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Registration No. 333-01407
Final Prospectus
Filed Pursuant to Rule 424(b)(3)
PROSPECTUS
1,229,600 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 relating 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 Arion Software, Inc.
("Arion") on September 12, 1995 and Papyrus Design Group, Inc. ("Papyrus") on
November 30, 1995. The Selling Stockholders are the former shareholders of
Arion and Papyrus. 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 June 19, 1996 was $45.00 per share.
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THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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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.
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The date of this Prospectus is June 21, 1996.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Selling Stockholders and Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 10
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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 statements and
other information concerning the Company may also be inspected at the National
Association of Securities Dealers, Inc., 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; (ii) the
Company's Quarterly Reports on Form 10-Q for the quarterly periods ended June
30, 1995, September 30, 1995 and December 31, 1995; (iii) the description of
the Common Stock contained in the Company's registration statement on Form 8-A
under the Exchange Act; (iv) the Company's Current Report on Form 8-K dated
November 30, 1995; (v) the Company's Current Report on Form 8-K dated Febraury
19, 1996; (vi) the Company's Proxy Statement filed with the Commission on July
14, 1995; (vii) the Company's Amended Quarterly Report on Form 10-Q/A for the
quarter ended December 31, 1995 filed with the Commission on May 15, 1996 (the
"Form 10-Q/A"); and (viii) the Company's Proxy Statement/Prospectus dated June
21, 1996 (the "Merger Proxy Statement").
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
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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 that also is or is deemed to be incorporated by reference 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.
THE COMPANY
Sierra is a leading publisher and distributor of interactive
entertainment, education and personal productivity software titles for
multimedia personal computers ("PCs"), including CD-ROM-based PC systems, and
selected emerging platforms. Sierra uses its design and development
capabilities, as well as outside acquisitions, to create branded products and
product series with complex and interesting storylines and sophisticated
graphics, sound and other features. Sierra offers more than 50 software
titles, including popular products such as the King's Quest series, Leisure
Suit Larry series, Police Quest series, Phantasmagoria, Gabriel Knight: The
Beast Within, Front Page Sports: Football Pro '96, IndyCar Racing II, The Lost
Mind of Dr. Brain and Print Artist.
Sierra sells its products through a domestic field sales force and a
network of independent domestic and foreign distributors. The Company sells
through a variety of distribution channels, including computer and electronic
superstores, software specialty stores, mass merchants, wholesale clubs, direct
mail and bundling arrangements. Internationally, the Company sells primarily
through independent distributors in specified territories and, in the United
Kingdom, directly to software retailers. The Company is continually evaluating
new and potentially promising distribution channels, including on-line
distribution through commercial on-line services and the Internet
The multimedia PC consumer software market has grown dramatically in
recent years, driven by the increasing installed base of multimedia PCs in the
home, the proliferation of new software titles and new and expanding
distribution channels. These factors have led to the development of a mass
market for software products, which has been characterized by a rise in
importance of strong distribution channels, a significant increase in the
number of new software titles offered in the market, increased competition for
limited retail shelf space to accomodate the abundance of new titles, and
increased price pressure. 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.
During the fiscal year ended March 31, 1996, the Company significantly
expanded its product line and brand awareness by continuing to develop high-
quality entertainment and education titles incorporating state-of-the-art
software technology and by acquiring other successful or promising titles from
third parties. The Company released 29 new internally developed titles in
fiscal 1996 (ended
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March 31, 1996) and acquired an additional 18 titles in the entertainment,
education, simulation and personal productivity categories. In addition, the
Company entered into a joint venture agreement with Pioneer Electronics
Corporation relating to development of titles for the Japanese market.
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.
DEPENDENCE ON NEW PRODUCTS; RISK OF PRODUCT DELAYS
The Company's success depends on its ability to develop and make
timely introductions of successful new products or enhancements of existing
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. On many
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.
INCREASING COST AND COMPLEXITY OF PRODUCT DEVELOPMENT
As the Company's products have become increasingly complex and
technologically sophisticated, it has become more difficult and expensive 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 in the product development
process. In order to introduce titles incorporating high-quality graphics,
animation, images, video and audio, the Company has had to devote increasing
financial and human resources to new product development. Due to 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 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 or cost overruns in the development or introduction of, or the presence
of a material defect in, one or more new products could materially and
adversely affect the success of the products and the Company's business and
operating results.
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UNCERTAINTY OF MARKET ACCEPTANCE
Consumer preferences for entertainment and education software products are
continually changing and are extremely difficult to predict. Few such 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 diversifies its product offerings, it must
market its products to a broader market than it has in the past. The Company
plans to introduce products and interfaces designed to appeal to this broader
market and to adjust its marketing activities accordingly. In seeking to
appeal to a broader market, the Company will face significant new challenges,
including intense competition from larger companies with established market
positions. The Company will also face the risk that it may lose existing
customers who may dislike the changes in the Company's products and marketing
approach. There can be no assurance that the Company will be able to compete
successfully in this broader market.
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 hardware and software platforms are
continuously 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
hardware and software 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 season. If the Company's European sales increase as a
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percentage of its total revenues, the Company anticipates that this seasonality
may become even more pronounced, as sales in Europe exhibit an even stronger
seasonal tendency than sales in the United States. This seasonality can lead
to overstocking by the Company's retail customers 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 new product introductions by the Company or its
competitors, the timing of orders for the Company's products and increases in
product 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 subsequent quarters. As a result, if
net revenues are below expectations, the Company's operating results are likely
to 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.
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 sell-through
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. Consumer software distribution channels
have been undergoing rapid change, including consolidations and financial
difficulties of certain retailers and distributors, along with the emergence of
new distribution channels, such as mass merchandisers, for entertainment and
education software. 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
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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. There can be no assurance that the Company will be able to market
its products successfully through these distribution channels.
COMPETITION
The entertainment and education software industry is intensely
competitive. The Company competes primarily with other developers of
multimedia PC entertainment, education and home productivity software.
Significant companies that compete with Sierra in the entertainment software
market include Broderbund Software, LucasArts, Virgin Interactive
Entertainment, Electronic Arts and GT Interactive Software. 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, Disney, SoftKey International (through its acquisitions of The
Learning Company and Minnesota Educational Computing Corporation) 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 Corporation, 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 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 total 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 markets 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
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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 on 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 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.
PRODUCTION RISKS
Substantially all the Company's products are stored on CD-ROM media.
As is typical in the industry, the Company outsources the CD-ROM 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-ROM, 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, general conditions in the
financial markets, conditions in the economy in general or other
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factors that might affect discretionary spending by consumers. 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 price 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 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 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 into its
overall operations the businesses and personnel acquired in the Acquisitions,
as well as in four additional acquisitions completed in calendar year 1995 and
one completed in April 1996. 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, and mergers and
other strategic transactions with, third parties on a regular basis, and it is
likely that the Company will engage in 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 and its stockholders, there can be no assurance
that any such transactions that are consummated will prove to be beneficial.
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RECENT DEVELOPMENTS
The Company has entered into an Agreement and Plan of Merger with CUC
International Inc., a Delaware corporation ("CUC"), and a wholly owned
subsidiary of CUC, dated as of February 19, 1996, as amended (the "Merger
Agreement"), a copy of which is attached as Annex A to the Merger Proxy
Statement and incorporated herein by reference, pursuant to which the Company
has agreed, upon the terms and subject to the conditions set forth in the
Merger Agreement, including without limitation approval of the Company's
stockholders, to be acquired by CUC in a transaction (the "Merger") in which
each share of common stock of the Company outstanding immediately prior to the
effective time of the Merger will be converted into 1.225 shares of common
stock of CUC. CUC's common stock is traded on the New York Stock Exchange, and
CUC is subject to the informational requirements of the Exchange Act, and, in
accordance therewith, files reports, proxy statements and other information
with the Commission. The Merger is subject to numerous conditions specified in
the Merger Agreement and summarized in the Merger Proxy Statement. Although
the Company's Board of Directors has approved the Merger and recommended that
the Company's stockholders approve the Merger, there can be no assurance that
the Merger will be approved or consummated. A special meeting of the Company's
stockholders to vote upon the Merger has been scheduled for July 24, 1996.
Attention is hereby directed to the Merger Proxy Statement for a more complete
description of the background of and reasons for the Merger and the terms of
the Merger Agreement.
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The Shares offered hereby have been registered pursuant to the
Company's agreements with the former shareholders of Arion and Papyrus
obligating the Company to register the shares of Common Stock issued to them in
connection with the Acquisitions and to 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, the
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 relating 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:
(i) 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, (ii) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus, (iii) ordinary brokerage transactions and transactions in which the
broker solicits purchasers, and (iv) short sales "against the box," in which a
Selling Stockholder's obligation to deliver shares of Common Stock at a date
subsequent to the short sale is fulfilled by delivery of Shares covered by this
Prospectus. 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 while
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 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 relating 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.
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<PAGE> 11
The Company and the Selling Stockholders have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act.
The following table sets forth, as of June 1, 1996, certain
information with respect to the beneficial ownership of the Shares by the
Selling Stockholders. Except as otherwise noted, the Company believes that the
beneficial owners of the Shares 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>
David Macdonald 29,128 *
2705 1/2 Stratford Drive
Austin, TX 78746
Alex Perelberg 29,128 *
72 Fieldstone Terrace
Stamford, CT 06902
Softways of California 1,940 *
5066 El Roble Court
San Jose, CA 95118
Omar H. Khudari 550,469 2.6%
55 Forest Street
Lexington, MA 02173
J. David Kaemmer 550,469 2.6%
47 Bridgecourt Lane
Concord, MA 01742
Richard S. Garcia 68,466 *
709 Summit Avenue
Northfield, MN 55057
TOTAL 1,229,600 6.1%
- ---------------
</TABLE>
* Less than 1%.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered
hereby have 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 Annual Report on Form 10-K for the year ended March 31, 1995 and the
Company's Quarterly Report on Form 10-Q for the
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<PAGE> 12
quarterly period ended December 31, 1995, as amended by the Form 10-Q/A, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports 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.
12
