<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 1996
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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)
DELAWARE 77-0164293
(State of Incorporation) (I.R.S. Employer Identification No.)
3380 - 146TH PLACE S.E., SUITE 300
BELLEVUE, WASHINGTON 98007
(206) 649-9800
(Address, including zip code, and telephone number, including
area code, 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, including zip code, and telephone number,
including area code, 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, please 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]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
424(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO AGGREGATE PRICE AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock ($.01 par value per share) 1,229,600 shares $36.4375 $44,803,550 $15,450
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</TABLE>
(1) Computed in accordance with Rule 457 under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee based
on the closing price of the Company's Common Stock on February 27, 1996.
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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SIERRA ON-LINE, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-3 ITEM AND HEADING CAPTION OR LOCATION IN PROSPECTUS
------------------------- ---------------------------------
<S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . . . . . Inside Front Cover Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges . . . . . . . The Company; Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . . . . Inapplicable
5. Determination of Offering Price . . . . . . . . Inapplicable
6. Dilution . . . . . . . . . . . . . . . . . . . . Inapplicable
7. Selling Security Holders . . . . . . . . . . . . Selling Stockholders and Plan of Distribution
8. Plan of Distribution . . . . . . . . . . . . . . Outside Front Cover Page; Selling
Stockholders and Plan of Distribution
9. Description of Securities to Be Registered . . . Outside Front Cover Page
10. Interests of Named Experts and Counsel . . . . . Inapplicable
11. Material Changes . . . . . . . . . . . . . . . . Inapplicable
12. Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . . . . . . Incorporation of Certain Documents by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities. . Inapplicable
</TABLE>
<PAGE> 3
Subject to Completion, dated March 4, 1996
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 sales price of the Common Stock on
the Nasdaq National Market on February 27, 1996 was $36.4375 per share.
----------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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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.
----------------------
The date of this Prospectus is March __, 1996.
<PAGE> 4
TABLE OF CONTENTS
Available Information . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Selling Stockholders and Plan of Distribution . . . . . . . . . . . 11
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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 February
19, 1996; and (vi) 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 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
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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
Sierra designs, develops, publishes and distributes interactive
entertainment, education and home 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 to
create branded products and product series with complex and interesting
storylines and sophisticated graphics, sound and other features.
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.
Producers of multimedia PC consumer 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 is characteristic of software for video game platforms.
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.
Sierra sells its products through electronic superstores, software
specialty stores, mass merchants, direct mail and bundling arrangements.
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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.
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.
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
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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 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.
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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,
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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 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. 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
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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 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
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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 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.
This process will present various management challenges to the
-10-
<PAGE> 13
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.
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 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 of Common Stock
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 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.
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 January 31, 1996, certain
information with respect to the beneficial ownership of the Shares by the
Selling Stockholders. Except as otherwise noted, the
-11-
<PAGE> 14
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 2.8%
55 Forest Street
Lexington, MA 02173
J. David Kaemmer 550,469 2.8%
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, 1996 and the
Company's Quarterly Report on Form 10-Q for the quarterly period ended December
31, 1995 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-
<PAGE> 15
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the
registrant in connection with the sale of the Common Stock being registered
hereby. All the amounts shown are estimated, except the SEC registration fee
and the Nasdaq filing fee.
<TABLE>
<S> <C>
SEC registration fee . . . . . . . . . . . . . . . $15,450
Nasdaq filing fee . . . . . . . . . . . . . . . . . 19,500
Legal fees and expenses . . . . . . . . . . . . . . 10,000
Accounting fees and expenses . . . . . . . . . . . 8,000
Transfer Agent and Registrar fees . . . . . . . . . 1,000
-------
Total . . . . . . . . . . . . . . . . . . . . $53,950
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify its directors and officers as well as other employees
and individuals against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation--a "derivative action"),
if they acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. A similar standard is applicable in the case of
derivative actions, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with the defense or
settlement of such actions, and the statute requires court approval before
there can be any indemnification where the person seeking indemnification has
been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
charter, by-laws, disinterested director vote, stockholder vote, agreement or
otherwise.
Article VI of the By-Laws of the registrant requires indemnification
to the full extent permitted under Delaware law as from time to time in effect.
Subject to any restrictions imposed by Delaware law, the By-Laws provide an
unconditional right to indemnification for all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) actually and reasonably incurred or suffered by
any person in connection with any actual or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative
(including, to the extent permitted by law, any derivative action) by reason of
the fact that such person is or was serving as a director or officer of the
registrant or that, being or having been a director or officer or an employee
of the registrant, such person is or was serving at the request of the
registrant as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including an employee
benefit plan. The By-Laws also provide that the registrant may, by action of
its Board of Directors, provide indemnification to its employees and agents
with the same scope and effect as the foregoing indemnification of directors
and officers.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for (i) any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation
II-1
<PAGE> 16
of law, (iii) payments of unlawful dividends or unlawful stock repurchases or
redemptions, or (iv) any transaction from which the director derived an
improper personal benefit.
Article VII of the registrant's Certificate of Incorporation provides
that, subject to certain limitations, a director of the registrant shall not be
liable to the registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director. Any amendment to or repeal of such Article VII
shall not adversely affect any right or protection of a director of the
registrant for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
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.
24.1 Power of Attorney (included on page II-4).
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the registrant pursuant to the
provisions described in Item 15, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration statement
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in any such prospectus any facts
or events arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by
II-2
<PAGE> 17
those paragraphs is contained in the periodic reports filed by the registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the shares of Common Stock hereby being
registered that remain unsold at the termination of the offering.
(4) That, for purposes of determining any liability under
the Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offering therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 18
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
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Bellevue, State of Washington, on the 29th day
of February, 1996.
SIERRA ON-LINE, INC.
By: /s/ Michael A. Brochu
-------------------------------------------
Michael A. Brochu
President and Chief Operating Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Kenneth A. Williams and Michael A. Brochu, or either of them, his or her
attorneys-in-fact, with the power of substitution, for him or her in any and
all capacities, to sign any amendments to this registration statement, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on the
29th day of February, 1996 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Kenneth A. Williams Chairman of the Board and Chief Executive Officer
- --------------------------- (Principal Executive Officer)
Kenneth A. Williams
/s/ Michael A. Brochu President and Chief Operating Officer
- --------------------------- (Principal Financial Officer)
Michael A. Brochu
/s/ Fred Schapelhouman Chief Accounting Officer
- ---------------------------
Fred Schapelhouman
/s/ Thomas L. Beckman Director
- ---------------------------
Thomas L. Beckman
/s/ Michael G. Berolzheimer Director
- ---------------------------
Michael G. Berolzheimer
Director
- ---------------------------
Walter A. Forbes
/s/ Marvin H. Green, Jr. Director
- ---------------------------
Marvin H. Green, Jr.
/s/ David C. Hodgson Director
- ---------------------------
David C. Hodgson
</TABLE>
II-4
<PAGE> 19
<TABLE>
<S> <C>
/s/ Roberta L. Williams Director
- ---------------------------
Roberta L. Williams
</TABLE>
II-5
<PAGE> 20
INDEX TO EXHIBITS
Number Item
- ----- ----
5.1 Opinion of Perkins Coie
23.1 Consent of Perkins Coie (included in Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (included on page II-4)
<PAGE> 1
Exhibit 5.1
March 4, 1996
Sierra On-Line, Inc.
3380 146th Place S.E., Suite 300
Bellevue, Washington 98007
Ladies and Gentlemen:
We have acted as counsel to you in connection with the preparation of a
registration statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933, as amended, which you are filing with the Securities and
Exchange Commission with respect to 1,229,600 currently issued and outstanding
shares (the "Shares") of Common Stock, $.01 par value per share, of Sierra
On-Line, Inc. (the "Company"). We have examined the Registration Statement and
such documents and records of the Company and other documents as we have deemed
necessary for the purpose of this opinion.
Based upon the foregoing, we are of the opinion that the Shares are
duly authorized, validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters."
Sincerely,
PERKINS COIE
JB:sld
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Sierra On-Line, Inc. on Form S-3 of our report dated February 13, 1996 on the
consolidated financial statements of Sierra On-Line, Inc. and subsidiaries for
the year ended March 31, 1995, appearing in the Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 1995 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Seattle, Washington
March 4, 1996
