to the [ * ].
9.2 Markdowns. Blue shall pay to GSI, for Markdowns sold on the Web
----------
Site, an amount equal to [ * ] of the marked down selling price
provided by GSI.
9.3 Other Charges. In addition to amounts due GSI for Merchandise, Blue
-------------
Light Specials and Markdowns, Blue shall pay to GSI its actual costs
in connection with shipping Orders, its actual costs for post-
delivery assembly of Merchandise or other similar post-delivery
services, any and all other amounts due GSI under this Agreement,
and for taxes, if any, assessed on Orders paid by GSI unless such
taxes are paid by Blue.
9.4 Invoices. GSI shall submit invoices to Blue for amounts due under
--------
this Agreement on the last day of each month.
9.5 Payment. Blue shall pay all amounts due under this Agreement within
--------
15 days of the invoice date. All payments shall be by wire transfer
to such account as GSI may designate.
Page 8 of 17
<PAGE>
9.6 Late Payment. Interest at the rate of one and one-half percent
------------
(1.5%) per month (or, if lower, the maximum rate permitted by
applicable law) shall accrue from the date due to the date paid on
any amount not paid by when such amount was due.
9.7 Advertising Revenue.
-------------------
9.7.1 Nothing herein limits Blue's right and ability to sell banner
and other types of advertisements (the "Advertisements") on
the Sporting Goods section of the Web Site at its own cost
and expense.
9.7.2 Blue shall pay to GSI [ * ] of all "Net Revenue Received"
from the sale of any Advertisements to [ * ]. For purpose of
this Agreement, Net Revenue Received shall equal the cash
consideration actually received from an advertiser, less any
selling expenses incurred by Blue in the sale of such
Advertisement; provided, however, such selling expenses
cannot exceed [ * ] of the aggregate amounts received for
such Advertising. All amounts due from Blue to GSI hereunder
shall be due and payable monthly by the 30th day after the
end of the calendar month in which Net Revenue Received was
received by or on behalf of Blue.
10 NO MERCHANDISE WARRANTY. Blue acknowledges that GSI is not the
manufacturer of the Merchandise. GSI agrees to pass on to Blue any and all
warranties made to GSI by manufacturers and vendors of the Merchandise, if
any such warranties are made and if such warranties can be passed on to
Blue. EXCEPT FOR WARRANTIES, IF ANY, FROM MANUFACTURERS OR VENDORS OF THE
MERCHANDISE, GSI IS FURNISHING THE MERCHANDISE TO CUSTOMERS "AS IS,"
WITHOUT ANY, AND DISCLAIMS ALL, WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF TITLE,
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, OR ANY WARRANTY
AGAINST INFRINGEMENT OF PATENTS, COPYRIGHTS, TRADE SECRETS, OR OTHER
INTELLECTUAL PROPERTY RIGHTS.
11 GSI REPRESENTATIONS AND WARRANTIES. GSI represents and warrants that
during the term of this Agreement, GSI Content as delivered to Blue shall
not (a) infringe any intellectual property rights of any person or any
rights of publicity, personality, or privacy of any person; (b) violate any
law, statute, ordinance, or regulation (including without limitation, the
laws and regulations governing export control, unfair competition, anti-
discrimination, consumer protection, or false advertising); (c) be
defamatory, libelous or trade libelous, unlawfully threatening, or
unlawfully harassing; (d) be obscene, pornographic, or indecent; or (e)
violate any community or Internet standard.
12 GSI INDEMNIFICATION. GSI shall defend Blue and its affiliates, and the
directors, officers, employees, and agents of Blue and its affiliates
("Indemnitees"), at GSI's sole cost and expense, against any and all third-
party claims, actions, suits, or other proceedings against Indemnitees (a)
arising from or related to any injuries, including without limitation,
death, to persons or any damage to property occurring as a result of the
negligence or willful misconduct of GSI (or its employees) or GSI's breach
of this Agreement or (b) arising from or related to any breach of any of
GSI's representations or warranties in this Agreement, or (c) based on the
GSI Content, and GSI shall indemnify and hold Indemnitees harmless from and
against any and all judgments, losses, liabilities, damages, costs, and
expenses (including without limitation, reasonable attorney's fees and
attorney's disbursements) arising out of or incurred in connection with
such
Page 9 of 17
<PAGE>
claims, actions, suits, or other proceedings. GSI shall have the right to
control the defense and settlement of any claims or actions that GSI is
obligated to defend, but Blue shall have the right to participate in such
claims or actions at its own cost and expense.
13 BLUE REPRESENTATIONS AND WARRANTIES. Blue represents and warrants that
during the term of this Agreement, it shall have and abide by the terms of
its Web site privacy policy, which policy shall be consistent with the then
current generally accepted privacy policies of retail e-commerce Web sites.
14 BLUE INDEMNIFICATION. Blue shall defend GSI and its affiliates, and the
directors, officers, employees, and agents of GSI and its affiliates
("Indemnitees"), at Blue's sole cost and expense, against any and all
third-party claims, actions, suits, or other proceedings against
Indemnitees (a) alleging the failure to pay or underpayment of any sales or
similar tax arising from the sale of Merchandise through the Web Site; (b)
arising from or related to any injuries, including without limitation,
death, to persons or any damage to property occurring as a result of the
negligence or willful misconduct of Blue or Blue's employees; (c) alleging
claims based on the Web Site (exclusive of any GSI Content); (d) by a
Customer alleging breach of warranty; or (e) arising from or related to any
breach of any of Blue's representations or warranties in this Agreement,
and shall indemnify and hold Indemnitees harmless from and against any and
all judgments, losses, liabilities, damages, costs, and expenses (including
without limitation, reasonable attorney's fees and attorney's
disbursements) arising out of or incurred in connection with such claims,
actions, suits, or other proceedings. Blue shall have the right to control
the defense and settlement of any claims or actions that Blue is obligated
to defend, but GSI shall have the right to participate in such claims or
actions at its own cost and expense.
15 CUSTOMER DATA. All "User Data" and related information collected from
Customers' use of the Web Site and Orders shall be [ * ]. For purposes of
this Agreement, "User Data" shall mean all names, mailing addresses,
shipping addresses, telephone numbers, e-mail addresses, purchasing data
and any other identifying information submitted or disclosed by Customers.
16 CONFIDENTIALITY
16.1 Confidential Information. The term "Confidential Information" means
------------------------
any and all technical and non-technical information including,
without limitation, patent, copyright, trade secret, and proprietary
information, techniques, sketches, drawings, models, inventions,
know-how, processes, apparatus, equipment, algorithms, software
programs, software source documents, and formulae related to the
current, future, and proposed products and services of either Party,
and includes without limitation, their respective information
concerning research, development, design details and specifications,
engineering, financial information, procurement requirements,
purchasing, manufacturing, key personnel, suppliers, customers,
prospective customers, policies or operational methods,
Page 10 of 17
<PAGE>
plans for future developments, business forecasts, sales and
merchandising, and marketing plans and information, in whatever form
disclosed. Confidential Information does not include items that were
16.1.1 possessed by the receiving Party prior to receipt or access
pursuant to this Agreement other than through prior
disclosure by the disclosing Party as evidenced by the
receiving Party's written records;
16.1.2 independently developed by the receiving Party without the
benefit of disclosure by the disclosing Party as evidenced by
the receiving Party's written records;
16.1.3 published or available to the general public other than
through a breach of this Agreement or breach by a third party
of its confidentiality obligations to the disclosing Party;
16.1.4 obtained by the receiving Party from a third party with a
valid right to disclose such Confidential Information,
provided that such third party is not under a confidentiality
obligation to the disclosing Party; or
A combination of features or disclosures shall not be deemed to fall
within the foregoing exclusions merely because individual features
are published or available to the general public or in the rightful
possession of the receiving Party unless the combination is
published or is available to the general public or in the rightful
possession of the receiving Party.
16.2 Obligation of Confidentiality. Each Party shall permanently hold,
-----------------------------
and cause their respective personnel to hold, Confidential
Information in strict confidence. The receiving Party may disclose
Confidential Information that is required to be disclosed by
governmental agencies, regulatory authorities, or pursuant to court
order only to the extent such disclosure is required by law and only
provided that the receiving Party provides reasonable prior notice
to the disclosing Party of the disclosure. Except as specifically
permitted by this Agreement, neither Party shall duplicate or use,
or permit the duplication or use of, Confidential Information or
disclose or permit the disclosure of Confidential Information to any
person or entity. Each Party shall limit the duplication and use of
Confidential Information to the performance of its obligations under
this Agreement and shall limit access to and possession of
Confidential Information only to those of its personnel whose
responsibilities under this Agreement reasonably require such access
or possession. Each Party shall advise all such persons before they
receive access to or possession of Confidential Information of the
confidential nature of the Confidential Information and require them
to abide by the terms of this Agreement. Any duplication, use,
disclosure, or other act or omission by any person that obtains
access to or possession of Confidential Information through the
receiving Party that would be a breach of this Agreement if
committed by the receiving Party is deemed a breach of this
Agreement by the receiving Party for which the receiving Party shall
be responsible. If disclosure of a Party's Confidential Information
is sought pursuant to judicial process, the Party receiving such
request shall promptly notify the Party whose Confidential
Information is so requested and shall cooperate with such Party to
maintain the confidentiality of such Confidential Information (e.g.,
through opposition proceedings or a protective order).
Page 11 of 17
<PAGE>
16.3 Ownership of Confidential Information and Other Materials. All
---------------------------------------------------------
Confidential Information, and any Derivatives (as defined below)
thereof whether the Derivative was created by the disclosing or
receiving Party, shall remain the property of the disclosing Party
and except as specifically provided by this Agreement, no license or
other rights to such Confidential Information or Derivatives is
granted or implied by this Agreement. For purposes of this
Agreement, "Derivatives" shall mean (a) for copyrightable or
copyrighted material, any translation, abridgement, revision or
other form in which an existing work may be recast, transformed or
adapted; (b) for patentable or patented material, any improvement
thereon; and (c) for material that is or may be subject to
protection as a trade secret, any new material derived from such
material, including new material which may be protected by
copyright, patent, or trade secret or other proprietary rights.
16.4 Return of Confidential Information. Each Party shall deliver, or at
----------------------------------
the disclosing Party's option destroy, all Confidential Information
and deliver, or at the disclosing Party's option destroy, all copies
to the disclosing Party upon the expiration or termination of this
Agreement or at the disclosing Party's request. Notwithstanding the
foregoing, with Blue's prior written consent, GSI may retain such
Confidential Information of Blue as may be reasonably necessary to
document its performance under this Agreement but such Confidential
Information shall remain subject to this Section 16.
16.5 Remedy. The Parties each acknowledge that the disclosing Party will
------
be irreparably harmed if the receiving Party's obligations under
this Section 16 are not performed, and that the disclosing Party
would not have an adequate remedy at law in the event of a violation
by the receiving Party of such obligations. The receiving Party
agrees and consents that the disclosing Party shall be entitled, in
addition to all other rights and remedies to which the disclosing
Party may be entitled, to have a decree of specific performance or
an injunction issued requiring any such violation to be cured and
enjoining all persons involved from continuing the violation. The
existence of any claim or cause of action that the receiving Party
or any other person may have against the disclosing Party shall not
constitute a defense or bar the enforcement of this Section 16. The
receiving Party acknowledges that the restrictions in this Section
16 are reasonable and necessary to protect legitimate business
interests of the disclosing Party.
17 LIMITATION OF LIABILITY. Except for (i) the parties' indemnification
obligations pursuant to sections 12 and 14, (ii) [ * ], and (iii) any
liability for money owed by Blue to GSI for the purchase of Merchandise
hereunder, the total liability of either party under this Agreement shall
under no circumstances exceed the amounts actually paid by Blue to GSI
during the immediately preceding 12 months under this Agreement. Under no
circumstances shall either party be liable to the other or to any other
person for lost revenues, lost profits, loss of business, or any indirect,
incidental, special, punitive, or consequential damages of any nature,
regardless of legal theory and whether or not foreseeable, even if the
exclusive remedies provided by this agreement fail of their essential
purpose and even if either Party has been advised of the possibility or
probability of such damages. The remedies specifically provided by this
Agreement and the provisions of this Section 17 set forth the parties'
exclusive remedies and allocate between the parties the risks under this
Agreement, some of which may be unknown or indeterminable. Such
limitations were a material inducement for each party to enter into this
Agreement, and the Parties have relied upon such limitations in determining
whether to enter into this Agreement.
Page 12 of 17
<PAGE>
18 TERM AND TERMINATION
18.1 Term. The term of this Agreement shall commence on the Effective
----
Date and continue until 11:59 p.m. Philadelphia time on the [ * ]
anniversary date of the Launch Date unless earlier terminated in
accordance with Section 18.2 or 18.3 below; provided, however, that
if at least 30 days, but not more than 60 days, prior to the [ * ]
anniversary date of the Launch Date, [ * ].
18.2 Termination by Blue. Blue may terminate this Agreement immediately
-------------------
by giving notice of termination to GSI and without prejudice to any
other rights or remedies Blue may have, upon the occurrence of any
of the following events:
(1) GSI breaches any of its material obligations under this
Agreement and does not cure the breach within 30 days after
GSI's receipt of Blue's notice of the breach; or
(2) a voluntary petition is commenced by GSI under the
Bankruptcy Code, as amended, 11 U.S.C. ' 101 et seq; GSI has
an involuntary petition commenced against it under the
Bankruptcy Code and such petition is not dismissed within 60
days after filing; GSI becomes insolvent; or any substantial
part of GSI's property becomes subject to any levy, seizure,
assignment, application, or sale for or by any creditor or
governmental agency; or liquidates or otherwise discontinues
all or a significant part of its business operations.
18.3 Termination by GSI. GSI may terminate this Agreement immediately
------------------
by giving notice of termination to Blue and without prejudice to any
other rights or remedies GSI may have, upon the occurrence of any of
the following events:
(1) Blue breaches any of its material obligations under this
Agreement and does not cure the breach within 30 days after
Blue's receipt of GSI's notice of the breach; or
(2) a voluntary petition is commenced by Blue under the
Bankruptcy Code, as amended, 11 U.S.C. ' 101 et seq; Blue
has an involuntary petition commenced against it under the
Bankruptcy Code and such petition is not dismissed within 60
days after filing; Blue becomes insolvent; or any
substantial part of Blue's property becomes subject to any
levy, seizure, assignment, application, or sale for or by
any creditor or governmental agency; or liquidates or
otherwise discontinues all or a significant part of its
business operations.
18.4 Effect of Expiration or Termination. Upon the expiration or
-----------------------------------
termination of this Agreement, whether under this Section 18 or
otherwise, each Party shall return or destroy all Confidential
Information of the other Party pursuant to Section 16, Blue shall
discontinue all use of the Licensed Materials, and Blue shall
promptly return to GSI all copies of Licensed Materials in Blue's
possession. Blue shall remain liable for all payments due
Page 13 of 17
<PAGE>
GSI, and GSI for all refund credits, with respect to the period
ending on the date of termination.
18.5 Survival. Sections 1, 10, 11, 12, 13, 14, 15, 16, 17, 18.4, 18.5,
--------
19, and 20 of this Agreement survive any expiration or termination
of this Agreement.
19 FORCE MAJEURE. Except for the obligation to pay money, neither Party shall
be liable to the other Party for non-performance of this Agreement in whole
or in part, if (a) the non-performance is caused by the other Party or
events or conditions beyond that Party's reasonable and actual control and
for which that Party is not responsible under this Agreement, (b) the Party
gives prompt notice under Section 20.1, and (c) the Party makes all
commercially reasonable efforts to perform.
20 MISCELLANEOUS PROVISIONS
20.1 Notice. All notices, consents, and other communications under or
------
regarding this Agreement shall be in writing and shall be deemed to
have been received on the earlier of the date of actual receipt, the
third business day after being mailed by certified mail, or the
first business day after being sent by a reputable overnight
delivery service. Any notice may be given by facsimile, provided
that a signed written original is sent by one of the foregoing
methods within 24 hours thereafter. Blue's address for notices is
Bluelight.Com, Inc.
150 Post Street
San Francisco, CA 94105
Attention: CEO
Facsimile: [ * ]
with a copy to
Cooley Godward LLP
Five Palo Alto Square
Palo Alto CA 94306
Attention: [ * ]
Facsimile: [ * ]
GSI's address for notices is
Global Sports Interactive, Inc.
1075 First Avenue
King of Prussia, PA 19406
Attention: Chief Executive Officer
Facsimile: (610) 265-2866
with a copy to: Global Sports Interactive, Inc.
1075 First Avenue
King of Prussia, PA 19406
Attention: General Counsel
Facsimile: (610) 265-2866
Either Party may change its address for notices by giving written
notice of the new
Page 14 of 17
<PAGE>
address to the other Party in accordance with this Section 20.1.
20.2 Competitor Restrictions. GSI agrees that during the calendar year
------------------------
ending December 31, 2000, GSI shall not operate an e-commerce
Sporting Goods business for [ * ] any entity operating under the
same brand name as any of the foregoing, or any subsidiary or
affiliate of any of the foregoing.
20.3 Assignment. This Agreement may not be assigned by either Party
----------
without the prior written consent of the other Party, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing,
(a) either Party may assign this Agreement upon notice to, and
without the consent of, the other Party to any person or entity that
acquires the assignor's business or substantially all of the
assignor's assets by merger, stock sale, or other means provided
that the assignee is capable of performing assignor's obligations
under this Agreement and (b) GSI may assign this agreement upon
notice to Blue to a subsidiary of GSI or to any subsidiary of Global
Sports, Inc., again provided that the assignee is capable of
performing assignor's obligations under this Agreement. Any
attempted assignment in violation of this Section 20.3 shall be
void.
20.4 No Third-Party Beneficiaries. The Parties do not intend, nor shall
----------------------------
any clause be interpreted, to create under this Agreement any
obligations or benefits to, or rights in, any third party from
either Blue or GSI.
20.5 Independent Contractor. GSI and Blue are each independent
----------------------
contractors and neither Party shall be, nor represent itself to be,
the franchiser, partner, broker, employee, servant, agent, or legal
representative of the other Party for any purpose whatsoever.
Neither Party is granted any right or authority to assume or create
any obligation or responsibility, express or implied, in behalf of,
or in the name of, the other Party, or to bind the other Party in
any matter or thing whatsoever. The Parties do not intend to form a
partnership or joint venture as a result of this Agreement.
20.6 Publicity. Neither Party shall issue any press release regarding
---------
this Agreement or otherwise disclose the existence or terms of this
Agreement without the prior written consent of the other Party
except to the extent such disclosure is required by law, including,
but not limited to, required disclosure to the Securities and
Exchange Commission, and only if the disclosing Party provides
reasonable prior notice to other Party of the disclosure. If GSI
determines that it is required to disclose the terms hereof to the
Securities and Exchange Commission, GSI agrees to seek confidential
treatment of any such disclosure of financial terms.
20.7 Cumulative Remedies. All remedies available to either Party for
-------------------
breach of this Agreement are cumulative and may be exercised
concurrently or separately, and the exercise of any one remedy shall
not be deemed an election of such remedy to the exclusion of other
remedies.
20.8 Waiver. The waiver or failure of either Party to exercise in any
------
respect any right provided hereunder shall not be deemed a waiver of
such right in the future or a waiver of any other rights established
under this Agreement.
20.9 Enforceability. This Agreement shall be enforceable notwithstanding
--------------
the existence of any
Page 15 of 17
<PAGE>
claim or cause of action one Party may have against the other Party.
20.10 Severability. Should any term or provision of this Agreement be held
------------
to any extent unenforceable, invalid, or prohibited under law, then
such provision shall be deemed restated to reflect the original
intention of the Parties as nearly as possible in accordance with
applicable law and the remainder of this Agreement. The application
of such term or provision to persons, property, or circumstances
other than those as to which it is invalid, unenforceable, or
prohibited, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
20.21 Headings. Section headings are for reference only and shall not
--------
affect the interpretation of this Agreement.
20.32 Successors in Interest. This Agreement and all of the provisions in
----------------------
this Agreement shall be binding upon and inure to the benefit of the
successors in interest and assigns of the Parties, subject to the
provisions of Section 20.3 of this Agreement.
20.43 Applicable Law. This Agreement shall be governed in all respects by
--------------
the laws of the State of Delaware without giving effect to its rules
relating to conflict of laws. In any action between the parties
arising out of or relating to this Agreement, the prevailing party
shall be entitled to an award of its reasonable legal fees and
expenses in connection therewith.
20.54 Order of Precedence. Any and all ambiguities or inconsistencies
-------------------
between a Schedule and this document shall be resolved by giving
precedence to the Schedule over this document. Silence on any matter
in a Schedule will not negate the provision in this document as to
that matter.
20.65 Entire Agreement. This Agreement and the attached Schedules
----------------
constitute the complete and exclusive statement of the agreement
between the Parties with respect to the subject matter of this
Agreement, and this Agreement supersedes any and all prior oral or
written communications, proposals, representations, and agreements.
It may be amended only by mutual agreement expressed in writing and
signed by both Parties.
20.76 Counterparts. This Agreement may be executed in any number of
------------
separate counterparts each of which when executed by and delivered
to the other Party shall be an original as against the Party whose
signature appears thereon, but all such counterparts shall together
constitute one and the same instrument.
Page 16 of 17
<PAGE>
The Parties accept this Agreement and have caused this Agreement to be
executed and do each hereby represent and warrant that its respective signatory
whose signature appears below has been and is on the date executed duly
authorized by all necessary and appropriate corporate action to execute this
Agreement on its behalf.
GLOBAL SPORTS INTERACTIVE, INC. BLUELIGHT.COM LLC
By: ________________________ By: ________________________
Name: Michael R. Rubin Name: Mark H. Goldstein
Title: Chief Executive Officer Title: Chief Executive Officer
Date: February 28, 2000 Date: February 28, 2000________________
Page 17 of 17
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-49363 of Global Sports, Inc. on Form S-8 of our report dated March 22,
2000, appearing in this Annual Report on Form 10-K of Global Sports, Inc. for
the year ended January 1, 2000.
/s/ Deloitte & Touche LLP
- -----------------------
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JANUARY 1, 2000 AND THE RELATED STATEMENT OF INCOME FOR THE FISCAL
YEAR ENDED JANUARY 1, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-01-1999
<PERIOD-END> JAN-01-2000
<CASH> 27,345,263
<SECURITIES> 0
<RECEIVABLES> 2,738,201
<ALLOWANCES> 0
<INVENTORY> 10,697,438
<CURRENT-ASSETS> 61,943,926<F1>
<PP&E> 22,678,649
<DEPRECIATION> 1,996,925
<TOTAL-ASSETS> 82,735,537
<CURRENT-LIABILITIES> 21,385,656
<BONDS> 0
80
0
<COMMON> 195,442
<OTHER-SE> 59,114,110
<TOTAL-LIABILITY-AND-EQUITY> 82,735,537
<SALES> 5,510,576
<TOTAL-REVENUES> 5,510,576
<CGS> 3,816,767
<TOTAL-COSTS> 34,655,326
<OTHER-EXPENSES> (463,483)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 312,655
<INCOME-PRETAX> (28,681,267)
<INCOME-TAX> (2,220,878)
<INCOME-CONTINUING> (26,460,389)
<DISCONTINUED> (16,786,841)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,247,230)
<EPS-BASIC> (2.91)
<EPS-DILUTED> (2.91)
<FN>
<F1>INCLUDES NET ASSETS OF DISCONTINUED OPERATIONS OF $18,380,806.
</FN>
</TABLE>
