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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1995
REGISTRATION NO. 33-61171
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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SIERRA ON-LINE, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 77-0164293
(State of Incorporation) (I.R.S. Employer Identification No.)
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3380 - 146TH PLACE S.E., SUITE 300
BELLEVUE, WASHINGTON 98007
(206) 649-9800
(Address and telephone number of registrant's principal executive offices)
RICHARD K. THUMANN
GENERAL COUNSEL
3380 - 146TH PLACE S.E., SUITE 300
BELLEVUE, WASHINGTON 98007
(206) 649-9800
(Name, address and telephone number of agent for service)
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Copies to:
STEPHEN A. McKEON
DAVID C. CLARKE
Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
(206) 583-8888
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Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective
as determined by the Selling Stockholders.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
[ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or reinvestment plans, check the following box. [x]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PROSPECTUS
1,063,893 SHARES
SIERRA ON-LINE, INC.
COMMON STOCK
The shares of Common Stock of Sierra On-Line, Inc. (the "Company" or
"Sierra") offered hereby (the "Shares") may be sold by the stockholders of the
Company described herein (the "Selling Stockholders") from time to time in
transactions in the over-the-counter market or otherwise at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or in negotiated transactions. See "Selling Stockholders and Plan of
Distribution." The Company will not receive any of the proceeds from the sale
of the Shares.
The Shares were issued in private transactions in connection with the
Company's acquisitions (the "Acquisitions") of The Pixellite Group and its
affiliates (together "Pixellite") on May 31, 1995, Software Inspiration Ltd.
and its subsidiary Impressions Software, Inc. (together "SIL") on June 20,
1995, and Green Thumb Software, Inc. ("Green Thumb") on July 17, 1995. The
Selling Stockholders are the former shareholders of Pixellite, SIL and Green
Thumb. This Prospectus has been prepared so that future sales of the Shares
will not be restricted under the Securities Act of 1933, as amended (the
"Securities Act"). In connection with any sales, the Selling Stockholders and
any brokers participating in such sales may be deemed to be "underwriters"
within the meaning of the Securities Act. See "Selling Stockholders and Plan
of Distribution."
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "SIER." The last reported sale price of the Common Stock on
the Nasdaq National Market on August 14, 1995 was $45.
_________________________
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS."
_________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_________________________
The date of this Prospectus is August 16, 1995.
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TABLE OF CONTENTS
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Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Selling Stockholders and Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 13
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: New York Regional Office, Seven World Trade Center, New York, New
York 10048 and Chicago Regional Office, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the prescribed fees. Such reports, proxy and
information statements and other information concerning the Company may also be
inspected at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006. This Prospectus is part of a
Registration Statement on Form S-3 filed under the Securities Act. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted pursuant to the
Securities Act. The statements in this Prospectus as to the contents of any
agreement or other document of which a copy is filed as an exhibit to either
the Registration Statement or other filings by the Company with the Commission
incorporated herein by reference are qualified in their entirety by reference
thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
hereby incorporated by reference in this Prospectus: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995 and the Company's
amendment thereto on Form 10-K/A filed with the Commission on August 16, 1995;
(ii) the Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1995; (iii) the description of the Common Stock contained in the
Company's registration statement on Form 8-A under the Exchange Act; and (iv)
the Company's Proxy Statement filed with the Commission on July 14, 1995.
All reports and other documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of this offering shall be deemed
to be incorporated by reference herein and to be a part hereof from the date
of filing of such reports and documents. Any statement incorporated herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference
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herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each
person, including any beneficial owner, to whom a copy of this Prospectus has
been delivered, upon written or oral request of such person, a copy of any or
all of the foregoing documents incorporated herein by reference (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into such documents). Requests for such documents should be
submitted in writing to Investor Relations at the Company's principal executive
offices at 3380-146th Place S.E., Suite 300, Bellevue, Washington 98007 or by
telephone at (206) 649-9800.
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THE COMPANY
The Company designs, develops, publishes, markets and distributes
interactive entertainment and education software for personal computers
("PCs"), CD-ROM-based PC systems and selected emerging platforms. Using its
design and development capabilities, the Company creates branded product series
for existing and emerging hardware platforms. For example, the Company has
released seven titles in its popular King's Quest series, which have sold a
combined total of over 2.7 million copies on the Windows, DOS, Macintosh and
CD-ROM platforms. Sierra's most popular entertainment products are in the
adventure, simulation and education categories, including the King's Quest,
Leisure Suit Larry, Aces and Sierra Discovery series. The Company sells its
entertainment and education software products through electronic superstores,
software specialty stores, mass merchants, direct mail and bundling
arrangements.
The entertainment and education software markets have grown
dramatically over the past decade. This growth has been driven by a number of
factors, including the introduction and widespread market acceptance of a
variety of hardware platforms with increasingly advanced capabilities, such as
multimedia PCs and video game platforms, and the development and introduction
of a broader array of entertainment and education software for these platforms.
The market for multimedia PC entertainment and education software
consists primarily of consumers who own PCs and is separate and distinct from
the video game cartridge market. Producers of multimedia PC entertainment and
education software generally offer a wide variety of product categories,
including fantasy role-playing games and simulations, that tend to have higher
technology content and more intricacy and depth-of-play than entertainment and
education software for video game platforms. The multimedia PC entertainment
and education software industry is intensely competitive, with a large number
of software producers and an even larger number of product offerings. Consumer
reaction to different software titles is often unpredictable. Certain titles
may gain broad popularity while others may not be received well in the market.
Generally, entertainment and education software producers differentiate
themselves by their ability to design products that are fun and/or educational,
while at the same time exploiting the graphics, image, animation, audio and
video capabilities of various hardware platforms.
New platform technologies for entertainment and education software
continue to emerge. The introduction of CD-ROM technology for use with PCs has
stimulated the development and introduction of new software that is more
sophisticated and complex than has been available to date on PCs or other video
game platforms. The Company believes that this growth in the installed base of
CD-ROM drives for PCs has led to increased sales of more complex CD-ROM-based
entertainment and education software. In addition, several companies are
developing new hardware platforms that promise greater processing power, more
advanced three-dimensional graphics, realistic sound and increased memory and
storage devices such as CD-ROM. These systems are expected to offer a more
realistic experience than their video game predecessors through the use of
real-time responses, computer-generated character interaction and networking
capabilities. The Company believes that the introduction of CD-ROM-based PCs
and emerging platforms represents a significant market opportunity for software
producers that can design creative and interesting products while taking
advantage of the technological capabilities of new hardware platforms.
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RISK FACTORS
An investment in the Shares offered hereby involves a high degree of
risk. In addition to the other information contained and incorporated by
reference in this Prospectus, prospective investors should carefully consider
the following factors before purchasing the Shares offered hereby:
NEW PRODUCT DEPENDENCE
The Company's success depends on its ability to develop and make
timely introductions of successful new products to replace declining revenues
from older products. The effective lives of the Company's products have tended
to become shorter due to the introduction of new hardware platforms,
technologies and competitive products, the increase in competition for retail
shelf space among software products and other factors. As a result, the
Company's ability to introduce new products on a timely basis has become
increasingly important, as revenues from new products are essential to replace
declining revenues from older products.
INCREASING COST AND COMPLEXITY OF PRODUCT DEVELOPMENT; PRODUCT DELAYS
As the Company's products have become increasingly complex and
technologically sophisticated, it has become more difficult to produce new
products on a timely basis. Typically, nine to fifteen months or more are
required to complete a new title and one to two months or more are required to
convert existing titles to new hardware platforms or foreign languages. This
time period can increase if, as has occurred in the past, the Company
experiences unanticipated difficulties with its development and porting tools.
In order to introduce products incorporating high-quality graphics, animation,
images, video and audio, the Company has been required to devote increasing
financial and human resources to develop new products. Because of competitive
pressures, however, only a portion of the Company's increased development costs
to date have been offset by product price increases. Greater product
development expenditures also result in a greater financial risk to the Company
if the product is not successful. The Company expects that the trend toward
more complex products and increasing product development costs will continue
for the foreseeable future. In addition, in attempting to meet product
introduction deadlines, the Company may incur higher than normal production and
development costs, placing additional pressure on gross margins. Any material
delays in the development or introduction of, or the presence of a material
defect in, one or more new products could materially adversely affect the
success of the products and the Company's business and operating results. On
numerous occasions in the past the Company has experienced significant delays
and cost overruns in product introductions. As its products have become more
complex and costly to develop, it has become more difficult to bring products
to market on schedule and on budget. It is highly likely that the Company will
experience delays in developing and introducing at least some future new
products. There can be no assurance that such delays will not have a material
adverse effect on the Company's business and operating results.
UNCERTAINTY OF MARKET ACCEPTANCE
Consumer preferences for entertainment and education software products
are continually changing and are extremely difficult to predict. Few
entertainment or education software products achieve sustained market
acceptance. There can be no assurance that new products introduced by the
Company will achieve any significant degree of market acceptance or that any
such acceptance, if achieved, will be sustained for a sufficient period of time
to permit the Company to recover its development and marketing costs. In
addition, the Company believes that, as ownership of PCs, CD-ROM-based PCs and
other emerging platforms becomes more widespread and as the Company
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diversifies its product offerings, it must market its products to a broader
market segment than it has in the past. The Company plans to introduce
products and interfaces designed to appeal to a broader market than its
traditional product lines and to adjust its marketing activities accordingly.
In seeking to appeal to this broader market segment, the Company will face
significant new challenges, including intense competition from large companies
with established market positions. The Company will also face the risk that
portions of its existing customer base may dislike changes in the Company's
products and marketing approach and cease to be customers of the Company.
There can be no assurance that the Company's products will compete successfully
outside its historic, relatively specialized market area or that the Company
will be able to maintain its position within its historic market area.
RAPID TECHNOLOGICAL CHANGES
The market for entertainment and education software is undergoing
rapid technological change. The Company's products must operate on widely
accepted hardware platforms and software environments in order to achieve
significant market acceptance. New platforms and technologies are currently
being introduced, and these and other new technologies could render existing
products of the Company unmarketable. As a result, the Company must
continually anticipate market trends and adapt its products to emerging
platforms and changing technologies and consumer preferences. The design and
development of entertainment and education software products for new platforms
and software environments requires substantial investment and lead time. There
can be no assurance that the Company will be successful in developing and
marketing products for new platforms or that any of these platforms will
achieve significant market acceptance. Sales of the Company's current products
are highly dependent on the size of the installed base of PCs and sales of new
PCs for home use. The Company has devoted significant resources to develop
products that will operate on selected CD-ROM formats. It is not clear whether
all of the formats now supported by the Company will be adopted as industry
standards. A change in hardware or software standards could lead to
significant expenditures by the Company to adapt existing products or develop
new products to support the new standards. The Company also faces the risk
that proprietary platforms that are designed to restrict the ability of
independent software developers, including the Company, to adapt their products
to run on such platforms will become widely accepted. For example, Nintendo of
America, Inc. ("Nintendo") and Sega of America, Inc. ("Sega") have each adopted
such a "closed" platform strategy in the video game console and cartridge
market. If closed platforms developed by these companies or others become
widely accepted, the Company's business and operating results could be
materially and adversely affected.
SEASONALITY; SUBSTANTIAL QUARTERLY FLUCTUATIONS
The Company's business is highly seasonal, with the highest level of
net sales and earnings typically occurring during the third fiscal quarter
ending December 31, and substantially lower levels in the other fiscal
quarters, particularly the fourth fiscal quarter ending March 31 and the first
fiscal quarter ending June 30. This seasonal pattern is due primarily to
increased demand for the Company's products during the calendar year-end
holiday selling season. If the Company's European sales increase as a
percentage of its revenues, the Company anticipates that this seasonality may
become even more pronounced, because sales in Europe may exhibit an even
stronger seasonal tendency than sales in the United States. This seasonality
can lead to overstocking by the Company's retailers and higher than normal
returns following the holiday season. The Company's quarterly operating
results may fluctuate throughout the year as a result of a variety of
additional factors, including delays in market acceptance, changes in platform
standards, the timing of the introduction of the Company's or its competitors'
products, the timing of orders for the Company's products and increases in
product
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returns. Because a majority of the unit sales for a particular product
typically occurs in the first several months after the product is introduced,
the Company's revenues may increase in a quarter in which a major product
introduction occurs and may decline in following quarters. The Company's
expenses are based, in part, on expected future revenues. A significant amount
of the Company's marketing, administrative, design and development expenses do
not vary in relation to revenues. As a result, if net revenues are below
expectations, the Company's operating results are likely to be materially
and adversely affected.
LITIGATION
In March 1995, FASA Corporation filed a complaint against the Company
and its Dynamix subsidiary in the United States District Court for the Northern
District of Illinois. The complaint alleges various copyright and trademark
infringement claims and unfair competition claims relating to the Company's
MetalTech: EarthSiege and MetalTech: Battledrome titles and seeks unspecified
damages and an injunction. The Company believes it has meritorious defenses to
the claims asserted and is defending the action vigorously. There can be no
assurance, however, that the Company will not agree to make a payment in
settlement of the litigation, thereby obviating the burden, expense and
uncertainty of the litigation process and its outcome. Further, there can be
no assurance that the lawsuit will not be resolved adversely to the Company or
that the Company's financial condition and results of operations will not be
adversely affected. The Company currently believes, based on its assessment of
the range of possible outcomes and their relative probabilities, that the
resolution of this matter will not have a material adverse effect on its
financial condition or results of operations. Management's assessment may
change as warranted by future events, however, and any adverse decision or
settlement of the suit could result in a charge against earnings.
DEPENDENCE ON KEY PRODUCT LINES
A substantial portion of the Company's revenues is derived from its
key established product lines. The Company believes that, as competition for
shelf space in the entertainment and education software industry increases, the
Company's reliance on its established product lines, which have greater name
recognition than its new products, will increase. If in the future the Company
fails to make timely introductions of new products in these key lines, or if
such new product offerings fail to achieve substantial market acceptance or if
there is a loss of consumer interest in these products, the Company's business
and operating results may be materially and adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends on the continued service of its key
product design, development, sales, marketing and management personnel and its
ability to continue to attract, motivate and retain highly qualified employees
and contractors. In order to introduce timely and successful sequels in its
key product lines, the Company must retain its key design and development
personnel. The Company does not have employment agreements with any employees.
Competition for skilled product designers, artists and technical personnel is
intense. The location of one of the Company's principal product development
facilities in Oakhurst, a relatively remote rural area of California, may
adversely affect the Company's ability to compete for skilled development
personnel at that facility. The inability of the Company to attract or retain
key design and development personnel could have a material and adverse effect
on the Company's business and operating results.
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UNCERTAINTIES OF DISTRIBUTION CHANNELS
A substantial portion of the Company's revenues is derived from a
limited number of distributors and software specialty retail chains. Loss of
any of the Company's major customers, or a significant decrease in product
shipments to, or an inability to collect receivables from, any of these
customers could have a material adverse effect on the Company's operating
results. Consistent with industry practice, the Company may accept product
returns from or provide price protection to distributors and retailers.
Although the Company provides reserves for price protection and product returns
that it believes to be adequate, there can be no assurance that the Company
will not be forced to offer greater price protection or to accept substantially
more product returns than anticipated in order to maintain its relationships
with retailers and its access to distribution channels. The Company is
currently developing methods to more effectively monitor the sales activity and
product inventory of its retail and distribution channels. Until such methods
have been developed and implemented, the Company may have greater levels of
inventory at particular retailers or distributors, and be subject to greater
amounts of potential product returns, than currently anticipated. It is also
possible that the Company may have lower levels of inventory at particular
retailers and distributors than anticipated, thereby adversely affecting the
sales of its products. The distribution channels through which consumer
software products have been sold have been characterized by rapid change,
including consolidations and financial difficulties of certain retailers and
distributors, along with the emergence of new distribution channels for
entertainment and education software, such as mass merchandisers. There can be
no assurance that the Company will be able to market its products successfully
through these distribution channels. In addition, an increasing number of
companies and software products are competing for access to these distribution
channels, and there is intense competition for the limited amount of available
retail shelf space and promotional resources. There can be no assurance that
distributors or retailers will continue to purchase the Company's products or
provide the Company's products with adequate levels of shelf space and
promotional support. As ownership of platforms for entertainment and education
software products becomes more widespread, there may be further changes in the
principal distribution channels for reaching the broader consumer market for
these products.
COMPETITION
The entertainment and education software industry is intensely
competitive. The Company competes primarily with other developers of PC
entertainment and education software. Significant companies that compete with
Sierra in the entertainment software industry include Electronic Arts and
Spectrum HoloByte. Manufacturers and developers of cartridge-based video
games, such as Nintendo and Sega and their licensees, also are indirect
competitors of the Company, but may become more direct competitors if
technologies evolve in a manner that encourages these companies and Sierra to
develop products for similar hardware platforms. The principal competitors in
the education software market are Davidson Associates, The Learning Company and
Broderbund Software, Inc. Products in the market compete primarily on the
basis of subjective factors such as entertainment value and objective factors
such as price, graphics and sound quality. Large diversified entertainment,
cable and telecommunications companies, in addition to large software companies
such as Microsoft, are increasing their focus on the interactive entertainment
and education software market, which will result in even greater competition
for the Company. Many of these companies have substantially greater financial,
marketing and technical resources than the Company. As competition increases,
significant price competition and reduced profit margins may result. In
response to increased competition for shelf space, the Company may need to
increase marketing expenditures. In addition, competition from new
technologies (such as new hardware platforms) may reduce demand in
markets in which the Company
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has traditionally competed. Prolonged price competition or reduced demand as a
result of competing technologies would have a material adverse effect on the
Company's business, financial condition and operating results. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competitive pressures faced by the Company will
not materially and adversely affect its business, operating results or
financial condition.
INTERNATIONAL SALES RISKS
The Company anticipates that international sales will continue to
account for a significant share of the Company's revenues in the future.
International sales are subject to inherent risks, including changes in export
controls, tariffs and other regulatory requirements and fluctuating exchange
rates. European distribution channels are more decentralized and hence more
difficult to enter efficiently. International sales also require the Company
to translate and culturally adapt its products and documentation. This results
in higher levels of specialized inventory and a greater risk of inventory
obsolescence. Furthermore, the laws of certain foreign countries may not
protect the Company's intellectual property rights to the same extent as do the
laws of the United States.
RISK OF GOVERNMENTAL REGULATION; PRODUCT RATINGS SYSTEM
Legislation has been proposed to establish an independent agency to
work with the video game industry to create a system for providing parents and
other purchasers with information about graphic violence or sexually explicit
material contained in video games. The implementation of such a system may
require entertainment and education software publishers to communicate
information regarding the content of their products (particularly violent or
sexually explicit material) to consumers through appropriate package labeling,
advertising and marketing presentations. Similar developments are also taking
place outside the United States. The Company is unable to predict what effect,
if any, a rating system may have on the Company's business and there can be no
assurance that such a rating system would not adversely affect the Company's
results of operations.
LIMITED PROTECTION OF PROPRIETARY RIGHTS
The Company regards its software as proprietary and relies upon a
combination of patent, trade secret, copyright and trademark laws,
nondisclosure agreements and certain technical measures to protect its
proprietary rights. There can be no assurance that these efforts will be
successful. The Company has no license agreements with the end users of its
products and does not copy-protect its software. The Company is aware that
unauthorized copying occurs within the entertainment and education software
industry. It may be possible for third parties to copy the Company's products
or otherwise obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult
and costly, and software piracy and unauthorized copying can be expected to be
a major persistent problem. The laws of the United States provide only limited
protection of intellectual property rights, and the laws of certain other
countries in which the Company's products are or may be distributed provide
less protection. As the number of entertainment and education software
products increases and the functionality of these products overlaps, the
Company believes that software developers and publishers may increasingly
become subject to infringement claims. From time to time, the Company may
receive communications from third parties asserting that features or content of
certain of its products may infringe upon intellectual property rights of such
parties. There can be no assurance that claims against the Company will not
result in costly litigation and require the Company to license the intellectual
property of others. There can be no assurance that such licenses will
be available on reasonable terms, or at all.
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PRODUCTION RISKS
An increasing amount of the Company's products are stored on CD-ROM
media. The Company does not have and does not plan to acquire the equipment to
manufacture CD-ROMs or duplicate products onto CD-ROMs and hence must outsource
this manufacturing function to third parties. In the future, it is possible
that there may be periodic shortages of CD-ROM media and potentially late
deliveries of CD-ROM products from outside duplicating sources. While the
Company has not experienced material problems in duplicating products on
CD-ROMs, its dependence on third parties to perform the manufacturing function
could result in material problems if production were substantially delayed.
The Company produces its diskette-based products by duplicating master software
diskettes onto blank diskettes acquired in quantity from a number of sources.
The Company occasionally has difficulty in obtaining blank diskettes of
appropriate quality. In addition, the Company has occasionally incurred higher
than normal production expenses as a result of supplementing its internal
production staff with outside contractors to meet production deadlines.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been highly
volatile. Such volatility does not necessarily relate to the Company's
financial performance. In the future, the market price of the Company's Common
Stock may be significantly affected by factors such as the announcement of new
products or technological innovations by the Company or its competitors,
quarterly variations in the Company's results of operations, market conditions
in the entertainment and education software industry, conditions in the
financial markets, conditions in the economy in general or other factors that
might affect discretionary spending by consumers. Volatility in the price of
the Company's Common Stock may in the future adversely affect the price of the
Shares offered hereby. In addition, the stock market has experienced and
continues to experience extreme price and volume fluctuations that have
particularly affected the market price for many entertainment and education
software companies and that have often been unrelated to the operating
performance of these companies. These broad market fluctuations, as well as
general economic and political conditions, may adversely affect the market
prices of the Shares offered hereby.
ANTITAKEOVER PROVISIONS
The Company's Certificate of Incorporation provides that, in addition
to any vote ordinarily required under Delaware law, the affirmative vote of the
holders of at least 66-2/3% of the voting power of outstanding shares is
required to approve certain corporate transactions involving an "interested
stockholder." This increased vote requirement is intended to discourage the
initiation of hostile two-tier tender offers for the capital stock of the
Company and the initiation of certain defined "business combinations" without
the prior approval of a majority of the disinterested directors of the
Company. The Certificate of Incorporation also provides for staggered board
elections, in that no more than three of the Company's seven directors are
elected in any year. The Company's By-Laws also provide that directors may be
removed from office only for cause and then only by the vote of holders of at
least 66-2/3% of the Company's outstanding shares. To the extent that the
increased vote requirement and staggered Board elections would discourage
corporate transactions that would likely result in a change in the Company's
management, such management changes may be less likely to occur. In addition,
the increased vote requirement and staggered Board elections could, under
certain circumstances, permit the Company's Board of Directors or minority
stockholders to frustrate consummation of a business combination that the
holders of a majority of the voting stock of the Company might believe to be in
their best interests. In addition, the Board of Directors has the
-10-
<PAGE> 12
authority to issue up to 1,000,000 shares of Preferred Stock without any
further vote or action by the stockholders of the Company. Thus, the Board
could issue Preferred Stock with voting and conversion rights that could
adversely affect the voting power of the holders of Common Stock. Because the
Preferred Stock could be issued without stockholder action, the Preferred Stock
could be issued quickly and with terms calculated to delay or prevent a change
in control of the Company or to make the removal of management more difficult.
In addition, Delaware law includes certain provisions that may discourage
takeovers.
ACQUISITIONS
The Company is in the process of beginning to integrate the businesses
and personnel acquired in the Acquisitions into the Company's overall
operations. This process will present various management challenges to the
Company, and there can be no assurance that the Company will not experience
difficulties in completing this integration process, or that key personnel of
the acquired businesses will not determine to leave the Company's employment.
Any such departures could have a material adverse effect on the value of one or
more of the Acquisitions to the Company. The Company, in the ordinary course
of its business, considers acquisitions of or other strategic transactions with
third parties on a regular basis, and it is likely that the Company will engage
in one or more such transactions in the future. Such transactions often
involve substantial risks, and, although the Company's management will endeavor
to mitigate these risks and to negotiate the best possible terms for the
Company, there can be no assurance that any such transactions which are
consummated will prove to be beneficial to the Company.
-11-
<PAGE> 13
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and
anticipates that, for the foreseeable future, it will continue to retain any
earnings for use in the operation of its business.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
May 26, 1995.
<TABLE>
<CAPTION>
MAY 26, 1995
--------------
(in thousands)
<S> <C>
Convertible Subordinated Notes due 2001 . . . . . . . . . . . . . . . . . . . . . $ 33,350
Stockholders' equity:
Preferred Stock, par value $.01 per share; 1,000,000 shares authorized; no --
shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . .
Common Stock, par value $.01 per share; 40,000,000 shares authorized;
16,685,987 shares issued and outstanding (1) . . . . . . . . . . . . . . . 71,627
(Deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,328)
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . --
Less Common Stock in treasury, 94,154 shares at cost . . . . . . . . . . . . (349)
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 69,950
--------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . $103,300
------------------- ========
</TABLE>
(1) Excludes 1,009,292 shares of Common Stock reserved for issuance upon
exercise of outstanding options as of May 26, 1995 and 2,382,143
shares of Common Stock reserved for issuance upon conversion of the
Company's Convertible Subordinated Notes Due 2001.
-12-
<PAGE> 14
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The Shares of Common Stock offered hereby have been registered
pursuant to the Company's agreements with the former shareholders of SIL,
Pixellite and Green Thumb that it would register the shares of Common Stock
issued to them in connection with the Acquisitions and would keep such
registration effective as specified in such agreements. The Shares have been
registered to remove their restricted status under the Securities Act.
Pursuant to this registration Selling Stockholders may choose to sell all or
any of the Shares from time to time in transactions in the over-the-counter
market or otherwise at prices and on terms then prevailing at the time of sale,
at prices related to the then-current market price or in negotiated
transactions. The Company may suspend the use of this Prospectus for sales of
Shares under certain circumstances.
The Shares may be sold in one or more of the following transactions:
(a) block trades in which the broker or dealer so engaged will attempt to sell
the Shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction, (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus, and (c) ordinary brokerage transactions and transactions in which
the broker solicits purchasers. In effecting sales, brokers and dealers
engaged by Selling Stockholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from
Selling Stockholders in amounts to be negotiated (and, if such broker-dealer
acts as agent for the purchaser of such shares, from such purchaser).
Broker-dealers may agree with the Selling Stockholders to sell a specified
number of Shares at a stipulated price per Share, and, to the extent such
broker-dealer is unable to do so acting as agent for a Selling Stockholder, to
purchase as principal any unsold Shares at the price required to fulfill the
broker-dealer commitment to such Selling Stockholder. Broker-dealers who
acquire Shares as principal may thereafter resell such Shares from time to time
in transactions (which may involve crosses and block transactions and sales to
and through other broker-dealers, including transactions of the nature
described above) in the over-the-counter market or otherwise at prices and on
terms then prevailing at the time of sale, at prices then related to the
then-current market price or in negotiated transactions and, in connection with
such resales, may pay to or receive from the purchasers of such Shares
commissions as described above.
The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including liabilities under the Securities Act.
-13-
<PAGE> 15
The following table sets forth, as of July 18, 1995, certain
information with respect to the beneficial ownership of shares of Common Stock
by the Selling Stockholders. Except as otherwise noted, the Company believes
that the beneficial owners of the shares of Common Stock listed below, based on
information furnished by such owners, have sole voting and investment power
with respect to such shares.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT OF
SELLING STOCKHOLDER BENEFICIALLY OWNED CLASS
------------------- ------------------ ----------
<S> <C> <C>
Ken Grant and Sherrill Grant 64,247 0.4%
861 Southwood Blvd., No. 1
Incline Village, NV 89450
Martin Kahn 90,766 0.5%
The Pixellite Group
21800 Moscow Road
Villa Grande, CA 95486-0151
David Balsam 90,766 0.5%
P.O. Box 1581
El Prado, NM 87529
David Roger Lester 609,439 3.4%
c/o Impressions Inc.
Suite 0234
American Twine Office Park
222 3rd Street
Cambridge, MA 02142
Edward Grabowski 27,085 0.2%
57 Second Avenue
Frinton-on-Sea
Essex
CO13 9LY
ENGLAND
Eastcote Motor Services 21,496 0.1%
127 Potter Street
Pinner
Middlesex
HA5 3SF
ENGLAND
</TABLE>
-14-
<PAGE> 16
<TABLE>
<S> <C> <C>
Pauline Lester 5,373 *
127 Potter Street
Pinner
Middlesex
HA5 3SF
ENGLAND
Simon Edmund George Lester 31,815 0.2%
24E Thorney Crescent
Morgan's Walk
London
SW11
ENGLAND
David Glover & Emma Glover 27,085 0.2%
Hatfield Cottage
Hatfield College
North Bailey
Durham
DH1 3RQ
ENGLAND
Wolf Percival 5,373 *
21 Crescent Road
Sheffield
S7 1HJ
ENGLAND
Richard Colthurst 2,686 *
Flat 3
102 Belgrave Road
London
SW1V 2BJ
ENGLAND
Judith D. McNary 37,263 0.2%
1090 E. 3rd
Broomfield, CO 80020
Mary Elizabeth Tatem 37,263 0.2%
2345 Kohler Drive
Boulder, CO 80303
</TABLE>
-15-
<PAGE> 17
<TABLE>
<S> <C> <C>
Carol Lynn Robertson 4,620 *
69 Homestead Road
Freehold, NJ 07728
Janet T. Koerner 8,616 *
5699 Boulder Hills Drive
Longmont, CO 80503
TOTAL 1,063,893 6.0%
---------------
</TABLE>
* Less than 0.1%.
-16-
<PAGE> 18
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered
hereby has been passed upon for the Company by Perkins Coie, Seattle,
Washington.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company incorporated in this Prospectus by reference from the
Company's Quarterly Report, Item 5, on Form 10-Q for the quarterly period ended
June 30, 1995 have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their reports that are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
-17-
<PAGE> 19
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS
5.1 Opinion of Perkins Coie.*
23.1 Consent of Perkins Coie (included in Exhibit 5.1).*
23.2 Consent of Deloitte & Touche LLP (included on page II-3).
24.1 Power of Attorney.*
------------
* Previously filed.
II-1
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
amendment to registration statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Seattle, State of
Washington, on the 14th day of August, 1995.
SIERRA ON-LINE, INC.
By: Kenneth A. Williams*
---------------------------------
Kenneth A. Williams
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to registration statement has been signed below by the following
persons on the 14th day of August, 1995 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Kenneth A. Williams* Chairman of the Board, President and Chief Executive
------------------------------- Officer
Kenneth A. Williams (Principal Executive Officer)
/s/ Michael A. Brochu Executive Vice President and Chief Financial Officer
------------------------------- (Principal Executive Officer)
Michael A. Brochu
Fred Schapelhouman* Chief Accounting Officer
-------------------------------
Fred Schapelhouman
Thomas L. Beckman* Director
-------------------------------
Thomas L. Beckman
Michael G. Berolzheimer* Director
-------------------------------
Michael G. Berolzheimer
Walter A. Forbes* Director
-------------------------------
Walter A. Forbes
Marvin H. Green, Jr.* Director
-------------------------------
Marvin H. Green, Jr.
David C. Hodgson* Director
-------------------------------
David C. Hodgson
Roberta L. Williams* Director
-------------------------------
Roberta L. Williams
*By: /s/ Michael A. Brochu
---------------------------
Michael A. Brochu
Attorney-in-fact
</TABLE>
II-2
<PAGE> 21
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 33-61171 of Sierra On-Line, Inc. on Form S-3 of our
report dated August 14, 1995 on the consolidated financial statements of Sierra
On-Line, Inc. and subsidiaries for the year ended March 31, 1995, appearing in
the Quarterly Report, Item 5, on Form 10-Q of Sierra On-Line, Inc. for the
quarterly period ended June 30, 1995 and incorporated by reference in this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is part of such Registration Statement.
DELOITTE & TOUCHE LLP
Seattle, Washington
August 16, 1995
II-3
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Item
------ ----
<S> <C>
5.1 Opinion of Perkins Coie*
23.1 Consent of Perkins Coie (included in Exhibit 5.1)*
23.2 Consent of Deloitte & Touche LLP (included on page II-3)
24.1 Power of Attorney*
</TABLE>
--------------
* Previously filed.
