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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1996
REGISTRATION NO. 333-01407
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SIERRA ON-LINE, INC.
(Exact name of registrant as specified in its charter)
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)
--------------------------
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.
--------------------------
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. / /
-----------------------
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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Subject to Completion, Dated April 26, 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 sale price of the Common Stock on the
Nasdaq National Market on April 24, 1996 was $36 per share.
-------------------------
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.
-------------------------
The date of this Prospectus is May __, 1996.
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TABLE OF CONTENTS
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
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 dated May __, 1996 (the
"Form 10-Q/A"); and (viii) the Company's Proxy Statement dated May __, 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 most recent fiscal year, the Company has 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. 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.
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.
-10-
<PAGE> 12
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 April 24, 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 2.8%
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, 1995 and the
Company's Quarterly Report on Form 10-Q for the
-11-
<PAGE> 13
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-
<PAGE> 14
PART II
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 24th day of
April, 1996.
SIERRA ON-LINE, INC.
By: /s/ Michael A. Brochu
-------------------------------------
Michael A. Brochu
President and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on the
24th day of April, 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
/s/ Roberta L. Williams* Director
- ---------------------------------
Roberta L. Williams
*By /s/ Michael A. Brochu
----------------------------
Michael A. Brochu
Attorney-in-Fact
</TABLE>
